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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 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 No.)
9405 ARROWPOINT BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 525-3800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF ACT: NONE
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
----- -----
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Number of shares of Common Stock, no par value, outstanding at
September 29, 1997: 282,000
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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COGENTRIX ENERGY, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I
Item 1: Business 3
Item 2: Properties 31
Item 3: Legal Proceedings 31
Item 4: Submission of Matters to a Vote of Security Holders 32
PART II
Item 5: Market for the Registrant's Common Stock and Related Shareholder Matters 33
Item 6: Selected Consolidated Financial Data 34
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 36
Item 8: Financial Statements and Supplementary Data 45
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 69
PART III
Item 10: Directors and Executive Officers of the Registrant 70
Item 11: Executive Compensation 73
Item 12: Security Ownership of Certain Beneficial Owners and Management 76
Item 13: Certain Relationships and Related Transactions 76
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 78
Signatures 91
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Cogentrix Energy, Inc., through its direct and indirect subsidiaries
(the "Company") is principally engaged in the business of acquiring, developing,
owning and operating independent (i.e., non-utility) electric power generation
facilities. The Company was one of the early participants in the market for
independently generated electric power which developed in the United States as a
result of the enactment of the Public Utility Regulatory Policies Act ("PURPA").
Based on net ownership of total project megawatts in operation, the Company is
among the larger independent power producers in the United States.
Unless the context requires otherwise, references herein to the
"Company" mean Cogentrix Energy, Inc. and its direct and indirect subsidiaries.
The former parent company, Cogentrix, Inc., which as the result of a
restructuring completed in December 1993 is now one of the Company's principal
subsidiaries, is referred to herein as "Cogentrix." The Company's subsidiaries
engaged in the development, ownership or operation of cogeneration facilities
are sometimes referred to individually as a "project subsidiary" and
collectively as the Company's "project subsidiaries."
All of the Company's plants are cogeneration facilities and all but
one of the plants are coal-fired. See "Facilities in Operation" herein.
Cogeneration is a power generation process that produces two or more useful
forms of energy, such as electricity and steam, from a single primary fuel
source, such as coal or natural gas. Each of the Company's projects sells
electricity to a major utility and thermal energy (typically in the form of
steam) to an industrial or other user under long-term agreements.
The construction of the Company's first facility began in September
1984. The Company has developed and constructed and is now operating a total of
ten facilities, all of which are in the United States. The ten facilities had an
aggregate project cost of approximately $796.8 million and have an installed
capacity of approximately 900 megawatts. The Company also holds a 50% ownership
interest in a 220 megawatt coal-fired facility, which is operated by an
affiliate of the Company's partner in this facility. These facilities are
financed primarily through eight project financing transactions which are
substantially non-recourse to the Company and its other project subsidiaries,
except for the financings related to the Company's facility in Portsmouth,
Virginia and facilities in Roxboro and Southport, North Carolina where Cogentrix
Energy, Inc. or Cogentrix has agreed to certain limited guarantees or other
obligations with respect to the facilities. For a discussion of the terms
"project financing" and "substantially non-recourse," see "Description of the
Company's Facilities -- Project Financing" herein. For a description of the
limited guarantees and other obligations with respect to the facilities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
THE INDEPENDENT POWER MARKET
The United States independent power industry expanded rapidly in the
1980s following the enactment of PURPA in 1978. Prior to PURPA, the demand for
power in the United States had traditionally been met by utilities constructing
large-scale electric generating plants under cost-of-service based regulation.
PURPA removed most regulatory constraints relating to the production and sale of
electric energy by certain non-utility generators and required electric
utilities to buy electricity from "qualifying facilities" ("QFs") at the
utilities' avoided cost, thereby encouraging companies other than electric
utilities to enter the electric power production market. Concurrently, due in
part to regulatory disallowance of many large utility construction project
costs, there has been a general decline in the construction of generating plants
by electric utilities. As a result, a significant market for electric power
produced by independent power producers (such as the Company) has developed in
the United States since the enactment of PURPA.
The future market for independently produced power in the United States
will be determined primarily by the need for new electric generation capacity.
Regulated utilities are making more efficient use of their existing resources by
improving plant availability, extending plant lives, repowering older facilities
and taking advantage of attractive bulk power purchases. Partly in response to
regulatory pressures, many regulated utilities have also initiated demand side
management programs designed to reduce the need for new electric generating
capacity.
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In addition, over the past decade, obtaining a power sales agreement
with a domestic utility has become progressively more difficult, expensive and
competitive. As a result of this trend and other factors, consolidation of
companies involved in the independent power industry has accelerated. Many state
regulatory commissions now require or have policies that encourage power sales
agreements to be awarded by competitive bidding, which increases the costs and
decreases the chances of obtaining such agreements. The Company's strategy is to
negotiate power sales agreements whenever possible and to participate only
selectively in competitive bidding situations.
The passage of the Energy Policy Act of 1992 (the "Energy Policy Act")
significantly expanded the options available to independent power producers,
particularly with respect to siting a generating facility. Among other things,
it enables independent power producers to obtain an order from the Federal
Energy Regulatory Commission ("FERC") requiring an intermediary utility to give
access to its transmission lines to transmit, or wheel, electric power from a
project to its utility purchaser. The availability of wholesale transmission
wheeling could be an important aspect in the development of new projects. For
example, the Company may be able to develop a project in one utility's service
territory and wheel the electric power produced by the project through the
transmission lines of such utility to a second utility or another wholesale
purchaser. The Energy Policy Act also created a new class of generator, Exempt
Wholesale Generator ("EWGs"), that, unlike QFs, are not required to use
alternative or renewable fuels or to have useful thermal energy output. See
"Regulation -- Energy Regulations" herein.
Also, recent developments in the power generation industry indicate a
trend toward the disposition of power generation facilities by utilities,
independent power producers and industrials. Several large domestic utilities
have announced intentions to sell such assets. The Company believes that this
trend will create investment opportunities for companies such as Cogentrix
Energy, Inc. that have integrated power service capabilities.
Because the projected need for base-load generating capacity additions
in developing countries over the next ten to fifteen years significantly exceeds
that in the United States, independent power producers have in recent years
expanded from the United States to a global market. Many foreign markets
(including Latin America, China, India and Southeast Asia) have adopted policies
and are experiencing economic growth rates that the Company believes provide
greater opportunities than most markets existing in the United States today. An
important part of the Company's business strategy is to participate in
competitive generation markets worldwide. See "Project Development Strategy"
herein.
The Company believes that knowledge gained from developing and
operating power plants in the United States can be applied to take advantage of
opportunities in these developing markets. To this end, the Company is actively
exploring development of projects outside of the United States, principally in
Asia and in Latin America. Development of power generation projects in
non-United States markets is, however, more difficult and expensive than in the
United States, and some competitors in these foreign markets have greater
capital resources than the Company.
Most independent power projects in the United States have been fueled
by natural gas or coal. Various forecasting studies project natural gas and coal
to be the dominant fuel sources for new power generation projects in the United
States. The Company believes that plants fueled by these two fuels will continue
to represent a significant portion of the successful independent power projects
in the United States and that coal will have a significantly larger market share
outside the United States than is currently forecasted for the United States.
Although requests for proposals recently issued by United States electric
utilities have been more heavily oriented toward peaking capacity, which is
typically provided by natural gas-fired facilities, than base-load needs, the
Company believes that the development of coal-fired, base-load projects will
continue to be an important market niche for independent power producers in the
future, particularly in the international market.
PROJECT DEVELOPMENT STRATEGY
The Company intends to remain among the leaders in the independent
power industry by developing and constructing or acquiring electric power
generation facilities in the United States and in selected foreign countries
where the political climate is conducive to increased foreign investment. The
Company's overall goal in pursuing this strategy is to capitalize on its
reputation as an efficient and reliable energy provider.
The Company's overall project development strategy is to concentrate on
those segments of the market for independent power, in both the domestic and
international sectors, requiring smaller generating facilities, ranging from 60
to 250 megawatts using coal as fuel and up to 240 megawatts using natural gas as
fuel. When opportunities become available to develop larger projects, management
believes this strategy can be adapted by constructing facilities comprised of
several
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of the Company's standard design units. The Company believes that historically
it has been able to construct its coal-fired facilities at a lower total cost
per kilowatt than most of its competitors. For example, the Company's 240
megawatt facility in Richmond, Virginia was completed in 17 months from
groundbreaking at a total installed cost of less than $1,000 per kilowatt. The
Company has been able to achieve time and cost savings primarily by using
standard plant designs that incorporate proven technology and modular, as
opposed to custom, construction. As a result, financing, construction and
start-up of such facilities generally proceed more quickly than is the case with
larger generating facilities, some of which have included unproven technology.
In developing future projects, the Company anticipates that it will
increasingly do so on a joint venture basis with various partners, including
non-regulated subsidiaries of electric utilities, other independent power
producers, financial institutions, equipment manufacturers, large construction
companies and fuel suppliers. By doing so, the Company expects to gain a number
of advantages, including technical expertise possessed by others, greater
knowledge of and experience with the political and social conditions of the
region or country where the project is being developed and the ability to
leverage the Company's human and financial resources. The Company also expects
such joint ventures will enable it to share the risks associated with
development of larger projects and build a larger and more diversified
portfolio of projects. The Company anticipates that it will share control over
the development and construction of such projects with its joint venture
partners and will seek to operate the facility itself whenever possible.
The Company has identified three market segments in which it intends to
focus its future development activities. These targeted market segments are
United States electric utilities, United States and foreign industrial companies
and international project development, primarily in Asia and Latin America.
UNITED STATES ELECTRIC UTILITIES. Although demand for new and
replacement power in the United States is expected to grow, the Company does not
view the domestic electric utility market as providing as many opportunities for
project development during the next several years as it did during the 1980s.
With the exception of the Southeast and the Pacific Northwest, most regions of
the United States appear to be oversupplied in terms of generating capacity for
the next five years. Over the next ten years, however, the projected need for
increased generating capacity in the United States, coupled with a growing trend
toward consolidation and strategic alliances in the independent power industry,
is expected to create more attractive project development opportunities in this
market for the Company. Although electric utilities will construct some
additional generating capacity during this period, the Company expects
independent power producers will maintain or increase their share of new
capacity additions. The Company believes that independent power producers are
generally able to make better use of leverage, achieve lower costs in operating
power plants than do utilities, and tend to have lower general and
administrative costs than electric utilities.
In order to remain an effective participant in this market, the
Company's development team is continuing to engage in a variety of marketing
activities designed to maintain the Company's profile and develop new
relationships with potential utility customers. Company personnel focusing on
the industrial market also seek to identify industrial concerns with which the
Company can respond jointly to a request for proposals by an electric utility
needing additional or replacement generating capacity.
Because the Company is generally more competitive in the development
and construction of smaller facilities, the Company expects to concentrate its
development efforts in the United States electric utility market on identifying
utilities that potentially have a need for one or more such facilities. The
standard designs the Company has developed for coal-fired units ranging in plant
output size from 60 to 250 megawatts, as well as for natural gas-fired units
with plant output as high as 240 megawatts, will enable the Company to bid more
effectively in competitive bid situations and pursue negotiated transactions
when available. The Company believes that its chances of obtaining a power
purchase agreement for such smaller facilities from an electric utility will be
greater than for larger facilities which tend to attract a greater number of
qualified bidders.
The Company's smaller units also are marketed to municipally-owned
electric distribution utilities, which traditionally have purchased electric
energy. The development of such a facility would provide the municipality not
only with a cost-effective alternative to such energy purchases, but also with a
greater degree of control over the power generation process.
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UNITED STATES AND FOREIGN INDUSTRIAL COMPANIES. With opportunities for
development in the United States electric utility market diminishing, the
Company is increasing its focus on the industrial market for new domestic, as
well as international, project development opportunities. Management believes
that establishing relationships with large United States multinational
industrial corporations will also help serve as an indirect route to the
development of projects in the international market.
The Company believes that a potential market for future project
development, using one or more of its standard designs, exists among many large
industrial consumers of electricity. Many of these industrial companies, both
domestic and international, are currently operating their own "inside the fence"
cogeneration facilities to produce both electricity and thermal energy, which
employ older technology, produce energy inefficiently and generally are managed
as an adjunct to the industrial company's primary manufacturing objectives. The
cost of their energy supply is a major component of these industrial companies'
product cost. The Clean Air Act Amendments of 1990 also pose challenges for many
industrial companies which must retrofit existing facilities to comply with the
new law. The Company believes that its smaller, standard design units could be
readily employed to replace or, in certain circumstances, upgrade existing
"inside the fence" cogeneration facilities.
The Company has established a joint venture with AEP Resources, Inc., a
non-regulated subsidiary of American Electric Power Company, Inc. ("AEP") for
the purpose of seeking large industrial steam and power projects in major United
States and Canadian energy-intensive industries including steel, pulp and paper,
refining and chemical. The purpose of the joint venture is to upgrade, expand,
replace, own and, in most cases, operate new and existing power generation
facilities, steam plants, refrigeration plants, compressed air facilities and
related energy distribution assets.
Most state regulatory authorities have not yet resolved the issue of
whether an independent power producer may lawfully sell power directly to one or
more retail customers, and, if so, whether such producer becomes subject to
regulation as a public utility. Even if regulatory authorities permit the
Company and others to develop such facilities for the retail sale of
electricity, electric utilities may decide to mount legal challenges to such
developments. To avoid such regulatory and legal challenges, the Company may
structure the ownership of projects such that the industrial corporation retains
a controlling interest in the project or may use other acceptable alternative
structures.
INTERNATIONAL PROJECT DEVELOPMENT. The Company believes the knowledge
and experience it has gained in developing ten facilities in the United States
using its standard design approach can be effectively employed in selected
situations to develop projects outside the United States where demand for
generating capacity is projected to grow rapidly. In pursuing international
development projects, the Company intends to focus primarily on the segment of
the international market for coal-fired plants in the 60 to 250 megawatt range
and gas-fired facilities up to 240 megawatts. By concentrating on the
development of smaller facilities, the Company believes it can successfully
export its proven core business, obtain a greater portion of construction
financing utilizing host country capital markets, spread the Company's equity
investment over a larger number of projects and obtain proportionately greater
political risk insurance coverage. The Company believes this development
strategy can be adapted, when necessary, to larger projects by constructing a
facility comprised of several units of the Company's standard design.
Because they are inherently riskier, more difficult to finance and
generally require a greater equity commitment than those in the United States,
the Company expects to develop most international projects on a joint venture
basis. Whenever possible, the Company expects to include a host country partner
whose participation in the project will assist in obtaining financing from host
country capital markets as well as in building political and community support
for the project. Potential joint venture partners for international development
projects include utilities, large construction firms, financial institutions and
equipment suppliers who can contribute not only equity capital but also many
years of experience in international project development.
The primary international markets where the Company has been and
expects to be active in pursuing project development opportunities are Asia and
Latin America.
Asia. Rapid economic growth, increasing demand for electricity and
growing receptiveness by governments in Asia to foreign investment have combined
to create significant project development opportunities. To position itself
better to capitalize on development opportunities in India, where the Company
has a project under development (see "Projects Under Development" herein),
China, Thailand, Australia, Indonesia and other countries in the region, the
Company has established regional marketing offices in Singapore and India which
are staffed by development professionals.
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The Company has formed a joint venture with Sargent & Lundy, L.L.C.
and a Chinese chemical company for the purpose of constructing two 24
megawatt coal-fired electric generating units to sell electric and thermal
energy to the chemical company and excess electric and thermal energy to other
Chinese industrials. The joint venture is currently negotiating a power sales
agreement with the Chinese chemical company.
Latin America. The Company considers Latin America to hold selective
opportunities for development of new projects in the next several years. The
Company is actively investigating possible development opportunities in Mexico
and Brazil, principally cogeneration projects with large industrial companies
that would purchase electricity and thermal energy generated by the projects.
For further discussion of the opportunities for such projects, see "Project
Development Strategy -- United States and Foreign Industrial Companies" herein.
PROJECTS UNDER DEVELOPMENT
In November 1994, the Company formed a partnership with BTU Energy,
Inc. for the purpose of developing a 240 megawatt natural gas-fired electric
power generating facility in Rathdrum, Idaho. In October 1995, the Company
purchased all of BTU Energy, Inc.'s interest in the partnership for
approximately $1.2 million. The Company has the right to acquire 108 acres of
land in Rathdrum, Idaho, which is currently permitted for the proposed facility
and is strategically located for natural gas transmission. The Company is
continuing to negotiate with utilities in the Pacific Northwest in efforts to
procure a power sales agreement for the proposed facility.
In May 1993, the Government of India ("GOI") approved in principle,
subject to certain conditions, the Company's proposal to develop a coal-fired
power generation facility with a total gross electrical generating capacity of
approximately 1,000 megawatts. The project was designated by the GOI as one of
eight projects under development which would receive the support of a partial
guaranty by the GOI of the payment obligations of the related State Government.
The proposed site for the facility near Mangalore in the State of Karnataka has
already received in-principle clearance related to the environmental permitting
process. The Company has executed a power sales agreement with the Karnataka
State Electricity Board and has received approval in principle of the Government
of Karnataka guaranty of the full financial obligation of the Karnataka State
Electricity Board. The Company is currently negotiating with the Central
government on revision to the power sales agreement, which the Company's
management believes will lead to issuance of the GOI partial counter-guaranty of
the Government of Karnataka guaranty.
In July 1995, the Company executed a joint development agreement with a
subsidiary of China Light & Power Company, Limited ("CLP") (the "Joint Venture")
which provides for the Company and CLP to co-develop the India project and to
share equally in the direct development expenses related to the project.
Additionally, the Company expects to secure one or more other partners for the
purpose of making equity investments in the project. If the Company is
successful in obtaining the necessary governmental approvals and guarantees of
the power sales agreement and construction financing, the Company intends to
further participate by overseeing construction of the project and managing
under a long-term agreement the operation of the facility by a third party.
The Company has formed a joint venture with Sargent & Lundy, L.L.C.
and a Chinese chemical company for the purpose of constructing two 24 megawatt
coal-fired electric generating units to sell electric and thermal energy to the
chemical company and excess electric and thermal energy to other Chinese
industrials. The joint venture is currently negotiating a power sales agreement
with the Chinese chemical company.
The projects the Company is seeking to develop are often large and
complex and the completion of any such project is subject to substantial risks.
There can be no assurance that the Company will be able to obtain new power
sales agreements, the necessary site agreements, steam sales agreements,
licenses and certifications, environmental and other permits and financing
necessary for the successful development of new projects. These, and other
risks, may result in the Company abandoning projects under development.
PROJECTS UNDER CONSTRUCTION
In December 1994, the Company executed an engineering, procurement and
construction agreement (the "Construction Agreement") with Public Utility
District No. 1 of Clark County, Washington ("Clark"). Under this Construction
Agreement, the Company is engineering, procuring equipment for and constructing
a 248 megawatt combined-cycle, gas-fired electric generation facility (the
"Clark Facility"). Upon completion of the Clark Facility, the Company will
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earn a construction fee of $5 million. 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 incurred in constructing the Clark Facility. Cogentrix of Vancouver,
Inc. ("CVC"), an indirect wholly-owned subsidiary of the Company, performed the
development and preliminary engineering on the Clark Facility and received a
development fee of $5 million in October 1995. Upon commencing commercial
operations, which is anticipated to be late calendar 1997, CVC will operate and
maintain the Clark Facility pursuant to a two-year operations and maintenance
agreement.
POWER MARKETING
Increased competition in the wholesale electric power market, and
improved access to that market through wheeling, has prompted hundreds of
companies to enter the market as non-generating wholesale power marketers. Such
companies purchase and resell electric power, often packaging available electric
power from several different sources to meet the unique needs of particular
wholesale purchasers.
The Company's power marketing subsidiary, Cogentrix Energy Power
Marketing, Inc. ("CEPM"), has entered into agreements with The Washington Water
Power Company to purchase up to 222 megawatts of electric capacity and energy
and to schedule transmission for up to 397 megawatts of electric energy. CEPM
has also entered into power sales and transmission scheduling agreements with a
major industrial company to provide capacity and energy to its production
facilities in the Pacific Northwest. CEPM currently matches its contracts to
purchase capacity and energy with corresponding contracts to sell equivalent
capacity and energy, thus CEPM is not subject to losses resulting from price
fluctuations in the wholesale electric power market.
GREENHOUSE OPERATIONS
The Company has entered into an agreement with Agro Power Development,
Inc., a developer and operator of greenhouse facilities, giving the Company a
right of first refusal to make investments in partnerships which develop,
construct and operate greenhouses which produce tomatoes. The Company has made
investments in partnerships which currently operate greenhouses with an
aggregate 50 acres of production capacity and has made additional investments in
partnerships which currently have greenhouses under construction with an
aggregate 57 acres of production capacity. These greenhouses are located in
Texas, Pennsylvania and New York.
DESCRIPTION OF THE COMPANY'S FACILITIES IN OPERATION
The Company's project subsidiaries currently own 100% of nine
cogeneration power facilities in operation. The Company's other two facilities
in operation are held by partnerships in each of which a Company subsidiary is a
50% general partner. Ten of these eleven facilities are currently operated and
managed by the Company. The eleventh facility is operated and managed by an
affiliate of the Company's partner in the partnership that owns the facility.
Each facility is located on a site which is owned or leased on a long-term basis
by a project subsidiary, which ownership or leasehold interest is mortgaged to
secure the subsidiary's project financing obligations, and, in certain
instances, to secure the Company's project subsidiaries' obligations under their
power sales agreements.
PROJECT AGREEMENTS. Each of the Company's project subsidiaries sells
electricity to a utility under long-term power sales agreements. A plant's
revenue from a power sales agreement usually consists of two components: energy
payments and capacity payments. Energy payments, which are generally intended to
cover the variable costs of electric generation (such as fuel costs and variable
operation and maintenance expense), are based on a facility's net electrical
output measured in kilowatt hours, with payment rates either fixed or indexed to
the fuel costs of the purchasing utility. Capacity payments, which are intended
to compensate for the fixed costs incurred by the project subsidiary (such as
debt service on the project financing), are more complex and are calculated
based on a declared capacity of a facility. Declared capacity is the electric
generating capacity in megawatts that the Company's project subsidiary agrees in
a power sales agreement to make available to the utility purchasing its
electricity and is a percentage of the facility's design capacity dictated by
its equipment and design specifications. Capacity payments are based either on a
plant's net electrical output and paid on a kilowatt hour basis or on the
plant's declared capacity and can be adjusted if actual capacity varies
significantly from declared capacity.
Many power sales agreements (including the Company's) permit the
purchasing utility to dispatch the facility (i.e., direct the plant to deliver a
variable amount of electrical output) within limited parameters or permit the
purchasing utility to suspend for a limited number of hours per year the
delivery of electrical output. The power sales agreements for eight of the
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Company's facilities are of a type typically called "fully dispatchable,"
providing the utility with greater dispatching rights whenever it determines
that it can obtain lower cost power either from the utility's in-system
generation or from bulk purchases. The power sales agreements for these
facilities are structured in a manner such that when the amount of electrical
output is reduced, the plant continues to receive capacity payments (which
provide substantially all of the project subsidiary's profits). Energy payments
(which cover the variable operating, maintenance and fuel costs) are received
for each kilowatt hour delivered. In February 1994, the Company received
notification from Virginia Electric and Power Company ("Virginia Power")
invoking a provision contained in the power sales agreements with respect to the
Company's Hopewell and Portsmouth facilities which requires the Company to
negotiate in good faith to enter into a separate agreement for the dispatch of
all of the Company's cogeneration facilities located in the Virginia Power
service area. The agreements executed by Virginia Power in connection with the
financing of the Company's Hopewell and Portsmouth facilities provide that
without the consent of the project lenders to such facilities, Virginia Power
will not enter into any agreement with the Company which would permit Virginia
Power to increase the aggregate annual number of kilowatt hours that such
facility could be dispatched downward. The Company and Virginia Power have
conducted initial discussions on such a proposal and will continue these
negotiations going forward. At this time, it is impossible to predict the
ultimate outcome of these discussions. The Company believes that any future
agreement that may be negotiated with Virginia Power with respect to the
dispatching of these facilities will not have a material adverse economic impact
on any of these facilities.
With the exception of two facilities, which produce thermal energy in
the form of hot water for use by commercial greenhouses, all of the Company's
plants produce steam ("process steam") for use by an industrial host. These
industrial hosts, which include textile manufacturing companies, pharmaceutical
manufacturing companies, chemical producers and synthetic fiber plants, use the
process steam in their manufacturing processes. The Company's steam sales
contracts with these industrial hosts generally are long-term contracts that
provide payment on a per thousand pound basis for steam delivered and a minimum
annual payment if the industrial host's plant is shut down. All contracts
require steam purchases during their initial terms adequate to allow maintenance
of QF status. See "Regulation -- Energy Regulations" herein.
Each of the Company's project subsidiaries purchases fuel under
long-term supply agreements. Ten of the Company's projects are fueled with
low-sulfur coal and one with natural gas. The coal is transported by rail to
each project or to a terminal point near a project. The coal supply and rail
transportation contracts with respect to each of the Company's coal-fired
projects are structured so that the fuel cost escalations are generally matched
by increases in the energy payments received by the Company for electricity
under the corresponding power sales agreement. This matching is typically
effected by having the coal prices escalate as a function of the solid fuel
index of the purchasing utility, which reflects changes in the utility's cost of
fuel to operate its plants or by contracting for scheduled increases in energy
payments designed to offset scheduled increases in coal and rail prices. The
Company is generally required to purchase all of its fuel requirements for a
particular plant under the coal sales agreement relating to that particular
plant. Each fuel supplier may service the contract from a list of approved mines
identified in the agreement. Each of the Company's projects fueled with coal
maintains fuel inventories at the project site which ordinarily vary from 15 to
30 days' supply. The Company believes that such inventories are adequate and has
developed contingency plans to deal with shortages of coal due to coal or rail
strikes or force majeure events impacting coal deliveries.
The fuel transportation requirements of each coal-fired facility are
satisfied in accordance with a rail transportation agreement entered into
between the project subsidiary and a railway company. These agreements provide
that the railway company will transport all of the facility's fuel from the mine
to a point near the project subsidiary's facility. The railway company is paid a
specified price per ton for these services, which adjusts annually through the
term of the agreements.
The power sales agreements and the steam sales agreements provide
substantially all of the revenue stream of the Company's facilities. Excluding
the non-recurring loss on impairment and cost of removal of cogeneration
facilities recognized in fiscal 1997, costs incurred under the fuel supply
agreements and transportation agreements accounted for approximately 46.3% of
the Company's operating expenses.
PROJECT FINANCING. The Company has financed each facility through
project subsidiaries primarily under financing arrangements and related
documents which, except as noted herein, require the extensions of credit to be
repaid solely from the project's revenues and provide that the repayment of the
extensions of credit (and interest thereon) is secured solely by the physical
assets, agreements, cash flow and, in certain cases, the capital stock of or
partnership interests in that project subsidiary. This type of financing is
generally referred to as "project financing." Project financing transactions
are generally structured so that all revenues of a project are deposited
directly with a bank or other financial institution acting as escrow or
security deposit agent. These funds are then payable in a specified order of
priority set forth in the financing documents to assure that, to the
9
<PAGE> 10
extent available, they are used first to pay operating expenses, senior debt
service and taxes and to fund reserve accounts. Thereafter, subject to
satisfying debt service coverage ratios and certain other conditions, amounts
may be disbursed to the Company for management fees or dividends or, where there
are subordinated lenders, to the payment of subordinated debt service.
As with the Company's existing facilities, future projects are expected
to be financed using a high proportion of debt to equity. Leveraged financing
permits the development of projects with a limited equity base but also
increases the risk that a reduction in revenues could adversely affect a
particular project's ability to meet its debt or lease obligations. The lenders
have security interests covering certain aspects of the project, including the
plant, related facility support agreements, the stock or partnership interest of
certain of the Company's project subsidiaries, licenses and permits necessary to
operate the plant and the cash flow derived from the plant. In the event of a
foreclosure after a default, the Company would only retain an interest in the
property remaining, if any, after all debts and obligations were paid. In
addition, the debt of each operating project may reduce the liquidity of the
Company's interest in such project since any sale or transfer of its interest
would, in most cases, be subject both to a lien securing such project debt and
to transfer restrictions in the relevant financing agreements. Also, the
Company's ability to transfer or sell its interest in certain projects is
restricted by a purchase option to a steam purchaser and certain rights of first
refusal in favor of its power and steam purchasers. See "Facilities in
Operation" herein.
The lenders under these project financing structures cannot look to the
Company or its other projects for repayment (that is, they are "non-recourse" to
the Company and its other project subsidiaries), unless the Company or another
project subsidiary expressly agrees to undertake liability. The Company has
agreed to undertake limited financial support for certain of its project
subsidiaries in the form of certain limited obligations and contingent
liabilities. These obligations and contingent liabilities take the form of
guarantees, indemnities, capital infusions and agreements to pay certain debt
service deficiencies. To the extent the Company becomes liable under such
guarantees and other agreements with respect to a particular project,
distributions received by the Company from other projects may be used by the
Company to satisfy these obligations. To the extent of these obligations, the
lenders to a project have recourse to the Company and the distributions to the
Company from other projects. The aggregate contractual liability of the Company
to its project lenders is, in each case, a small portion of the aggregate
project debt. Thus the project financing structures are generally described
throughout this Report as being "substantially non-recourse" to the Company and
its other projects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Indenture under which the Senior Notes were issued permits the
incurrence of debt, guarantees and liens jointly by the Company's two project
subsidiaries that own and operate the Company's five facilities located in North
Carolina that sell electricity to Carolina Power & Light Company ("CP&L")
(Elizabethtown, Lumberton, Kenansville, Roxboro and Southport). This provision
of the Indenture permits the Company to refinance the project financings for
these five facilities and give a new project lender (or lenders) a security
interest covering all five facilities, the related facility support agreements,
the shares of stock the Company owns of these two project subsidiaries, the
licenses and permits necessary to operate the facilities and the cash flow
derived from each of the five facilities. The Indenture also permits the
incurrence of debt, guarantees and liens jointly by (i) the project subsidiaries
that own and operate the Company's facilities located at Portsmouth and
Hopewell, Virginia and (ii) any future project subsidiaries or joint ventures
with respect to the future development of power generation facilities. To the
extent the Company takes advantage of these provisions of the Indenture, the
project lender (or lenders) will have recourse to several of the Company's
facilities instead of having its (or their) recourse limited to the facility (or
facilities) owned by a single project subsidiary.
The Company's plants are insured in accordance with covenants in each
project's debt financing agreements. Coverages for each plant include workers'
compensation, commercial general liability, supplemented by primary and excess
umbrella liability, and a master property insurance program including property,
boiler and machinery (at replacement cost) and business interruption.
OPERATING ARRANGEMENTS. Unlike many independent power producers who
contract with third party operators, the Company operates ten of its eleven
facilities. Each project subsidiary employs directly the persons required to
operate the facility it owns or leases. The Company hires its general plant
managers early in the construction phase of the plants, invests in the training
of operating personnel and structures its plant bonus program to reward
efficient and cost effective operation of the plants. Executive management of
the Company meets several times a year with the plant managers and conducts
on-site plant performance reviews with each plant manager.
10
<PAGE> 11
The ten plants which the Company operates had average availability of
96.83% in fiscal 1997, 96.51% in fiscal 1996 and 97.02% in fiscal 1995. In
calculating plant availability, the Company has adapted the utility industry's
definition of "equivalent availability factor" to the independent power
industry. The "equivalent availability factor" is defined as the percentage of
time that a plant is available for operation in a given period (usually a year),
where each hour of availability is pro rated if the plant is only partially
available. For an independent power producer like the Company, full capacity is
generally defined as contracted-for electric generating capacity (in megawatts).
For plants that sell process steam to an industrial host, full capacity also
includes contracted-for steam usage, in megawatt-equivalents.
The Company provides to the plants it operates certain administrative
and management services for a periodic fee, which in some cases is adjusted
annually by an inflation factor. The ability of a project subsidiary to pay
these management fees is contingent upon the continuing compliance by the
project subsidiary with certain covenants under the project financing agreements
and may be subordinated to the payment of obligations under those agreements.
The Company has earned and will continue to earn incentive compensation from the
Hopewell Facility, in which the Company holds a 50% general partnership interest
and is the managing general partner, if the facility achieves certain net income
levels.
ASH REMOVAL. Project subsidiaries owning seven of the Company's
facilities contract with ReUse Technology, Inc. ("ReUse"), a wholly-owned
subsidiary of the Company operated as an autonomous business unit, to remove
coal ash generated by such plants. A third party removes and handles coal ash at
the other coal-fired plants. As an alternative to disposing of coal ash in
landfills, ReUse has developed the use of coal ash as structural fill material
and in the manufacturing and production of various ash derived products for
resale. Most of the coal ash removed from the Company's plants by ReUse is
hauled to land located in a nearby industrial/commercial area, which is owned or
leased by ReUse. The coal ash is utilized as structural fill on the tract to
raise the existing grade to a higher level and thereby make the site more
suitable for commercial development. Industrial warehouse facilities have been
constructed on two sites that had been filled with coal ash removed from the
Company's plants. It is anticipated that some of the sites owned by ReUse will
be sold at some future date for industrial or commercial development.
The remaining coal ash removed from the Company's plants by ReUse is
incorporated into various products for resale. Examples of such products include
concrete blocks, concrete pavers, land plaster for peanut crops and potting
soil. At one site, which was developed by utilizing coal ash as structural fill
material for several years, ReUse has now established a composting operation to
mix coal ash with wood by-products and cotton gin waste to make potting soil,
which ReUse then sells in bulk to nurseries and other end users.
ReUse also provides ash services for cogeneration facilities owned and
operated by unaffiliated independent power producers. In connection with the
provision by ReUse of such services under a contract for one of these
facilities, Cogentrix has agreed to take all action necessary (including making
loans and equity contributions) to ensure that ReUse has adequate financial
resources to perform its obligations under its agreement with the facility's
owner up to a maximum aggregate liability of $1.5 million.
11
<PAGE> 12
FACILITIES IN OPERATION
Set forth in the table and the text below are descriptions of the
Company's eleven plants currently in operation. In each case, the Company
developed the plant (except for the Ringgold facility that the Company purchased
immediately prior to construction and the Birchwood facility in which the
Company purchased its 50% interest during construction), which included siting,
permitting and financing activities. Revenues are currently being realized from
the sale of electricity and thermal energy generated by each of these
facilities.
Each of the Company's facilities relies on a power sales agreement with
a single customer for the majority of its revenues over the life of the power
sales agreement. During the fiscal year ended June 30, 1997, two regulated
utilities, CP&L and Virginia Power, accounted for approximately 87% of the
Company's consolidated revenues. The failure of either of these utility
customers to fulfill its contractual obligations for a prolonged period of time
would have a substantial negative impact on the Company's primary source of
revenues. Both CP&L and Virginia Power's senior debt securities are rated
investment grade by Standard & Poor's Corporation and Moody's Investors Service,
Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL DESIGN DATE OF
PROJECT CAPACITY OF COMMENCEMENT COMPANY'S
LOCATION OF COST(1) ELECTRICITY POWER THERMAL ENERGY OF COMMERCIAL OWNERSHIP
FACILITIES (IN (MEGAWATTS) PURCHASING UTILITY PURCHASER/USER OPERATION INTEREST
MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ELIZABETHTOWN, NC $ 30.3 35 CP&L Alamac Knit Fabrics, December 1985 100%
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
LUMBERTON, NC $ 30.5 35 CP&L Alamac Knit Fabrics, December 1985 100%
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
KENANSVILLE, NC $ 32.8 35 CP&L Guilford Mills, Inc. April 1986 100%
- ------------------------------------------------------------------------------------------------------------------------------------
ROXBORO, NC $ 44.9 60 CP&L Collins & Aikman August 1987 100%
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTHPORT, NC $ 82.9 120 CP&L Archer-Daniels- September 1987 100%
Midland Company
- ------------------------------------------------------------------------------------------------------------------------------------
HOPEWELL, VA $ 97.8 120 Virginia Power Allied-Signal December 1987 50%
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
PORTSMOUTH, VA $ 94.7 120 Virginia Power Hoechst-Celanese June 1988 100%
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
ROCKY MOUNT, NC $107.2 120 Virginia Power Abbott Laboratories October 1990 100%
d/b/a North Carolina
Power Company
- ------------------------------------------------------------------------------------------------------------------------------------
RINGGOLD, PA $ 32.0 15.5 Pennsylvania Electric Keystone Village April 1991 100%
Company Farms, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
RICHMOND, VA $243.7 240 Virginia Power E.I. Du Pont de Unit I May 1992; 100%
Nemours & Company Unit II August
1992
- ------------------------------------------------------------------------------------------------------------------------------------
KING GEORGE, VA $364.0 220 Virginia Power Greenhost, Inc. November 1996 50%
(BIRCHWOOD
FACILITY)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Actual project cost includes all costs directly associated with the
construction of the facility, related improvements and land
acquisition, together with costs incurred to obtain construction and
permanent financing and other costs associated with the formation of
each project entity and the start-up of the facility.
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES. Cogentrix Eastern
Carolina Corporation, a North Carolina corporation ("CECC"), owns and operates
three 35 megawatt stoker coal-fired cogeneration plants in Elizabethtown,
Lumberton and Kenansville, North Carolina (collectively, the "ELK Facilities"
and individually an "ELK Facility"). The ELK Facilities were the first
cogeneration facilities developed by the Company and are presently financed
under a single project financing credit facility. The Elizabethtown and
Lumberton plants commenced commercial operation in December 1985 with the
Kenansville plant following in April 1986.
The ELK Facilities sell electricity to CP&L under separate power sales
agreements, which were amended effective in September 1996. Under the amended
terms, the power sales agreements for the Elizabethtown and Lumberton Facilities
each have an initial term expiring in November 2000, and the power sales
agreement for the Kenansville Facility has an initial term expiring in September
2001. Each of the power sales agreements has automatic renewals for one-year
renewal terms unless either party terminates the agreement prior to the
commencement of a renewal term. The purchase price for electricity during such
renewal term would continue to be the rate set forth in the power sales
agreements. Annual increases in energy prices under the power sales agreement
are designed to offset annual increases in coal and rail transportation prices.
12
<PAGE> 13
In addition to CP&L's right to dispatch or suspend delivery of
electricity from the ELK Facilities for maintenance and emergencies, the ELK
Facilities are also subject to economic dispatch by CP&L. This right allows CP&L
to suspend or reduce purchases of energy from the ELK Facilities if CP&L
determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that CECC 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 agreement. Energy
payments, which would be reduced (or possibly eliminated) as a result of an
economic dispatch, primarily cover variable operating, maintenance, coal and
rail transportation costs associated with operating at different levels.
In the event CECC decides to dispose of an ELK Facility, it must first
offer the facility to the respective steam purchaser, and if the steam purchaser
does not exercise its right, CECC must then offer the facility to CP&L at fair
market value.
Each of the power sales agreements provides that in the event of
termination (other than for a material breach by CP&L) prior to the expiration
of the initial term of the power sales agreements, CECC must pay CP&L a
termination charge equal to the excess paid for capacity and energy over what
would have been paid to CECC under the North Carolina Utilities Commission
("NCUC") published capacity credit and variable energy rates plus interest.
If the average capacity made available in the peak period or average
energy generated or made available in peak or off-peak periods during any
12-month period falls below 80% of the established contract capacity level or
the contract peak or off-peak energy level, as the case may be, CP&L may
establish a new contract capacity level or contract energy level. If a reduction
in the contract capacity level is invoked, a special charge will be imposed by
CP&L equal to a percentage of the termination charge described above. If a
reduction in the contract energy level is invoked, a special reduction in the
contract energy charge will also be imposed. In addition, if CECC desires to
terminate the power sales agreement prior to its expiration and a substitute
operator satisfactory to CP&L is not secured, CECC must pay to CP&L the
termination charge described above plus an amount equal to the depreciated
installed cost of the interconnection facilities relating to the plant (using a
20-year useful life). Cogentrix has guaranteed the performance of CECC under the
CP&L power sales agreements.
Alamac Knit Fabrics, Inc. purchases steam for its apparel fabrics
division mills from the Lumberton Facility and the Elizabethtown Facility under
separate steam sales agreements expiring in December 2000, each of which
contains renewal options. Guilford Mills, Inc. ("Guilford") purchases steam from
the Kenansville Facility for use in its textile manufacturing plant under a
steam sales agreement expiring in July 2001, which contains renewal options.
Each of the ELK Facilities uses low-sulfur stoker coal mined in
Kentucky supplied under a single coal sales agreement with James River Coal
Sales, Inc. ("James River") and its affiliate, Bell County Coal Corporation. The
coal sales agreement provides that CECC will purchase and James River will
provide all of CECC's coal requirements through September 2001. If the ELK
Facilities do not purchase an average of 320,000 tons per fiscal year (as
appropriately reduced due to force majeure events), the contract will be
extended if during any subsequent period the ELK Facilities are selling
electricity to CP&L until CECC purchases such short-fall amount.
The coal purchased for the ELK Facilities is transported by CSX
Transportation, Inc. ("CSX") under separate rail transportation contracts each
having a term through September 2001 to rail unloading facilities owned by CECC.
Coal is then hauled by truck to each of the plants by independent contractors,
and ash is removed from each of the plants by ReUse, under separate long-term
coal hauling and ash disposal agreements.
The ELK Facilities were financed pursuant to a senior term loan and a
subordinated credit facility, each entered into in December 1991, the proceeds
of which were used to purchase the facilities from General Electric Capital
Corporation. In September 1996, CECC refinanced both the senior term loan and
subordinated credit facility with the proceeds of a senior credit facility and a
$5.5 million capital contribution from the Company. The senior credit facility
provides for a $39 million term loan and a $3.3 million letter of credit to
secure the obligations of CECC to pay debt service.
Cogentrix has pledged the stock of CECC to secure the obligations of
CECC under the senior credit facility, but Cogentrix is not liable for any
deficiency if the proceeds of any sale or disposition of the collateral are
insufficient to pay the secured obligations.
13
<PAGE> 14
The ELK Facilities generated $35.7 million of revenues in fiscal 1997,
$53.9 million of revenues in fiscal 1996 and $52.4 million of revenues in fiscal
1995.
ROXBORO AND SOUTHPORT FACILITIES. Cogentrix of North Carolina, Inc., a
North Carolina corporation ("CNC"), operates two stoker coal-fired cogeneration
plants in Roxboro and Southport, North Carolina (individually, the "Roxboro
Facility" and "Southport Facility"; collectively, the "Roxboro and Southport
Facilities"), which are owned by another wholly-owned subsidiary of the Company,
Cogentrix of North Carolina Holdings, Inc. The Roxboro and Southport Facilities
are financed under a single project financing credit facility. The 60 megawatt
Roxboro Facility, which commenced commercial operation in August 1987, may
operate at a declared capacity of up to 56 megawatts. The 120 megawatt Southport
Facility, which may operate at a declared capacity of up to 107 megawatts,
commenced commercial operation in September 1987.
The Roxboro and Southport Facilities sell electricity to CP&L under
separate power sales agreements, each having an initial term expiring in
December 2002 with automatic renewals for two-year renewal terms unless either
party terminates the agreement prior to the commencement of a renewal term. The
purchase price for electricity during such renewal term would continue to be the
rate for 2002 set forth in the power sales agreements. These power sales
agreements were amended effective in September 1996 to provide CP&L economic
dispatch rights on the facilities and to eliminate options CP&L had to purchase
these facilities. Under the amended power sales agreements, CP&L has a right of
first refusal on either or both facilities.
The power sales agreements provide for scheduled annual increases in
energy payments through 1997, which the Company believes are sufficient to
offset scheduled annual increases in coal and rail transportation prices. Energy
payments from 1998 through 2002 under the power sales agreements are designed to
offset annual fluctuations in coal and rail transportation prices.
In addition to CP&L's right to dispatch or suspend delivery of
electricity from the Roxboro and Southport Facilities for maintenance and
emergencies, the Roxboro and Southport Facilities are also subject to economic
dispatch by CP&L. This right allows CP&L to suspend or reduce purchases of
energy from the Roxboro and Southport Facilities if CP&L determines that it can
operate its system for a designated period more economically. The power sales
agreements are structured so that CNC 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 would be
reduced (or possibly eliminated) as a result of an economic dispatch, primarily
cover variable operating, maintenance, coal and rail transportation costs
associated with operating at different levels.
Each of the power sales agreements provides that in the event CNC
desires to terminate the power sales agreement or abandons the Roxboro or
Southport Facility, CNC must pay CP&L a termination charge. Such termination
charge will be equal to the sum of (i) the depreciated installed cost of the
interconnection facilities relating to the plant (using a 20-year useful life),
plus (ii) for terminations occurring prior to December 15, 1997, an amount equal
to the excess paid for energy delivered prior to September 26, 1996 and capacity
made available after September 26, 1996 over what would have been paid to CNC
under the published NCUC approved cogeneration small power variable rate
applicable at the time the energy was delivered or the capacity was made
available or, for terminations occurring on or after December 15, 1997, the cost
incurred by CP&L to replace the capacity provided by the Roxboro or Southport
Facility in excess of the capacity payments which would have been made to CNC
for the Roxboro or Southport Facility, plus (iii) a carrying charge equal to the
overall pretax cost of capital allowed to CP&L by the NCUC retail rate order in
effect during the time the energy credits were received.
If the average energy generated or made available in peak or off-peak
periods during any 12-month period occurring prior to December 15, 1997 falls
below 80% of the established contract peak or off-peak energy level, CP&L may
establish a new contract energy level for peak or off-peak periods,
respectively, and, as a result, a special charge plus interest would then become
payable by CNC.
Cogentrix has guaranteed the performance of CNC under the CP&L power
sales agreements.
14
<PAGE> 15
Collins & Aikman Corporation ("C&A") purchases process steam for its
textile manufacturing facility from the Roxboro Facility under a 15-year steam
sales agreement (of which approximately five years remain) that is renewable by
C&A for an additional five-year term upon one year's prior written notice.
During the initial term of the steam sales agreement, C&A is obligated to
purchase and use a minimum of five percent of the Roxboro Facility's total
energy output so that the facility will remain a QF under PURPA.
Archer-Daniels-Midland Company ("ADM") purchases steam for its
pharmaceutical and chemical manufacturing company from the Southport Facility
under a 15-year steam sales agreement (of which approximately five years remain)
that is renewable by ADM for an additional five-year term upon one year's prior
written notice. During the initial term of the steam sales agreement, ADM is
obligated to purchase and use a minimum of five percent of the Southport
Facility's total energy output so that the facility will remain a QF under
PURPA.
Coal for the Roxboro Facility is supplied from Kentucky by Martiki Coal
Corporation under a coal sales agreement ending in November 1997. CNC is
obligated to purchase and Martiki is obligated to sell, subject to a limit of
235,000 tons per year, all of the coal requirements for the Roxboro Facility.
Coal for the Southport Facility is supplied from Kentucky by Coastal Coal Sales,
Inc. ("Coastal") under a coal sales agreement ending in November 1997. Coastal
has agreed to supply and CNC has agreed to purchase all of the coal requirements
for the Southport Facility. CNC has executed replacement long-term coal sales
agreements for both the Roxboro and Southport Facilities with subsidiaries of
Alliance Coal Corporation. The terms of these replacement contracts correspond
with the terms of each Facility's power sales agreement.
Norfolk Southern Railway Company transports coal to the Roxboro
Facility under a rail transportation contract ending in 2002. The coal for the
Southport Facility is transported by CSX, under a rail transportation contract
ending in 2002, to a rail side track located approximately six miles from the
Southport Facility and is then hauled by a CNC operated locomotive to the plant
site.
Ash hauling services are provided for the Roxboro Facility by First
Piedmont Corporation under a ten-year agreement (expiring in December 1997) with
three five-year renewal options. Ash disposal services for the Southport
Facility are provided by KBK Enterprises, Inc. under a ten-year contract
(expiring in December 1997) with two ten-year renewal options. In addition,
ReUse has entered into backup ash disposal agreements for both facilities in the
event the existing agreements are terminated or the existing ash haulers are
unable to perform.
The Southport and Roxboro Facilities were financed pursuant to a senior
term loan and a subordinated credit facility, each entered into in March 1993,
the proceeds of which were used to purchase the facilities from General Electric
Capital Corporation. In September 1996, CNC refinanced the senior term loan and
subordinated credit facility with the proceeds of a $122 million senior credit
facility. The senior credit facility provides for a $115.5 million term loan and
a $6.5 million letter of credit facility to secure the obligations of CNC to pay
debt service. In connection with the refinancing, the Company entered into an
agreement for the benefit of the project lenders to fund cash deficits CNC could
experience as a result of incurring certain costs, subject to a cap of $11.3
million.
Certain of the Company's subsidiaries have pledged their respective
ownership interests in the Roxboro and Southport Facilities as collateral
security for the senior credit facility, but Cogentrix Energy, Inc. is not
liable for any deficiency if the proceeds of any sale or disposition of the
collateral are insufficient to pay the secured obligations.
The steam sales agreement for the Southport Facility provides that upon
at least 12 months' prior notice, CNC will sell to ADM up to an additional
100,000 pounds of steam per hour. The power sales agreement further provides
that if upon a sale of the Southport Facility CP&L exercises its right of first
refusal and a package boiler to meet ADM's increased steam demands has not been
installed, CNC must deposit into an escrow account at such time an amount
sufficient to provide a package boiler to meet such increased steam demands.
Management anticipates such a boiler could be provided at a cost of
approximately $2,500,000.
The Roxboro and Southport Facilities generated $58.2 million of
revenues in 1997, $86.9 million of revenues in fiscal 1996 and $84.4 million of
revenues in fiscal 1995.
15
<PAGE> 16
HOPEWELL FACILITY. The Company's Hopewell facility (the "Hopewell
Facility"), located in Hopewell, Virginia, is a 120 megawatt stoker coal-fired
cogeneration facility owned by James River Cogeneration Company ("JRCC"). JRCC
is a North Carolina general partnership, in which a 50% general partnership
interest is owned by Cogentrix of Virginia, Inc., a Virginia corporation
("CVA"), which is a wholly-owned subsidiary of the Company. The remaining 50% is
owned by Capistrano Cogeneration Company, a subsidiary of Edison Mission Energy.
Commercial operation of the Hopewell Facility commenced in December 1987.
CVA, as managing general partner, has complete responsibility for the
operation, maintenance and management of the Hopewell Facility under a 20-year
operations, maintenance and management agreement with JRCC (expiring in December
2008). JRCC is governed by a partnership agreement which provides that certain
significant business decisions regarding the partnership must be approved by
representatives of both partners. The operations, maintenance and management
agreement provides for CVA to receive base compensation as well as incentive
compensation if the facility achieves certain levels of net income.
The Hopewell Facility provides electricity to Virginia Power under a
power sales agreement, which was amended in March 1996, having an initial
20-year term (of which approximately 10 years remain) with an automatic ten-year
extension unless either party notifies the other prior to the expiration of the
initial term of its desire to terminate the agreement. The capacity purchase
price for any such renewal term would be based on the avoided cost schedule then
in effect. In connection with the March 1996 amendment of the power sales
agreement, JRCC received a $7.5 million payment from Virginia Power in exchange
for a reduction of the Hopewell Facility's declared capacity from 100 to 88.5
megawatts. Under the amended terms of the power sales agreement, Virginia Power
is not obligated to purchase energy from the Hopewell Facility in excess of
375,000 on-peak megawatt hours and 330,000 off-peak megawatt hours during each
calendar year through the year 2000 and 350,000 on-peak megawatt hours and
330,000 off-peak megawatt hours from 2001 through the end of the term of the
agreement.
Annual increases in energy prices under the power sales agreement are
designed to offset annual increases in coal and rail transportation prices. In
addition to having the right to suspend delivery of electricity from the
Hopewell Facility for maintenance and emergencies, Virginia Power has the right
to suspend delivery from the facility to a level of not less than 25 megawatts
for up to 450 hours per year. Such suspensions of delivery have no material
impact on the aggregate amount of annual energy or capacity payments received by
the Hopewell Facility. In February 1994, the Company received a notice from
Virginia Power invoking a provision in the power sales agreement which requires
the Company to negotiate in good faith to enter into a separate agreement for
the dispatch of all of the Company's cogeneration facilities located in the
Virginia Power service area. See "Description of the Company's Facilities --
Project Agreements" herein.
Currently, Virginia Power is permitted recovery from its customers of
payments made to JRCC under the power sales agreement. The power sales agreement
provides, however, that if at any time after commercial operation commences the
Virginia regulatory authorities prohibit Virginia Power from recovering from its
customers payments made under the agreement, the purchase price of electricity
will be adjusted to the greater of the following: 80% of the energy and capacity
prices that would have been payable under the power sales agreement absent such
disallowance or the rates which the regulatory authorities allow Virginia Power
to recover from its customers. Notwithstanding any such occurrence, Virginia
Power has agreed to pay the contracted prices for the first 15 years of the
agreement (until December 2002), provided that within four months following the
end of the 15th year, JRCC must repay Virginia Power any excess amounts so paid
by Virginia Power for energy and capacity with interest. In addition, if the
agreement is terminated prior to the end of its initial or any subsequent term
other than due to a default by Virginia Power, JRCC must pay Virginia Power the
difference between payments for capacity under the contract and those that would
have been allowable under the applicable avoided cost schedules plus interest.
If the Hopewell Facility has a forced outage rate with respect to the
number of on-peak kilowatt hours generated in any calendar year of greater than
ten percent but less than or equal to twenty-five percent, capacity payments
will be reduced by four percent for each percent that the forced outage rate
exceeds ten percent. If the forced outage rate is greater than twenty-five
percent for any calendar year, no capacity payments will be due for such year.
The forced outage rate is a percentage derived by dividing the number of on-peak
kilowatt hours generated in a calendar year by an amount equal to the rated
capacity of the facility multiplied by the number of available on-peak hours
during such year excluding outages for scheduled maintenance, emergencies,
contractually permitted suspensions of delivery of electricity or force majeure.
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The power sales agreement for the Hopewell Facility provides that after
December 31, 2002, JRCC will be paid for energy at the rates specified in the
applicable avoided cost schedule published by the Virginia State Corporation
Commission (increased, if necessary, to include certain line loss and variable
operation and maintenance expense adjustments). If at any time after such date,
the Virginia regulatory authorities do not promulgate such a schedule, the power
sales agreement provides that JRCC and Virginia Power will negotiate, in good
faith, a mutually agreeable price for energy. The power sales agreement grants
to Virginia Power a right of first refusal to purchase the Hopewell Facility at
fair market value provided that such amount will not exceed JRCC's net
investment in the Hopewell Facility.
Allied-Signal Corporation ("ASC") purchases steam from the Hopewell
Facility under a 20-year steam sales agreement (of which approximately 10 years
remain). ASC is obligated to purchase and use a minimum of five percent of the
Hopewell Facility's total energy output in a manner such that the facility will
remain a QF under PURPA.
Coal for the Hopewell Facility is supplied from mines in Kentucky by
Pontiki Coal Corporation ("Pontiki") under a 15-year coal sales agreement (of
which approximately five years remain), which requires Pontiki to sell and JRCC
to purchase all of the Hopewell Facility's requirements for coal. Historically,
under the coal sales agreement, Pontiki has supplied and the facility has
required approximately 430,000 tons of coal per year. The agreement provides,
however, that Pontiki is not obligated to supply more than 400,000 tons of coal
per year. JRCC has no reason to believe that Pontiki will not continue to supply
the excess amount of coal required, but if it does not, the Company believes
that JRCC could purchase coal from other sources. Because the term of the coal
sales agreement for the Hopewell Facility expires at the end of 2002, JRCC will
need to assure itself of a supply of coal for the remaining term of its power
sales agreement. JRCC's current plans are to negotiate a replacement long-term
coal sales agreement. However, if JRCC is unable to enter into agreements
acceptable to it, JRCC currently believes it would be able to purchase its
requirements on the short-term spot market at prices that are presently
significantly below the present contract rates. The coal is transported by
Norfolk Southern Railroad Company under a 15-year rail transportation agreement
(of which approximately five years remain).
Ash generated by the Hopewell Facility is removed and disposed of by
ReUse under an ash removal agreement having a term expiring in 2005.
The Hopewell Facility was financed pursuant to an $81,990,000 term loan
and letter of credit facility. The letter of credit supported the issuance of
commercial paper notes by JRCC. In July 1996, JRCC refinanced the term loan and
letter of credit facility with the proceeds of a $55,490,000 senior term loan.
Cogentrix has pledged the stock of CVA as security for the obligations
of JRCC under this credit facility, but Cogentrix is not liable for any
deficiency if the proceeds of any sale or disposition of the pledged stock are
insufficient to pay all secured obligations.
The Hopewell Facility generated $51.2 million of revenues in fiscal
1997, $57.4 million in revenues in fiscal 1996 and $54.9 million in revenues in
fiscal 1995.
PORTSMOUTH FACILITY. The Company's Portsmouth Facility (the "Portsmouth
Facility") located in Portsmouth, Virginia is a 120 megawatt stoker coal-fired
cogeneration facility owned by Cogentrix Virginia Leasing Corporation, a North
Carolina corporation ("CVLC"). Commercial operation of the Portsmouth Facility
commenced in June 1988.
Under a power sales agreement with Virginia Power, the Portsmouth
Facility provides 115 megawatts of declared capacity of electricity for an
initial 20-year term (of which approximately 11 years remain) with an automatic
ten-year extension unless either party notifies the other prior to the
expiration of the initial term of its desire to terminate the agreement. The
capacity purchase price for any such renewal term would be based on the avoided
cost schedule then in effect.
Annual increases in energy prices under the power sales agreement are
designed to offset annual increases in coal and rail transportation prices. In
addition to having the right to suspend delivery of electricity from the
Portsmouth Facility for maintenance and emergencies, Virginia Power also has the
right to suspend delivery from the facility to a level of not less than 25
megawatts for up to 450 hours per year. Such suspensions of delivery have no
material impact on the aggregate amount of annual capacity payments received by
the Portsmouth Facility. In February 1994, the Company received a notice from
Virginia Power invoking a provision in the power sales agreement which requires
the Company to negotiate in good
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faith to enter into a separate agreement for the dispatch of all of the
Company's cogeneration facilities located in the Virginia Power service area.
See "Description of the Company's Facilities -- Project Agreements" herein.
Except to the limited extent set forth below, Virginia Power is
permitted recovery from its customers of payments made to CVLC under the power
sales agreement. The power sales agreement provides that if at any time after
commercial operation commences the Virginia regulatory authorities prohibit
Virginia Power from recovering from its customers payments made under the
agreement, the purchase price of electricity will be adjusted to the greater of
the following: 80% of the energy and capacity prices that would have been
payable under the power sales agreement absent such disallowance or the rates
which the regulatory authorities allow Virginia Power to recover from its
customers. Notwithstanding any such occurrence, Virginia Power has agreed to pay
the contracted prices for the first 15 years of the agreement (until June 2003),
provided that within four months following the end of the 15th year, CVLC must
repay Virginia Power any excess amounts so paid by Virginia Power for energy and
capacity with interest. In addition, if the power sales agreement is terminated
prior to the end of its initial or any subsequent term other than due to a
default by Virginia Power, CVLC must pay Virginia Power the difference between
payments for capacity under the contract and those that would have been
allowable under the applicable avoided cost schedules plus interest.
In February 1994, the Virginia State Corporation Commission, in a
Virginia Power rate case, disallowed recovery from Virginia Power's customers a
portion of the capacity payments paid to certain independent power producers,
including CVLC, under their respective power sales agreements. This
disallowance was based on an alleged error in the calculation of Virginia
Power's avoided cost used in calculating the amount of the capacity payments
contained in such power sales agreements. In the case of CVLC, the order, which
during 1996 became final after all appeals were exhausted, disallows recovery
by Virginia Power from its customers of approximately $250,000 annually from
the capacity payments paid to CVLC. Pursuant to the security deposit agreement
between CVLC and its project lenders, CVLC is funding a reserve account in an
amount equal to the accrued liability for such regulatory disallowance.
If the Portsmouth Facility has a forced outage rate with respect to the
number of on-peak kilowatt hours generated in any calendar year of greater than
ten percent but less than or equal to twenty-five percent, capacity payments
will be reduced by four percent for each percent that the forced outage rate
exceeds ten percent. If the forced outage rate is greater than twenty-five
percent for any calendar year, no capacity payments will be due for such year.
The forced outage rate is a percentage derived from the relationship of the
number of on-peak kilowatt hours generated in a calendar year divided by an
amount equal to the rated capacity of the facility multiplied by the number of
available on-peak hours during such year excluding outages for scheduled
maintenance, emergencies, contractually permitted suspensions of delivery of
electricity or force majeure.
The power sales agreement for the Portsmouth Facility provides that
after December 31, 2002, CVLC will be paid for energy at the rates specified in
the applicable avoided cost schedule published by the Virginia State Corporation
Commission (adjusted, if necessary, to include certain line loss and variable
operation and maintenance expense adjustments). If at any time after such date,
the Virginia regulatory authorities do not promulgate such a schedule, the power
sales agreement provides that CVLC and Virginia Power will negotiate, in good
faith, a mutually agreeable price for energy. The power sales agreement grants
to Virginia Power a right of first refusal to purchase the Portsmouth Facility
at fair market value provided that such amount will not exceed CVLC's net
investment in the Portsmouth Facility.
The Portsmouth Facility supplies process steam to Hoechst Celanese
Corporation ("Hoechst Celanese") pursuant to a 20-year steam sales agreement (of
which approximately 11 years remain) which renews automatically for successive
two-year periods unless either party gives two years' notice of cancellation.
Hoechst Celanese is obligated to purchase and use a minimum of five percent of
the Portsmouth Facility's total energy output (except in the case of force
majeure) so that the facility will remain a QF under PURPA.
Coal for the Portsmouth Facility is supplied from mines in Kentucky by
Arch Coal Sales Company ("ACS") pursuant to a 15-year coal sales agreement (of
which approximately six years remain), which requires ACS to sell and CVLC to
purchase all of the Portsmouth Facility's requirements for coal. Historically,
under the coal sales agreement, ACS has supplied and the facility has required
approximately 430,000 tons of coal per year. The agreement provides, however,
that ACS is not obligated to supply more than 400,000 tons of coal per year.
CVLC has no reason to believe that ACS will not continue to supply the excess
amount of coal required, but if it does not, the Company believes that CVLC
could purchase coal from other sources.
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Coal for the Portsmouth Facility is transported by rail and barge. CVLC
has a 15-year rail transportation contract (of which approximately six years
remain) with Norfolk Southern Railway Company. From the rail unloading facility
in Norfolk, Virginia, the coal is then transported by a barge owned by CVLC to
the Portsmouth Facility under a barge transportation contract having a term
expiring December 31, 2002 with an unrelated party that provides tugboat and
supervisory services for the loading and unloading of the coal.
Ash generated by the Portsmouth Facility is managed by ReUse under an
ash removal agreement having a term expiring December 31, 2005, subject to two
five-year renewal options.
As one of many monitoring requirements of the National Pollutant
Discharge Elimination System ("NPDES") Permits for all of its facilities in
Virginia, including the Portsmouth Facility, CVLC is required to conduct a
bio-assay test on a semiannual basis as an indicator of the toxicity of the
facility's wastewater discharge. The results of a bio-assay test, which is
conducted by growing sensitive living organisms, e.g., mysid shrimp, in
undiluted wastewater, can be influenced by numerous factors in addition to the
toxicity of the wastewater, and a 75% success rate is generally considered
acceptable. In response to negative results on some of the bio-assay tests
conducted at the Portsmouth Facility in prior years, which may or may not be a
result of the toxicity of the wastewater, CVLC reached agreement in September
1993 with the Virginia Department of Environmental Quality ("VDEQ") to perform,
over a four-year period, a toxicity reduction evaluation. Prior to the deadline
for completing the evaluation, VDEQ approved a modification to CVLC's NPDES
Permit. Under the requirements of the modified NPDES Permit, CVLC is in full
compliance, and current operations at the Portsmouth Facility are unaffected.
The Portsmouth Facility is financed pursuant to a $90 million term loan
credit facility. Cogentrix has agreed that if the funds on deposit in the
revenue account are insufficient to pay the principal of and interest on the
term loans then due (without using any funds deposited in the debt protection
account), Cogentrix will pay the amount of such deficiency. The aggregate amount
that Cogentrix is obligated to pay under this provision is limited to $4,000,000
until June 1, 1998. Thereafter, as long as no default occurs and the debt
protection account is funded to the required levels, Cogentrix's obligation
reduces by an amount equal to $1,000,000 per year plus the aggregate amount of
payments previously made under this provision. If, however, Cogentrix fails to
make any required payment in respect of such a deficiency as described above
within seven business days after notice, Cogentrix is then obligated to prepay
the term loans in an amount equal to the recourse limit then in effect (and not
merely to pay the amount of such deficiency). In addition, as collateral
security for its obligations to make such prepayments, Cogentrix has pledged
cash collateral to one of the lenders under the credit facility in an amount
equal to $1,777,778.
Cogentrix has pledged the stock of CVLC to secure the obligations of
CVLC under the credit facility, but Cogentrix is not liable for any deficiency
if the proceeds of any sale or disposition of the collateral are insufficient to
pay the secured obligations.
Cogentrix has agreed to indemnify the lenders under the credit facility
for losses and damages, up to an aggregate amount of $2,500,000, arising from
any failure by ReUse to comply with any governmental actions or requirements of
law or any default by ReUse under its agreement for ash removal services with
CVLC.
Certain transfers, dispositions or pledges by the Company or any
subsidiary thereof of a majority of its interest in any of the Company's
existing plants constitutes a default under the CVLC credit facility.
The Portsmouth Facility generated $61.0 million in revenues in fiscal
1997, $58.9 million in revenues in fiscal 1996 and $57.4 million in revenues in
fiscal 1995.
ROCKY MOUNT FACILITY. The Company's Rocky Mount Facility located near
Rocky Mount, North Carolina is a 120 megawatt stoker coal-fired cogeneration
facility (the "Rocky Mount Facility") owned by Cogentrix of Rocky Mount, Inc., a
North Carolina corporation ("CRM"). Commercial operation of the Rocky Mount
Facility commenced in October 1990. Under a power sales agreement with North
Carolina Power Company ("NC Power"), a division of Virginia Power, the Rocky
Mount Facility provides a declared capacity of 115.5 megawatts of electricity
for an initial 25-year term (of which approximately 18 years remain) with two
renewal terms of up to five years each. Annual changes in energy prices under
the power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices. NC Power has a right of first refusal to purchase
the Rocky Mount Facility.
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In addition to NC Power's right to dispatch or suspend delivery of
electricity from the Rocky Mount Facility for maintenance and emergencies, the
facility is also subject to economic dispatch by NC Power. This right allows NC
Power to suspend or reduce purchases of energy from the Rocky Mount Facility if
NC Power determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that CRM will continue
to receive capacity payments during any period of economic dispatch. Capacity
payments constitute a substantial portion of the profit component of the power
sales agreement. Energy payments, which would be reduced (or possibly
eliminated) as a result of an economic dispatch, primarily cover variable
operating, maintenance, coal and rail transportation costs associated with
operating at different levels. In February 1994, the Company received a notice
from Virginia Power invoking a provision in the power sales agreement relating
to the Hopewell and Portsmouth facilities which requires the Company to
negotiate in good faith to enter into a separate agreement for the dispatch of
all of the Company's cogeneration facilities located in the Virginia Power
service area. See "Description of the Company's Facilities --Project Agreements"
herein.
Currently, NC Power is permitted full recovery from its customers of
payments to CRM under the power sales agreement. The power sales agreement
provides, however, that if an applicable legislative or regulatory authority
should take action which would have the effect of disallowing NC Power from
recovering from its customers all or a portion of the payments for capacity in
excess of a certain amount during the first 18 years following the commencement
of commercial operation of the facility (until October 2008), NC Power will
continue to pay for capacity at the contract price through the first 18 years
and may thereafter withhold up to 75% of the payments for capacity for the
following three years to the extent necessary to repay the disallowance to NC
Power with interest. In the event such withholdings do not fully repay such
disallowance, CRM must repay the difference at the end of the 21st year.
Aggregate payments for capacity after the 18th anniversary of the commercial
operation date are not permitted to exceed the amount that NC Power is allowed
to recover from its customers.
In light of this regulatory disallowance provision in the power sales
agreement, the project lender for the Rocky Mount Facility has established a
regulatory disallowance reserve account, which is required to be funded at any
time a regulatory disallowance occurs or, from and after January 1, 2004, any
filing with a regulatory authority, which is deemed meritorious in the judgment
of the lender in consultation with counsel, is made challenging the pass-through
of payments under the power sales agreement (each a "Regulatory Disallowance
Event"). If a Regulatory Disallowance Event occurs during the period from 1994
through 2002, 25% of cash flow from the facility must be deposited to the
regulatory disallowance reserve account until the balance of such account is
equal to the amount required to be funded. If a Regulatory Disallowance Event
occurs during the period from 2003 through 2013, 100% of the cash flow from the
facility must be deposited to the regulatory disallowance reserve account until
the balance of such account is equal to the amount required to be funded. The
amount required to be funded in such account is an amount equal to the lesser of
(i) projected reduction in cash flows from 2009 through 2013 as a result of the
disallowance, and (ii) the amount of the debt outstanding at September 30, 2008.
If the Rocky Mount Facility has forced outage days in any year with
respect to more than the greater of 25 days or ten percent of the total number
of days the facility was required by NC Power to operate, capacity payments for
such period will be reduced by four percent for each such excess forced outage
day.
In the event capacity testing indicates that the Rocky Mount
Facility's dependable capacity is less than 90% of the declared capacity, CRM
will be obligated to pay annual liquidated damages to NC Power. A letter of
credit has been posted by CRM in favor of NC Power to secure its obligations to
perform under the power sales agreement.
Steam from the Rocky Mount Facility is sold to Abbott Laboratories
("Abbott") pursuant to a 25-year steam sales agreement (of which approximately
18 years remain) which may be extended for an additional five-year term upon one
year's prior written notice by Abbott. Abbott is obligated to purchase and use a
minimum of five percent of the total energy output so that the facility will
remain a QF under PURPA. The steam sales agreement provides that if CRM does not
deliver steam in accordance with the agreement under certain circumstances,
Abbott is entitled to receive certain quantities of steam in the future at
substantially reduced prices.
Coal for the Rocky Mount Facility is supplied from mines in West
Virginia under a 23-year coal sales agreement (of which approximately 16 years
remain) with Laurel Creek Co., Inc. and ACS Coal Sales Company ("ACS Coal
Sales"), which requires ACS Coal Sales to sell and CRM to purchase all of the
Rocky Mount Facility's requirements for coal. The contract price for coal
includes a base price which is modified based upon changes in a fuel and
transportation index that equals the fluctuation in rates payable by Virginia
Power for energy under the power sales agreement adjusted by
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fluctuations in pricing under CRM's rail transportation contract. CRM purchases
the lime required by the plant's pollution control equipment from APG Lime Corp.
under a five-year agreement expiring in December 2000.
CSX transports the coal for the Rocky Mount Facility pursuant to a
23-year rail transportation contract (of which approximately 16 years remain)
with pricing indexed to parallel increases in rates under CSX's transportation
agreements with Virginia Power.
Ash generated by the Rocky Mount Facility is managed by ReUse under an
ash removal agreement having a term expiring in 2013.
The Rocky Mount Facility was originally financed pursuant to a
$113,946,966 project financing. In December 1993, CRM renegotiated this
financing and, in connection therewith, increased outstanding borrowings to
$129,650,000. In addition, CRM has a cash collateralized letter of credit in a
face amount equal to $3,150,000 issued in favor of NC Power in support of CRM's
obligations under the power sales agreement with NC Power.
The Rocky Mount Facility generated $48.5 million in revenues in fiscal
1997, $47.5 million in revenues in fiscal 1996 and $45.3 million in revenues in
fiscal 1995.
RINGGOLD FACILITY. The Company's Ringgold facility (the "Ringgold
Facility"), located in Ringgold, Pennsylvania, is a 15.5 megawatt gas-fired
cogeneration facility using an internal combustion engine fueled primarily by
natural gas. The Ringgold Facility is owned by Cogentrix of Pennsylvania, Inc.,
a Delaware corporation ("CPA"). The Ringgold Facility commenced commercial
operation in April 1991.
Pennsylvania Electric Company ("Penelec") purchases energy from the
Ringgold Facility under a 20-year power sales agreement (of which approximately
13 and one-half years remain). Under the power sales agreement, failure of CPA
to generate and sell electricity throughout the term of the agreement (other
than due to force majeure) at an annual average level which is at least equal to
85% of the average output achieved during a rolling three-year period of
operation would result in the payment of a penalty which may be offset against
amounts payable by Penelec for energy.
Thermal energy (in the form of hot water) from the Ringgold Facility is
provided to a 10-acre greenhouse owned by CPA which is leased to and operated by
Keystone Village Farms, Inc. ("Keystone"), a subsidiary of Agro Power
Development, Inc. (see "Greenhouse Operations" herein), under a lease with a
ten-year term, which may be extended with the consent of the Company. Keystone
harvests tomatoes from the greenhouse which are then sold to wholesalers for
resale to grocery store chains.
Natural gas for the facility is supplied pursuant to two gas supply
contracts. One of these contracts is with JC Enterprises ("JCE") under an
agreement pursuant to which CPA has agreed to purchase two-thirds of its
requirements for gas. The price for gas under the agreement with JCE is a fixed
price which escalates by a fixed percentage monthly. JCE is responsible for
delivering the gas to CPA's property from its gas wells located in close
proximity to the plant. The term of this contract is 15 years (of which
approximately eight and one-half years remain) or until a specified volume of
gas is purchased, whichever is earlier. CPA also purchases gas under a gas
purchase agreement with Eastern Marketing Corporation ("Eastern") pursuant to
which it has prepaid for the quantity of gas contracted for thereunder. Eastern
is responsible for transporting the gas to CPA's property. The term of the
Eastern contract is ten years (of which approximately five and one-half years
remain).
The Ringgold Facility is financed pursuant to a $24,500,000 senior
credit facility and an $8,000,000 subordinated credit facility. Cogentrix has
granted a lien on the stock of CPA to the senior lenders. In April 1994,
Cogentrix Delaware Holdings, Inc. (a wholly owned subsidiary of Cogentrix
Energy, Inc.) purchased for $3,000,000 the entire $7.4 million outstanding
principal balance of the subordinated note and the related receivable
representing approximately $490,000 of accrued interest from the financial
institution holding the subordinated note.
When this project was initially developed, CPA entered into a
consulting agreement which provided for certain payments to be made annually to
the original developer of the Ringgold Facility. In September 1994, the Company
purchased the developer's interest in the consulting agreement with CPA and
acquired all outstanding shares of junior preferred stock of CPA held by him.
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As a result primarily of higher than anticipated construction costs,
the failure and subsequent replacement of certain equipment and higher than
anticipated maintenance and operation expenses, the Ringgold Facility has failed
to produce sufficient revenue to cover the debt service requirements of the
subordinated credit facility and to cover completely the debt service
requirements of the senior credit facility. Since the date of commencement of
construction through June 30, 1997, the Company has made approximately $18.8
million in equity contributions to CPA in order to cover construction costs and
permit CPA to make required payments of principal and interest. The Company is
presently attempting to restructure certain of the project's agreements to
improve the project's financial results. Given the current restructuring
efforts, the Company intends to continue to provide funds to CPA, if necessary,
for debt service.
The Ringgold Facility generated $8.4 million in revenues in fiscal
1997, $7.8 million in revenues in fiscal 1996 and $7.6 million in revenues in
fiscal 1995.
RICHMOND FACILITY. Cogentrix of Richmond, Inc., a North Carolina
corporation ("CR"), owns and operates a 240 megawatt stoker coal-fired
cogeneration plant in Richmond, Virginia (the "Richmond Facility"). Commercial
operation of the Richmond Facility was commenced in two phases: Unit I in May
1992 and Unit II in August 1992.
The Richmond Facility provides 209 megawatts of declared capacity
electricity to Virginia Power under two 25-year power sales agreements (of which
approximately 20 years remain) each of which may be extended for an additional
five-year term provided that two years prior to the end of the initial term the
parties agree to such extension. Annual changes in energy prices under the power
sales agreements are designed to offset annual fluctuations in coal and rail
transportation prices. Virginia Power has a right of first refusal to purchase
the Richmond Facility subject to the prior exercise of any such right by the
steam purchaser.
Currently, Virginia Power is permitted full recovery from its customers
of payments made to CR under the power sales agreements. The power sales
agreements provide, however, that if an applicable legislative or regulatory
authority should take action which would have the effect of disallowing Virginia
Power from recovering from its customers all or a portion of the payments for
capacity in excess of a certain amount during the first 18 years following the
commencement of commercial operation of the facility, Virginia Power will
continue to pay for capacity at the contract price through the first 18 years
and may thereafter withhold up to 75% of the payments for capacity for the
following three years to the extent necessary to repay the disallowance to
Virginia Power with interest. In the event such withholdings do not fully repay
such disallowance, CR will repay the difference at the end of the 21st year.
Aggregate payments for capacity after the 18th anniversary of the commercial
operation date are not permitted to exceed the amount that Virginia Power is
allowed to recover from its customers.
If the Richmond Facility has forced outage days in any year with
respect to more than the greater of 25 days or ten percent of the total number
of days the facility was required by Virginia Power to operate, capacity
payments for such period will be reduced by four percent for each such excess
forced outage day. In addition to Virginia Power's right to dispatch or suspend
delivery of electricity from the Richmond Facility for maintenance and
emergencies, the facility is also subject to economic dispatch by Virginia
Power. This right allows Virginia Power to suspend or reduce purchases of energy
from the Richmond Facility if Virginia Power determines that it can operate its
system for a designated period more economically. The power sales agreements are
structured so that CR will continue to receive capacity payments during any
period of economic dispatch. Capacity payments constitute a substantial portion
of the profit component of the power sales agreement. Energy payments, which
would be reduced (or possibly eliminated) as a result of an economic dispatch,
primarily cover variable operating, maintenance, coal and rail transportation
costs associated with operating at different levels. In February 1994, the
Company received a notice from Virginia Power invoking a provision in the power
sales agreement relating to the Hopewell and Portsmouth Facilities which
requires the Company to negotiate in good faith to enter into a separate
agreement for the dispatch of all of the Company's cogeneration facilities
located in the Virginia Power service area. See "Description of the Company's
Facilities --Project Agreements" herein.
In the event capacity testing indicates that the Richmond Facility's
dependable capacity is less than 90% of the declared capacity, CR will be
obligated to pay annual liquidated damages to Virginia Power. Letters of credit
have been posted by CR in favor of Virginia Power to secure its obligations to
perform under the power sales agreements.
The Richmond Facility provides steam to E. I. Du Pont de Nemours &
Company ("DuPont") for its Spruance plant located in Chesterfield County,
Virginia, under a long-term steam sales agreement. DuPont is obligated to
purchase and use a minimum of five percent of the Richmond Facility's total
energy output in a manner such that the Facility will remain a QF
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under PURPA. If CR is unable to operate the Richmond Facility to comply with the
steam sales agreement, DuPont has a qualified right to operate the facility.
DuPont also has the right to purchase the Richmond Facility upon the termination
of the steam sales agreement for a price equal to fair market value of the
facility at the time of exercise.
Coal for the Richmond Facility is purchased under two separate coal
sales agreements. Under a 20-year agreement (of which approximately 15 years
remain), Electric Fuels Corporation ("Electric Fuels") provides coal mined in
Kentucky for Unit I of the Richmond Facility. Coastal provides the coal
requirements for Unit II from mines in Kentucky under a separate 15-year
agreement (of which approximately 10 years remain). The coal sales agreements
require the coal providers to sell and CR to purchase all of the requirements
for the respective unit of the Richmond Facility, subject to certain maximum and
minimum requirements. The contract price for coal includes a base price which is
modified based upon a fuel and transportation index that parallels the
fluctuation in rates payable by Virginia Power for energy under the power sales
agreement adjusted by fluctuations in pricing under CR's rail transportation
contracts. CSX transports the coal for both units of the Richmond Facility
pursuant to two separate rail transportation contracts each having a 20-year
term expiring in 2012.
Ash generated by the Richmond Facility is managed by ReUse under an ash
removal agreement having a term expiring in 2008.
The Richmond Facility is financed pursuant to a construction and term
loan credit facility, which includes (i) a letter of credit in an original face
amount equal to $196,825,000 issued to support commercial paper notes of CR
issued from time to time; (ii) letters of credit issued to support certain
revenue bonds issued by the Industrial Development Authority of the City of
Richmond, Virginia in an aggregate principal amount equal to $48,000,000; and
(iii) letters of credit in an original aggregate face amount equal to $5,700,000
issued in support of CR's obligations to Virginia Power under the power sales
agreements.
CR purchased one of the power sales agreements relating to the Richmond
Facility from WV Hydro, Inc. ("WV"). In connection with such purchase and in
consideration of certain consulting arrangements, CR has continuing obligations
to make payments to Clover Development Company ("Clover"), an affiliate of WV,
in an aggregate amount ranging from $250,000 to $750,000, each year through
2003, from excess facility cash flow. If excess facility cash flow for any year
is insufficient to pay the $250,000 minimum amount, the deficiency will be
carried forward and is payable from excess facility cash flow, if any, in future
years. In addition, CR is obligated to pay to Clover an amount ranging from 3 to
3.5 percent of the net proceeds payable to CR upon any sale, disposition or
refinancing of the Richmond Facility after payment of senior and subordinated
project financing debt and expenses.
The Richmond Facility generated $79.5 million in revenues in fiscal
1997, $80.9 million in revenues in fiscal 1996 and $79.2 million in revenues in
fiscal 1995.
BIRCHWOOD FACILITY. Birchwood Power Partners, L.P. ("Birchwood"), a
Delaware limited partnership, owns the Birchwood Facility, which is located in
King George, Virginia. Cogentrix/Birchwood Two, L.P., an indirect, wholly-owned
subsidiary of the Company, owns a 50% interest in Birchwood. An indirect,
wholly-owned subsidiary of The Southern Company owns the remaining 50% of
Birchwood. The Birchwood Facility commenced commercial operation in November
1996.
The Birchwood Facility provides up to 202 megawatts of declared
capacity electricity to Virginia Power under a 25-year power sales agreement (of
which approximately 24 years remain) which may be extended for an additional
five-year term provided that two years prior to the end of the initial term the
parties agree to such extension. Annual changes in energy prices under the power
sales agreement are designed to offset annual fluctuations in coal and rail
transportation prices. Virginia Power has a right of first refusal to purchase
the Birchwood Facility. In addition, Virginia Power has an option to purchase
the Birchwood Facility at the end of the term of the power sales agreement.
Currently, Virginia Power is permitted full recovery from its customers
of payments made to Birchwood under the power sales agreement. The power sales
agreement provides, however, that if an applicable legislative or regulatory
authority should take action which would have the effect of disallowing Virginia
Power from recovering from its customers all or a portion of the payments for
capacity in excess of a certain amount during the first 20 years following the
commencement of commercial operation of the facility, Virginia Power will
continue to pay for capacity at the contract price through the first 20 years
and may thereafter withhold up to 75% of the payments for capacity for the
following year to the extent necessary to repay the disallowance to Virginia
Power with interest. In the event such withholdings do not fully repay
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such disallowance, Birchwood will repay the difference at the end of the 21st
year. Aggregate payments for capacity after the 20th anniversary of the
commercial operation date are not permitted to exceed the amount that Virginia
Power is allowed to recover from its customers.
If the Birchwood Facility is unable to operate within the dispatch
parameters established by Virginia Power under the power sales agreement, the
capacity payments for such period are subject to reduction. In addition to
Virginia Power's right to dispatch or suspend delivery of electricity from the
Birchwood Facility for maintenance and emergencies, the facility is also subject
to economic dispatch by Virginia Power. This right allows Virginia Power to
suspend or reduce purchases of energy from the Birchwood Facility if Virginia
Power determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that Birchwood will
continue to receive capacity payments during any period of economic dispatch.
Capacity payments constitute a substantial portion of the profit component of
the power sales agreement. Energy payments, which would be reduced (or possibly
eliminated) as a result of an economic dispatch, primarily cover variable
operating, maintenance, coal and rail transportation costs associated with
operating at different levels.
In the event capacity testing indicates that the Birchwood Facility's
dependable capacity is less than 90% of the declared capacity, Birchwood will
be obligated to pay annual liquidated damages to Virginia Power. A letter of
credit has been posted by Birchwood in favor of Virginia Power to secure its
obligations to perform under the power sales agreement.
The 36-acre greenhouse located adjacent to the Facility, which is
jointly owned and operated by the partners of Birchwood, uses steam from the
Facility.
Birchwood has a 25-year coal supply agreement for the requirements of
the Facility with Laurel Creek Co., Inc. ("Laurel"), Rockspring Development,
Inc. ("Rockspring"), Neweagle Industries, Inc. (as assignee of AgipCoal Holding
USA, Inc.) and Neweagle Coal Sales Corp. (as assignee of AgipCoal Sales USA,
Inc.) (collectively, "Neweagle"). Birchwood also has a back-up coal supply
letter agreement with Arch Mineral Corp. ("Arch") and two of its subsidiaries,
ACSC Coal Sales, Inc. ("ACSC") and Cumberland River Coal Company ("CRCC"),
whereby Arch guarantees that ACSC and CRCC will supply coal to the Facility in
the event of default by Neweagle under the coal supply agreement.
ER&L Birchwood, Inc. ("ER&LB"), a subsidiary of Energy Resources and
Logistics, Inc. ("Energy Resources"), and an indirect subsidiary of CSX,
provides transportation of the coal from the coal seller's mines in West
Virginia to the Facility. ER&LB will use CSX's rail lines and equipment to meet
its obligations under the 25-year coal transportation agreement. CSX by separate
agreement assures full and complete performance of all of ER&LB's obligations
under the coal transportation agreement.
The combined fuel and transportation cost under the coal supply
agreement and the coal transportation agreement is approximately equal to the
fuel compensation price that Birchwood receives under the power purchase
agreement. Furthermore, Neweagle and ER&LB have agreed to the same price
adjustment mechanism and redetermination formula included in the power purchase
agreement for the fuel compensation price. In effect, this passes the fuel and
transportation cost escalation risks from Birchwood through to the suppliers.
JTM Industries, Inc. ("JTM") removes and disposes of the ash generated
by the Birchwood Facility under an ash removal contract that expires in 2021.
JTM will attempt to identify viable markets to maximize the quantity of ash
being used. JTM and Birchwood will develop a revenue sharing program in
connection with the marketing of the ash.
The Birchwood Facility was financed pursuant to a debt facility which
includes a $155 million bank credit facility, a $135 million institutional debt
facility and $50 million of tax exempt debt. Cogentrix/Birchwood Two, L.P. has
pledged its ownership interests in Birchwood and the greenhouse located adjacent
to the Birchwood Facility as collateral security for the debt facility, however
Cogentrix Energy, Inc. is not liable for any deficiency if the proceeds of any
sale or disposition of the collateral are insufficient to pay the secured
obligations.
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PRINCIPAL CUSTOMERS
Electric utility customers accounting for more than ten percent of the
Company's revenue in each of the last three fiscal years were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
CP&L 25% 33% 34%
Virginia Power (including NC Power) 62 55 57
</TABLE>
COMPETITION
The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under
cost-of-service based regulation. The enactment of PURPA in 1978 spawned the
growth of the independent power industry which expanded rapidly in the 1980s.
The electric power industry is now in the midst of fundamental change, in terms
of both who the participants are and how they operate and are regulated. The
initial independent power producers to enter the market were an entrepreneurial
group of cogenerators and small power producers who recognized the business
opportunities offered by PURPA. This initial group of independent power
producers, which included the Company, was later joined by larger,
better-capitalized companies, such as subsidiaries of fuel supply companies,
utility affiliates, engineering companies, equipment manufacturers and
affiliates of other industrial companies. In addition, a number of regulated
utilities created subsidiaries which compete with the independent power
producers. Some independent power producers specialize in market niches, such as
a specific technology or fuel (e.g., gas-fired cogeneration, waste-to-energy,
hydroelectric, geothermal, wind, solar, wood, coal and conservation) or a
specific region of the country where they believe they have a market advantage.
The Company presently conducts its operations primarily in the southeastern
United States and has in the past concentrated primarily on standardized design
coal-fired facilities.
Based on net ownership of total project megawatts in operation, the
Company is among the larger independent power producers in the United States.
Although the Company is an established leader in the independent power industry,
other independent power producers and utility affiliates, including, among
others, Enron Power Corp., Calpine Corporation, CalEnergy, The AES Corporation,
Edison Mission Energy and U.S. Generating Company, have significantly larger
capital resources available to them than the Company.
Over the past decade, obtaining a power sales agreement with a utility
has become a progressively more difficult, expensive and competitive process.
The Company and its competitors now must put a significant amount of financial
resources at risk in order to develop a proposal or bid to a utility. Many
states and utilities now have policies that require or encourage power sales
agreements to be awarded by competitive bidding, which both increases the costs
and decreases the chances of obtaining such agreements.
Amendments to the Public Utility Holding Company Act of 1935 ("PUHCA")
enacted in the Energy Policy Act of 1992 have increased the number of the
Company's competitors by reducing certain restrictions on the ownership of
projects which are not QFs under PURPA. On the other hand, the Energy Policy Act
has also made it simpler for developers to develop certain types of larger
generation projects without the necessity of locating a steam host or developing
a complex ownership structure to avoid PUHCA restrictions.
REGULATION
The Company is subject to federal, state and local energy and
environmental laws and regulations applicable to the development, ownership and
operation of its United States plants. Federal laws and regulations govern
transactions with utilities, types of fuel utilized, the type of energy produced
and power plant ownership. State regulatory commissions must approve the rates
and, in some instances, other terms under which utilities purchase electricity
from independent producers. Under certain circumstances, such state commissions
may have broad jurisdiction over non-utility power plants. Power projects also
are subject to laws and regulations governing environmental emissions and other
substances produced by a plant, along with the geographical location, zoning,
land use and operation of a plant. Applicable federal environmental laws
typically have state and local enforcement and implementation provisions. These
environmental laws and regulations generally require that a wide variety of
permits and other approvals be obtained before construction or operation of a
power
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plant commences and that the facility operate in compliance therewith. The
Company strives to comply with all environmental laws, regulations, permits and
licenses but, despite such efforts, at times has been in non-compliance. No such
instance of non-compliance has resulted in significant fines or revocation of
any permit or license.
ENERGY REGULATIONS
QFs under PURPA.
Each of the Company's current operating facilities is a QF. QFs are
relieved of compliance with extensive federal, state and local regulations that
control the development, financial structure and operation of power plants and
cost-of-service based ratemaking to determine the prices at which power
generation facilities sell energy. In order to be a QF, a cogeneration facility
must sequentially produce both electricity and useful thermal energy for
non-mechanical or non-electrical uses in certain proportions to the facility's
total useful energy output. A QF utilizing oil or natural gas as fuel also must
meet certain energy efficiency standards. Finally, a QF must not be controlled
or more than 50% owned by an electric utility or by an electric utility holding
company, or a subsidiary of either or any combination thereof.
PURPA exempts QFs from PUHCA, most provisions of the Federal Power Act
(the "FPA") and, except under certain limited circumstances, state rate and
financial regulations. These exemptions are important to the Company and its
competitors.
In the absence of a power sales agreement, FERC regulations require
utilities to purchase electricity generated by QFs at a price based on the
purchasing utility's full "avoided cost," and that the utility sell back-up
power to the QF on a non-discriminatory basis. Avoided costs are the incremental
costs to a utility of electric energy or capacity or both which, but for the
purchase thereof from QFs, such utility would generate for itself or purchase
from another source. Due to increasing competition for utility contracts, the
current practice is for most power sales agreements to be awarded below avoided
cost.
The Company endeavors to minimize the risk of its facilities losing
their QF status. The occurrence of events outside the Company's control, such as
loss of a steam customer, could jeopardize QF status. While the facilities
usually would be able to react in a manner to avoid the loss of QF status by,
for example, replacing the steam customer or finding another use for the steam
which meets PURPA's requirements, there is no certainty that such action would
be practicable or economic.
If one of the Company's facilities were to lose its status as a QF, the
subsidiary would lose its exemptions from PUHCA and the FPA (and certain state
laws and regulations). This could subject the subsidiary to regulation under the
FPA and, in such event, would result in the Company inadvertently becoming a
public utility holding company. The Company's other facilities could in turn
lose their QF status. Moreover, loss of QF status could result in certain
utility customers terminating their power sales agreement with the nonqualifying
facility. If loss of QF status were threatened for a facility, the Company could
avoid holding company status (and thereby protect the QF status of its other
facilities) by applying to the FERC to obtain EWG status for the owner of the
nonqualifying facility. See "EWGs under the Energy Policy Act" herein.
Alternatively, the FERC may grant a limited waiver to the QF that would provide
continued exemption under PUHCA, provided the facility's rates were regulated
under the FPA.
EWGs under the Energy Policy Act.
The passage of the Energy Policy Act has significantly expanded the
options available to independent power producers with respect to their
regulatory status. In addition to (or in lieu of) QF status, an independent
power producer now can also apply to the FERC to be granted status as an EWG.
Except for existing cost-of-service based facilities (for which state consents
are required) any owner of a facility may apply for status as an EWG. An EWG
(like a QF) is exempt from regulation under PUHCA. However, EWG status does not
exempt a facility from FERC and state public utility commission ("PUC")
regulatory reviews, which may be more expansive than those applicable to QFs.
Birchwood, the owner of the Birchwood Facility, which is a QF, has also been
determined to be an EWG. See "Facilities Under Development."
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<PAGE> 27
Foreign Investments under the Energy Policy Act.
The Energy Policy Act has also expanded the options for companies that
wish to invest in foreign enterprises that own power production facilities
outside the United States. Amendments to PUHCA in the Energy Policy Act provide
that a domestic company making such an investment may avoid "holding company"
status or other regulation under PUHCA, if the foreign enterprise obtains EWG
status or files a notice with the Commission that it is a foreign utility
company ("FUCO").
PUHCA.
Under PUHCA, any entity owning or controlling ten percent or more of
the voting securities of a "public utility company" is a "holding company" and
is subject to registration with the Commission and regulation under PUHCA,
unless eligible for an exemption. Under the Policy Act and PURPA, EWGs, FUCOs,
and owners and operators of QFs are deemed not to be public utility companies
under PUHCA. Momentum is growing in Congress for the repeal of PUHCA, as more
legislators adopt the view that this statute has outlived its purpose.
Elimination of PUHCA would enable more companies to consider owning generation
and transmission assets, would permit "single state" utility systems to expand
beyond their state borders, and would permit companies that are currently in
registered holding company systems to diversify their investments to a greater
extent than now permitted. This could attract more competitors to the power
development and power marketing business and create some pressure on profit
margins. The Company believes that it is well positioned, however, to meet
stronger competition and, indeed, may be able to pursue more investment
opportunities made available by the repeal of PUHCA.
FPA.
The FPA grants the FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce, including ongoing as well
as initial rate jurisdiction, which enables the FERC to revoke or modify
previously approved rates. While QFs under PURPA are exempt from the traditional
rate-making and certain other provisions of the FPA, projects not qualifying for
QF status (for example, most EWGs) are subject to the FPA and to FERC
rate-making jurisdiction. Power marketers are also subject to FERC review of
their wholesale rates, and to FERC oversight of various business dealings such
as corporate reorganizations. Pursuant to the FPA, the Company's power marketing
subsidiary has filed its wholesale electric power rates with the FERC and
obtained authorization to sell electric power at rates set by supply and demand
in the marketplace.
State Regulation.
PUCs regulate retail rates of electric utilities and in certain cases
power sales agreements from independent power producers. In addition, states
have been delegated the authority to determine utilities' avoided costs under
PURPA. PUCs often will pre-approve agreements with prices that do not exceed
avoided costs, because such contracts often have been acquired through a
competitive or market-based process. Recognizing the competitive nature of the
acquisition process, many PUCs will permit utilities to "pass through" expenses
associated with a power sales agreement with an independent power producer. In
addition, retail sales of electricity or steam by an independent power producer
may be subject to PUC regulation, depending on state law.
EWGs are subject to broad regulation by PUCs, ranging from the
requirement of certificates of public convenience and necessity to regulation of
organizational, accounting, financial and other corporate matters. In addition,
states may assert jurisdiction over the siting and construction of EWGs (as well
as QFs), and over the issuance of securities and the sale or other transfer of
assets by these facilities. Many state utility commissions and state
legislatures are actively seeking ways to lower electric power costs at the
retail level, including options that would permit or compel competition at the
retail level. Federal legislation that would require states to permit retail
competition is also being given serious consideration. An opening of the retail
market would create tremendous opportunities for companies that have until now
been limited to the wholesale market. At the same time, state commissions are
pressuring the utilities they regulate to cut purchased power costs through
strict enforcement of existing contracts with QFs and EWGs, many of which are
considered to be overpriced. Because the Company is in compliance with its QF
contracts, it is not threatened by these pressures. State commissions are also
encouraging efforts by utilities to buy out or buy down such contracts.
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<PAGE> 28
Proposed Legislation.
In addition to federal legislative initiatives, the state commissions
or state legislatures of many states (for example, California, Illinois,
Michigan, Massachusetts, and Pennsylvania) are considering, or have considered,
whether to open the retail electric power market to competition (so-called
"retail access" or "customer choice"). Such "customer choice" plans typically
allow customers to choose their electricity suppliers by a certain date. Retail
competition is possible when a customer's local utility agrees, or is required,
to "unbundle" its distribution service (i.e., the delivery of electric power
to retail customers through its local distribution lines) from its transmission
and generation service.
The competitive pricing environment that will result from retail
competition may cause utilities to experience revenue shortfalls and
deteriorating creditworthiness. However, most, if not all, state plans will
insure that utilities receive sufficient revenues, through a distribution
surcharge if necessary, to pay their obligations under existing long-term power
purchase contracts with QFs and EWGs (including the above-market rates, or
"stranded investment" costs, provided for in such contracts). Many states will
also provide that the stranded investment costs will be "securitized" through
new financial instruments. On the other hand, QFs and EWGs may be subject to
pressure to lower their contract prices or to renegotiate contracts in an
effort to reduce the "stranded investment" costs of their utility customers.
Retail access programs may provide the Company with additional
opportunities to provide power from the Company's projects to industrial users
or power marketers. In addition, in light of the states' approaches to
"stranded investment" costs, the Company does not believe retail access programs
will have a material adverse effect on the Company's existing contracts.
Transmission and Wheeling.
Under the FPA, the FERC regulates the rates, terms and conditions for
electricity transmission in interstate commerce. The FERC's authority under the
FPA to require electric utilities to provide transmission service to QFs and
EWGs was significantly expanded by the Policy Act. Currently, none of the
Company's facilities requires the wheeling of electricity over power lines owned
by others. Except when market factors (such as an exceptional site or power
sales opportunity) warrant it, the Company generally attempts to site its
facilities within the utility customer's service area, and thus avoid the need
to utilize wheeling. The new provisions of the Energy Policy Act, however, and
actions taken by the FERC under the FPA have improved transmission access and
pricing for independent power producers like the Company.
In April 1996, the FERC issued a rulemaking order under the FPA,
Order 888, requiring all jurisdictional public utilities to file "open access"
transmission tariffs. Compliance with Order 888 has been virtually universal.
However, many utilities are seeking permission from the FERC to recover for
"stranded investment" through add-ons to their transmission rates. To the
extent that the FERC permits such charges, the cost of transmission may be too
high on some systems to be of practical use to wholesale sellers like the
Company. Therefore, the full value of Order 888 remains to be determined.
The FERC is also encouraging the voluntary restructuring of
transmission operations through the use of independent system operators and
regional transmission groups. Such entities may create efficiencies for
traditional utilities, but are not likely to have a substantial impact on power
developers and power marketers like the Company.
ENVIRONMENTAL REGULATIONS -- UNITED STATES
The construction and operation of power projects are subject to
extensive environmental protection and land use regulation in the United States.
Those regulations applicable to the Company primarily involve the discharge of
emissions into the water and air and the use of water, but can also include
wetlands preservation, endangered species, waste disposal and noise regulation.
These laws and regulations often require a lengthy and complex process of
obtaining and renewing licenses, permits and approvals from federal, state and
local agencies. If such laws and regulations are changed and the Company's
facilities are not grandfathered, extensive modifications to project
technologies and facilities could be required.
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Although a number of major environmental statutes are scheduled for
reauthorization, the Company expects that environmental regulations will
continue to become more stringent as environmental regulations previously passed
become implemented. Accordingly, the Company plans to continue a strong emphasis
on implementation of environmental standards and procedures at its operating
plants to minimize the environmental impact of its energy generation.
Clean Air Act.
In late 1990, Congress passed the Clean Air Act Amendments of 1990 (the
"1990 Amendments") which affect existing facilities as well as new project
development. The original Clean Air Act of 1970 set guidelines for emissions
standards for major pollutants from newly-built sources. All of the Company's
facilities perform at levels better than federal performance standards mandated
for such facilities under the Clean Air Act. The 1990 Amendments attempt to
reduce emissions from existing sources -- particularly large older facilities
that were exempted from certain regulations under the original Clean Air Act.
The 1990 Amendments create a marketable commodity called a sulfur
dioxide ("SO2") "allowance." All non-exempt facilities over 25 megawatts that
emit SO2 (including independent power plants) must obtain allowances in order to
operate after 1999. Each allowance gives the owner the right to emit one ton of
SO2. The 1990 Amendments exempt from the SO2 allowance provisions all
independent power projects which were operating, under construction or with
power sales agreements (or letters of intent therefor) as of November 15, 1990,
as well as facilities outside the contiguous 48 states. As a result, all of the
Company's current operating facilities are exempt. In the future, the facilities
the Company expects to develop will continue to rely on "clean (low sulfur)
coal," with flue gas desulfurization technology or natural gas technology. In
addition, under the 1990 Amendments, the Company will have the ability to
generate significant allowances from its existing facilities for use in future
projects, and, accordingly, the Company believes that the additional costs of
obtaining the number of allowances needed for future projects should not
materially affect the Company's ability to develop such projects. There has also
been an oversupply of allowances in the market resulting in a significant
decrease in allowance prices.
The 1990 Amendments also require states to impose annual operating
permit fees. While such permit fees may be substantial and will be greater for
coal-fired projects than for those burning gas or certain other fuels, such fees
are not expected to significantly increase the Company's plant operating costs.
The 1990 Amendments also contain other provisions that could affect the
Company's projects. Provisions dealing with geographical areas the EPA has
designated as in "nonattainment" with national ambient air quality standards
require that existing sources of air pollutants in a nonattainment area be
retrofit with reasonably available control technology ("RACT") for all
pollutants for which an area is designated nonattainment. The technology
currently installed at the Company's projects should uniformly meet or exceed
RACT for all such pollutants. The nonattainment provisions also require that
each new or expanded source of air pollutants in newly designated nonattainment
areas which has not submitted a complete air permit application before November
15, 1992 must obtain emissions reductions from existing sources that more than
offset the emissions from the new or expanded source. While the "offset"
requirements may hamper new project development in certain geographical areas,
development of new projects has and will likely continue, particularly as
markets for "offsets" develop.
The 1990 Amendments also provide an extensive new operating permit
program for existing sources called the Title V permitting program. Because all
of the existing Company facilities were permitted under the Prevention of
Significant Deterioration New Source Review Process, the permitting impact to
the Company under the 1990 Amendments is expected to be minimal. Continuous
emission monitoring systems may need to be upgraded at some facilities while the
permit fees will increase operating expenses. The costs of applying for and
obtaining operating air permits are not anticipated to be significant.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities, such as the Company's facilities.
Three studies of the emissions from such facilities are, however, in progress.
Until all of these studies are completed and Congress either amends the Clean
Air Act further or the EPA promulgates regulations, the federal hazardous air
pollutants emissions restrictions, which will be applied to the Company's
facilities and other electric steam generating facilities, will remain
uncertain.
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In July 1997, the EPA promulgated more restrictive ambient air quality
standards for ozone and particulate matter (less than 25 microns in diameter -
PM-2.5). These new standards will likely increase the number of nonattainment
areas for both ozone and PM-2.5. If the Company's plants are in these new
nonattainment areas, further emission reduction requirements could result in the
installation of additional control technology.
In addition, the Ozone Transport Assessment Group ("OTAG"), composed of
state and local air regulatory officials from the 37 eastern states, has
recommended additional NOx emission reductions that go beyond current federal
standards. These recommendations include reductions from utility and industrial
boilers. If more stringent NOx emission standards are adopted by the EPA and/or
certain states as a result of these recommendations, the Company could be
required to install additional NOx emission control technologies and/or obtain
allowances from other emitters.
The Company does not believe that any of the potential additional
requirements discussed above will have a material adverse effect on the
operations or financial position of the Company.
The 1990 Amendments expand the enforcement authority of the federal
government by increasing the range of civil and criminal penalties for
violations of the Clean Air Act and enhancing administrative civil penalties and
adding a citizen suit provision. These enforcement provisions also include
enhanced monitoring, recordkeeping and reporting requirements for existing and
new facilities. On February 13, 1997, the EPA issued a regulation providing for
the use of "any credible evidence or information" in lieu of, or in addition to,
the test methods prescribed by regulation to determine the compliance status of
permitted sources of air pollution. This rule may effectively make emission
limits previously established for many air pollution sources, including the
Company's, more stringent. On March 10, 1997, a number of utilities filed a
petition for review of the EPA regulations in the U.S. Court of Appeals for the
District of Columbia Circuit.
Clean Water Act.
The Company's existing facilities are subject to a variety of state and
federal regulations governing existing and potential water/wastewater and
stormwater discharges from the facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through NPDES permits. Under current provisions of the
Clean Water Act, existing permits must be renewed every five years, at which
time permit limits are under extensive review and can be modified to account for
more stringent regulations. In addition, the permits have re-opener clauses
which can be used to modify a permit at anytime. Several of the Company's
facilities have either recently gone through permit renewal or will be renewed
within the next few years. Based upon recent renewals, the Company does not
anticipate more stringent monitoring requirements.
Emergency Planning and Community Right-to-Know Act.
In April of 1997, the EPA expanded the list of industry groups required
to report the Toxic Release Inventory ("TRI") under Section 313 of the Emergency
Planning and Community Right-to-Know Act ("EPCRA") to include electric
utilities. The Company's operating plants will be required to complete a toxic
chemical inventory release form for each listed toxic chemical manufactured,
processed or otherwise used in excess of threshold levels for the 1998
reporting year. The purpose of this requirement is to inform the EPA, states,
localities and the public about releases of toxic chemicals to the air, water
and land that can pose a threat to the community.
ENVIRONMENTAL REGULATIONS -- INTERNATIONAL
Although the type of environmental laws and regulations applicable to
independent power producers and developers varies widely from country to
country, many foreign countries have laws and regulations relating to the
protection of the environment and land use which are similar to those found in
the United States. Laws applicable to the construction and operation of electric
power generation facilities in foreign countries generally regulate discharges
and emissions into water and air and also regulate noise levels. Air pollution
laws in foreign jurisdictions often limit the emissions of particulates, dust,
smoke, carbon monoxide, sulfur dioxide, nitrogen oxide and other pollutants.
Water pollution laws in foreign countries generally limit wastewater discharges
into municipal sewer systems and require treatment of wastewater which does not
meet established standards. New projects and modifications to existing projects
are also subject, in many cases, to land use and zoning restrictions imposed in
the foreign country. In addition, developers of foreign independent power
projects often conduct environmental impact assessments of proposed projects
pursuant to existing legislative requirements. Certain
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lenders to international development projects may impose their own requirements
relating to the protection of the environment.
The Company believes that the level of environmental awareness and
enforcement is growing in most countries, including most of the countries in
which the Company intends to develop and operate new projects. As a result,
plants built overseas will likely include pollution control equipment that is
required in the United States. Therefore, based on current trends, the Company
believes that the nature and level of environmental regulation that it is
subject to will become increasingly stringent, whether the Company undertakes
new projects in foreign countries or in the United States.
EMPLOYEES
At June 30, 1997, the Company employed 405 people, approximately 307 of
whom are involved in facility operations. No employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
In addition to the Company's properties listed under Item 1. "Business
- -- Description of the Company's Facilities," the Company leases its principal
executive office, a single 61,024 square foot building, located at 9405
Arrowpoint Boulevard in Charlotte, North Carolina. The Company leases the
building and related land from a partnership comprised of four of the Company's
shareholders. The building lease has an initial term ending in 2004, with
optional renewals through 2047. The term of the land lease extends through 2047.
See "Certain Transactions."
The Company also leases office space in Prince George, Virginia;
Portland, Oregon; Singapore; Bangalore, India; Mangalore, India and New Delhi,
India, none of which leases or leased premises are material.
The Company believes that its facilities and properties have been
satisfactorily maintained, are in good condition, and are suitable for the
Company's operations.
ITEM 3. LEGAL PROCEEDINGS
Under the 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 ELK Facilities by James River 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 will provide, all of such subsidiary's coal requirements through the end
of the contract term. In November 1996, James River and its affiliate instituted
an action against CECC 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
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.
In October 1996, Coastal, the coal supplier to the Southport Facility
under a similar requirements contract, initiated an arbitration proceeding
against CNC 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. The arbitration panel has been
selected and the proceedings are scheduled for September 30 - October 3, 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. The Company
has established reserves which management believes will be adequate to cover any
costs resulting from these matters. 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.
31
<PAGE> 32
In addition, the Company experiences routine litigation in the normal
course of business. Management is of the opinion that none of this routine
litigation will have a material adverse effect on the consolidated financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 33
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
(a) Market Information - There is no established market for the Company's
common stock, which is closely held.
(b) Principal Shareholders - All of the issued and outstanding shares of
common stock of the Company are beneficially owned by the six persons
listed in Item 12 of this report.
(c) Dividends - In fiscal 1996, the Company's board of directors declared a
dividend on its outstanding common stock of $4.8 million, which was
paid in fiscal 1997. The Company's board of directors declared a
dividend on its outstanding common stock of $5.0 million for the fiscal
year ended June 30, 1997, which was paid in September 1997. 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. While
the dividend declared in fiscal 1997 represents a departure from the
board's policy due to non-recurring items, the board of directors
intends to adhere to the policy in future years. In addition, under the
terms of the Indenture of the Senior Notes and a revolving credit
facility agreement, the Company's ability to pay dividends and make
other distributions to its shareholders is restricted.
33
<PAGE> 34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
data as of and for the five years ended June 30, 1997, which should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected consolidated financial data
as of and for each of the five years in the period ended June 30, 1997 set forth
below has been derived from the consolidated financial statements of the
Company, which were audited by Arthur Andersen LLP, independent public
accountants.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Electric $ 315,203 $ 356,459 $ 357,674 $ 351,892 $ 338,645
Steam 26,686 27,703 23,320 22,254 22,637
Other 10,343 22,522 2,992 1,939 1,037
--------- --------- --------- --------- ---------
Total operating revenue 352,232 406,684 383,986 376,085 362,319
--------- --------- --------- --------- ---------
Operating expenses:
Operating costs 204,446 245,582 235,006 239,225 236,568
General, administrative and development 39,425 29,983 30,499 26,664 25,116
Depreciation and amortization 40,047 37,842 37,642 36,290 28,851
Loss on impairment and cost of removal of
cogeneration facilities 65,628 0 0 0 0
--------- --------- --------- --------- ---------
Total operating expenses 349,546 313,407 303,147 302,179 290,535
--------- --------- --------- --------- ---------
Operating income 2,686 93,277 80,839 73,906 71,784
Other income (expense):
Interest expense (56,328) (58,354) (59,621) (50,736) (45,479)
Investment and other income 13,184 7,478 8,269 4,335 4,110
Equity in net income (loss)
of affiliates, net (239) 2,104 9,812 (650) 0
Minority interest in income of joint venture (4,013) (4,749) (4,789) (3,089) (2,514)
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
extraordinary gain (loss) and cumulative
effect of change in accounting principle (44,710) 39,756 34,510 23,766 27,901
Benefit (provision) for income taxes 17,112 (15,961) (13,337) (9,307) (11,508)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary gain (loss)
and cumulative effect of change in
accounting principle (27,598) 23,795 21,173 14,459 16,393
Extraordinary gain (loss) on early
extinguishment of debt, net (703) 0 0 3,055 0
Cumulative effect of change in method of
accounting for income taxes 0 0 0 (875) 0
--------- --------- --------- --------- ---------
Net income (loss) $ (28,301) $ 23,795 $ 21,173 $ 16,639 $ 16,393
========= ========= ========= ========= =========
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
As of June 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $859,828 $921,641 $930,733 $944,185 $868,369
======== ======== ======== ======== ========
Project financing debt (1) $591,694 $616,588 $661,891 $702,736 $723,435
======== ======== ======== ======== ========
Parent debt (2) $100,000 $100,000 $100,000 $100,000 $ 32,037
======== ======== ======== ======== ========
Total shareholders' equity $ 49,709 $ 83,010 $ 63,618 $ 46,560 $ 33,725
======== ======== ======== ======== ========
</TABLE>
(1) Project financing debt with respect to each of the Company's facilities
is "substantially non-recourse" to Cogentrix Energy, Inc. and its other
project subsidiaries. For a discussion of the term "substantially
non-recourse," see "Business -- Description of the Company's Facilities
-- Project Financing" herein.
(2) Parent debt represents obligations of Cogentrix Energy, Inc. only and
does not include non-recourse obligations of the Company's project
subsidiaries.
35
<PAGE> 36
ITEM 7. 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 and elsewhere in this Form 10-K are inherently subject to risks and
uncertainties which could cause the Company's actual results to differ
materially from the forward-looking statements. See cautionary statements
appearing above, under "Item 1. Business" and elsewhere in this Form 10-K for a
discussion of the important factors affecting the realization of those results.
GENERAL
The Company acquires, develops, owns and operates power generation
facilities and sells electricity and steam in the United States. The Company
owns or has interests in 11 power generation facilities having an aggregate
capacity of 1,120 megawatts. 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
development activities, ash disposal and environmental consulting services. Each
of the Company's facilities relies on a power sales agreement with a single
customer for the majority of its revenues over the life of the power sales
agreement. During the fiscal year ended June 30, 1997, two regulated utilities,
CP&L and Virginia Power, accounted for approximately 87% of the Company's
consolidated revenues.
Nine of the eleven cogeneration facilities in which the Company has
an interest are wholly owned by the Company. The Company has only a 50%
ownership interest in the Hopewell and Birchwood Facilities. The Company's
consolidated financial statements include the accounts of the Hopewell Facility
over which the Company has effective control of the management 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 reflects the interest of the Company's joint venture
partner in the income of the Hopewell Facility. The Company accounts for its
investment in the Birchwood Facility, which is operated by a subsidiary of the
Company's joint venture partner, under the equity method.
Effective in September 1996, the Company amended the power sales
agreements with 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. In addition to providing
CP&L additional dispatch rights, the amendments eliminated the purchase options
which CP&L had on the Roxboro and Southport Facilities. The amended power sales
agreements are structured so that the Company continues to receive capacity
payments during any period of economic dispatch, which cover project debt
service, fixed operating costs and constitute a substantial portion of the
profit component of the power sales agreement. Energy payments, which are
reduced (or possibly 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 amendment to these power sales
agreements has been a significant reduction in the Company's electric revenues,
which has been offset by reduced fuel costs and operations and maintenance
expense at these facilities. In response to the reduction in fuel requirements
at these five facilities resulting from the exercise by CP&L of its economic
dispatch rights, certain of the Company's coal suppliers for these facilities
have instituted various legal proceedings against the Company seeking to recover
damages. See "Legal Proceedings" herein.
In future years, the Company's revenues will or could be impacted by
one or more of the following events and uncertainties. First, the Company is
engaged in ongoing negotiations with Virginia Power regarding the restructuring
of the power sales agreements with respect to the Company's cogeneration
facilities located in that utility's service area. These negotiations could
result in amendments to the Company's power sales agreements for these
facilities granting Virginia Power additional dispatch rights for certain
facilities, which, if exercised, would lead to a reduction in the Company's
electric revenues from these facilities. Second, certain of the Company's power
sales agreements either terminate in years 2000 through 2002 or provide that
the rates for energy paid under such agreements after 2002 will be the rates
then specified in the applicable avoided cost schedule published by the
Virginia State Corporation Commission. The rates specified in the current
edition of the applicable avoided cost schedule are significantly lower than
the rates currently being paid by Virginia Power for energy
36
<PAGE> 37
under the contracts. And third, the Company is likely to develop future projects
with one or more partners as opposed to developing them on its own, in which
event the Company's ownership percentage will potentially be less than 51%.
Any such jointly developed projects would likely be accounted for under the
equity method with the Company recognizing only equity in net income of the
project based on its ownership percentage. Many of these same events and
uncertainties, if they occur, will also result in a corresponding decrease in
the Company's operating expenses.
Unusual weather conditions, reduced demand for steam by a facility's
steam host and the needs of each facility to perform routine or unanticipated
facility maintenance may have an effect on financial results. In addition, power
sales agreements at eight 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 account for most 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 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.
In 1996, the Company began making investments in partnerships formed to
develop, construct and operate greenhouses to produce tomatoes. Two of these
partnerships are operating greenhouses with a combined total of 50 acres of
production capacity. Two additional partnerships in which the Company has
invested are constructing greenhouses, with a combined total of 57 acres of
production capacity. The Company has a 50% interest in each of these
partnerships and accounts for these investments under the equity method.
RESULTS OF OPERATIONS
The following table sets forth the results of operations and percentage
of total operating revenues represented by the components of operating revenues
and expenses for the three fiscal years ended June 30, 1997.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-----------------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues $ 352,232 100% $ 406,684 100% $ 383,986 100%
Operating costs 204,446 58 245,582 61 235,006 61
General, administrative and
development 39,425 11 29,983 7 30,499 8
Depreciation and amortization 40,047 11 37,842 9 37,642 10
Impairment and cost of removal 65,628 19 -- -- -- --
---------- --- ---------- --- ---------- ---
Operating income $ 2,686 1 $ 93,277 23% $ 80,839 21%
========== === ========== === ========== ===
Megawatt hours sold 3,532,201 5,175,922 5,356,253
========== ========== ==========
</TABLE>
37
<PAGE> 38
Fiscal 1997 as compared to Fiscal 1996
Total operating revenues decreased 13.4% to $352.2 million for fiscal
1997 as compared to $406.7 million for fiscal 1996. This decrease was primarily
attributable to the significant decreases in electric revenues resulting from
economic dispatch of, and consequently reduced energy payments from, the
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport Facilities. The
decrease in operating revenues is also attributable to the absence of revenue in
fiscal 1997 comparable to (i) the payment received in fiscal 1996 upon the
execution of a joint development agreement with CLP related to the development
of the Company's India project, (ii) the $5 million fee earned by the Company in
fiscal 1996 related to the pre-construction development phase of an electric
generation facility for Clark and (iii) the $7.5 million capacity buydown
payment received in fiscal 1996 from the utility purchasing the electrical
output of the Hopewell Facility. To a lesser extent, the decrease in operating
revenues was also attributable to a $1.5 million decrease in steam revenues at
the Hopewell, Kenansville and Richmond Facilities resulting from a decrease in
demand for steam by these facilities' steam hosts and a $2.7 million decrease in
electric revenue at the Richmond and Rocky Mount Facilities resulting from a
decrease in megawatt hours sold to the purchasing utility. These decreases in
operating revenues were partially offset by a $4.6 million increase in electric
revenues at the Hopewell and Portsmouth Facilities due to an increase in on-peak
megawatt hours provided to the purchasing utility, as well as
escalation/inflation adjustment provisions in certain power sales agreements.
Operating costs decreased 16.8% to $204.4 million for fiscal 1997 as
compared to $245.6 million for fiscal 1996. This decrease resulted primarily
from the significant decrease in operating expenses at the Elizabethtown,
Lumberton, Kenansville, Roxboro and Southport Facilities resulting from their
economic dispatch by 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 fiscal 1996. These decreases were
partially offset by an increase in maintenance costs at the Richmond Facility
associated with routine maintenance performed in fiscal 1997 and an increase in
operating costs incurred by ReUse related to third-party agreements and expense
associated with a payment due to a deceased officer's beneficiary in fiscal
1997.
General, administrative and development expenses increased 31.5% to
$39.4 million for fiscal 1997 as compared to $29.9 million for fiscal 1996. The
increase is primarily the result of $10.7 million of payments made in connection
with restructuring or terminating incentive compensation arrangements for
certain employees, an increase in performance bonuses paid and severance
payments made to certain executive officers in fiscal 1997. These increases were
partially offset by a reduction in payments made under the profit-sharing plan,
due to a net loss before tax, a reduction in development expenses incurred on a
project the Company is developing in Idaho, as well as a general reduction in
consulting expenses related to development.
During 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, recorded in 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 Company's analysis of the post-contract operating environment 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 statement of
operations for the year ended June 30, 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'
38
<PAGE> 39
power sales agreements. The 5.8% increase in depreciation and amortization
expense in fiscal 1997 as compared to fiscal 1996 relates primarily to this
change in the estimated useful lives of these facilities.
The 3.5% decrease in interest expense is a result of the decrease in
the weighted average debt outstanding from $739 million in fiscal 1996 to $704
million in fiscal 1997. The decrease in weighted average debt outstanding, which
relates to scheduled maturities of the Company's project finance debt and the
repayment of the subordinated debt at the Elizabethtown, Lumberton and
Kenansville Facilities, was partially offset by an increase in project debt
outstanding at the Hopewell Facility and the Roxboro and Southport Facilities,
which related to refinancings completed during fiscal 1997.
Investment income increased 76.3% to $13.2 million for fiscal 1997 as
compared to fiscal 1996. The increase in investment income is related to larger
cash and investment balances maintained by the Company during fiscal 1997 as
compared to fiscal 1996, the recognition of a net loss on the sale of marketable
securities of approximately $900,000 during fiscal 1996 and the $3.1 million
gain on the sale (discussed below) of an investment during fiscal 1997.
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 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 equity in net loss of affiliates of $200,000 for fiscal 1997 as
compared to the equity in net income of affiliates of $2.1 million for fiscal
1996 is primarily attributable to the Company selling its investment in Bolivian
Power in December 1996. The Company recognized approximately $3.9 million in
equity in net income of affiliates in 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
operation in late calendar 1996, earnings generated by the Company's investment
in the Birchwood Facility, which commenced commercial operations in November
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 decrease in minority interest in income of joint venture in fiscal
1997 as compared to fiscal 1996 related to the decrease in net income of the
Hopewell Facility. The decrease in net income of the Hopewell Facility in turn
resulted primarily from the absence of revenue in fiscal 1997 comparable to the
$7.5 million capacity buydown payment received in 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 fiscal 1997 represents an effective
rate of 38.3% of loss before benefit for income taxes as compared to an
effective rate of 40.1% of income before income taxes for 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. A more complete discussion
of income taxes is included in Note 7 of Notes to Consolidated Financial
Statements.
The extraordinary loss on early extinguishment of debt in 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.
Fiscal 1996 as compared to Fiscal 1995
Total operating revenues increased $22.7 million (5.9%) in fiscal 1996
as compared to fiscal 1995. This increase in operating revenues was primarily
attributable to the $7.5 million payment received from the utility purchasing
the electrical output of the Hopewell Facility in connection with such utility's
buydown of the Hopewell Facility's declared capacity from 100 to 88.5 megawatts,
the $5 million fee earned by the Company related to the pre-construction
development phase of an electric generation facility for Clark and the payment
received by the Company upon the execution in July 1995 of the joint development
agreement with CLP related to the development of the Company's India project.
The increase in operating revenues for fiscal 1996 was also related to the
increase in megawatt hours sold by the Elizabethtown, Kenansville, Richmond and
Rocky Mount Facilities, the 168% increase in steam revenue at the Hopewell
Facility associated with an increase in steam demand by the industrial host and
the escalation/inflation adjustment provisions in certain power sales
39
<PAGE> 40
agreements. The increase in revenues for fiscal 1996 was partially offset by a
$10.2 million decrease in electric revenues at the Hopewell Facility related to
the significant, unscheduled maintenance performed at the facility which
resulted in a decrease in megawatt hours delivered to the purchasing utility in
fiscal 1996.
Operating costs for fiscal 1996 increased 4.5% to $245.6 million as
compared to $235 million in fiscal 1995. This increase relates primarily to a
significant increase in maintenance costs at the Hopewell Facility related to
the unscheduled boiler outages associated with replacing the tubing in all of
the facility's boilers. The increase in operating costs also relates to routine
turbine and boiler maintenance performed at the Rocky Mount and Richmond
Facilities. The increases in operating costs were partially offset by
significant decreases in fiscal 1996 in routine maintenance costs at the
Portsmouth, Lumberton and Kenansville Facilities, at which facilities the
Company performed routine turbine and boiler maintenance during fiscal 1995.
General, administrative and development expenses decreased 1.7% to
$30.0 million in fiscal 1996 as compared to $30.5 million in fiscal 1995. The
decrease for fiscal 1996 relates primarily to a decrease in performance bonuses
paid in fiscal 1996, severance payments accrued in fiscal 1995 related to
certain former participants in the Company's incentive compensation plan and to
a buyout of an unrelated consultant in fiscal 1995 of a long term consulting
agreement under which the consultant provided services to the Ringgold Facility.
The decrease in general, administrative and development expenses for fiscal 1996
also relates to a general decrease in outside consulting expenses associated
with the Company's international development efforts, which is partially
attributable to the direct development expenses related to the India project
being shared equally with CLP commencing in July 1995. These decreases were
partially offset by an increase in the incentive compensation accrual for fiscal
1996 due to an increase in net income before taxes, expenses associated with the
Company's deferred compensation plan, which commenced in January 1995, and
development expenses incurred on the Rathdrum Project which commenced
development in December 1994.
The 2.1% decrease in interest expense is a result of the decrease in
the weighted average debt outstanding from $782 million in fiscal 1995 to $739
million in fiscal 1996. The decrease in weighted average debt outstanding
relates primarily to regularly scheduled repayments of principal on the
Company's project finance debt. The decrease in interest expense was partially
offset by an increase in interest expense associated with an increase in the
weighted average interest rate from 7.62% in fiscal 1995 to 7.89% for fiscal
1996. This increase in the weighted average interest rate relates primarily to a
new interest rate swap agreement on the Portsmouth Facility project debt and an
increase in the interest rate floor on a certain interest rate hedge agreement
on the Richmond Facility project debt.
Investment income decreased 9.6% to $7.5 million for fiscal 1996 as
compared to fiscal 1995. This decrease relates primarily to a net loss in the
sale of marketable securities of approximately $900,000 during fiscal 1996. This
decrease in investment income was partially offset by increases in investment
income associated with larger cash and investment balances maintained by the
Company during fiscal 1996 as compared to fiscal 1995.
The decrease in equity in net income of affiliates is related to the
$10.7 million gain recognized during fiscal 1995 on the termination of the power
sales agreement between Consumers Power Company and Michigan Cogeneration
Partners Limited Partnership, a joint venture between the Company and Wolverine
Energy, Inc. This decrease in equity in net income of affiliates was partially
offset by an increase in the equity in net income of affiliates associated with
the equity in net income of the Company's investment in Bolivian Power, which
was acquired in November 1994. The Company recognized approximately $3.9 million
in equity in net income of affiliates during fiscal 1996 related to Bolivian
Power, $2.3 million of which was associated with the gain recognized by Bolivian
Power on the sale of its distribution subsidiaries.
The minority interest in income of joint venture for fiscal 1996 was
similar to that recognized for the same period of fiscal 1995. However, during
fiscal 1996 the Hopewell Facility recognized a significant increase in operating
costs from the unscheduled outages associated with the boiler retubing
maintenance and from the related routine maintenance performed during these
outages. This significant increase in operating costs during fiscal 1996 was
offset by a decrease in fuel expense associated with the Hopewell Facility
operating at lower levels in fiscal 1996 and an increase in revenues associated
with the $7.5 million capacity buydown payment received from the utility
purchasing the electrical output of the Hopewell Facility in fiscal 1996.
The provision for income taxes in fiscal 1996 represents an effective
rate of 40.1% of income before income taxes as compared to an effective rate of
38.6% of income before income taxes in fiscal 1995. This increase in the
effective tax rate relates to the reduced recognition of state net operating
loss carryforwards calculated under the apportionment method in
40
<PAGE> 41
fiscal 1996. A more complete discussion of income taxes is included in Note 7 of
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the fiscal year
ended June 30, 1997 were generated by a net loss of $28.3 million, increases due
to adjustments for depreciation and amortization of $40 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 $7.4
million and a net $16.5 million source of cash reflecting changes in other
working capital assets and liabilities, which were partially offset by deferred
taxes of $27.6 million, gain on the sale of the investment in Bolivian Power of
$3.1 million and minority interest in income of joint venture, net of dividends,
of $7.7 million. Cash flow provided by operating activities of $64 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 $55 million of
cash escrows and restricted marketable securities released were primarily used
to purchase equipment of $3.0 million, to make investments in marketable
securities of $21.5 million, to make investments in affiliates of $58.2 million,
to repay project finance borrowings of $95.5 million, to pay deferred financing
costs of $2.9 million and to pay common stock dividends of $4.8 million.
The principal components of cash flow provided by operating activities
for fiscal year ended June 30, 1996 were generated by net income of $23.8
million, increases due to adjustments for depreciation and amortization of $37.8
million, deferred income taxes of $8.6 million, minority interest in income of
joint venture of $3.4 million, net of dividends, loss on the sale of securities,
net of $0.9 million, and a net $5.5 million source of cash reflecting changes in
other working capital assets and liabilities which were partially offset by $1.5
million of equity in net income of affiliates net of dividends received from
unconsolidated affiliates. Cash flow provided by operating activities of $78.5
million and proceeds from project finance borrowings of $0.4 million were
primarily used to purchase property, plant and equipment of $1.6 million, to
purchase marketable securities of $12.5 million, to make investments in
affiliates of $6.5 million, to repay project finance borrowings of $46.6
million, to fund cash escrows of $7.5 million and to pay a dividend to common
shareholders of $4.2 million.
Historically, the Company has financed each facility primarily under
financing arrangements and related documents which generally require the
extensions of credit to be repaid solely from the project's revenues and provide
that the repayment of the extensions of credit (and interest thereon) is secured
solely by the physical assets, agreements, cash flow and, in certain cases, the
capital stock of that project subsidiary. This type of financing is generally
referred to as "project financing." The project financing debt of the Company's
subsidiaries (aggregating $591.7 million as of June 30, 1997) is substantially
non-recourse to the Company and its other project subsidiaries, except in
connection with certain transactions where Cogentrix Energy, Inc. or Cogentrix
has agreed to certain limited guarantees and other obligations with respect to
such projects. These limited guarantees and other obligations include (i) an
agreement for the benefit of the Roxboro and Southport project lenders to fund
cash deficits the project may experience as a result of incurring certain costs,
subject to a cap of $11.3 million, (ii) guarantees to fund a reserve account in
connection with the financing of a project subsidiary in an aggregate amount of
up to approximately $4.0 million and (iii) guarantees of obligations and
liabilities of the Company's ReUse subsidiary limited in an aggregate amount of
up to $2.5 million. In addition, Cogentrix has guaranteed certain project
subsidiaries' obligations to the utility under power sales agreements and
obligations of up to $1.5 million of ReUse under an ash disposal agreement with
an unrelated third party. Because certain of these limited guarantees and other
obligations do not by their terms stipulate a maximum dollar amount of
liability, the aggregate amount of the Company's potential exposure under these
guarantees cannot be quantified. The aggregate contractual liability of the
Company to its subsidiaries' project lenders is, in each case, a small portion
of the aggregate project debt. If, however, the Company were required to satisfy
all these guarantees and other obligations or even one or more of the
significant ones, such event could have a material adverse impact on the
Company's financial condition.
As of June 30, 1997, the Company had long-term debt (including the
current portion thereof) of approximately $691.7 million. With the exception of
the $100 million of Senior Notes issued in March, 1994, substantially all of
such indebtedness is project financing debt. Future annual maturities of
long-term debt range from $62.4 million to $90.4 million in the five-year period
ending June 30, 2002. The Company believes that its project subsidiaries will
generate sufficient cash flow 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 Cogentrix
Energy, Inc. to pay all required debt service on the Senior Notes, fund a
significant portion of its development activities and meet its other
obligations. If, as a result of
41
<PAGE> 42
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.
On March 15, 1994, the Company issued $100 million of registered,
unsecured Senior Notes due 2004. The Senior Notes were priced at par to yield
8.10%. Of the net proceeds to the Company from the issuance of the Senior Notes,
$23.5 million was used in March 1994 to repay the outstanding balance due under
a corporate credit facility, $3 million was used in April 1994 to purchase the
subordinated note of CPA (project subsidiary operating the Ringgold Facility),
$18 million was used in November 1994 to purchase 17.1% of the common stock of
Bolivian Power, $29.5 million was used in December 1994 to purchase a 50%
interest in Birchwood, $4.6 was used in February 1996 to purchase a 50%
interest in a tomato greenhouse in Texas, and the balance was used to fund a
portion of the Company's equity investment in Birchwood.
In May 1997, the Company entered into a credit agreement with Australia
and New Zealand Banking Group Limited, as Agent, which provides for a $50
million revolving credit facility ("Credit Facility") with a term of three years
("Revolving Term"). The Credit Facility provides for one-year extensions of the
Revolving Term, subject to lender consent. The Company can utilize the Credit
Facility in the form of direct advances or the issuance of unsecured letters of
credit. The outstanding balance of the Credit Facility at the end of the
Revolving Term is payable over two years in four equal semiannual repayments of
direct advances or collateralization of letters of credit. As of June 30, 1997,
the Company had no advances or letters of credit outstanding under the Credit
Facility.
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, the project entity.
The ability of the Company's project subsidiaries to 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. See "Business -- Description of the
Company's Facilities," and " -- Facilities in Operation" herein.
In December 1994, the Company acquired a 50% interest in Birchwood, 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 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 Company's Senior Note offering. The
Company also provided an equity contribution to Birchwood Power of
approximately $43.7 million in March 1997, which was funded with the remaining
proceeds of the Company's Senior Note offering and corporate cash balances.
Birchwood, which commenced commercial operations in November 1996, sells
electricity to Virginia Power and provides thermal energy to a 36-acre
greenhouse under long-term contracts.
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.
42
<PAGE> 43
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 expects to secure one or more other 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 $60 to $65 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
indebtedness of JRCC outstanding and extended the final maturity date of the
loan by 21 months. JRCC 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 which will be used by the Company for general corporate purposes.
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 ELK
Facilities in connection with the refinancing of its project debt in September
1996. The remainder of the proceeds will be used by the Company for general
corporate purposes.
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.
In September 1997, the Company's board of directors declared a $5.0
million dividend for the fiscal year ended June 30, 1997 payable to the common
shareholders of the Company, which was paid in September 1997. 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. While the dividend declared
for fiscal 1997 represents a departure from the policy due to non-recurring
items, the board of directors intends to adhere to the policy in future years.
Under the terms of the Indenture for the Senior Notes and the Credit Facility,
the Company's ability to pay dividends and make other distributions to the
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 generally and tend to fluctuate significantly. Through
various hedging mechanisms, the Company has attempted to mitigate the impact of
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 June
30, 1997, approximately
43
<PAGE> 44
87.6% of the Company's project financing debt was hedged, with 30.4% being
hedged with interest rate caps which were above the prevailing market rate at
June 30, 1997 and therefore subject to interest rate volatility.
Although hedged to a significant extent, the Company's financial
results will likely be affected to some degree by fluctuations in energy prices,
interest rates and inflation. The effectiveness of the hedging techniques
implemented by the Company is dependent, in part, on each counterparty's ability
to perform in accordance with the provisions of the relevant contracts. The
Company has sought to reduce the risk by entering into contracts with
creditworthy organizations.
CHANGE OF CORPORATE FISCAL YEAR
On September 18, 1997, the Company's board of directors authorized
management to take the necessary actions and secure the required approvals to
change the fiscal year end of the Company from June 30 to December 31, effective
December 31, 1997. Management believes it is preferable for the Company to
report on a calendar year basis for reasons including, but not limited to, the
following: (1) the majority of corporations (the Company's peer group) in the
independent power industry report on a calendar year basis, (2) the majority of
the Company's joint ventures formed with third parties report on a calendar
year basis, and (3) a calendar year reporting period more closely approximates
the Company's business cycle under its long-term contracts.
44
<PAGE> 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Reports of Independent Public Accountants 46
Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1997 and 1996 48
Consolidated Statements of Operations For the Years Ended
June 30, 1997, 1996 and 1995 49
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended June 30, 1997, 1996 and 1995 50
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1997, 1996 and 1995 51
Notes to Consolidated Financial Statements 52
Financial Statement Schedules:
Schedule I - Condensed Financial Information of the Registrant 65
Schedules other than those listed above have been omitted, since they are not
required, are not applicable or are unnecessary due to the presentation of the
required information in the financial statements or notes thereto.
45
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COGENTRIX ENERGY, INC.:
We have audited the accompanying consolidated balance sheets of
Cogentrix Energy, Inc. (a North Carolina corporation) and subsidiary companies
as of June 30, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The summarized
financial data for Bolivian Power Company Limited contained in Note 4 are based
on the financial statements of Bolivian Power Company Limited which were audited
by other auditors. Their report has been furnished to us and our opinion,
insofar as it relates to the data in Note 4, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Cogentrix Energy, Inc. and subsidiary
companies as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
September 12, 1997
46
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS:
Compania Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited
We have audited the consolidated financial statements of Compania
Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited and its
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, of shareholders' equity and of cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Compania
Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with accounting principles generally accepted in the
United States of America.
PRICE WATERHOUSE
Moreno, Munoz y
Cia.
La Paz, Bolivia
February 28, 1997
47
<PAGE> 48
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 62,596 $ 33,351
Restricted cash 30,888 42,203
Marketable securities 21,494 0
Restricted investments 20,000 0
Accounts receivable 57,880 57,331
Inventories 15,723 19,086
Other current assets 5,779 2,883
-------- --------
Total current assets 214,360 154,854
PROPERTY, PLANT AND EQUIPMENT,
Net of accumulated depreciation: 1997, $169,761; 1996, $156,215 514,449 604,491
LAND AND IMPROVEMENTS 2,540 2,424
DEFERRED FINANCING, START-UP AND ORGANIZATION COSTS,
Net of accumulated amortization: 1997, $16,373; 1996, $19,653 22,601 25,105
RESTRICTED INVESTMENTS 0 63,695
NATURAL GAS RESERVES 2,829 3,611
INVESTMENTS IN AFFILIATES 84,599 56,028
OTHER ASSETS 18,450 11,433
-------- --------
$859,828 $921,641
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 62,370 $ 48,416
Accounts payable 22,147 21,453
Accrued compensation 12,290 4,393
Accrued interest payable 3,308 4,063
Accrued dividends payable 5,000 4,759
Other accrued liabilities 13,040 8,816
-------- --------
Total current liabilities 118,155 91,900
LONG-TERM DEBT 631,624 670,900
DEFERRED INCOME TAXES 23,074 46,971
MINORITY INTEREST IN JOINT VENTURE 14,354 22,044
OTHER LONG-TERM LIABILITIES 22,912 6,816
-------- --------
810,119 838,631
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated earnings 49,579 82,880
-------- --------
49,709 83,010
-------- --------
$859,828 $921,641
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
48
<PAGE> 49
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996
AND 1995 (DOLLARS IN THOUSANDS, EXCEPT FOR
EARNINGS (LOSS) PER COMMON SHARE)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUE:
Electric $ 315,203 $ 356,459 $ 357,674
Steam 26,686 27,703 23,320
Other 10,343 22,522 2,992
--------- --------- ---------
352,232 406,684 383,986
--------- --------- ---------
OPERATING EXPENSES:
Fuel expense 131,405 171,310 168,184
Operations and maintenance 73,041 74,272 66,822
General, administrative and development expenses 39,425 29,983 30,499
Depreciation and amortization 40,047 37,842 37,642
Loss on impairment and cost of removal of cogeneration facilities 65,628 0 0
--------- --------- ---------
349,546 313,407 303,147
--------- --------- ---------
OPERATING INCOME 2,686 93,277 80,839
OTHER INCOME (EXPENSE):
Interest expense (56,328) (58,354) (59,621)
Investment and other income 13,184 7,478 8,269
Equity in net income (loss) of affiliates, net (239) 2,104 9,812
--------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME OF
JOINT VENTURE, INCOME TAXES AND EXTRAORDINARY LOSS (40,697) 44,505 39,299
MINORITY INTEREST IN INCOME OF JOINT VENTURE (4,013) (4,749) (4,789)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS (44,710) 39,756 34,510
BENEFIT (PROVISION) FOR INCOME TAXES 17,112 (15,961) (13,337)
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (27,598) 23,795 21,173
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
NET OF INCOME TAX BENEFIT OF $470 (703) 0 0
--------- --------- ---------
NET INCOME (LOSS) ($ 28,301) $ 23,795 $ 21,173
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss ($ 97.87) $ 84.38 $ 75.08
Extraordinary loss (2.49) 0.00 0.00
--------- --------- ---------
($ 100.36) $ 84.38 $ 75.08
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000 282,000
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
49
<PAGE> 50
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR DIVIDENDS PER COMMON SHARE)
<TABLE>
<CAPTION>
NET UNREALIZED
LOSS ON
COMMON AVAILABLE FOR ACCUMULATED
STOCK SALE SECURITIES EARNINGS TOTAL
----- --------------- -------- -----
<S> <C> <C> <C> <C>
Balance, June 30, 1994 $130 ($476) $ 46,906 $ 46,560
Net unrealized loss on available
for sale securities, net of
deferred income tax benefit
of $34 0 120 0 120
Net income 0 0 21,173 21,173
Common stock dividends
($15.01 per common share) 0 0 (4,235) (4,235)
---- ----- -------- --------
Balance, June 30, 1995 130 (356) 63,844 63,618
Net unrealized gain on available
for sale securities, net of
deferred income tax
provision of $256 0 356 0 356
Net income 0 0 23,795 23,795
Common stock dividends
($16.88 per common share) 0 0 (4,759) (4,759)
---- ----- -------- --------
Balance, June 30, 1996 130 0 82,880 83,010
Net loss 0 0 (28,301) (28,301)
Common stock dividends
($17.73 per common share) 0 0 (5,000) (5,000)
---- ----- -------- --------
Balance, June 30, 1997 $130 $ 0 $ 49,579 $ 49,709
==== ===== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
50
<PAGE> 51
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($28,301) $ 23,795 $ 21,173
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 40,047 37,842 37,642
Loss on impairment and cost of removal of cogeneration facilities 65,628 0 0
Deferred income taxes (27,585) 8,569 7,718
Extraordinary loss on early extinguishment of debt 1,173 0 0
Minority interest in income of joint venture, net of dividends (7,690) 3,407 3,680
Gain on sale of investment in Bolivian Power (3,137) 0 0
Equity in net (income) loss of unconsolidated affiliates 239 (2,104) (11,057)
Dividends received from unconsolidated affiliates 7,152 617 14,853
Loss on sale of securities, net 0 890 0
Increase in accounts receivable (549) (795) (1,313)
Decrease in inventories 4,145 667 317
Increase (decrease) in accounts payable (61) 1,628 (2,708)
Increase in accrued liabilities 12,121 3,809 585
Decrease in other 866 141 564
-------- -------- --------
Net cash flows provided by operating activities 64,048 78,466 71,454
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,956) (1,555) (8,171)
Decrease (increase) in marketable securities 22,201 (12,456) 1,506
Investments in affiliates (58,222) (6,516) (48,323)
Proceeds from sale of investment in Bolivian Power, net 25,398 0 0
Decrease (increase) in restricted cash 11,315 (8,190) (4,157)
-------- -------- --------
Net cash flows used in investing activities (2,264) (28,717) (59,145)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable and long-term debt 70,661 406 1,622
Repayments of notes payable and long-term debt (95,552) (46,642) (42,513)
Increase in deferred financing costs (2,889) 0 (93)
Common stock dividends paid (4,759) (4,235) (3,328)
-------- -------- --------
Net cash flows used in financing activities (32,539) (50,471) (44,312)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,245 (722) (32,003)
CASH AND CASH EQUIVALENTS, beginning of year 33,351 34,073 66,076
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 62,596 $ 33,351 $ 34,073
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 54,458 $ 58,253 $ 58,952
======== ======== ========
Income taxes paid $ 8,271 $ 7,023 $ 4,664
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
51
<PAGE> 52
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cogentrix Energy, Inc. and subsidiary companies (collectively, the
"Company") is principally engaged in the business of acquiring, developing,
owning and operating independent power generating facilities (individually, a
"Facility," or collectively, the "Facilities"). As of June 30, 1997, the Company
owned or had interests in eleven Facilities in the United States with an
aggregate installed capacity of approximately 1,120 megawatts. Two of the eleven
Facilities are owned 50% by the Company and 50% by other independent power
producers. Electricity generated by each Facility is sold to an electric utility
(the "Utility") and steam is sold to an industrial company (the "Steam
Purchaser"), all under long-term contractual agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation -- The
accompanying consolidated 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. and its subsidiary companies and its consolidated joint
venture have been eliminated in the accompanying consolidated financial
statements.
Cash and Cash Equivalents -- Cash and cash equivalents include bank
deposits, commercial paper, government securities and certificates of deposit
that mature within three months of their purchase. Amounts in debt service
accounts which might otherwise be considered cash equivalents are treated as
current restricted cash.
Marketable Securities -- Marketable securities include commercial
paper, corporate obligations, government securities, and certificates of deposit
with maturity dates in excess of three months from their date of purchase. All
investments in debt securities held by the Company are classified as available
for sale securities and are reported at fair value. Realized gains or losses are
determined on the specific identification method and are reflected in income.
Unrealized gains and losses are reported net of taxes as a separate component of
shareholders' equity, except those unrealized losses that are deemed to be other
than temporary, which are reflected in income.
Construction Agreement -- In December 1994, the Company executed an
engineering, procurement and construction agreement (the "Construction
Agreement") with Public Utility District No. 1 of Clark County, Washington
("Clark"). Under this Construction Agreement, the Company is engineering,
procuring equipment for and constructing a 248 megawatt combined-cycle,
gas-fired electric generation facility (the "Clark Facility"). The Company is
accounting for the construction under the completed-contract method, and, as
such, all third-party construction costs and reimbursements are deferred until
the contract is completed. Costs incurred as of June 30, 1997 and 1996 of
$104,960,000 and $37,117,000, respectively, are netted against the related
reimbursed costs of $99,552,000 and $35,572,000, respectively, and the
difference is included in accounts receivable on the accompanying consolidated
balance sheets.
Inventories -- Coal inventories consist of the contract purchase price
of coal and all transportation costs incurred to deliver the coal to each
Facility. Gas inventories represent the cost of natural gas purchased as fuel
reserves for a Facility that is forecasted to be consumed during the next fiscal
year. Spare parts inventories consist of major equipment and recurring
maintenance supplies required to be maintained in order to facilitate routine
maintenance activities and minimize unscheduled maintenance outages. As of June
30, 1997 and 1996, fuel and spare parts inventories are comprised of the
following (dollars in thousands):
52
<PAGE> 53
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Coal $ 8,274 $11,951
Natural gas 700 700
Spare parts 6,749 6,435
------- -------
$15,723 $19,086
======= =======
</TABLE>
Coal inventories at certain Facilities are recorded at last-in, first-out
("LIFO") cost, with the remaining Facilities' coal inventories recorded at
first-in, first-out ("FIFO") cost. The cost of coal inventories recorded on a
LIFO basis was $900,000, $1,458,000 and $1,162,000 less than the cost of these
inventories on a FIFO basis as of June 30, 1997, 1996 and 1995, respectively.
Spare parts inventories are recorded at average cost.
Property, Plant and Equipment -- Property, plant and equipment is
recorded at actual cost. Substantially all property, plant and equipment
consists of cogeneration facilities which are depreciated on a straight-line
basis over their estimated useful lives (ranging from 9 to 30 years). Other
property and equipment is depreciated on a straight-line basis over the
estimated economic or service lives of the respective assets (ranging from 3 to
10 years). Maintenance and repairs are charged to expense as incurred. Emergency
and rotatable spare parts inventories are included in plant and are depreciated
over the useful life of the related components.
Natural Gas Reserves -- Natural gas reserves consist of the cost of
natural gas purchased as long-term fuel reserves for a Facility. These reserves
are recorded at cost.
Deferred Financing, Start-up and Organization Costs -- Financing costs,
consisting primarily of legal and other direct costs incurred to obtain
financing for the Facilities, are deferred and amortized over the permanent
financing term. Start-up and organization costs include payroll costs and fees
paid to consultants, technicians and vendors associated with the formation of
each entity and the start-up of the Facilities. All start-up costs were fully
amortized as of June 30, 1997.
Project Development Costs -- Project development costs represent costs
incurred after executing a power sales contract or obtaining a viable project
site or signing a letter of intent and prior to obtaining project financing and
starting physical construction. These costs represent amounts incurred for
professional services, salaries, permits, options and other direct and
incremental costs and are included in construction in progress when project
financing is obtained or expensed at the time the Company determines the project
will not be developed.
Revenue Recognition -- Revenues from the sale of electricity and steam
are recorded based upon output delivered and capacity provided at rates
specified under contract terms. Significant portions of the Company's revenues
have been derived from certain electric utility customers. Two customers
accounted for 62% and 25% of revenues in 1997, 55% and 33% of revenues in 1996
and 57% and 34% of revenues in 1995.
Interest Rate Protection Agreements -- The Company enters into
interest-rate protection agreements with major financial institutions to fix or
limit the volatility of interest rates on its variable-rate, long-term debt. The
differential paid or received is recognized as an adjustment to interest
expense. Any premiums associated with interest rate protection agreements are
capitalized and amortized to interest expense over the term of the agreement.
Unamortized premiums are included in other assets in the accompanying
consolidated balance sheets.
Income Taxes -- Deferred income tax assets and liabilities are
recognized for the estimated future income tax effects of temporary differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets are also established for the
estimated future effect of net operating loss and tax credit carryforwards when
it is more likely than not that such assets will be realized. Deferred taxes are
calculated based on provisions of the enacted tax law.
Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
53
<PAGE> 54
Reclassifications -- Certain amounts included in the accompanying
consolidated financial statements for fiscal year 1996 have been reclassified
from their original presentation to conform with the current year's
presentation.
3. INVESTMENT IN DEBT SECURITIES
At June 30, 1997, investments in debt securities included in restricted
cash and marketable securities in the accompanying balance sheet consisted of
government securities and corporate obligations. These securities are recorded
at their fair market value which approximates cost. Restricted investments
consist of an investment in a certificate of deposit which collateralizes the
Company's obligation under a letter of credit (Note 10).
At June 30, 1996, there were no debt securities held in restricted cash
or marketable securities. Restricted investments consisted of investments in
certificates of deposit which collateralized the Company's obligations under
certain letters of credit.
At June 30, 1995, the Company's net unrealized loss of $834,000 on its
investment in debt securities is reported in the accompanying consolidated
statement of changes in shareholders' equity, net of $222,000 allocated to
minority interest in joint venture and net of $256,000 in deferred income taxes.
4. INVESTMENT IN POWER PROJECTS
Michigan Cogeneration Partners
In partnership with Wolverine Energy, Inc., an indirect subsidiary of
Northern States Power Company, a Minnesota-based investor-owned electric
utility, the Company pursued the development of a 65 megawatt cogeneration power
facility in Michigan. Development of this project began in September 1993 when
the Company and its joint venture partner (the "Michigan Partnership") purchased
from another developer a power sales agreement with Consumers Power Company
providing for the sale of up to 65 megawatts of electric power. In July 1994,
the Michigan Partnership joined with Consumers Power Company to terminate the
power sales agreement pursuant to terms under which the Partnership received
$29.9 million. The Company, which owned a 50% interest in the Michigan
Partnership, recognized its share of the Michigan Partnership's net income of
$22.9 million for the year ended June 30, 1995, which was comprised solely of
the proceeds received from this transaction net of project development costs.
The Company recorded the $10.2 million gain from this transaction, which
consisted of the Company's share of the net income of the Michigan Partnership
net of corporate incentive compensation costs related to the transaction, as
equity in net income of affiliates in the accompanying consolidated statement of
operations for the year ended June 30, 1995. The Michigan Partnership was
dissolved in June 1996.
Bolivian Power Company Limited
In November 1994, the Company acquired 719,206 shares of common stock
of Bolivian Power Company Limited ("Bolivian Power"), representing approximately
17.1% of Bolivian Power's issued and outstanding shares of common stock, for a
purchase price of approximately $18 million. In conjunction with the
transaction, three executive officers of the Company were elected to the
seven-member board of directors of Bolivian Power. In addition, the Company was
providing to Bolivian Power general administrative and management services, as
well as significant advisory services with respect to financial, regulatory and
governmental matters, pursuant to a management agreement. The investment in
Bolivian Power was accounted for using the equity method, because the Company
had the ability to exercise significant influence over Bolivian Power's
operating and financial policies.
In January 1996, Bolivian Power closed the sale of its distribution
subsidiaries, realizing an after-tax gain of approximately $13.5 million. The
Company's share of this gain was approximately $2.3 million. In December 1996,
the Company sold its investment in 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 to certain unaffiliated
individuals who performed development activities for Bolivian Power. The
resulting book gain of $3.1 million is included in investment and other income
in the accompanying consolidated statement of operations for the year ended June
30, 1997. The Company recognized approximately $0.4 million, $3.9 million and
$1.1 million in equity in net income of affiliates in the accompanying
consolidated statements of operations for the years ended June 30, 1997, 1996
and 1995, respectively, related to its investment in Bolivian Power. The
54
<PAGE> 55
following table presents summarized financial information for Bolivian Power as
of December 31, 1996 and 1995 and for the three years ended December 31, 1996
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 72,550 $ 54,686
Noncurrent assets 81,211 93,849
-------- --------
Total assets $153,761 $148,535
======== ========
Current liabilities $ 12,818 $ 12,237
Noncurrent liabilities 15,036 20,138
Shareholders' equity 125,907 116,160
-------- --------
$153,761 $148,535
======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $ 20,009 $ 52,874 $ 45,969
Operating income (loss) (4,159) 6,929 5,848
Net income 8,434 7,963 7,712
======== ======== ========
</TABLE>
Birchwood Power Partners, L.P.
In December 1994, the Company acquired a 50% interest in Birchwood
Power Partners, L.P. ("Birchwood Power"), a partnership formed to construct and
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 Company paid $29.5 million for its 50% interest in
Birchwood Power. 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. The initial distribution of $6.9 million received by the Company from
Birchwood Power in April 1997 was also subsequently paid to a subsidiary of The
Southern Company in accordance with the terms of the original transaction
agreement and was treated as part of the purchase price of the Company's
interest in Birchwood Power.
The Birchwood Facility, which commenced commercial operations in
November 1996, sells electricity to a utility and provides thermal energy to a
36-acre greenhouse under long-term contracts. The Birchwood Facility is operated
by an affiliate of The Southern Company under a long-term operations and
maintenance agreement. The Company has 50% representation on Birchwood Power's
management committee, which must approve all material transactions of Birchwood
Power. The Company is accounting for its investment in Birchwood Power under the
equity method. The Company's share of net income of Birchwood Power is recorded
net of the amortization of the $36.4 million premium paid to purchase the
Company's 50% share interest in Birchwood Power. This premium is being amortized
on a straight-line basis over the estimated useful life of the Birchwood
Facility. The Company recognized approximately $147,000 in equity in net income
of affiliates in the accompanying consolidated statement of operations for the
year ended June 30, 1997, related to its investment in Birchwood Power. The
following table presents summarized financial information for Birchwood Power as
of and for the years ended December 31, 1996 and 1995 (dollars in thousands):
55
<PAGE> 56
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 25,701 $ 1,234
Noncurrent assets 385,171 313,402
-------- --------
Total assets $410,872 $314,636
======== ========
Current liabilities $ 89,599 $ 92,968
Noncurrent liabilities 321,247 221,668
Shareholders' equity 26 0
-------- --------
$410,872 $314,636
======== ========
INCOME STATEMENT DATA:
Operating revenues $ 9,745 $ 0
Operating income 4,527 0
Net income 26 0
======== ========
</TABLE>
5. INVESTMENT IN GREENHOUSES
The Company has entered into an agreement with Agro Power Development,
Inc., a developer and operator of greenhouse facilities, giving the Company a
right of first refusal to make investments in partnerships which develop,
construct and operate greenhouses which produce tomatoes. As of June 30, 1997,
the Company held a 50% interest in two limited partnerships which had a
combined 50 acres of production capacity in operation and an additional two
limited partnerships which had a combined 57 acres of production capacity under
construction. The Company is accounting for its investment in these
partnerships under the equity method. The Company recognized approximately
$444,000 in equity in net income of affiliates in the accompanying consolidated
statement of operations for the year ended June 30, 1997, related to its
investments in these partnerships.
56
<PAGE> 57
6. LONG-TERM DEBT
The following long-term debt was outstanding as of June 30, 1997 and
1996, respectively (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
PROJECT FINANCING DEBT:
HOPEWELL FACILITY:
1997 - Note payable to banks; 1996 - commercial paper notes payable,
net of unamortized issue discount of $87 $ 49,513 $ 42,403
PORTSMOUTH FACILITY:
Note payable to financial institutions 60,500 68,250
ROCKY MOUNT FACILITY:
Note payable to financial institutions 126,409 127,576
RINGGOLD FACILITY:
Note payable to banks 16,900 18,799
RICHMOND FACILITY:
Commercial paper notes payable, net of unamortized issue discount of
$409 and $319, respectively, and tax-exempt bonds 203,651 214,379
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
Notes payable to banks 31,688 44,464
ROXBORO AND SOUTHPORT FACILITIES:
Note payable to banks 102,074 99,750
OTHER 959 967
--------- ---------
Total Project Financing Debt 591,694 616,588
SENIOR NOTES (including unamortized gain on hedge transaction of $2,300
and $2,728, respectively) 102,300 102,728
--------- ---------
Total Long-Term Debt 693,994 719,316
Less: Current Portion (62,370) (48,416)
--------- ---------
Long-term portion $ 631,624 $ 670,900
========= =========
</TABLE>
Information related to each of these borrowings is as follows:
HOPEWELL FACILITY:
In July 1996, the Hopewell Facility's project debt agreement was
amended, which effectively replaced the commercial paper notes with a note
payable to banks and resulted in a $13,000,000 increase in the amount of
outstanding indebtedness. The amended project debt accrues interest at an
annual rate equal to the applicable London Interbank Offering Rate
("LIBOR") as chosen by the Company, plus a .875% per annum through July
1999 and 1.125% thereafter (6.56% at June 30, 1997). Principal is payable
quarterly with interest payable the earlier of the maturity of the
applicable LIBOR term or quarterly through June 2002.
PORTSMOUTH FACILITY:
The note payable to financial institutions consists of a $60,500,000
senior loan which accrues interest at an annual rate equal to the
applicable LIBOR rate, as chosen by the Company, plus 1% through May 1997
and 1.125% thereafter (6.91% at June 30, 1997). Principal is payable
quarterly with interest payable the earlier of the maturity of the
applicable LIBOR term or quarterly through September 2002.
ROCKY MOUNT FACILITY:
The note payable to financial institution consists of a $126,409,000
senior loan which accrues interest at a fixed annual rate of 7.58%. Payment
of principal and interest is due quarterly through December 2013.
RINGGOLD FACILITY:
The note payable to banks consists of a $16,900,000 senior loan which
accrues interest at an annual rate equal to the applicable LIBOR rate, as
chosen by the Company, plus .95% to 1.35% per annum (6.9% at June 30,
1997). Interest is payable the earlier of the maturity of the applicable
LIBOR term or quarterly in arrears. Payments of principal under the senior
loan are due semiannually through April 2004.
57
<PAGE> 58
RICHMOND FACILITY:
Commercial paper notes outstanding are supported by an irrevocable,
direct-pay letter of credit provided by a syndicate of banks (the "Banks").
The maximum amount of commercial paper notes supported by the letter of
credit is $156,060,000 as of June 30, 1997. The annual interest rate
incurred is the yield on the commercial paper notes plus a 1.25% to 1.50%
per annum fee (weighted average rate of 6.95% at June 30, 1997) paid to the
Banks for providing the letter of credit.
Tax-exempt industrial development bonds (the "Bonds") have been issued
to support the purchase of certain pollution control and solid waste
disposal equipment for a Facility ($48,000,000 outstanding at June 30,
1997). Principal and interest payments on the Bonds are supported by an
irrevocable, direct-pay letter of credit provided by the Banks. The annual
interest rate is the yield on the Bonds plus a 1.25% to 1.50% per annum fee
(5.95% at June 30, 1997) paid to the Banks. The letters of credit described
above are part of one credit facility (the "Credit Facility"). The Credit
Facility provides for commitment reductions through September 2007.
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
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
in September 1996 with the proceeds of a $39 million senior credit facility
and $5.5 million capital contribution by the Company. 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 (6.59% at June 30, 1997). 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 was
recorded in fiscal year 1997 related to the write-off of unamortized
deferred financing costs from the original senior loan and subordinated
credit facility. This extraordinary loss is shown net of a tax benefit of
$470,000 in the accompanying consolidated statement of operations.
ROXBORO AND SOUTHPORT FACILITIES:
The project debt agreement for the Roxboro and Southport Facilities was
amended in September 1996, resulting in an $18.4 million increase in the
amount of outstanding indebtedness. The revised 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% thereafter
through September 2001 and 1.125% thereafter (6.59% at June 30, 1997).
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. Cogentrix Energy,
Inc. has indemnified the lenders of the senior credit facility for any cash
deficits the Roxboro and Southport Facilities could experience as a result
of incurring certain costs, subject to a cap of $11.3 million.
INTEREST RATE PROTECTION AGREEMENTS:
The Company has entered into interest rate cap, interest rate collar
and interest rate swap agreements (Note 12) to manage its interest rate
risk on its variable-rate project financing debt. The notional amounts of
debt covered by these agreements as of June 30, 1997 and 1996 are
$391,371,000 and $427,287,000, respectively. The agreements effectively
change the interest rate on the portion of debt covered by the notional
amounts from a weighted average variable rate of 6.79% to a weighted
average effective rate of 7.52% at June 30, 1997. These agreements expire
at various dates through July 2006.
SENIOR NOTES:
On March 15, 1994, the Company issued $100 million of registered,
unsecured senior notes due 2004 (the "Senior Notes") in a public debt
offering. The Senior Notes were priced at par to yield 8.10%. In February
1994, the Company entered into a forward sale of ten-year U.S. Treasury
Notes in order to protect against a possible increase in the general level
of interest rates prior to the completion of the Senior Notes offering.
This hedge transaction resulted in the recognition of a gain which has been
deferred and included as part of the Senior Notes on the accompanying
consolidated balance sheets. This deferred gain will be recognized over the
term of the Senior Notes, reducing the effective rate of interest on the
Senior Notes to 7.5%. The Senior Notes require annual sinking fund payments
beginning in March 2001. The impact of the sinking fund requirements has
been reflected in the schedule of future maturities of long-term debt
contained herein.
58
<PAGE> 59
Corporate Credit Facility -- In May 1997, the Company entered into a
credit agreement with Australia and New Zealand Banking Group Limited, as
Agent, which provides for a $50,000,000 revolving credit facility (the "Credit
Facility") with an initial term of three years (the "Revolving Term"). The
Credit Facility provides for one-year extensions of the Revolving Term, subject
to lender consent. The Credit Facility allows for direct advances or the
issuance of letters of credit. The outstanding balance at the end of the
Revolving Term is payable over two years in four equal semiannual repayments of
direct advances or collateralization of letters of credit. Borrowings bear
interest at LIBOR plus an applicable margin based on the credit rating on the
Company's Senior Notes. Commitment fees related to the Credit Facility are
currently 30 basis points per annum, payable each quarter on the outstanding
unused portion of the Credit Facility. As of June 30, 1997, the Company had no
borrowings or letters of credit outstanding.
The project financing debt is substantially non-recourse to the Company
(as parent). The project financing agreements of the Company's subsidiaries, the
Indenture for the Senior Notes and the Credit Facility agreement contain certain
covenants which, among other things, place limitations on the payment of
dividends, limit additional indebtedness, and restrict the sale of assets. The
project financing agreements also require certain cash to be held with a trustee
as security for future debt service payments. In addition, the Facilities, as
well as the long-term contracts which support them, are pledged as collateral
for the Company's obligations under the project financing agreements.
The ability of the Company's project subsidiaries to pay dividends and
management fees periodically to the Company (as parent) 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.
Dividends, when permitted, are declared and paid immediately to the Company at
the end of such period.
The Company's ability to pay dividends to its shareholders is
restricted by certain covenants of the Indenture for the Senior Notes and the
Credit Facility. These covenants did not restrict the Company's ability to
declare a $5.0 million dividend to the Company's shareholders for the year
ended June 30, 1997.
Future maturities of long-term debt at June 30, 1997 excluding
unamortized issue discounts and the unamortized balance of the deferred gain on
the Senior Notes hedge transaction are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30
----------
<S> <C> <C>
1998 $ 62,370
1999 67,083
2000 72,238
2001 90,030
2002 90,430
Thereafter 311,843
--------
$693,994
========
</TABLE>
59
<PAGE> 60
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current
Federal $ 9,025 $ 6,893 $ 5,264
State 978 499 355
-------- ------- -------
10,003 7,392 5,619
-------- ------- -------
Deferred
Federal (23,085) 6,406 6,191
State (4,500) 2,163 1,527
-------- ------- -------
(27,585) 8,569 7,718
-------- ------- -------
$(17,582) $15,961 $13,337
======== ======= =======
Statements of Operations Captions
Tax effect of extraordinary loss $ (470) $ 0 $ 0
Provision (benefit) for income taxes (17,112) 15,961 13,337
-------- ------- -------
$(17,582) $15,961 $13,337
======== ======= =======
</TABLE>
Reconciliations between the federal statutory income tax rate and the
Company's effective income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rate (35.0)% 35.0% 35.0%
State income taxes, net of loss carryforwards
and federal tax impact (5.0) 4.6 4.2
Other 1.7 .5 (.6)
----- ----- -----
Effective tax rate (38.3)% 40.1% 38.6%
===== ===== =====
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the accompanying consolidated balance sheets as of June 30, 1997
and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net current deferred tax (asset) liability $(3,460) $ 228
Net noncurrent deferred tax liability 23,074 46,971
------- -------
Net deferred tax liability $19,614 $47,199
======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. Significant components of the
Company's net deferred tax liability as of June 30, 1997 and 1996 are as follows
(dollars in thousands):
60
<PAGE> 61
\
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation/amortization and book/tax basis differences $ 60,575 $ 86,246
Book/tax timing differences on joint venture interest 8,528 8,656
Other 5,592 6,554
-------- --------
74,695 101,456
-------- --------
Deferred tax assets:
Depreciation/amortization and book/tax basis differences 10,873 6,697
Operating loss carryforwards 2,194 16,762
Accrued expenses not currently deductible 8,721 3,005
Investment tax credit carryforwards 749 5,127
Alternative minimum tax credit carryforwards 25,537 17,227
Other 7,007 5,439
-------- --------
55,081 54,257
-------- --------
Net deferred tax liability $ 19,614 $ 47,199
======== ========
</TABLE>
At June 30, 1997, the Company had federal investment tax carryforwards
of approximately $749,000 expiring in 2006 and alternative minimum tax credit
carryforwards of approximately $25,537,000 with no expiration date available to
reduce its future federal income tax liabilities.
8. LEASE COMMITMENTS
The Company leases an office building and land from Equipment Leasing
Partners ("ELP"), a partnership formed by several of the Company's shareholders,
with remaining initial lease terms of 7 years and 50 years, respectively. The
Company also leases certain equipment from ELP used to transport and handle coal
and ash at certain Facilities. Future minimum lease payments under the
agreements with ELP and agreements with other equipment providers at June 30,
1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
YEAR ENDED EQUIPMENT
JUNE 30 ELP PROVIDERS TOTAL
--------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1998 $ 1,598 $ 340 $ 1,938
1999 1,395 194 1,589
2000 1,218 149 1,367
2001 1,210 108 1,318
2002 1,199 15 1,214
Thereafter 6,457 0 6,457
</TABLE>
9. LOSS ON IMPAIRMENT AND COST OF REMOVAL OF COGENERATION FACILITIES
During fiscal year 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 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
61
<PAGE> 62
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 statement of operations for
the year ended June 30, 1997.
Also in connection with the overall assessment of the post-contract
operating environment for its cogeneration facilities, the Company concluded
that the estimated useful lives of the Elizabethtown, Lumberton, Kenansville,
Roxboro and Southport Facilities should be adjusted to reflect the economic
lives of the plants as determined by the remaining terms of their respective
power purchase agreements. The annual depreciation expense for these five
facilities, in aggregate, will increase approximately $6.1 million per year as a
result of the changes in estimated useful lives and the impairment loss
recognized during fiscal 1997.
10. COMMITMENTS AND CONTINGENCIES
Long-Term Contracts -- The Company has several long-term contractual
commitments that comprise a significant portion of its financial obligations.
These contractual commitments with original terms varying in length from 10 to
25 years are the basis for a major portion of the revenue and operating expenses
recognized by the Company and provide for specific services to be provided at
fixed or indexed prices. The major long-term contractual commitments are as
follows:
(i) The Company is required to sell electricity generated by each
Facility to a Utility and the Utility is required to purchase this
electricity at pre-established or annually escalating prices.
(ii) The Company is required to sell and the Steam Purchaser is
required to purchase a minimum amount of process steam from each
Facility for each contract year. The Steam Purchaser is generally
required to purchase its entire steam requirements from the Company.
The purchase price of steam under these contracts escalates annually or
is fixed and determinable during the term of the contracts.
(iii) The Company is obligated to purchase and fuel suppliers are
required to supply all the fuel requirements of each Facility. Fuel
requirements include the quality and estimated quantity of fuel
required to operate each Facility. The price of fuel escalates annually
for the term of each contract. In addition, the Company has
transportation contracts with various entities to deliver the fuel to
each Facility. These contracts also provide for annual escalations
throughout the term of the contracts.
Effective 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 eliminated the purchase options
which the utility held related to the Roxboro and Southport Facilities.
Under terms of contracts with one Utility, the Company is obligated to
pay up to $8,850,000 in liquidated damages to the Utility if two of the
Company's Facilities do not demonstrate certain operating and reliability
standards. A bank has issued letters of credit in favor of the Utility which
secure the Company's obligations to the Utility under this provision of the
contracts.
Under certain contracts with one Utility, the Utility is permitted,
subsequent to the maturity date of the original project financing debt, to
reduce future payments or recover certain payments previously made in the event
that a state utility commission prohibits the Utility from recovering such
payments made under a power sales agreement. As of June 30, 1997, the Company
has accrued $1,323,000 in other long-term liabilities in the accompanying
consolidated balance sheet for the estimated disallowance of a portion of a
Facility's capacity payment and the related accrued interest.
Construction Agreement -- 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
supports certain contingent obligations of the Company under the Construction
Agreement. The Company is also obligated to pay 50% of any 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
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<PAGE> 63
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 incurred in
constructing the Clark Facility. Construction on the Clark Facility commenced in
March 1996 and is anticipated to be completed in late calendar 1997.
Management Incentive Compensation Plans -- The Company has entered into
various incentive compensation plans with certain employees which provide for
compensation to the employees (during the period of employment) equal to a
percentage, as determined by the board of directors, of the Company's income
before income taxes or certain subsidiaries' cash flow. The Company incurred
expense under these plans of $3,710,000 in 1996 and $3,950,000 in 1995. During
fiscal year 1997, the Company incurred $10.7 million of expenses in connection
with the restructuring or termination of these incentive compensation plans.
Employee Benefit Plans -- The Company sponsors a defined contribution
401(k) savings plan for its full-time employees. The Company matches employees'
contributions to the plan up to specified limitations. Company contributions to
the plan were $1,618,000 in 1997, $1,629,000 in 1996 and $1,612,000 in 1995.
The Company has a non-qualified Supplemental Retirement Plan agreement
with certain directors and officers. Under the plan, the participants may elect
to have up to 35% of their compensation deferred. In addition, the Company will
credit the participant's deferral account, up to specified limitations, with an
amount equal to the participant deferral. The participants' account balances are
distributable upon termination of employment or death. The Company purchases
insurance on the participants' lives (cash surrender value of $2,318,000 at June
30, 1997) which is used to fully fund the liability under the plan on an annual
basis. The Company is owner and beneficiary of the policies.
Guarantees -- In connection with its substantially non-recourse project
financings and certain other subsidiary contracts, the Company and its
subsidiary, Cogentrix, Inc. have expressly undertaken certain limited
obligations and commitments, most of which will only be effective or will be
terminated upon the occurrence of future events. These obligations and
commitments include guarantees by Cogentrix, Inc. of certain subsidiaries'
obligations aggregating $8 million and certain subsidiaries' performance under
their contracts with one Utility. In addition, Cogentrix Energy, Inc. has
indemnified the project lenders of a certain subsidiary for any cash deficits
such subsidiary could experience as a result of incurring certain costs, subject
to a cap of $11.3 million.
Pending Claims and Litigation -- Under the amended terms of the power
sales agreements for the Elizabethtown, Lumberton, Kenansville, Roxboro and
Southport Facilities, the purchasing utility has exercised its right of
economic dispatch resulting in significant reductions in fuel requirements at
each of these Facilities. In response to this reduction in fuel requirements,
certain of the coal suppliers for these Facilities have initiated litigation
and arbitration proceedings against certain subsidiaries of the Company. The
Company intends to defend itself in the litigation and the arbitration
proceeding vigorously. The Company has established reserves which management
believes to be adequate to cover any costs resulting from these matters.
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.
11. FUNDS HELD BY TRUSTEES
The majority of revenue received by the Company is required by the
terms of various credit agreements to be deposited in accounts administered by
certain banks (the "Trustees"). The Trustees invest funds held in these accounts
at the direction of the Company. These accounts are established for the purpose
of depositing all receipts and monitoring all disbursements of each Facility. In
addition, special accounts are established to provide debt service payments and
income taxes. The funds in these accounts are pledged as security under the
project financing agreements of each subsidiary.
Funds held by the Trustees were $49,187,000 and $59,287,000 at June 30,
1997 and 1996, respectively. Debt service account balances are reflected as
restricted cash, whereas all other accounts are classified as cash and cash
equivalents in the accompanying consolidated balance sheets.
63
<PAGE> 64
12. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The Company invests its temporary cash balances in U.S. government
obligations, corporate obligations and financial instruments of highly-rated
financial institutions. A substantial portion of the Company's accounts
receivable are from two major regulated electric utilities and the associated
credit risks are limited.
The carrying values reflected in the accompanying consolidated balance
sheets at June 30, 1997 and 1996 approximate the fair values for cash and cash
equivalents and variable-rate long-term debt. Investments in debt securities and
certificates of deposit included in restricted cash, marketable securities and
restricted investments are also reported at fair market value, which
approximates cost, at June 30, 1997 and 1996 (Note 3). The fair value of the
Company's fixed-rate borrowings at June 30, 1997 is $1,759,000 lower than the
historical carrying value of $226,409,000. At June 30, 1996, the fair value of
the Company's fixed-rate borrowings was $3,631,000 lower than the historical
carrying value of $238,018,000. In making such calculations, the Company
utilized credit reviews, quoted market prices and discounted cash flow analyses,
as appropriate.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to the Company's interest rate protection
agreements (Note 6). The Company does not obtain collateral or other security to
support such agreements but continually monitors its positions with, and the
credit quality of, the counterparties to such agreements. As of June 30, 1997,
the gross unrealized gains and losses on the interest rate protection agreements
are $3,130,000 and $2,102,000, respectively, resulting in an estimated net
unrealized gain of $1,028,000. As of June 30, 1996, the gross unrealized gains
and losses on the Company's interest rate protection agreements were $4,984,000
and $4,185,000, respectively, resulting in an estimated net unrealized gain of
$799,000.
13. RELATED PARTY TRANSACTIONS
The Company has notes receivable and advances due from shareholders and
an affiliated entity of approximately $450,000 and $678,000 as of June 30, 1997
and 1996, respectively. The notes receivable bear interest at various rates, all
of which are in excess of the prime rate in effect from time to time, and have
specified repayment terms. These notes have been classified as other assets in
the accompanying consolidated balance sheets.
The Company leases certain equipment, its principal executive office
building and land from an affiliated entity. Payments by the Company under these
lease agreements were approximately $1,967,545, $2,041,000 and $2,158,000 for
the years ended June 30, 1997, 1996 and 1995, respectively.
In September 1991, the Company entered into a consulting agreement with
a shareholder, director and former executive officer to provide consulting
services related to general business matters. The agreement provided for monthly
payments of $12,500 through December 1995 and monthly payments of $8,333
thereafter through December 1996. In addition, the shareholder was a participant
in management incentive compensation plans (Note 10) while employed as an
executive officer of the Company and continues to receive incentive compensation
annually pursuant to such plans equal to a percentage of net cash flow, as
defined, of certain subsidiaries. Total compensation to the shareholder under
the consulting agreement and incentive compensation plans was approximately
$374,000, $442,000 and $510,000 for the years ended June 30, 1997, 1996 and
1995, respectively.
Three shareholders, who are also employees of the Company, terminated
their participation in management incentive compensation plans during fiscal
year 1997 (Note 10). The Company recognized $3.5 million of expense related to
the termination of the shareholders' participation in these plans.
64
<PAGE> 65
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED BALANCE SHEETS OF REGISTRANT
(dollars in thousands)
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1996
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,028 $ 9,268
Restricted cash 1,688 1,716
Accounts receivable 6,160 4,029
Accounts receivable from affiliates 8,671 4,459
Restricted investments 20,000 0
Other current assets 309 405
-------- --------
Total current assets 46,856 19,877
-------- --------
INVESTMENT IN SUBSIDIARIES (ON THE EQUITY METHOD) 174,711 200,055
-------- --------
EQUIPMENT, net of accumulated depreciation of $2,748
and $2,287, respectively 1,038 1,213
-------- --------
OTHER ASSETS:
Restricted investments 0 20,000
Income tax benefit 26,416 16,369
Deferred financing costs, net of accumulated amortization of
$1,027 and $713, respectively 2,259 2,398
Notes receivable from affiliates 921 1,001
Other 2,453 2,288
-------- --------
Total other assets 32,049 42,056
-------- --------
Total Assets $254,654 $263,201
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,808 $ 4,298
Accounts payable to affiliate 20 50
Accrued liabilities 21,261 14,445
Accrued dividends 5,000 4,759
-------- --------
Total current liabilities 35,089 23,552
-------- --------
LONG-TERM LIABILITIES:
Notes payable to affiliates 56,513 46,176
Long-term debt 102,300 102,728
Other 11,043 7,735
-------- --------
Total long-term liabilities 169,856 156,639
-------- --------
Total liabilities 204,945 180,191
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 130 130
Accumulated earnings 49,579 82,880
-------- --------
Total shareholders' equity 49,709 83,010
-------- --------
Total Liabilities and Shareholders' Equity $254,654 $263,201
======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
65
<PAGE> 66
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF INCOME REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INCOME:
Development and construction management fees $ 1,105 $ 672 $ 197
Operating management fees 20,238 12,206 10,814
-------- -------- --------
Total Income 21,343 12,878 11,011
-------- -------- --------
OPERATING EXPENSES:
General, administrative and development expenses 38,211 27,452 28,419
Depreciation and amortization 1,253 1,302 1,221
-------- -------- --------
Total operating expenses 39,464 28,754 29,640
-------- -------- --------
OPERATING LOSS (18,121) (15,876) (18,629)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (10,634) (8,735) (7,723)
Investment and other income 2,523 1,769 690
-------- -------- --------
Total other expense (8,111) (6,966) (7,033)
-------- -------- --------
LOSS BEFORE INCOME TAXES (26,232) (22,842) (25,662)
INCOME TAX BENEFIT 10,047 9,160 9,906
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES (12,116) 37,477 36,929
-------- -------- --------
NET INCOME (LOSS) $(28,301) $ 23,795 $ 21,173
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
66
<PAGE> 67
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS OF REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 38,921 $ 21,638 $ 12,119
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted investments 0 (20,000) 0
Property, plant and equipment additions (286) (232) (532)
Investments in subsidiaries (43,386) (14,239) (5,403)
-------- -------- --------
Net cash flows used in investing activities (43,672) (34,471) (5,935)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliate 10,944 18,500 0
Decrease (increase) in restricted cash 28 660 (681)
Decrease in notes receivable from affiliates 80 0 0
Increase in deferred financing costs (175) 0 (93)
Repayment of long-term notes payable to affiliates (607) (3,560) (1,500)
Dividends paid (4,759) (4,235) (3,328)
-------- -------- --------
Net cash flows provided by (used in) financing activities 5,511 11,365 (5,602)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 760 (1,468) 582
CASH AND CASH EQUIVALENTS, Beginning of Year 9,268 10,736 10,154
-------- -------- --------
CASH AND CASH EQUIVALENTS, End of Year $ 10,028 $ 9,268 $ 10,736
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
CASH DIVIDENDS RECEIVED $ 56,614 $ 44,133 $ 37,952
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
67
<PAGE> 68
SCHEDULE I
COGENTRIX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
1. SIGNIFICANT ACCOUNTING POLICIES
Accounting for Subsidiaries -- Cogentrix Energy, Inc. has accounted for its
investment in and earnings of its subsidiaries on the equity method in the
condensed financial information.
Income Taxes -- The provision (benefit) for income taxes has been computed
based on Cogentrix Energy, Inc.'s consolidated effective income tax rate.
Reclassification -- Certain amounts included in the condensed financial
statements for fiscal years 1996 and 1995 have been reclassified from their
original presentation to conform with the current year's presentation.
2. LONG-TERM DEBT
Senior Notes
On March 15, 1994, Cogentrix Energy, Inc. issued $100 million of
registered, unsecured senior notes due 2004 (the "Senior Notes") in a public
debt offering. The Senior Notes were priced at par to yield 8.10%. In February
1994, the Company entered into a forward sale of ten-year U.S. Treasury Notes
in order to protect against a possible increase in the general level of
interest rates prior to the completion of the Senior Notes offering. This hedge
transaction resulted in the recognition of a gain which has been deferred and
included as part of the Long-term debt on the accompanying condensed balance
sheets. This deferred gain will be recognized over the term of the Senior
Notes, reducing the effective rate of interest on the Senior Notes to 7.5%. The
Senior Notes require annual sinking fund payments beginning in March 2001.
Future maturities of long-term debt at June 30, 1997, excluding the
unamortized balance of the deferred hedge gain, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------
<S> <C>
1998 $ 0
1999 0
2000 0
2001 20,000
2002 20,000
Thereafter 60,000
-----------
$100,000
===========
</TABLE>
Corporate Credit Facility
In May 1997, Cogentrix Energy, Inc. entered into a credit agreement with
Australia and New Zealand Banking Group Limited, as Agent, which provides for a
$50,000,000 revolving credit facility (the "Credit Facility") with an initial
term of three years (the "Revolving Term"). The Credit Facility provides for
one-year extensions of the Revolving Term, subject to lender consent. The
Credit Facility allows for direct advances or the issuance of letters of
credit. The outstanding balance at the end of the Revolving Term is payable
over two years in four equal semiannual repayments of direct advances or
collateralization of letters of credit. Borrowings bear interest at LIBOR plus
an applicable margin based on the credit rating on the Senior Notes. Commitment
fees related to the Credit Facility are currently 30 basis points per annum,
payable each quarter on the outstanding unused portion of the Credit Facility.
As of June 30, 1997, Cogentrix Energy, Inc. had no borrowings or letters of
credit outstanding.
68
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
69
<PAGE> 70
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George T. Lewis, Jr. 69 Chairman of the Board and Director
David J. Lewis 41 Vice Chairman, Chief Executive Officer and Director
Mark F. Miller 43 President, Chief Operating Officer and Director
Betty G. Lewis 68 Director
James E. Lewis 34 Executive Vice President and Director
Robert W. Lewis 44 Director
Dennis W. Alexander 50 Group Senior Vice President, General Counsel, Secretary and Director
T. Louis Austin, Jr. 78 Director (Deceased: September 16, 1997)
W. E. Bill Garrett 67 Director
James R. Pagano 37 Group Senior Vice President -- Chief Financial Officer
B. Yamin Afshar 53 Senior Vice President -- Business Development
William C. Campbell, III 45 Senior Vice President -- Business Development
Kartar B. Singh 56 Senior Vice President -- Estimating and Cost Scheduling
</TABLE>
GEORGE T. LEWIS, JR., the founder of Cogentrix, has been Chairman of
the Board and a Director of the Company since its formation in 1993 and Chief
Executive Officer of the Company from December 1993 to August 1995, prior to
which he was Chief Executive Officer and a Director of Cogentrix from 1983 to
1995, Chairman of the Board of Cogentrix since 1990 and President of Cogentrix
from 1983 to 1989. Mr. Lewis previously served for over 18 years with Chas T.
Main, Inc. ("Main"), an engineering firm headquartered in Boston. In 1971, he
became a Senior Vice President responsible for that company's work with the
utility industry. From 1978 through 1980, he headed Main's Southern District
office located in Charlotte, North Carolina and directed Main's involvement in
the area of coal-fired industrial power plants. In 1980, Mr. Lewis was promoted
to Group Vice President and director and returned to Boston to assume
responsibility for all corporate marketing and sales. In this capacity, he
became convinced that cogeneration projects would become an emerging market and
left Main to form Cogentrix.
DAVID J. LEWIS has been a Director of the Company since its formation
and was appointed Vice Chairman of the Board and Chief Executive Officer in
August 1995. Prior to August 1995, Mr. Lewis was Executive Vice President
- --Marketing and Development and a Director since the Company's formation, Chief
Executive Officer -- Elect since June 1994, Group Senior Vice President --
Marketing and Development with Cogentrix since September 1993 and a Director of
Cogentrix since 1988. From 1989 until September 1993, he was Senior Vice
President -- CGX Environmental Systems and President and Chief Operating Officer
- -- CGX Environmental Systems Division of Cogentrix. From 1987 to 1989, he was
Vice President --Administration of Cogentrix, from 1986 to 1987, he was Resident
Construction Manager and from 1985 to 1986, he was Assistant Construction
Manager. Prior to joining Cogentrix in 1985, he was Operations Manager -- Export
Management and Marketing Representative -- Export Management with Bartex
Corporation, an export management company headquartered in Portland, Oregon.
David Lewis is a son of George T. Lewis, Jr. and Betty G. Lewis.
MARK F. MILLER was appointed President, Chief Operating Officer and a
Director of the Company in May 1997. Prior to joining the Company, Mr. Miller
was Vice President - Business Management, Electronics and Systems Integration
Division for Northrop Grumman in Bethpage, New York. He joined Northrop Grumman
in 1982 where he held positions in the material, law and contracts departments
before his promotion in 1994 to the position held at his departure. From 1980 to
1982, he was an Associate with the law firm of Dolack, Hansler.
BETTY G. LEWIS has been a Director of the Company since September 1994.
Betty Lewis is the spouse of George T. Lewis, Jr.
JAMES E. LEWIS has been Executive Vice President and a Director of the
Company since its formation, prior to which he was Executive Vice President of
Cogentrix since November 1992 and a Director of Cogentrix since 1988. From 1991
to 1992, he was Senior Vice President of Operations responsible for the daily
operations of the Company's facilities.
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<PAGE> 71
From 1989 to 1991, Mr. Lewis was Vice President -- Utility Operations. Mr. Lewis
joined Cogentrix in 1986 and in 1987, he was selected as Assistant Project
Manager responsible for the construction of the Company's Portsmouth Facility.
James Lewis is a son of George T. Lewis, Jr. and Betty G. Lewis.
ROBERT W. LEWIS has been a Director of the Company since its formation,
prior to which he was a Director of Cogentrix since 1988. In April 1991, Mr.
Lewis resigned from his positions of Vice Chairman and Secretary of Cogentrix
which he had held since March 1991. Since his resignation as an officer, Mr.
Lewis has served as a consultant to the Company. From October 1990 to March
1991, Mr. Lewis was Executive Vice President and Secretary. From March 1988 to
October 1990, Mr. Lewis was Senior Vice President -- Corporate Development and
Secretary, in which position Mr. Lewis was in charge of Cogentrix's development
efforts. From March 1987 to March 1988, Mr. Lewis was Senior Vice President --
Administration and Secretary. From September 1983 to March 1987, Mr. Lewis was
Vice President -- Administration and Secretary. Mr. Lewis joined Cogentrix in
April 1983 and served as Secretary through September 1983. Robert Lewis is a son
of George T. Lewis, Jr. and Betty G. Lewis.
DENNIS W. ALEXANDER has been Group Senior Vice President, General
Counsel, Secretary and a Director since joining the Company in February 1994.
Immediately prior to joining the Company, Mr. Alexander was Vice
President/General Counsel of Wheelabrator Environmental Systems Inc., the
waste-to-energy and cogeneration subsidiary of Wheelabrator Technologies Inc.,
an independent power and environmental services and products company, as well as
Director, Environmental, Health and Safety Audit Program for Wheelabrator
Technologies Inc. From 1988 to 1990, Mr. Alexander was Vice President/General
Counsel -- Operations of Wheelabrator Environmental Systems Inc. and from 1986
to 1988 was Vice President/General Counsel of Wheelabrator Energy Systems, a
cogeneration project development subsidiary. From 1984 to 1986, he served as
Group General Counsel for The Signal Company and from 1980 to 1984 as Division
General Counsel of Wheelabrator-Frye Inc., each a diversified public company.
T. LOUIS AUSTIN, JR. has been a Director of the Company since its
formation and became a Director of Cogentrix in September 1993. Mr. Austin, who
is currently retired, formerly served as CEO and a Director of Texas Utilities
Company, an investor-owned parent of an electric public utility, CEO and a
Director of Brown & Root, Inc., an engineering and construction management firm
headquartered in Houston, Texas, and as a Director of Halliburton Company, a
worldwide oilfield services company headquartered in Dallas, Texas. He is
currently a director of Guardian Savings and Loan Association in Houston, Texas.
He is a former Director of the Electric Power Research Institute and the
National Coal Association. The Company acknowledges with great sadness the
passing of Mr. T. Louis Austin, Jr. on September 16, 1997, and expresses much
gratitude for his many years of dedicated service as a Director of the Company.
Mr. Austin's seat on the Company's board of directors remains vacant at this
time.
W. E. BILL GARRETT has been a Director of the Company since its
formation and became a Director of Cogentrix in September 1993. Mr. Garrett
served on the staff of the National Geographic Society for 36 years -- the last
10 as Editor-in-Chief of the magazine. As a member of the Board of Trustees of
the National Geographic Society and its Research and Exploration Committee, he
was instrumental in the Society's emergence as the world's largest educational
and scientific institution. He resigned in 1990 and became the President of the
La Ruta Maya Conservation Foundation, which is involved in cultural and
conservation work with the Maya Indians. Both Mexico and Guatemala have honored
him with prestigious awards for his work in the region. He also currently serves
on the national Board of Governors of The Nature Conservancy, the Boards of the
American Land Conservancy and Partners for Livable Communities, as well as the
Advisory Board of the Corbis Corporation.
JAMES R. PAGANO has been Group Senior Vice President -- Chief Financial
Officer of the Company since May 1997, prior to which he was Senior Vice
President -- Project Finance since February 1995 and Vice President -- Project
Finance since the Company's formation. Previously, Mr. Pagano was Vice President
- -- Project Finance of Cogentrix since July 1993, Vice President -- Legal and
Finance from July 1992 to July 1993, and from January 1992 to July 1992, Mr.
Pagano was Vice President and Assistant General Counsel of Cogentrix. Prior to
joining Cogentrix, he was Vice President of The Deerpath Group, Inc., a
financial advisory firm. From 1987 to 1990, Mr. Pagano was an Associate with the
law firm of Simpson Thacher & Bartlett.
B. YAMIN AFSHAR was appointed Senior Vice President -- Business
Development of the Company in September 1997, prior to which he was Senior Vice
President -- International Development since joining the Company in 1995. Mr.
Afshar is responsible for identifying and managing the development of
independent power opportunities for the Company. Prior to joining the Company,
Mr. Afshar was employed by Parsons Main International, Inc. for more than 20
years. His
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experience includes extensive work in Asia, Latin America and the Middle East,
developing and successfully negotiating contracts with suppliers and contractors
relating to power projects abroad.
WILLIAM C. CAMPBELL, III was appointed Senior Vice President --
Business Development of the Company in September 1995. Mr. Campbell had been
Senior Vice President -- Environmental Affairs of the Company since its
formation, prior to which he held the same position with Cogentrix since July
1992. From 1990 to 1992, Mr. Campbell was Vice President --Environmental
Relations of Cogentrix and from 1988 to 1990, he was Vice President -- Project
Development and Environmental Affairs. From 1984 to 1988, Mr. Campbell was a
Project Manager with Cogentrix. Prior to joining Cogentrix, he spent seven years
with Main.
KARTAR B. SINGH has been Senior Vice President -- Estimating and Cost
Scheduling of the Company since its formation, prior to which he held the same
position of Cogentrix since 1988 and also the positions of Assistant to
President from 1987 to 1991 and Assistant to Chairman from 1991. From 1983 to
1984, he was Chief Estimator and Project Manager. From 1984 to 1988, Mr. Singh
was Chief Estimator and Chief Planning and Scheduling Engineer with Main. Mr.
Singh has 31 years' experience in engineering, estimating, planning and
scheduling and construction in the utility and industrial sector.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the three fiscal years
ended June 30, 1997 concerning the annual compensation paid or accrued by the
Company to or for the account of each of the following: (i) the only person who
served as the chief executive officer of the Company during the fiscal year
ended June 30, 1997; (ii) the four most highly compensated executive officers of
the Company incumbent at June 30, 1997, other than the chief executive officer,
for the fiscal year then ended; and (iii) one former executive officer of the
Company who would have been included among the group described in clause (ii)
but for the fact that he was not an executive officer of the Company at June 30,
1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
NAME AND ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY (1) BONUS (2) TOTAL COMPENSATION (3)
------------------ ----------- ---------- --------- ----- ----------------
<S> <C> <C> <C> <C> <C>
George T. Lewis, Jr. 1997 $ 666,647 $ 332,080 $ 998,727 $ 994,992
Chairman of the Board 1996 649,100 381,810 1,030,910 60,960
1995 634,500 371,560 1,006,060 18,870
David J. Lewis 1997 565,317 695,824 1,261,141 929,829
Vice Chairman and Chief Executive Officer 1996 351,720 359,500 711,220 45,040
1995 345,780 409,350 755,130 10,759
James E. Lewis 1997 360,347 345,124 705,471 928,883
Executive Vice President 1996 349,720 279,950 629,670 37,380
1995 345,780 331,030 676,810 14,085
James R. Pagano 1997 194,498 180,000 374,498 28,912
Group Senior Vice President 1996 155,243 137,367 292,610 17,570
and Chief Financial Officer 1995 150,000 155,351 305,351 9,780
Dennis W. Alexander 1997 272,068 70,000 342,068 21,472
Group Senior Vice President 1996 220,946 198,840 419,786 15,332
and General Counsel 1995 219,000 237,701 456,701 15,645
Frank J. Benner 1997 398,904 70,000 468,904 1,072,719
Former President and Chief Operating Officer 1996 267,659 424,310 691,969 38,855
1995 265,128 399,928 665,056 9,079
</TABLE>
(1) Amounts listed in this column include all fees for service on the
Company's board of directors.
(2) Amounts listed in this column reflect annual performance bonuses
and annual distributions under the Profit-Sharing Plan and Facility
Cash Flow Incentive Compensation Agreements discussed below. The
amounts listed do not include the distributions made under such plan
and agreements to the Named Executive Officers during any fiscal year
in which such distribution was earned in the previous fiscal year.
(3) The amounts shown in this column include (i) the Company's matching
contributions on behalf of the Named Executive Officers to the
Company's 401(k) savings plan in which all Company employees are
eligible to participate and to a non-qualified Supplemental Retirement
Savings Plan in which approximately 37 employees, including all of the
Named Executive Officers participate, (ii) the payments made to David
J. Lewis, James E. Lewis and George T. Lewis, Jr. related to the
termination of the facility cash flow incentive compensation
agreements, net of the awards each of these Named Executive Officers
would have otherwise received under these plans for fiscal 1997, which
amounts are included in column two, "Bonuses" and (iii) in the case of
Frank J. Benner, compensation related to severance payments.
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<PAGE> 74
COMPENSATION PURSUANT TO INCENTIVE COMPENSATION PLANS
Profit-Sharing Plan
The Company has a non-qualified incentive compensation plan for the
benefit of approximately 40 employees of the Company and its affiliates (the
"Profit-Sharing Plan"). Under the Profit-Sharing Plan, the Company has entered
into arrangements with each of its executive officers, which provide for annual
cash compensation distribution awards to each participant equal to a designated
percentage of the Company's adjusted net income before taxes each fiscal year
plus the amount of any accrual for payments to be made under the Profit-Sharing
Plan (the "Designated Percentage"), with the Designated Percentage determined
annually at the discretion of the Company's Chief Executive Officer or Chief
Operating Officer based on criteria they deem appropriate. No payments were made
under the Profit-Sharing Plan for the fiscal year ended June 30, 1997.
In the event a participant in the Profit-Sharing Plan terminates his or
her employment with the Company (for a reason other than death, total
disability, retirement or termination by the Company for willful misconduct),
the participant is entitled to receive a severance benefit equal to a percentage
(ranging from 100% after six years of full-time employment to a maximum of 200%
after ten years or more of full-time employment) of the most recent annual
distribution to which the employee is then entitled. In the event of a
participant's death or total disability, the participant (or his or her
beneficiary) is entitled to receive from zero to five years of annual
distribution awards thereafter, depending upon the participant's length of
service with the Company.
Under the Profit-Sharing Plan, Frank J. Benner (or his beneficiary) is
entitled, after age 60 or in the event of total disability or death, to begin
receiving annual distribution awards for each fiscal year through June 30, 2007,
the amount of which shall be calculated using Mr. Benner's Designated Percentage
in effect as of the date of his termination. In the event of death or total
disability occurring after June 30, 2002, Mr. Benner (or his beneficiary) shall
be entitled to receive benefits for five full years following the year in which
such death or total disability occurred.
Executive Incentive Bonus Plan
In addition to the annual cash compensation distribution awards payable
under the Profit-Sharing Plan or the Facility Cash Flow Incentive Compensation
Agreement described below, certain executive officers, including David J. Lewis,
James E. Lewis, Mark F. Miller, Dennis W. Alexander and James R. Pagano may
receive additional incentive cash compensation awards, determined on a sliding
scale, if the Company achieves certain designated net income before income tax
targets for a given fiscal year. No such additional incentive cash compensation
awards were earned during the fiscal year ended June 30, 1997.
Facility Cash Flow Incentive Compensation Agreements
The Company had entered into non-qualified incentive compensation
agreements with three of the Named Executive Officers, David J. Lewis, James E.
Lewis and George T. Lewis, Jr., each of whom is a director and a shareholder of
the Company. Such agreements provided for each of these Named Executive Officers
to receive through June 30, 2007, annual distributions equal to a designated
percentage of the net cash flow for the fiscal year of one or both of two of the
Company's facilities. In fiscal 1997, the Company terminated the facility cash
flow incentive compensation agreements with these named executive officers. In
connection with the termination of these plans, David J. Lewis, James E. Lewis
and George T. Lewis, Jr. will be paid $1,157,996, $1,119,816 and $1,268,860,
respectively.
EXECUTIVE EMPLOYMENT AGREEMENT WITH VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In August 1995, the board of directors elected David J. Lewis Vice
Chairman and Chief Executive Officer of the Company. George T. Lewis, Jr., the
former Chief Executive Officer, will continue to serve as Chairman of the Board.
The Company has an employment agreement with David J. Lewis through August 2000,
which provides for a base annual salary. In addition to the base salary, Mr.
Lewis is entitled to receive annual incentive compensation in an amount
determined by the board of directors, which amount, when combined with the base
salary payable to him, shall be at least sufficient to provide him with total
annual compensation that is competitive with total annual compensation offered
by other similarly situated companies to their employees in comparable
positions.
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The employment agreement is terminable upon notice given by the Company
in the event a majority of the board of directors terminates Mr. Lewis's
employment for cause. In addition, the Company may terminate the agreement at
any time at its option in the event that the board determines in its reasonable,
good faith judgment, and by a vote of at least two-thirds of the directors then
in office, that the continued service of Mr. Lewis as Chief Executive Officer of
the Company would not be in the best interest of the Company because there has
occurred a continued failure by him (whether or not such failure resulted from
his physical or mental incapacity) substantially to perform his duties,
responsibilities or obligations as Chief Executive Officer after having been
given written notice of such failure to perform and after having failed to
improve such performance within the time period (which shall have been a
reasonable time period) specified in such notice. Mr. Lewis may terminate his
employment agreement at any time at his option in the event of a Change of
Control (as defined) of the Company.
EXECUTIVE EMPLOYMENT AGREEMENT WITH CHAIRMAN OF THE BOARD
In August 1995, the Company entered into a five-year employment and
noncompetition agreement with George T. Lewis, Jr., a shareholder and Chairman
of the Board. Under the terms of the agreement, Mr. Lewis is required to be
fully available to the Company during customary business hours for
consultations, either in person or by telephone, with respect to such of the
Company's business and affairs as the Company may reasonably call on him to
furnish. In addition, the restrictive covenants of the agreement substantially
limit Mr. Lewis' ability to engage in consulting arrangements for other
companies and prohibit his support of any company in the energy industry.
Pursuant to the agreement, Mr. Lewis will receive base compensation, adjusted
annually based on an inflationary index, as well as performance bonuses, the
amount of which will be determined in accordance with Company policy by the
Chief Executive Officer in consultation with the Chief Operating Officer. Mr.
Lewis received base compensation of $638,000 for the year ended June 30, 1997.
In the event of Mr. Lewis' death or inability to provide services due
to disability, the agreement shall terminate and the Company is obligated to
continue making payments to him or to his estate for a period of six months
after such termination. The Company may terminate this agreement for cause at
any time, and Mr. Lewis may voluntarily terminate this agreement at any time. In
either case, Mr. Lewis shall not be entitled to any further payments or benefits
under the consulting agreement. In the event the Company terminates this
agreement without cause, Mr. Lewis is entitled to receive all payments and
benefits which would have been earned throughout the term of this consulting
agreement.
DIRECTORS' COMPENSATION AND CONSULTING AGREEMENTS
Directors, including employee directors, receive an annual retainer of
$25,000 for service on the board of directors. In addition, for each meeting
attended, each director receives a fee of $1,000. During the fiscal year ended
June 30, 1997, there were five meetings of the Company's board of directors.
The Company has entered into a consulting agreement with Mr. Garrett
that provides for payment to him of $15,000 annually for consulting services to
be rendered to the Company.
In September 1991, the Company entered into a consulting agreement with
Robert W. Lewis, a shareholder, director and former executive officer of
Cogentrix. Under the terms of the consulting agreement, Mr. Lewis is required,
subject to certain limits, to be available on reasonable notice and at
reasonable times during customary business hours for consultations, either in
person or by telephone, with respect to such of the Company's business and
affairs as the Company may reasonably call on him to furnish. Under the
consulting agreement, Mr. Lewis was entitled to receive base compensation
payments through December 31, 1996. The Company paid Mr. Lewis $50,000 pursuant
to the consulting agreement in fiscal year 1997.
While he was employed as an executive officer, Cogentrix entered into a
non-qualified incentive compensation agreement with Robert W. Lewis similar to
the agreements described above under "Facility Cash Flow Incentive Compensation
Agreements" providing for him to receive incentive compensation annually equal
to a designated percentage of the net cash flow for the fiscal year of two of
the Company's facilities. The Company's obligation to make such annual payments
to him continues through the fiscal year ending June 30, 2007. The Company has
agreed to pay him an annual minimum payment of $200,000 regardless of whether
his actual annual distribution would yield such amount. Robert W. Lewis must
repay to the Company, on or before January 31, 2008, an amount equal to the
aggregate amount of minimum payments made in excess of the actual annual
distributions which he was entitled to receive. The actual amount of the annual
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<PAGE> 76
distribution Mr. Lewis received pursuant to his facility cash flow compensation
agreement for the fiscal year ended June 30, 1997 was $324,253.
If at any time through June 1, 2007 Mr. Lewis sells or transfers any of
the shares of common stock of the Company held by him to anyone other than
certain other members of the Lewis family without granting the Company a right
of first refusal with respect to the shares sold or transferred, he will forfeit
his right to the annual distributions under his facility cash flow incentive
compensation agreement and the right to the annual minimum payment of $200,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of common stock of the Company
are beneficially owned by George T. Lewis, Jr., Betty G. Lewis and their three
sons: David J. Lewis, James E. Lewis and Robert W. Lewis. The number of shares
and the percentage of the total number of shares beneficially owned by each are
shown below.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES OWNERSHIP
---- --------- ----------
<S> <C> <C>
George T. Lewis, Jr. (1) 73,320 26%
John C. Fennebresque (2) 73,320 26
Betty G. Lewis 73,320 26
David J. Lewis 45,120 16
James E. Lewis 45,120 16
Robert W. Lewis 45,120 16
</TABLE>
(1) George T. Lewis, Jr.'s shares are held of record by a revocable grantor
trust (the "Trust") that may be revoked by Mr. Lewis at any time prior
to his death, in which event the shares held by the Trust would be
transferred to him. Accordingly, he is deemed to be the beneficial
owner of the shares held by the Trust.
(2) The 73,320 shares shown as beneficially owned by Mr. Fennebresque are
all held of record by the Trust described in Note 1 above. Mr.
Fennebresque is deemed to be the beneficial owner of these shares,
because he is the sole trustee of the Trust and, as such, has the power
to vote and invest the shares held by the Trust. Since George T. Lewis,
Jr. is also deemed to be the beneficial owner of these shares, they are
also included in the amount shown for the number of shares beneficially
owned by George T. Lewis, Jr.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The transactions described or referred to below were entered into
between related parties. In connection with the public offering of the Company's
Senior Notes conducted in March 1994, the Company's board of directors adopted a
policy that all subsequent material transactions with related parties must be on
terms no less favorable than could be obtained from third parties and that any
variance from this policy is subject to approval by a majority of the Company's
disinterested directors. The Indenture under which the Senior Notes were issued
and the covenants of the Credit Facility place certain limitations on the
Company's ability to enter into material transactions with related parties as
well.
LEASES AND REAL PROPERTY TRANSACTIONS
Equipment Leasing Partners ("ELP"), a North Carolina general
partnership consisting of four of the Company's shareholders, George T. Lewis,
Jr., David J. Lewis, James E. Lewis and Robert W. Lewis, owns and leases certain
equipment to the Company's project subsidiaries related to the operations of
the plants. Each of the partners in ELP is a member of the Company's board of
directors. David J. Lewis, James E. Lewis and George T. Lewis, Jr. are also
executive officers of the Company. Total rent paid by the Company to ELP under
such equipment leases was $1,021,400 in fiscal 1997, $1,112,000 in fiscal 1996
and $1,244,000 in fiscal 1995.
ELP also owns and leases to the Company the Company's executive
offices under a long term lease with an initial term expiring in 2004. Total
rent paid by the Company to ELP under such lease was $834,000 in fiscal 1997,
$817,000 in fiscal 1996 and $801,000 in fiscal 1995.
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ELP leases the land on which the Company's executive offices are
located under a long-term ground lease from an unrelated third party with an
initial term expiring in 2047, all payments under which are guaranteed by
Cogentrix. Total amounts paid by ELP under such lease were $112,000 in fiscal
1997, $112,000 in fiscal 1996 and $112,000 in fiscal 1995.
INDEBTEDNESS OF MANAGEMENT
The Company has from time to time made loans and advances to certain
shareholders, each of whom is also a director of the Company. The largest
aggregate amount of indebtedness outstanding exceeding $60,000 at any time
during the last fiscal year for these shareholders and the outstanding balances
at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
LARGEST BALANCE OUTSTANDING
OUTSTANDING DURING BALANCE AS OF
SHAREHOLDER/DIRECTOR FISCAL YEAR 1997 JUNE 30, 1997
-------------------- ---------------- -------------
<S> <C> <C>
George T. Lewis, Jr. $140,000 $140,000
</TABLE>
The loans to George T. Lewis, Jr. were made at interest rates equal in
each case to the prime rate of certain designated banks plus one percent.
Cogentrix has also from time to time made loans to ELP for the purpose
of financing purchases of equipment. These loans were made at variable rates of
interest equal to the prime rate of designated banks plus approximately two
percentage points. The largest aggregate amount of indebtedness of ELP to
Cogentrix outstanding during the fiscal year ended June 30, 1997 was $284,000.
The outstanding amount of ELP's indebtedness to Cogentrix as of June 30, 1997
was $44,000.
FACILITY CASH FLOW INCENTIVE COMPENSATION AGREEMENTS
The Company has entered into agreements with four of the beneficial
owners of the Company's outstanding shares of common stock, three of whom are
executive officers of the Company (the fourth being a former executive officer)
and each of whom is a director, that provide for them to receive annual
distributions equal to a designated percentage of the net cash flow for each
fiscal year of one or both of two of the Company's facilities. During fiscal
1997, the Company terminated these agreements for the three executive officers.
See "Executive Compensation -- Compensation Pursuant to Incentive Compensation
Plans -- Facility Cash Flow Incentive Compensation Agreements -- Directors'
Compensation and Consulting Agreements" herein.
SHAREHOLDER STOCK TRANSFER AGREEMENT
In August 1994, George T. Lewis, Jr. entered into an agreement with
Betty G. Lewis ("Ms. Lewis") providing for, among other things, the transfer by
George T. Lewis, Jr. of a portion of his shares of the Company's common stock to
Ms. Lewis.
In accordance with the agreement, if Ms. Lewis desires to transfer or
otherwise dispose of any of her shares of common stock of the Company, she must
first offer to sell them to the Company at a price equal to a bona fide offer
from an unrelated party. Any shares, the offer of sale of which is not accepted
by the Company after receipt of the written offer, must be offered by Ms. Lewis
at the same price to the other shareholders, who have the right to purchase such
shares on a pro rata basis determined in accordance with the then current stock
ownership of those shareholders. In the event neither the Company nor the other
shareholders notify Ms. Lewis of its or their intention to purchase her shares
within 15 days after receipt of the written offer, Ms. Lewis shall have the
right for 90 days thereafter to consummate the sale of her shares with the
unrelated party who provided the bona fide offer.
CONSULTING AGREEMENTS WITH SHAREHOLDERS
The Company has entered a consulting agreement with one of its
shareholders who is also a member of the board of directors. See "Executive
Compensation -- Directors' Compensation and Consulting Agreements" herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits -
The following documents are filed as part of this Form 10-K.
(1) Consolidated Financial Statements - See index on page 45.
(2) Financial Statement Schedules - See index on page 45.
(3) Index to Exhibits.
Designation Of
Exhibit Description Of Exhibit
-------------- ----------------------
1.1 Form of Underwriting Agreement (1.1). (3)
3.1 Articles of Incorporation of Cogentrix Energy, Inc. (3.1). (1)
3.2 Amended and Restated Bylaws of Cogentrix Energy, Inc., as
amended (3.2). (13)
4.1 Indenture, dated as of March 15, 1994, between Cogentrix
Energy, Inc. and First Union National Bank of North Carolina,
as Trustee (4.1). (5)
10.1 Electric Power Purchase Agreement, dated as of June 13, 1984,
among Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation), Cogentrix, Inc. (then known as
Cogentrix of North Carolina, Inc.) and Carolina Power & Light
Company, as amended (assigned to and assumed by Cogentrix
Eastern Carolina Corporation) (Elizabethtown Facility) (10.1).
(1)
10.1(a) Second Amendment to Electric Power Purchase Agreement, dated
as of August 5, 1996, between Cogentrix Eastern Carolina
Corporation and Carolina Power & Light Company (Elizabethtown
Facility) (10.1(a)). (*)(13)
10.2 Electric Power Purchase Agreement, dated as of June 13, 1984,
among Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation), Cogentrix, Inc. (then known as
Cogentrix of North Carolina, Inc.) and Carolina Power & Light
Company, as amended (assigned to and assumed by Cogentrix
Eastern Carolina Corporation) (Lumberton Facility) (10.2). (1)
10.2(a) Second Amendment to Electric Power Purchase Agreement, dated
as of August 5, 1996, between Cogentrix Eastern Carolina
Corporation and Carolina Power & Light Company (Lumberton
Facility) (10.2(a)). (*)(13)
10.3 Electric Power Purchase Agreement, dated as of June 13, 1984,
among Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation), Cogentrix, Inc. (then known as
Cogentrix of North Carolina, Inc.) and Carolina Power & Light
Company, as amended (assigned to and assumed by Cogentrix
Eastern Carolina Corporation) (Kenansville Facility) (10.3).
(1)
10.3(a) Second Amendment to Electric Power Purchase Agreement, dated
as of August 5, 1996, between Cogentrix Eastern Carolina
Corporation and Carolina Power & Light Company (Kenansville
Facility) (10.3(a)). (*)(13)
10.4 Electric Power Purchase Agreement, dated as of December 17,
1985, among Cogentrix of North Carolina, Inc. (successor by
merger to Cogentrix Carolina Leasing Corporation), Cogentrix,
Inc. (then known as Cogentrix of North Carolina, Inc.) and
Carolina Power & Light Company, as amended (Roxboro Facility)
(10.4). (1)
10.4(a) Third Amendment to Electric Power Purchase Agreement, dated as
of August 5, 1996, between Cogentrix of North Carolina, Inc.
and Carolina Power & Light Company (Roxboro Facility)
(10.4(a)). (*)(13)
10.5 Electric Power Purchase Agreement, dated as of December 17,
1985, among Cogentrix of North Carolina, Inc. (successor by
merger to Cogentrix Carolina Leasing Corporation), Cogentrix,
Inc. (then known as Cogentrix of North Carolina, Inc.) and
Carolina Power & Light Company, as amended (Southport
Facility) (10.5). (1)
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<PAGE> 79
Designation Of
Exhibit Description Of Exhibit
-------------- ----------------------
10.5(a) Third Amendment to Electric Power Purchase Agreement, dated as
of August 5, 1996, between Cogentrix of North Carolina, Inc.
and Carolina Power & Light Company (Southport Facility)
(10.5(a)). (*)(13)
10.6 Power Purchase and Operating Agreement, dated as of December
31, 1985, between Cogentrix of Virginia, Inc. and Virginia
Electric and Power Company, as amended (assigned to and
assumed by James River Cogeneration Company) (Hopewell
Facility) (10.6). (1)
10.6(a) Amendment No. 4 to Power Purchase and Operating Agreement,
dated as of January 1, 1996, by and between James River
Cogeneration Company and Virginia Electric and Power Company
(Hopewell Facility) (10.1). (12)
10.7 Power Purchase and Operating Agreement, dated as of July 21,
1986, between Cogentrix of Virginia, Inc. and Virginia
Electric and Power Company, as amended (assigned to and
assumed by Cogentrix Virginia Leasing Corporation) (Portsmouth
Facility) (10.7). (1)
10.8 Power Purchase and Operating Agreement, dated as of January
24, 1989, between Cogentrix of Rocky Mount, Inc. and Virginia
Electric and Power Company, doing business in North Carolina
as North Carolina Power, as amended (Rocky Mount Facility)
(10.8). (1)
10.9 Agreement, dated as of June 23, 1986, for the Sale of Energy
from the Ringgold Cogeneration/Greenhouse Plant, between Xiox
Corporation and Pennsylvania Electric Company, as amended
(assigned to and assumed by Cogentrix of Pennsylvania, Inc.)
(Ringgold Facility) (10.9). (1)
10.10 Power Purchase and Operating Agreement, dated as of January
24, 1989, between Cogentrix of Richmond, Inc. (formerly named
Cogentrix of Petersburg, Inc.) and Virginia Electric and Power
Company, as amended. (Richmond Facility, Unit I) (10.10). (1)
10.11 Power Purchase and Operating Agreement, dated as of January
24, 1989, between WV Hydro, Inc. and Virginia Electric and
Power Company, as amended (assigned to and assumed by
Cogentrix of Richmond, Inc.) (Richmond Facility, Unit II)
(10.11). (1)
10.12 Power Purchase Agreement, dated as of August 4, 1992, between
Consumers Power Company and Muskegon Generation, Inc., as
amended (assigned to and assumed by Michigan Cogeneration
Partners) (Michigan Facility) (10.12). (1)
10.12(a) Memorandum of Agreement, dated as of July 18, 1994, among
Consumers Power Company and Michigan Cogeneration Partners
Limited Partnership (10.12(a)). (5)
10.13 Power Purchase and Operating Agreement, dated as of July 13,
1990, between SEI Birchwood, Inc. (assigned to and assumed by
Birchwood Power Partners, L.P.) and Virginia Electric and
Power Company, as amended (Birchwood Facility) (10.6). (14)
10.14 Steam Purchase Agreement, dated as of August 23, 1984, between
Cogentrix of North Carolina, Inc. (then known as Cogentrix
Leasing Corporation) and West Point Stevens Inc. (then known
as West-Point Pepperell, Inc.), as amended (assigned to and
assumed by Cogentrix Eastern Carolina Corporation
(Elizabethtown Facility) (10.13). (*)(3)
10.15 Steam Purchase Agreement, dated as of August 23, 1984, between
Cogentrix of North Carolina, Inc. (then known as Cogentrix
Leasing Corporation) and West Point Stevens Inc. (then known
as West-Point Pepperell, Inc.), as amended (assigned to and
assumed by Cogentrix Eastern Carolina Corporation) (Lumberton
Facility) (10.14). (*)(3)
10.16 Steam Purchase Agreement, dated as of November 30, 1984,
between Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation) and Guilford Mills, Inc., as
amended (assigned to and assumed by Cogentrix Eastern Carolina
Corporation) (Kenansville Facility) (10.15). (*)(3)
79
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10.17 Steam Purchase Agreement, dated as of December 31, 1985, among
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation) and Collins & Aikman
Corporation, as amended (Roxboro Facility) (10.16). (*)(3)
10.18 Steam Purchase Agreement, dated as of December 31, 1985, among
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation), Roxboro/Southport
General Partnership and Archer-Daniels-Midland Company (as
assignee of Pfizer Inc.), as amended (Southport Facility)
(10.17). (*)(3)
10.19 Steam Purchase Agreement, dated as of January 31, 1986,
between Cogentrix of Virginia, Inc. and Allied-Signal Inc.
(then known as Allied Corporation), as amended (assigned to
and assumed by James River Cogeneration Company) (Hopewell
Facility) (10.18). (*)(3)
10.20 Steam Purchase Agreement, dated as of December 31, 1985,
between Cogentrix Virginia Leasing Corporation and
Hoechst-Celanese Corporation (successor to Virginia Chemicals
Inc.) (Portsmouth Facility) (10.19). (*)(3)
10.21 Steam Purchase Agreement, dated as of November 15, 1988,
between Cogentrix of Rocky Mount, Inc. and Abbott
Laboratories, as amended (Rocky Mount Facility) (10.20).
(*)(3)
10.22 Lease Agreement dated as of September 21, 1993 between
Cogentrix of Pennsylvania, Inc. and Keystone Village Farms,
Inc., as amended (Ringgold Facility) (10.21). (*)(3)
10.23 Steam Purchase Agreement, dated as of May 18, 1990, between
Cogentrix of Richmond, Inc. and E.I. du Pont de Nemours and
Company, as amended (Richmond Facility) (10.22). (*)(3)
10.24 Coal Sales Agreement, dated as of November 15, 1991, among
Blue Crystal Sales Company, Bell County Coal Corporation and
Cogentrix Eastern Carolina Corporation (Elizabethtown,
Lumberton and Kenansville Facilities) (10.23). (*)(3)
10.24(a) First Amendment to Coal Sales Agreement, dated as of April 17,
1995, between James River Coal Sales, Inc. (formerly named
Blue Crystal Coal Sales Company), Bell County Coal Corporation
and Cogentrix Eastern Carolina Corporation (Elizabethtown,
Lumberton and Kenansville Facilities) (10.1). (9)
10.25 Coal Sales Agreement, dated as of March 11, 1986, between
Martiki Coal Corporation and Cogentrix of North Carolina, Inc.
(successor by merger to Cogentrix Carolina Leasing
Corporation) (Roxboro Facility) (10.24). (*)(3)
10.26 Coal Sales Agreement, dated as of June 30, 1997, by and
between Pontiki Coal Corporation and Cogentrix of North
Carolina, Inc. (Roxboro Facility). (**)
10.27 Coal Sales Agreement, dated as of May 19, 1986, among Coastal
Coal International Inc., Johnson Processing, Incorporated and
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation) (Southport Facility)
(10.25). (*)(3)
10.28 Coal Sales Agreement, dated as of June 30, 1997, by and
between MC Mining, Inc. and Cogentrix of North Carolina, Inc.
(Southport Facility). (**)
10.29 Coal Sales Agreement, dated as of December 1, 1986, between
Pontiki Coal Corporation and Cogentrix of Virginia, Inc.
(assigned to and assumed by James River Cogeneration Company)
(Hopewell Facility) (10.26). (*)(3)
10.30 Coal Sales Agreement, dated as of December 15, 1986, among
AgipCoal Sales USA, Inc. (formerly named Enoxy Coal Sales,
Inc.), AgipCoal USA, Inc. (formerly named Enoxy Coal, Inc.)
and Cogentrix Virginia Leasing Corporation (Portsmouth
Facility) (10.27). (*)(3)
10.30(a) First Amendment to Coal Sales Agreement, dated September 29,
1995, by and between Arch Coal Sales Company, Inc., and
Cogentrix Virginia Leasing Corporation (Portsmouth Facility)
(10.1). (11)
80
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10.31 Coal Sales Agreement, dated as of October 1, 1989, among
AgipCoal Sales USA, Inc., Laurel Creek Co., Inc. and Cogentrix
of Rocky Mount, Inc., as amended (Rocky Mount Facility)
(10.28). (*)(3)
10.32 Gas Supply Contract, dated as of June 15, 1989, among
Cogentrix of Pennsylvania, Inc., Cogentrix, Inc. and J. C.
Enterprises, as amended (Ringgold Facility) (10.29). (1)
10.33 Gas Sale and Purchase Agreement, dated as of September 8,
1989, between Eastern Marketing Corporation and Cogentrix of
Pennsylvania, Inc. (Ringgold Facility) (10.30). (1)
10.34 Coal Sales Agreement, dated as of February 15, 1990, among
Electric Fuels Corporation, Kentucky May Coal Company, Inc.
and Cogentrix of Richmond, Inc., as amended (Richmond
Facility, Unit I) (10.31). (*)(3)
10.35 Coal Sales Agreement, dated as of January 1, 1990, between
Coastal Coal Sales, Inc., and Cogentrix of Richmond, Inc., as
amended (Richmond Facility, Unit II) (10.32). (*)(3)
10.36 Coal Supply Agreement, dated as of July 22, 1993, by and among
Birchwood Power Partners, L.P., AgipCoal Holding USA, Inc. and
AgipCoal Sales USA, Inc. (assigned to and assumed by Neweagle
Coal Sales Corp. and Neweagle Industries, Inc.), Laurel Creek
Co., Inc. and Rockspring Development, Inc. (Birchwood
Facility) (10.7). (*)(14)
10.36(a) First Amendment to Coal Supply Agreement, dated as of May 18,
1994, by and among Birchwood Power Partners, L.P., Laurel
Creek Co., Inc., Rockspring Development, Inc., Neweagle Coal
Sales Corp. and Neweagle Industries, Inc. (Birchwood Facility)
(10.7(a)). (14)
10.37 Railroad Transportation Contract, dated December 5, 1984,
between Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation) and CSX Transportation, Inc.
(then known as The Chesapeake and Ohio Railway Company and
Seaboard System Railroad, Inc.), as amended (assigned to and
assumed by Cogentrix Carolina Leasing Corporation)
(Elizabethtown Facility) (10.33). (*)(3)
10.37(a) Fifth Amendment to Railroad Transportation Contract, dated
January 21, 1994, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Elizabethtown
Facility) (10.33(a)). (*)(3)
10.37(b) Sixth Amendment to Railroad Transportation Contract, dated
August 23, 1995, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Elizabethtown
Facility) (10.33(b)). (*)(10)
10.38 Railroad Transportation Contract, dated December 5, 1984,
between Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation) and CSX Transportation, Inc.
(then known as The Chesapeake and Ohio Railway Company and
Seaboard System Railway, Inc.), as amended (assigned to and
assumed by Cogentrix Eastern Carolina Corporation) (Lumberton
Facility) (10.34). (*)(3)
10.38(a) Fifth Amendment to Railroad Transportation Contract, dated
January 21, 1994, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Lumberton Facility)
(10.34(a)). (*)(3)
10.38(b) Sixth Amendment to Railroad Transportation Contract, dated
August 23, 1995, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Lumberton Facility)
(10.34(b)). (*)(10)
10.39 Railroad Transportation Contract, dated December 5, 1984,
between Cogentrix of North Carolina, Inc. (then known as
Cogentrix Leasing Corporation) and CSX Transportation, Inc.
(then known as The Chesapeake and Ohio Railway Company and
Seaboard System Railway, Inc.), as amended (assigned to and
assumed by Cogentrix Eastern Carolina Corporation)
(Kenansville Facility) (10.35). (*)(3)
10.39(a) Fifth Amendment to Railroad Transportation Contract, dated
January 21, 1994, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Kenansville
Facility) (10.35(a)). (*)(3)
81
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10.39(b) Sixth Amendment to Railroad Transportation Contract, dated
August 23, 1995, between Cogentrix Eastern Carolina
Corporation and CSX Transportation, Inc. (Kenansville
Facility) (10.35(b)). (*)(10)
10.40 Railroad Transportation Contract, dated as of July 15, 1986,
between Cogentrix of North Carolina, Inc. (successor by merger
to Cogentrix Carolina Leasing Corporation), and Norfolk
Southern Railway Company (Roxboro Facility) (10.36). (*)(3)
10.41 Railroad Transportation Contract, dated as of June 23, 1997,
by and between Cogentrix of North Carolina, Inc. and Norfolk
Southern Railway Company (Roxboro Facility). (**)
10.42 Railroad Transportation Contract, dated as of July 15, 1986,
between Cogentrix of North Carolina, Inc. (successor by merger
to Cogentrix Carolina Leasing Corporation) and CSX
Transportation, Inc. (then known as The Chesapeake and Ohio
Railway Company and Seaboard System Railroad, Inc.), as
amended (Southport Facility) (10.37). (*)(3)
10.42(a) Sixth Amendment to Railroad Transportation Contract, effective
as of January 1, 1996, between Cogentrix of North Carolina,
Inc. and CSX Transportation, Inc. (Southport Facility)
(10.37(a)). (*)(13)
10.43 Railroad Transportation Contract, dated as of June 30, 1997,
by and among Cogentrix of North Carolina, Inc. and CSX
Transportation, Inc. (Southport Facility). (**)
10.44 Railroad Transportation Contract, dated as of December 15,
1986, between Cogentrix of Virginia, Inc., and Norfolk
Southern Railway Company, as amended (assigned to and assumed
by James River Cogeneration Company) (Hopewell Facility)
(10.38). (*)(3)
10.45 Railroad Transportation Contract, dated as of December 22,
1986, between Cogentrix Virginia Leasing Corporation, and
Norfolk Southern Railway Company, as amended (Portsmouth
Facility) (10.39). (*)(3)
10.46 Barge Transportation Contract, dated as of December 23, 1986,
between Cogentrix Virginia Leasing Corporation and McAllister
Brothers, Inc., as amended (Portsmouth Facility) (10.40). (1)
10.47 Railroad Transportation Contract, dated as of September 26,
1989, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc., as amended (Rocky Mount Facility)
(10.41). (*)(3)
10.47(a) Fourth Amendment, dated as of August 23, 1995, to the Railroad
Transportation Contract, dated as of September 26, 1989,
between Cogentrix of Rocky Mount, Inc. and CSX Transportation,
Inc. (Rocky Mount Facility) (10.41(a)). (10)
10.47(b) Fifth Amendment, dated as of January 1, 1996, to the Railroad
Transportation Contract, dated as of September 26, 1989,
between Cogentrix of Rocky Mount, Inc. and CSX Transportation,
Inc. (Rocky Mount Facility) (10.41(b)). (13)
10.47(c) Amendment No. 6 to Contract CSXT-C-03951, dated as of January
1, 1997, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc. (Rocky Mount Facility) (10.9). (14)
10.47(d) Amendment No. 7 to Contract CSXT-C-03951, dated as of July 1,
1997, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc. (Rocky Mount Facility).
10.48 Railroad Transportation Contract, dated as of March 1, 1990,
between Cogentrix of Richmond, Inc. and CSX Transportation,
Inc., as amended (Richmond Facility, Unit I) (10.42). (*)(3)
10.48(a) Third Amendment to Railroad Transportation Contract, filed
with the ICC on December 13, 1994, between Cogentrix of
Richmond, Inc. and CSX Transportation, Inc. (Richmond
Facility, Unit I) (10.4). (8)
10.49 Railroad Transportation Contract, dated as of March 1, 1990,
between Cogentrix of Richmond, Inc. and CSX Transportation,
Inc., as amended (Richmond Facility, Unit II) (10.43). (*)(3)
82
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10.49(a) Fourth Amendment to Railroad Transportation Contract, filed
with the ICC on December 13, 1994, between Cogentrix of
Richmond, Inc. and CSX Transportation, Inc. (Richmond
Facility, Unit II) (10.5). (8)
10.49(b) Fifth Amendment to Railroad Transportation Contract, effective
as of November 16, 1995, between Cogentrix of Richmond, Inc.
and CSX Transportation, Inc. (Richmond Facility, Unit II)
(10.43(b)). (*)(13)
10.50 Coal Transportation Agreement, dated as of July 22, 1993,
between Birchwood Power Partners, L.P. and ER&L-Birchwood,
Inc. (Birchwood Facility) (10.8). (*)(14)
10.50(a) First Amendment to Coal Transportation Agreement, dated as of
April 28, 1994, between Birchwood Power Partners, L.P. and
ER&L Birchwood, Inc. (Birchwood Facility) (10.8(a)). (*)(14)
10.51 Amended and Restated Senior Term Loan Agreement, dated as of
September 24, 1996, among Cogentrix Eastern Carolina
Corporation, the Lenders party thereto, Credit Lyonnais New
York Branch, as Issuing Bank and Agent (Elizabethtown,
Lumberton and Kenansville Facilities) (10.44). (13)
10.52 Amended and Restated Senior Term Loan Agreement and Guarantee,
dated as of September 24, 1996, among United States Trust
Company of New York, as Roxboro Owner Trustee, United States
Trust Company of New York, as Southport Owner Trustee, United
States Trust Company of New York in its individual capacity
only to the extent expressly provided therein, Cogentrix of
North Carolina, Inc., Roxboro/Southport General Partnership,
Credit Lyonnais New York Branch, as Lender, Administrative
Agent and Issuing Bank, and the other lenders party thereto
(Roxboro and Southport Facilities) (10.45). (13)
10.53 Second Amended and Restated Application for Letter of Credit
and Reimbursement Agreement, dated as of July 1, 1996, among
James River Cogeneration Company, the Banks named therein, and
Banque Paribas, New York Branch, as Agent (Hopewell Facility)
(10.46). (13)
10.54 Second Amended and Restated Loan Agreement, dated as of May
15, 1992, among Cogentrix Virginia Leasing Corporation, the
lenders party thereto and The CIT Group/Equipment Financing,
Inc., as Agent, as amended (Portsmouth Facility) (10.51). (1)
10.55 Amended and Restated Construction and Term Loan Agreement,
dated as of December 1, 1993, among Cogentrix of Rocky Mount,
Inc., the Tranche B Lenders party thereto, and The Prudential
Insurance Company of America, as Credit Facility Agent (Rocky
Mount Facility) (10.52). (1)
10.55(a) First Amendment, dated as of March 31, 1996, to the Amended
and Restated Construction and Term Loan Agreement, dated as of
December 1, 1993, among Cogentrix of Rocky Mount, Inc., the
Tranche B Lenders party thereto, and The Prudential Insurance
Company of America, as Credit Facility Agent (Rocky Mount
Facility) (10.4). (12)
10.55(b) Second Amendment, dated as of May 31, 1996, to the Amended and
Restated Construction and Term Loan Agreement, dated as of
December 1, 1993, among Cogentrix of Rocky Mount, Inc., the
Tranche B Lenders party thereto, and The Prudential Insurance
Company of America, as Credit Facility Agent (Rocky Mount
Facility) (10.48(b)). (13)
10.56 Construction and Term Loan Agreement, dated as of June 15,
1989, among Cogentrix of Pennsylvania, Inc., the lenders party
thereto and Banque Paribas, New York Branch, as Agent, as
amended (Ringgold Facility) (10.53). (1)
10.57 Convertible Subordinated Note dated April 1, 1991 of Cogentrix
of Pennsylvania, Inc. payable to Westinghouse Credit
Corporation (10.54). (1)
83
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10.58 Reimbursement and Loan Agreement, dated as of December 1,
1990, among Cogentrix of Richmond, Inc., Banque Paribas, New
York Branch as Issuing Bank, the lenders party thereto and
Banque Paribas, New York Branch, as Agent, as amended
(Richmond Facility) (10.55). (1)
10.58(a) Fourth Amendment, dated as of February 15, 1995, to the
Reimbursement and Loan Agreement, dated as of December 1,
1990, among Cogentrix of Richmond, Inc., Banque Paribas, New
York Branch, as Issuing Bank, the lenders party thereto and
Banque Paribas, New York Branch, as Agent (Richmond Facility)
(10.55(a)). (10)
10.58(b) Fifth Amendment, dated as of June 1, 1995, to the
Reimbursement and Loan Agreement, dated as of December 1,
1990, among Cogentrix of Richmond, Inc., Banque Paribas, New
York Branch, as Issuing Bank, the lenders party thereto and
Banque Paribas, New York Branch, as Agent (Richmond Facility)
(10.55(b)). (10)
10.58(c) Sixth Amendment, dated as of March 31, 1996, to the
Reimbursement and Loan Agreement, dated as of December 1,
1990, among Cogentrix of Richmond, Inc., Banque Paribas, New
York Branch, as Issuing Bank, the lenders party thereto and
Banque Paribas, New York Branch, as Agent (Richmond Facility)
(10.5). (12)
10.59 Indenture of Trust, dated as of December 1, 1990, between the
Industrial Development Authority of the City of Richmond,
Virginia and Sovran Bank, N.A., as Trustee, including First
and Second Supplemental Indentures of Trust (Richmond
Facility) (10.56). (1)
10.60 Sale Agreement, dated as of December 1, 1990, between the
Industrial Development Authority of the City of Richmond,
Virginia and Cogentrix of Richmond, Inc., including First and
Second Supplemental Sale Agreements (Richmond Facility)
(10.57). (1)
10.61 Loan and Reimbursement Agreement, dated as of May 18, 1994,
among Birchwood Power Partners, L.P., the Banks party thereto,
John Hancock Mutual Life Insurance Company, Allstate Insurance
Company, New York Life Insurance Company and the other
Institutions party thereto, Banque Paribas, New York Branch,
Barclays Bank PLC, Credit Suisse, Union Bank of California, as
Co-Agents for the Banks and Credit Suisse, as Issuing Bank and
as Administrative Agent for the Banks (Birchwood Facility)
(10.1). (14)
10.62 Security Deposit and Intercreditor Agreement, dated as of May
18, 1994, among Birchwood Power Partners, L.P., the Secured
Parties named therein and Credit Suisse, as Security Agent
(Birchwood Facility) (10.2). (14)
10.63 First Amendment to Composite Amendment and Consent to Project
Loan Agreement and Security Deposit Agreement, among Birchwood
Power Partners, L.P. and the persons party to the Loan and
Reimbursement Agreement, dated as of May 18, 1994, as amended,
and the Security Deposit and Intercreditor Agreement, dated as
of May 18, 1994, as amended (Birchwood Facility) (10.3). (14)
10.64 Greenhouse Restructure Amendment, dated as of March 27, 1997,
to the Loan and Reimbursement Agreement, the Security Deposit
and Intercreditor Agreement, the Loan and Contribution
Agreement and the Steam Sales Agreement, among the parties
obligated under such agreements (Birchwood Facility).
10.65 Amended and Restated Security Deposit Agreement, dated as of
September 24, 1996, among Cogentrix Eastern Carolina
Corporation, Credit Lyonnais New York Branch, as Senior Debt
Agent and Issuing Bank and The Chase Manhattan Bank, as
Security Agent (Elizabethtown, Lumberton and Kenansville
Facilities) (10.54). (13)
84
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10.66 Amended and Restated Security Deposit Agreement, dated as of
September 24, 1996, among United States Trust Company of New
York, as Roxboro Owner Trustee, United States Trust Company of
New York, as Southport Owner Trustee, Cogentrix of North
Carolina, Inc., Roxboro/Southport General Partnership, Credit
Lyonnais New York Branch, as Administrative Agent and Issuing
Bank, and The Chase Manhattan Bank, as Security Agent (Roxboro
and Southport Facilities) (10.55). (13)
10.67 Second Amended and Restated Security Deposit Agreement, dated
as of July 1, 1996, among James River Cogeneration Company,
Cogentrix of Virginia, Inc., Banque Paribas, New York Branch,
as Grantee, and First Union National Bank of North Carolina,
as Security Agent (Hopewell Facility) (10.56). (13)
10.68 Second Amended and Restated Security Deposit Agreement, dated
as of May 15, 1992, among Cogentrix Virginia Leasing
Corporation, Cogentrix, Inc., The CIT Group/Equipment
Financing, Inc., as Agent and First Union National Bank of
North Carolina, as Security Agent, as amended (Portsmouth
Facility) (10.64). (1)
10.69 Amended and Restated Security Deposit Agreement, dated as of
December 1, 1993, among Cogentrix of Rocky Mount, Inc., The
Prudential Insurance Company of America, as Credit Facility
Agent and First Union National Bank of North Carolina, as
Security Agent (Rocky Mount Facility) (10.65). (1)
10.70 Security Deposit Agreement, dated as of June 15, 1989, among
Cogentrix of Pennsylvania, Inc., Banque Paribas, New York
Branch, as Bank Agent and First Union National Bank of North
Carolina, as Security Agent (Ringgold Facility) (10.66). (1)
10.71 Security Deposit Agreement, dated as of December 1, 1990,
among Cogentrix of Richmond, Inc., Banque Paribas, New York
Branch, as Agent and First Union National Bank of North
Carolina, as Security Agent (Richmond Facility) (10.67). (1)
10.71(a) First Amendment to Security Deposit Agreement, dated December
15, 1993, among Cogentrix of Richmond, Inc., Banque Paribas,
New York Branch, as Agent and First Union National Bank of
North Carolina, as Security Agent (Richmond Facility)
(10.67(a)). (3)
10.72 Stock Pledge and Security Agreement, dated as of September 24,
1996, made by Cogentrix, Inc. in favor of Credit Lyonnais New
York Branch, as Agent (Elizabethtown, Lumberton and
Kenansville Facilities) (10.61). (13)
10.73 Stock Pledge and Security Agreement, dated as of September 24,
1996, made by Cogentrix of North Carolina Holdings, Inc. in
favor of Credit Lyonnais New York Branch, as Administrative
Agent (Roxboro and Southport Facilities) (10.62). (13)
10.74 Stock Pledge and Security Agreement, dated as of September 24,
1996, made by Roxboro/Southport I, Inc. in favor of Credit
Lyonnais New York Branch, as Administrative Agent (Roxboro and
Southport Facilities) (10.63). (13)
10.75 General Partner Assignment and Security Agreement, dated as of
September 24, 1996, made by Roxboro/Southport II, Inc. in
favor of Credit Lyonnais New York Branch, as Administrative
Agent (Roxboro and Southport Facilities) (10.64). (13)
10.76 General Partner Assignment and Security Agreement, dated as of
September 24, 1996, made by Roxboro/Southport I, Inc. in favor
of Credit Lyonnais New York Branch, as Administrative Agent
(Roxboro and Southport Facilities) (10.65). (13)
10.77 Stock Pledge Agreement, dated as of December 1, 1986, between
Cogentrix, Inc., as Pledgor and Banque Paribas, New York
Branch, as Agent, as amended (Hopewell Facility) (10.78). (1)
10.77(a) Amendment No. 2 to Pledge and Security Agreement, dated as of
July 1, 1996, made by Cogentrix, Inc., as Pledgor to Banque
Paribas, New York Branch, as Grantee (Hopewell Facility)
(10.66(a)). (13)
85
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10.78 Assignment and Security Agreement dated as of October 1, 1987
between Cogentrix of Virginia, Inc. and Banque Paribas, New
York Branch, as Grantee, as amended (Hopewell Facility)
(10.79). (1)
10.78(a) Amendment No. 2 to Assignment and Security Agreement dated as
of July 1, 1996, between Cogentrix of Virginia, Inc. and
Banque Paribas, New York Branch, as Grantee (Hopewell
Facility) (10.67(a)). (13)
10.79 Second Amended and Restated Pledge Agreement, dated as of May
15, 1992, between Cogentrix, Inc., as Pledgor and The CIT
Group/Equipment Financing, Inc., as Agent (Portsmouth
Facility) (10.80). (1)
10.80 Pledge Agreement, dated as of June 15, 1989, between
Cogentrix, Inc., as Pledgor and Banque Paribas, New York
Branch, as Agent (Ringgold Facility) (10.81). (1)
10.81 Amended and Restated Stock Pledge Agreement, dated as of
November 19, 1996, by and between Cogentrix/Birchwood Two,
L.P., as Pledgor, and Birchwood Power Partners, L.P., as
Lender (Birchwood Facility) (10.4). (14)
10.82 Ground Lease, dated as of August 23, 1984, between Cogentrix
of North Carolina, Inc. (then known as Cogentrix Leasing
Corporation) and West Point Stevens Inc. (then known as West
Point-Pepperell, Inc.), as amended (assigned to and assumed by
Cogentrix Eastern Carolina Corporation) (Elizabethtown
Facility) (10.82). (1)
10.83 Ground Lease, dated as of August 23, 1984, between Cogentrix
of North Carolina, Inc. (then known as Cogentrix Leasing
Corporation) and West Point Stevens Inc. (then known as West
Point-Pepperell, Inc.), as amended (assigned to and assumed by
Cogentrix Eastern Carolina Corporation) (Lumberton Facility)
(10.83). (1)
10.84 Ground Lease, dated as of November 30, 1984, between Cogentrix
of North Carolina, Inc. (then known as Cogentrix Leasing
Corporation) and Guilford Mills, Inc., as amended (assigned to
and assumed by Cogentrix Eastern Carolina Corporation)
(Kenansville Facility) (10.84). (1)
10.85 Lease (SBD 9284; RE-81558) from Seaboard System Railroad, Inc.
to Cumberland Elkhorn Coal and Coke, Inc., dated December 17,
1985, assigned by Cumberland Elkhorn Coal & Coke, Inc. to
Oxbow Carbon and Minerals Inc. and further assigned by Oxbow
Carbon & Minerals, Inc. to Cogentrix Eastern Carolina
Corporation, as amended (Kenansville Facility) (10.85). (1)
10.86 Lease (SBD 8074; RE-81558) from Seaboard System Railroad, Inc.
to Cumberland Elkhorn Coal & Coke, Inc., dated October 4,
1985, assigned by Cumberland Elkhorn Coal & Coke, Inc. to
Oxbow Carbon and Minerals Inc. and further assigned by Oxbow
Carbon & Minerals, Inc. to Cogentrix Eastern Carolina
Corporation, as amended (Kenansville Facility) (10.86). (1)
10.87 Agreement (SBD 8801; RE-81558) dated October 2, 1985, as
amended, between CSX Transportation, Inc. (as successor to the
rights and obligations of Seaboard System Railroad, Inc.), and
Cogentrix Eastern Carolina Corporation (as successor to the
rights of Oxbow Carbon & Minerals, Inc., which succeeded to
the rights and obligations of Cumberland Elkhorn Coal & Coke,
Inc. by assignment), as amended (Kenansville Facility)
(10.87). (1)
10.88 Agreement (SBD 10257; RE-83767) dated June 18, 1986, as
amended, between CSX Transportation, Inc. (as successor to the
rights and obligations of Seaboard System Railroad, Inc.), and
Cogentrix Eastern Carolina Corporation (as successor to the
rights of Oxbow Carbon & Minerals, Inc., which succeeded to
the rights and obligations of Cumberland Elkhorn Coal & Coke,
Inc. by assignment), as amended (Elizabethtown and Lumberton
Facilities) (10.88). (1)
10.89 Lease Agreement, dated as of November 10, 1987, between United
States Trust Company of New York, as Roxboro Owner Trustee, as
Lessor, and Cogentrix of North Carolina, Inc. (successor by
merger to Cogentrix Carolina Leasing Corporation), as Lessee,
as amended (Roxboro Facility) (10.89). (1)
86
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Designation Of
Exhibit Description Of Exhibit
-------------- ----------------------
10.89(a) Fourth Amendment to Lease Agreement, dated as of September 24,
1996, between United States Trust Company, as Roxboro Owner
Trustee and Cogentrix of North Carolina, Inc. (Roxboro
Facility) (10.77(a)). (13)
10.90 Lease Agreement, dated as of November 10, 1987, between United
States Trust Company of New York, as Southport Owner Trustee,
as Lessor, and Cogentrix of North Carolina, Inc. (successor by
merger to Cogentrix Carolina Leasing Corporation), as Lessee,
as amended (Southport Facility) (10.90). (1)
10.90(a) Fourth Amendment to Lease Agreement, dated as of September 24,
1996, between United States Trust Company, as Southport Owner
Trustee and Cogentrix of North Carolina, Inc. (Southport
Facility) (10.78(a)). (13)
10.91 Ground Lease, dated as of December 31, 1985, between United
States Trust Company, as Roxboro Owner Trustee, as Lessee, and
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation), as Lessor (Roxboro
Facility) (10.91). (1)
10.92 Amended and Restated Ground Lease, dated as of December 31,
1985, between Carolina Power & Light Company, as Lessor, and
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation), as Lessee, as amended
(Southport Facility) (10.92). (1)
10.93 Ground Lease, dated January 31, 1986, between Allied-Signal,
Inc., as Lessor, and Cogentrix of Virginia, Inc., as Lessee,
as amended (assigned to and assumed by James River
Cogeneration Company) (Hopewell Facility) (10.93). (1)
10.94 Ground Lease and Easement, dated as of December 15, 1986,
between Virginia Chemicals, Inc., as Lessor and Cogentrix
Virginia Leasing Corporation, as Lessee (Portsmouth Facility)
(10.94). (1)
10.95 Ground Lease, dated as of December 13, 1990, between Cogentrix
of Richmond, Inc., as Lessee, and E.I. du Pont de Nemours and
Company, as Lessor (Richmond Facility) (10.95). (1)
10.96 Amended and Restated Land Lease Agreement, dated as of
February 18, 1988, among Arrowpoint Associates Limited
Partnership, as Landlord, and Cogentrix, Inc., CI Properties,
Inc. and Equipment Leasing Partners, as Tenant, as amended
(assigned to and assumed by Equipment Leasing Partners, with
Cogentrix, Inc., as guarantor) (Corporate Headquarters)
(10.96). (1)
10.97 Amended and Restated Lease Agreement, dated as of April 30,
1993, among Equipment Leasing Partners, as Landlord,
Cogentrix, Inc., as Tenant, and CI Properties, Inc., as
amended (Corporate Headquarters) (10.97). (1)
10.98 Letter Agreement, dated May 25, 1989, among Cogentrix, Inc.,
Cogentrix of Richmond, Inc. (formerly named Cogentrix of
Petersburg, Inc.), and WV Hydro, Inc., as amended (Richmond
Facility) (10.98). (1)
10.99 Consulting Agreement, dated as of September 27, 1991, between
Robert W. Lewis and Cogentrix, Inc., as amended (assigned to
and assumed by Cogentrix Energy, Inc.) (10.99). (1)
10.100 Consulting Agreement, dated as of September 30, 1993, between
Cogentrix, Inc. and W.E. Garrett (assigned to and assumed by
Cogentrix Energy, Inc.) (10.100). (1)
10.101 Consulting Agreement, dated as of September 30, 1993, between
Cogentrix, Inc. and C&L Account Ten Inc. (assigned to and
assumed by Cogentrix Energy, Inc.) (10.101). (1)
10.102 Form of Profit-Sharing Plan (I) (10.102). (1)
10.103 Form of Profit-Sharing Plan (II) (10.103). (1)
10.104 Executive Incentive Bonus Plan (10.104). (3)
10.105 Facility Cash Flow Incentive Compensation Agreement with
Robert W. Lewis (10.105). (1)
10.106 General Partnership Agreement dated as of September 30, 1987
between Cogentrix of Virginia, Inc. and Capistrano
Cogeneration Company (10.110). (1)
87
<PAGE> 88
Designation Of
Exhibit Description Of Exhibit
-------------- ----------------------
10.107 Adoption of Stock Transfer Agreement dated as of December 30,
1993 among Cogentrix Energy, Inc., Cogentrix Inc., David J.
Lewis, Robert W. Lewis and James E. Lewis (10.111). (1)
10.108 Employment Agreement, dated as of June 24, 1994, between David
J. Lewis and Cogentrix Energy, Inc. (10.115). (5)
10.109 Employment Agreement, dated as of May 1, 1997, between Mark F.
Miller and Cogentrix Energy, Inc.
10.110 Power Purchase Agreement, dated as of September 30, 1994,
between Mangalore Power Company and Karnataka Electricity
Board (Phase One Facility) (10.1). (6)
10.111 Power Purchase Agreement, dated as of September 30, 1994,
between Mangalore Power Company and Karnataka Electricity
Board (Phase Two Facility) (10.2). (6)
10.112 Transaction Agreement by and among SEI Birchwood, Inc.,
Birchwood Development Corp., Birchwood Power Partners, L.P.,
Cogentrix/Birchwood Two, L.P. and Cogentrix Energy, Inc.,
dated as of November 23, 1994 (Birchwood Facility) (2.1). (7)
10.113 Engineering, Procurement and Construction Agreement, dated as
of December 8, 1994, between Cogentrix Energy, Inc. and Public
Utility District No. 1 of Clark County, Washington, together
with Letter Agreement, dated January 18, 1995 (Clark Facility)
(10.1). (8)
10.114 Development and Engineering Agreement, dated as of December 8,
1994, between Cogentrix of Vancouver, Inc. and Public Utility
District No. 1 of Clark County, Washington (Clark Facility)
(10.2). (8)
10.115 Operation and Maintenance Agreement, dated as of December 8,
1994, between Cogentrix of Vancouver, Inc. and Public Utility
District No. 1 of Clark County, Washington (Clark Facility)
(10.3). (8)
10.116 Amended and Restated Facility Operations and Maintenance
Agreement, dated as of May 18, 1994, between Southern Electric
International, Inc. and Birchwood Power Partners, L.P.
(Birchwood Facility) (10.5). (*)(14)
10.117 Amended and Restated Limited Partnership Agreement of
Birchwood Power Partners, L.P., dated December 15, 1994
(10.6). (8)
10.118 Equity Contribution Agreement, dated as of December 15, 1994,
among Cogentrix Energy, Inc., Cogentrix Delaware Holdings,
Inc., Birchwood Power Partners, L.P., and Credit Suisse
(Birchwood Facility) (10.9). (8)
10.119 Limited Partner Pledge Agreement, dated as of December 15,
1994, made by Cogentrix/Birchwood Two, L.P. in favor of Credit
Suisse (Birchwood Facility) (10.10). (8)
10.120 General Partner Pledge Agreement, dated as of December 15,
1994, made by Cogentrix/Birchwood Two, L.P. in favor of Credit
Suisse (Birchwood Facility) (10.11). (8)
10.121 Agreement of Limited Partnership of Rathdrum Generation
Partners Limited Partnership, dated as of November 3, 1994, by
and among BTU Energy I, Inc. and Cogentrix of Rathdrum I,
Inc., as General Partners, and BTU Energy II, Inc. and
Cogentrix of Rathdrum II, Inc., as Limited Partners (10.131).
(10)
10.122 Supplemental Retirement Savings Plan (10.132). (10)
10.123 Trust Under Supplemental Retirement Savings Plan, dated April
17, 1995, by and between Cogentrix Energy, Inc. and Wachovia
Bank of North Carolina, N.A. of Winston Salem, North Carolina,
as Trustee (10.133). (10)
10.124 Consulting and Noncompetition Employment Agreement, dated as
of August 11, 1995, between Cogentrix Energy, Inc. and George
T. Lewis, Jr. (10.135). (10)
10.125 Joint Development Agreement, dated as of July 14, 1995,
between Cogentrix Mauritius Company and Malconna Company
Limited (10.136). (*)(10)
10.126 Support Agreement, dated as of July 14, 1995, from Cogentrix
Energy, Inc. to Malconna Company Limited (10.137). (10)
88
<PAGE> 89
Designation Of
Exhibit Description Of Exhibit
-------------- ----------------------
10.127 Working Capital Letter of Credit and Reimbursement Agreement,
dated as of October 30, 1995, by and between Cogentrix Energy,
Inc. and First Union National Bank of North Carolina (10.3).
(11)
10.128 Pledge and Security Agreement, dated as of October 30, 1995,
by and between Cogentrix Energy, Inc. and First Union National
Bank of North Carolina (10.4). (11)
10.129 Credit Agreement, dated as of May 22, 1997, among Cogentrix
Energy, Inc., the several Lenders from time to time parties
thereto and Australia and New Zealand Banking Group Limited,
as Agent and as the Issuing Bank.
10.130 Guarantee, dated as of May 22, 1997, made by Cogentrix
Delaware Holdings, Inc., the Guarantor, in favor of the
Borrower Creditors.
10.131 Agreement of Limited Partnership of Village Farms of Texas,
L.P., dated as of February 6, 1996, by and among Cogentrix of
Fort Davis I, Inc. and Village Farms of Delaware, L.L.C., as
General Partners, and Cogentrix of Fort Davis II, Inc. and
Village Farms, L.L.C., as Limited Partners (10.6). (*)(12)
10.132 Guaranty, dated as of February 14, 1996, made by Cogentrix
Energy, Inc. in favor of Farm Credit Bank of Texas and Texas
Production Credit Association, as Lenders, and CoBank, ACB, as
Administrative Agent, to guarantee certain obligations of
Village Farms of Texas, L.P. (10.7). (12)
10.133 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. (10.1).
(15)
10.134 Agreement of Limited Partnership, dated as of June 4, 1997, of
Village Farms of Marfa, L.P. by and among Cogentrix of Marfa,
Inc., Cogentrix Greenhouse Investments, Inc., Village Farms of
Delaware, L.L.C. and Village Farms, L.L.C. (**)
10.135 Agreement of Limited Partnership, dated as of September 4,
1997, of Village Farms of Buffalo, L.P. by and among Cogentrix
of Buffalo, Inc., Cogentrix Greenhouse Investments, Inc.,
Village Farms of Delaware, L.L.C. and Village Farms, L.L.C.
(**)
21.1 Direct and Indirect Subsidiaries of Cogentrix Energy, Inc.
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and is not filed.
- ----------------------------
(*) Portions of these agreements have been deleted pursuant to previously
approved requests for confidential treatment.
(**) Portions of these agreements have been deleted pursuant to a request
for confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
(1) Incorporated by reference to Registration Statement on Form S-1 (File
No. 33-74254) filed January 19, 1994. The number designating the
exhibit on the exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description of the exhibit
above.
(2) Incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1 (File No. 33-74254) filed February 24, 1994. The number
designating the exhibit on the exhibit index to such previously-filed
report is enclosed in parentheses at the end of the description of the
exhibit above.
(3) Incorporated by reference to Amendment No. 2 to Registration Statement
on Form S-1 (File No. 33-74254) filed March 7, 1994. The number
designating the exhibit on the exhibit index to such previously-filed
report is enclosed in parentheses at the end of the description of the
exhibit above.
(4) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
May 16, 1994. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
(5) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
September 28, 1994. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
89
<PAGE> 90
(6) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
November 14, 1994. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(7) Incorporated by reference to the Form 8-K (File No. 33-74254) filed
December 29, 1994. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(8) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
February 14, 1995. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(9) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
May 16, 1995. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
(10) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
September 28, 1995. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(11) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
November 14, 1995. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(12) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
May 3, 1996. The number designating the exhibit on the exhibit index to
such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(13) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
October 10, 1996. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(14) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
February 14, 1997. The number designating the exhibit on the exhibit
index to such previously-filed report is enclosed in parentheses at the
end of the description of the exhibit above.
(15) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
May 15, 1997. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth
quarter ended June 30, 1997.
90
<PAGE> 91
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COGENTRIX ENERGY, INC.
(Registrant)
Date: September 29, 1997 By: /s/ David J. Lewis
David J. Lewis
Vice Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George T. Lewis, Jr. Chairman of the Board and Director September 29, 1997
George T. Lewis, Jr.
/s/ David J. Lewis Vice Chairman of the Board, Chief September 29, 1997
David J. Lewis Executive Officer and Director
/s/ Mark F. Miller President, Chief Operating Officer September 29, 1997
Mark F. Miller and Director
/s/ Betty G. Lewis Director September 29, 1997
Betty G. Lewis
/s/ James E. Lewis Executive Vice President and Director September 29, 1997
James E. Lewis
/s/ Robert W. Lewis Director September 29, 1997
Robert W. Lewis
/s/ Dennis W. Alexander Group Senior Vice President, General September 29, 1997
Dennis W. Alexander Counsel, Secretary and Director
/s/ W. E. Garrett Director September 29, 1997
W. E. Garrett
/s/ James R. Pagano Group Senior Vice President, September 29, 1997
James R. Pagano Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas F. Schwartz Vice President - Finance and Treasurer September 29, 1997
Thomas F. Schwartz (Principal Accounting Officer)
</TABLE>
91
<PAGE> 1
EXHIBIT 10.26
COAL SALES AGREEMENT
THIS COAL SALES AGREEMENT (this "Agreement"), dated as of
June 30, 1997, is by and between PONTIKI COAL CORPORATION, a
corporation organized and existing under the laws of the State of
Delaware ("Seller"); and COGENTRIX OF NORTH CAROLINA, INC., a
corporation organized and existing under the laws of the State of
North Carolina ("Buyer").
RECITALS:
A. Seller is engaged in the business of producing
bituminous coal at facilities it owns and operates in Martin
County, Kentucky.
B. Seller hereby appoints the MAPCO Coal Sales division of
MAPCO COAL INC., a Delaware corporation, with offices at 1717
South Boulder Avenue, Tulsa, Oklahoma 74119 ("MAPCO"), as
Seller's agent for the administration of this Agreement.
C. Buyer owns or leases generating stations and is
authorized to purchase bituminous coal on behalf of the
generating station identified in Exhibit I hereto (the
"Station").
D. Buyer is desirous of purchasing from Seller the
Station's entire requirements of bituminous coal during the term
of this Agreement, and Seller is desirous of selling such coal to
Buyer, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
SALE AND PURCHASE OF COAL; TERM OF AGREEMENT; QUANTITIES
Section 1.01 Sale and Purchase. Buyer agrees to purchase
bituminous coal conforming to the characteristics set forth in
Section 2.01 hereof in the quantities specified in Section 1.03
hereof, and Seller agrees to sell such coal to Buyer, all subject
to the terms and conditions of this Agreement.
Section 1.02 Term. The term of this Agreement shall
commence on January 1, 1998 and shall expire on December 15,
2002, unless sooner terminated as provided herein.
<PAGE> 2
Section 1.03 Quantities. Subject to Section 2.08 hereof,
Buyer agrees to purchase from Seller, and Seller agrees to sell
to Buyer, 100% of the Station's requirements for coal during the
term of this Agreement, as determined in the sole discretion of
Buyer. In no event shall Seller be obligated to supply coal
hereunder in excess of 235,000 tons per calendar year. As used
in this Agreement, ton means 2,000 pounds.
Section 1.04 Orders for Coal; Requirements Forecasts.
Buyer shall place orders for coal hereunder on a monthly basis by
submitting written notice to Seller as soon as reasonably
practicable in each month, but in any event on or before the
twentieth (20th) day of each month, of the Station's requirements
of coal for the following month. In addition, in order to assist
Seller to plan for and anticipate the Station's periodic
requirements of coal, Buyer agrees to deliver to Seller, together
with each such order, a forecast of the Station's estimated
requirements of coal for the following two (2) months. Seller
acknowledges and agrees that such forecasts shall consist merely
of estimates and shall not form the basis for any order for coal
or for any obligation or liability on the part of Buyer to
actually purchase the amounts of coal set forth in such
forecasts. Subject to the terms of this Section 1.04 and Section
1.05, Buyer presently anticipates that the Station's initial
monthly requirements for coal shall be between 1,000 and 3,000
tons.
Section 1.05 No Minimum Purchase Obligation.
Notwithstanding anything contained in this Agreement to the
contrary, Seller hereby acknowledges and agrees that Buyer shall
not be obligated to purchase any minimum quantity of coal during
the term of this Agreement. Seller further acknowledges and
agrees that, due to a variety of factors, the Station's
requirements for coal may vary substantially from the initial
estimates contained in Section 1.04 hereof and from the estimates
contained in the periodic forecasts delivered to Seller pursuant
to Section 1.04 hereof, and may vary substantially from month to
month or from year to year. By way of illustration of such
factors and not by way of limitation, Seller acknowledges that
(i) the Station may be dispatched to varying levels of operation
ranging from 0% to 100% of design capacity from time to time by
Carolina Power & Light Company ("CP&L"), and (ii) Buyer may use
alternative fuels (including, without limitation, tire derived
fuel and natural gas) to power the Station either in conjunction
with or in lieu of coal, in either case reducing or eliminating
entirely the Station's requirements for coal.
2
<PAGE> 3
ARTICLE II
DESCRIPTION, SAMPLING, AND TESTING OF COAL
Section 2.01 Description of Coal. Seller guarantees that
the coal sold hereunder shall reasonably conform to the following
characteristics, on a monthly weighted average "as received"
basis, when tested at the source mine (as defined in Section
3.02) in accordance with the method described in Section 2.03 or
such other method as may be reasonably agreed to between the
parties from time to time.
(a) Content and Characteristics. The coal sold
hereunder shall have the following characteristics (as
received at the source mine) (all percentages are by
weight):
Average
Moisture content 6.0%
Ash content 8.5%
Sulfur content 0.90%
Calorific Value (BTU/LB.) 12,700
Ash softening Temp. 2,700 degrees Fahrenheit
Volatile matter content 34%
(b) Size and Condition. The coal sold hereunder shall
be 1-1/4" x 1/4" , with 20% maximum of minus 1/4" with the fines
incorporated in such a manner as to form a homogeneous
blend. Additionally, the coal shall be free from impurities
that can be removed through the exercise of reasonable care
during mining, preparation and loading. Seller expects (but
does not warrant) that the coal shall be free flowing and
will not cause Buyer abnormal handling, unloading, dusting,
sampling or utilization difficulty.
(c) Washed Coal. Unless otherwise agreed by the
parties hereto, all coal purchased by Buyer pursuant to the
terms of this Agreement shall be washed coal. Seller shall
obtain the written consent of Buyer prior to the shipment of
any coal pursuant to the terms hereof which is not washed
coal. Buyer agrees to grant such consent subject to the
continued compliance of any such unwashed coal with all
specifications and requirements for coal as set forth in
this Agreement.
(d) Freeze Proofing. Seller agrees to treat the coal
and/or the railcars from time to time as requested by Buyer
with a freezeproofing agent designed to prevent the coal
3
<PAGE> 4
from becoming non-dischargeable from the railroad car. In
consideration of such service, Buyer shall pay Seller an
amount equal to Seller's cost of the freezeproofing agent
plus ten percent (10%). The per ton charge shall be
determined based upon the pint per ton application rate
requested by Buyer.
Section 2.02 Disclaimer of Warranties. Buyer agrees that
no affirmation of fact, description of the coal to be delivered
or coal samples provided to Buyer, shall constitute a warranty or
any part of the basis of this Agreement, unless the word
"guarantee" is used in connection therewith.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WHETHER OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, QUALITY,
QUANTITY, ARISING FROM A COURSE OF DEALING OR TRADE USAGE OR
OTHERWISE.
Section 2.03 Sampling and Analyses. A mutually acceptable
independent laboratory will collect and analyze samples of each
shipment of coal sold hereunder at the source mine in accordance
with applicable standard procedures and methods of the American
Society for Testing and Materials ("ASTM") in effect as of the
date of sampling. Buyer shall have the option of having a
representative present during any sampling and during the
analysis hereinafter described. Buyer shall further have the
option of collecting and analyzing its own sample at such time.
Sampling and analysis costs shall be divided equally between
Buyer and Seller. The ASTM analyses shall establish the
characteristics of the coal for purposes of determining
compliance with the specifications set forth in Sections 2.01 and
2.05 hereof, and for determining the price adjustments provided
for in Section 2.04 hereof.
All samples collected by the laboratory shall be divided
into two parts. One part shall be retained by the laboratory for
a period of at least thirty (30) days to be analyzed if a dispute
arises between Buyer and Seller, and a second part shall be
analyzed in accordance with this Section 2.03. The laboratory
will analyze the samples in accordance with ASTM procedures and
promptly submit the written results of such analysis to Buyer and
Seller. If a dispute arises between Buyer and Seller over the
result or method of such analyses, and the parties cannot
mutually resolve such dispute, a further analysis of the retained
sample shall be made in accordance with this Section 2.03 by a
mutually agreeable independent laboratory and the results of such
further analysis shall be binding upon the parties. Notice of
objection to analyses shall be given within fifteen (15) days of
4
<PAGE> 5
receipt of such analyses. Otherwise the analyses shall
conclusively establish the characteristics of the coal. All
analytical charges associated with a disputed analysis shall be
(i) paid by the party that requested the further analysis if the
original analysis proves to have been correct; or (ii) shared by
the Buyer and Seller equally if the original analysis proves to
have been incorrect.
Having regard to the fact that the result of sampling and
testing may not necessarily be available to the parties prior to
the completion of loading, Buyer shall accept coal as loaded;
provided, however, that price adjustments and remedies for
deficiencies in coal specifications shall be based on sampling
and analysis of the coal as provided in this Section 2.03.
Section 2.04 Price Adjustments for Variance in Average as
Received Coal Characteristics. Buyer shall pay Seller a premium
whenever the monthly weighted average calorific value "as
received" of coal delivered during any calendar month exceeds
12,800 BTU per pound. Seller shall pay Buyer a penalty whenever
the weighted average calorific value "as received" of coal
delivered during any calendar month, is less than 12,600 BTU per
pound. The amount of such premium or penalty per ton of coal
shipped during any calendar month shall be calculated in
accordance with the formulas set forth in Exhibit II hereto.
Notwithstanding the foregoing, the amount of the premium payable
by Buyer during any given period shall be limited to a maximum
amount based upon a deemed maximum monthly weighted average of
13,300 BTU per pound. Accordingly, in the event the monthly
weighted average is actually greater than 13,300 BTU per pound,
the amount of 13,300 BTU shall nonetheless be used for purposes
of calculating the amount of the premium in accordance with the
formula for calculating such premium set forth in Exhibit II.
Section 2.05 Suspension, Rejection of Shipments. In the
event Seller shall deliver coal over any two consecutive calendar
months (including shipments that are subsequently rejected as
provided below) for which the analysis, on a monthly weighted
average basis, delivered in accordance with this Article II,
indicates any one of the following:
(a) BTU content: less than 12,300 BTU per pound;
(b) Ash content: greater than 9.5%
(c) Sulfur content: greater than .95%
(d) An ash softening temperature of less than 2,500 degrees
Fahrenheit; or
5
<PAGE> 6
(e) Volatile matter of less than 30%
then, in addition to obtaining price adjustments for such coal as
provided in Section 2.04 hereof, Buyer may deliver to Seller
written notice ("Buyer's Notice of Suspension") to suspend
further deliveries of coal until Seller can provide Buyer with
adequate assurances that coal conforming to the specification
limitations set forth in this Section 2.05 will be delivered.
Notwithstanding anything contained herein to the contrary,
Buyer may reject any individual shipment of coal under any of the
following circumstances: (i) if the sulfur content of such
shipment (as disclosed by the analysis referred to in Section
2.03 hereof) is in excess of 0.95%; or (ii) if the ash content
thereof is in excess of 10%; or (iii) with respect to the size of
the coal contained in such shipment, if the percent minus 1/4" is
in excess of 25%.
If Buyer rejects any individual shipment of coal in
accordance with the provisions of the preceding paragraph, Seller
shall promptly remove such rejected shipment at its expense, cure
any deficiency in supply caused thereby and reimburse Buyer for
all transportation, demurrage and handling expenses incurred by
Buyer as a result of such rejection.
If, after thirty (30) days from Buyer's Notice of
Suspension, Seller is unable to deliver coal to Buyer in the
requisite amount which meets the specification limitations set
forth in this Section 2.05, then Buyer shall have the option, at
its sole discretion, to terminate this Agreement by written
notice to Seller not later than ninety (90) days from Buyer's
Notice of Suspension, and in such event the parties hereto shall
have no further obligations or liabilities under this Agreement,
other than with respect to performance required hereunder prior
to such termination.
Section 2.06 Exclusive Remedies. Except as otherwise
provided in Sections 2.07 and 2.08 hereof, the price adjustments
prescribed by Section 2.04 and the suspension of shipments and/or
the termination of this Agreement as contemplated in Section 2.05
shall constitute Buyer's sole and exclusive remedies for coal
which deviates from the specifications set forth in Section 2.01
hereof.
Section 2.07 Optional Remedy. Notwithstanding Section
2.06, in lieu of termination pursuant to Section 2.05, Buyer may
give written notice to Seller not later than ninety (90) days
from Buyer's Notice of Suspension that Buyer elects to exercise
the Optional Remedy prescribed by this Section 2.07. In such
6
<PAGE> 7
case, Seller will resume shipments and if Seller fails to deliver
coal in the requisite amount that conforms to all the
specification limitations set forth in Section 2.05 for at least
two (2) consecutive calendar months of the six (6) complete
calendar months following the month in which Buyer gives notice
of its option to exercise the Optional Remedy prescribed by this
Section 2.07 (the "Probation Period"), Seller shall be in default
under the terms of this Agreement and Buyer may terminate this
Agreement and exercise its remedies with respect to such default
pursuant to Section 9.06 hereof. In addition, Buyer shall have
the right during the Probation Period to reject individual
shipments of coal that do not conform to any individual
specification limitation in Section 2.05, and Seller shall
promptly remove any such rejected shipments at its own expense,
cure any deficiency in supply caused thereby and reimburse Buyer
for all transportation, demurrage and handling expenses incurred
by Buyer as a result of such rejection. If Seller delivers coal
in the requisite amount during any two (2) consecutive calendar
months of the Probation Period that meets the monthly
specification limitations set forth in Section 2.05, then the
Probation Period shall end on the last day of such second
calendar month, Seller shall not be in default under the terms
hereof, and Buyer's remedies will thereafter be limited to those
set forth in Sections 2.04, 2.05 and 2.08; provided, however,
that Buyer may, at its option and in accordance with the
procedures of this Section 2.07, elect to exercise the Optional
Remedy prescribed by this Section 2.07 following any subsequent
Buyer's Notice of Suspension pursuant to Section 2.05. As used
herein, the term "requisite amount" shall mean, with respect to
any calendar month, the amount of coal ordered by Buyer for
delivery during such month.
Section 2.08 Substitute Performance. Notwithstanding
anything contained herein to the contrary, in the event that (i)
Buyer directs Seller to suspend shipments pursuant to Section
2.05, or (ii) Buyer rejects any shipment pursuant to Section 2.05
or 2.07, then Buyer shall have the right to purchase replacement
coal ("Replacement Coal") from alternative sources if the Seller
does not provide to Buyer Replacement Coal having the
characteristics provided in Section 2.01 within a time period
which is reasonably acceptable to Buyer based on Buyer's then
current coal requirements. In the event Buyer purchases
Replacement Coal pursuant to this Section 2.08 (whether from
Seller or a third party), then Seller shall reimburse Buyer for
the difference between the cost of the delivered Replacement Coal
(including transportation costs) and the payments that Buyer
would otherwise have made to Seller and the transportation
carrier for the deliveries of such coal hereunder, and Seller
shall make such payment within thirty (30) days of receipt from
Buyer of an invoice specifying such excess costs.
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<PAGE> 8
ARTICLE III
SUPPLY SOURCES
Section 3.01 Identification of Supply Source. The
principal source of the coal to be purchased and sold hereunder
shall be mining facilities owned by the Seller in Martin County,
Kentucky (the "Mine"), which is located in the "Kenova" rail
transportation rate district. Seller agrees to produce coal at
the Mine for delivery to Buyer hereunder. Seller represents and
warrants that it owns, leases or otherwise has the legal right to
mine and sell a sufficient number of tons of recoverable coal
from the Mine to supply coal to Buyer in accordance with this
Agreement. The provisions of this Section 3.01 shall, however,
not prevent Seller from claiming a force majeure event and in the
event of force majeure, Seller may prorate its available coal to
its then existing customers with prior commitments for coal.
Section 3.02 Seller's Right of Substitution. From time to
time, Seller may (but shall not be required to) deliver coal
produced from a source or sources other than the Mine (such coal
shall be referred to as "Substitute Coal"), provided that at
least fifteen (15) days prior to any such delivery, Seller shall
give Buyer notice thereof, and provided further that such
Substitute Coal conforms to the requirements of Section 2.01. If
Seller elects to deliver Substitute Coal and such delivery or
deliveries result in a net increase in the total cost to Buyer of
transporting the coal purchased hereunder to the Station
(exclusive of demurrage and other similar charges assessed
against Buyer for failure to load or unload coal in accordance
with the requirements of applicable railroad tariffs or
contracts), then Seller shall reimburse Buyer for such additional
transportation costs. Buyer shall submit a request for
reimbursement of any such additional transportation cost, and
such request shall document the actual cost of transporting the
Substitute Coal delivered to the Station during the period
covered by such request as well as the transportation cost that
would have been incurred had all the coal been delivered at the
Mine. At Buyer's option, Seller shall either (i) reimburse Buyer
for any such additional transportation costs within thirty (30)
days after receipt of Buyer's request for payment, or (ii) credit
the amount of any such additional transportation costs against
amounts then owed to Seller from Buyer for purchases of coal
hereunder, provided such increased costs are documented as
required by the preceding sentence. This section shall not be
deemed to require Seller to deliver coal produced from any source
other than the Mine and shall not affect the right of the Seller
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<PAGE> 9
to claim force majeure as a result of events occurring in
connection with the Mine. References herein to "source mine"
shall include the Mine and any substitute supply source or
sources, as the case may be, from which coal is supplied by
Seller to Buyer hereunder.
ARTICLE IV
PRICE, BILLINGS, AND PAYMENT
Section 4.01 Contract Price. The "Contract Price" per ton
of coal supplied hereunder (F.O.B. railroad cars at the source
mine) for any given year during the term of this Agreement shall
be the Annual Base Price (defined in Section 4.02) for such year
as set forth in Section 4.02 below. The Annual Base Prices set
forth in Section 4.02 include a cost pass through amount for
Governmental Impositions (as defined in Section 6.01 hereof). Of
the Contract Price for any given year, $[xxx] per ton represents
the initial Governmental Imposition cost pass through portion.
The initial Governmental Imposition cost pass through portion of
the Contract Price includes $[xxx] per ton for the Federal Black
Lung Fee and $[xxx] per ton for the Federal Reclamation Fee. The
Governmental Imposition cost pass through portion of the Contract
Price for any given year shall be subject to adjustments for as
provided for under Section 6.01 hereof.
Section 4.02 Annual Base Prices. Subject to adjustments
for changes in the Governmental Imposition cost pass through
portion as provided in Section 6.01 hereof, the "Annual Base
Price" per ton of coal purchased hereunder shall be fixed for
each calendar year during the term of this Agreement as follows:
(a) The Annual Base Price per ton of coal purchased
during the 1998 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(b) The Annual Base Price per ton of coal purchased
during the 1999 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(c) The Annual Base Price per ton of coal purchased
during the 2000 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(d) The Annual Base Price per ton of coal purchased
during the 2001 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
9
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 10
(e) The Annual Base Price per ton of coal purchased
during the 2002 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
Section 4.03 Invoicing. For each shipment of coal
delivered to Buyer, Seller will promptly forward an invoice to
Buyer showing the rail car numbers, shipping date, source mine
name, shipping point, correct weight, and Contract Price,
including computation thereof. No later than the twentieth
(20th) working day of each calendar month, Seller shall provide
Buyer with a computation of the applicable premium or penalty for
coal delivered during the preceding month, such computation to be
performed in the manner prescribed in Section 2.04 and Exhibit
II. Such notice shall be accompanied by an invoice for the
amount of any premium due Seller or, in the event a penalty is
due Buyer, an indication of the amount of any credit to be
applied against the Contract Price of subsequent shipments. In
the event the credit amount is greater than the Contract Price
for such immediately subsequent shipment, the remaining credit
amount shall be applied in full to each successive invoice amount
until all such credits are extinguished. If all such credits are
not extinguished before the expiration or termination of this
Agreement, then the balance of such credits shall be promptly
refunded by Seller to Buyer in cash.
Section 4.04 Payment and Billing Period. Buyer shall pay
in full the amount of each invoice by wire transfer to Chemical
Bank, New York, New York (the "Bank") for deposit on behalf of
Seller, or to such other bank as Seller may designate to Buyer in
accordance with the notice provisions of Section 10.02 hereof.
Each invoice shall be due and payable thirty (30) days after
loading on railroad cars at the source mine, but in no event
shall an invoice be due and payable until fifteen (15) days after
Buyer has received such invoice. Notwithstanding the foregoing,
if the date on which a payment is due is a weekend day, or a
holiday or other day on which the Bank is closed for business,
then such payment shall be due on the next day on which the Bank
is open for business. Title and risk of loss shall pass to Buyer
upon loading on railroad cars at the source mine. Seller
acknowledges that an escrow account has been established with a
bank (or other financial institution) into which all or
substantially all revenues from the Station are deposited, and
that the escrow agreement executed in connection with such escrow
account provides that disbursements shall be made in accordance
with the terms of the escrow agreement to pay expenses of the
Station, including, without limitation, the payment of amounts
due to Seller hereunder.
10
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 11
Section 4.05 Interest. The amount of any invoice not
paid, or any credit memorandum not issued, when due shall bear
interest from the date the correct invoice was due, or in the
case of the credit memorandum from the date that the credit
should have been applied, through the date that the invoice is
paid or the credit memorandum is applied, at a rate per annum
equal to the rate announced publicly from time to time by
Citibank N.A., New York, New York, as its prime rate for domestic
commercial customers, plus two per cent (2%).
If any invoice for a premium pursuant to Section 2.04 is in
dispute, Buyer shall pay the amount not in dispute pursuant to
Section 4.04 hereof. If upon resolution of the dispute by
settlement or otherwise, it is determined that Seller is due any
payment, then Buyer shall pay interest on the amount due at a
rate per annum equal to the rate calculable in accordance with
the method set forth in the preceding paragraph. If any invoice
other than a premium pursuant to Section 2.04 is in dispute,
Buyer shall pay the disputed amount pursuant to Section 4.04
hereof, and if Buyer is due any credit pursuant to the settlement
of the dispute, then interest on the credit shall be paid by
Seller at a rate calculable in accordance with the method set
forth in the preceding paragraph.
ARTICLE V
TRANSPORTATION, DELIVERY AND RISK OF LOSS
Section 5.01 Shipment; Tariffs. Pursuant to monthly
orders placed in accordance with Section 1.04 hereof, Buyer shall
specify to Seller on or before the twentieth (20th) day of each
month the tonnages and destinations of shipments to be made
pursuant to this Agreement in the next succeeding month. Coal
sold hereunder will be shipped by rail in single-car lots as
scheduled by Buyer (or such other mode or combination of modes as
Buyer and Seller may mutually designate from time to time) from
the source mine's loading facilities to the Station, or other
destinations specified by Buyer and acceptable to Seller. Coal
purchased and sold hereunder that is to be shipped by rail shall
be loaded and shipped in accordance with railroad loading and
tonnage requirements that are acceptable to Seller and Buyer.
Section 5.02 Freight Charges and Risk of Loss. Except as
otherwise provided in this Agreement, Buyer shall pay all freight
and other charges imposed by the applicable rail tariffs or
contracts to the destination of the shipment and shall bear the
risk of loss of such shipment after such shipment has been loaded
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<PAGE> 12
into railroad cars at the source mine. Notwithstanding anything
to the contrary contained herein, Seller shall reimburse Buyer
for any charges or penalties paid by Buyer to the delivering
railroad solely as a result of Seller's failure to load coal in
accordance with any railroad loading or tonnage requirements that
are acceptable to Seller and Buyer.
Section 5.03 Shipping Notices. Promptly after loading
each shipment Seller shall mail or electronically transmit to
Buyer a notice of shipment which shall include pertinent
information about such shipment as mutually agreed to by Buyer
and Seller from time to time.
Section 5.04 Weights. The gross weight of coal shipped
hereunder shall be conclusively established by the railroad bill
of lading or waybill, absent manifest error.
ARTICLE VI
GOVERNMENTAL IMPOSITIONS
Section 6.01 Price Adjustment for Changes in Governmental
Impositions. When used herein the term "Governmental Imposition"
means all costs of compliance with all applicable federal, state
and local laws and regulations as they are interpreted and
enforced with respect to coal produced at the Mine, including,
without limitation, all federal, state or local statutes, rules,
regulations or interpretations, the rate of any excise, stamp,
reclamation, severance, use, sales, license, or other tax
assessment, and any charged rates of assessment (other than taxes
measured on or by income not levied directly on the production of
coal), business and occupations taxes, and license fees or other
assessments payable on account of or for the production, mining,
removal, preparation, delivery, shipment, sale, consignment or
billing of coal or on instruments or documents evidencing the
same or on the proceeds thereof, and any law, governmental order,
rule, ordinance, regulation, stipulation, decree, or other
governmental requirement of any kind, or interpretation thereof,
which pertains to coal mining practices, health and safety of
miners, surface subsidence, land and water reclamation, coal
waste disposal and air and water quality standards.
Notwithstanding any other provision of this Article VI, there
shall be no price adjustment under this Article VI as a result of
any noncompliance as of June 1, 1997 of the Mine with any
Governmental Imposition, or any civil or criminal fines or
penalties imposed for failure to comply with any Governmental
Imposition currently existing or hereafter enacted.
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<PAGE> 13
If, as and when any change in a Governmental Imposition
occurring after June 1, 1997 affects the Contract Price or the
costs of supplying coal from the Mine, the Contract Price shall
be adjusted in the same amount that the actual cost per ton of
producing, mining, removing, preparing, loading, selling,
consigning and billing coal pursuant to this Agreement is
reasonably increased as a result of Seller's compliance in a
reasonably cost effective manner with the Governmental
Imposition, including, but not limited to, any investment
required to comply with the Governmental Imposition. In any case
where a Governmental Imposition results in an investment cost,
the adjustment to the Contract Price shall be calculated in
accordance with the following formula:
IY
------
TX
Y = For the year the investment is made, the portion of
such year remaining after the date of such investment
(expressed in decimal form). For each twelve-month
period thereafter, Y = 1.0.
I = The dollar cost of the investment.
T = The shortest life allowed by the Internal Revenue
Service for depreciation purposes of the investment
item, if any, or if none, the remaining life of the
Mine.
X = The total quantity of coal in tons mined at the Mine
during the year in which the investment is made.
Notwithstanding anything to the contrary contained in this
Section 6.01, there shall be no price adjustments on invoices
more than 12 months after the due date of such invoice.
Section 6.02 Notice and Substantiation of Contract Price
Adjustments. Seller shall promptly notify Buyer in writing of
the amount and effective date of any claimed adjustment to the
Contract Price pursuant to the provisions of Section 6.01 and
shall furnish Buyer with accurate and detailed computations and
data reasonably necessary to substantiate such adjustment. Buyer
shall have the right to inspect all books and records of Seller
pertaining to such adjustment. Buyer shall verify or protest
such adjustment within 60 days after receipt of such notice and
computations, or such adjustment shall be deemed conclusively
correct.
If Buyer protests any adjustment to the Contract Price
claimed under Section 6.01, then the matter shall be submitted to
arbitration in accordance with Article VII hereof.
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<PAGE> 14
ARTICLE VII
ARBITRATION
Section 7.01 Limited Scope. A controversy or claim
arising out of or relating to this Agreement, except those as to
price of coal purchased and sold pursuant to this Agreement or
the validity of this Agreement, or except as otherwise expressly
excepted from arbitration pursuant to any provision hereof, shall
be submitted to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the
"AAA") then in effect.
Section 7.02 Arbitration Procedures. The party desiring
to submit a matter to arbitration shall give written notice
thereof to the other party and to the AAA which notice shall set
forth the specific issues in controversy. Within thirty (30)
days after such notice, the AAA, in consultation with the parties
and in accordance with its rules shall select and appoint an
arbitrator or arbitrators to conduct the arbitration. The
decision of the AAA with respect to the selection and appointment
of the arbitrator(s) shall be final. Within thirty (30) days
after the appointment of the arbitrator(s), notice shall be given
by the arbitrator(s) to the parties regarding the time and place
of hearing which in no event shall be later than sixty (60) days
after appointment of the arbitrator(s). Unless otherwise agreed
by the Buyer, any arbitration proceeding will take place in
Charlotte, North Carolina.
Section 7.03 Post-Arbitration Award. Within thirty (30)
days after the arbitration hearing, the arbitrator(s) shall
decide the controversy and render an award in writing setting
forth the issues adjudicated, the resolution thereof, and the
reasons for the award. Payment of the expenses of arbitration,
including the fees of the arbitrator(s), shall be allocated by
the arbitrator(s). The award of the arbitrator(s) shall be
conclusive and binding upon the parties and shall be specifically
enforceable by any court having jurisdiction over either party by
the entry of judgment upon the award.
Section 7.04 Confidentiality of Proceedings. Any
arbitration proceeding under this Agreement shall, unless
otherwise agreed by both Buyer and Seller, be held in confidence
and the arbitrator(s) selected shall agree to maintain the
confidentiality of all information submitted in the arbitration,
to the extent such information is not otherwise in the public
domain.
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<PAGE> 15
ARTICLE VIII
FORCE MAJEURE
Section 8.01 Force Majeure Defined. When used herein
"force majeure" shall mean a cause beyond the reasonable control
of and not due to the fault or negligence of Buyer or Seller, as
the case may be, which wholly or partially prevents or delays the
mining, loading or delivery of coal at or from the Mine, or the
receiving, transporting, or delivery of coal by the railroads, or
the unloading, storing, or burning of coal by Buyer at the
Station. Examples (without limitation) of force majeure are the
following: acts of God, war, acts of the public enemy,
insurrections, riots, strikes, labor disputes, shortage of
materials, delays relating to engineering, design, construction
or testing of the Station, fires, explosions, floods, breakdowns
of or damage to the Station, plants, mines, equipment or
facilities, interruptions to or contingencies of transportation
or loading, fuel supplies or electrical power, including
determination of force majeure under provisions of the applicable
tariff, embargoes, boycotts, orders or acts of civil or military
authorities, legislation, regulation or administrative orders, or
any limitation or prohibition on, or inability to obtain
governmental permits or approvals required by law and necessary
to, the mining, transporting, storing, handling or burning of
coal. When applied to Seller, force majeure includes the failure
of Seller to deliver the quantities of coal set forth in Section
1.03 hereof due to the occurrence of a force majeure event with
respect to the Mine.
Notwithstanding the foregoing, force majeure, for purposes
of this Agreement, shall not include (i) the development or
existence of economic conditions which may adversely affect
Buyer's utilization of coal or Seller's mining, production,
delivery or sale of coal, or (ii) acts or omissions of Seller or
Buyer constituting negligence, or mismanagement on the part of
Seller or Buyer. If force majeure prevents the unloading,
storing or utilization of coal by Buyer at the destination or
destinations to which the coal is then being shipped, Buyer shall
consider what steps can be taken as to the transportation and
utilization of the coal so as to allow the coal to be used by
Buyer, and if such steps can be accomplished without unreasonable
expense, Buyer shall promptly take such steps.
Section 8.02 Effect of Force Majeure. If because of force
majeure either Buyer or Seller is rendered wholly or partially
unable to carry out their respective obligations under this
Agreement, and if such party promptly gives the other party
written notice of such force majeure, the obligations and
liabilities of the party giving such notice and the corresponding
obligation of the other party shall be suspended to the extent
15
<PAGE> 16
made necessary by and during the continuance of such force
majeure; provided, however, that the party claiming force majeure
shall use its best efforts to eliminate the cause or effect of
force majeure as soon as and to the extent possible, except that
labor disputes or strikes shall be settled at the sole discretion
of the party affected. If all the parties hereto agree,
deficiencies in the production or sale of coal hereunder caused
by force majeure may be made up by extending the term of this
Agreement for an additional period not to exceed the term of the
force majeure condition and continuing shipments until the lost
tonnage has been shipped. However, in the event the force
majeure continues unabated for a period of six (6) months or
more, then the unaffected party may, at its option, terminate
this Agreement by thirty (30) days prior written notice to the
party asserting such force majeure; provided, however, that
Seller may not terminate this Agreement pursuant to this Section
8.02 if the force majeure event has resulted in partial or total
destruction of the Station and Buyer has commenced good faith
efforts to repair the damage caused thereby.
Section 8.03 Duties of the Parties during Force Majeure.
To the extent possible, Buyer and Seller will utilize good faith
efforts to minimize the adverse effects of a force majeure. In
the event of a force majeure event which adversely affects
Seller's ability to supply coal from the Mine, Seller agrees to
equitably allocate among its then existing long-term customers,
to the extent possible, coal which can be sold or used during the
pendency of force majeure. Nothing in the preceding two (2)
sentences shall, however, obligate Buyer to find additional
markets for Seller's coal nor require Seller to supply coal
produced from a source other than the Mine.
ARTICLE IX
TERMINATION; REMEDIES
Section 9.01 Termination.
(a) Automatic Termination. Buyer and Seller acknowledge
that, pursuant to the Power Purchase Agreement between Buyer and
CP&L relating to the Station (the "PPA"), CP&L has the right to
reject this Agreement and to enter into a replacement coal
contract for the supply of coal for the Station which would
render this Agreement ineffective. Accordingly, and
notwithstanding anything contained herein to the contrary, in the
event CP&L chooses to reject this Agreement and enter into a
replacement coal contract for the supply of coal for the Station
pursuant to the PPA, this Agreement shall automatically terminate
and be of no further force and effect. Buyer agrees to notify
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<PAGE> 17
Seller of CP&L's decision promptly after receipt of notice
thereof from CP&L, but in no event later than December 31, 1997.
In the event CP&L exercises its right to enter into a replacement
coal contract for the supply of coal for the Station as
contemplated above and CP&L provides to Buyer an explanation of
its reasons for doing so, Buyer agrees to promptly inform Seller
of such explanation.
(b) Termination upon Default. Either Buyer or Seller may
terminate this Agreement, effective upon written notice of
termination to the other party, upon an occurrence of an Event of
Default as to the other party. An "Event of Default" as to
either party shall mean:
(i) Failure by such party to perform any of its
obligations under this Agreement, and such failure continues
uncorrected for thirty (30) continuous days after notice
thereof from the other party;
(ii) Dissolution of such party; or
(iii) The filing of a petition for relief as to
such party as debtor or bankrupt under the Federal
Bankruptcy Reform Act of 1978 or any similar law of any
jurisdiction (except if such petition is contested by such
party and has been dismissed within sixty (60) days);
insolvency of such party as finally determined by a court
proceeding; the filing with respect to such party of a
petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such party or a
substantial part of its assets; the commencement of any
proceedings relating to such party under any other
reorganization, arrangement, insolvency, adjustment of debt
or liquidation law of any jurisdiction, whether now in
existence or hereinafter in effect, either by such party or
by another, provided that if such proceeding is commenced by
another, such party indicates its approval of such
proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such party and has not been
finally dismissed within sixty (60) days; notwithstanding
the foregoing, the events described in this Section
9.01(b)(iii) shall not constitute an Event of Default on
Buyer's part if, following the occurrence of any such event
and its continuance, Buyer, if requested by Seller, pays for
future shipments of coal tendered hereunder prior to
shipment of such coal from the source mine, such payments to
be based on Seller's good faith estimate, of the quantity of
coal to be contained in each such shipment and adjusted
promptly upon determination of the actual quantity of coal
in such shipment as determined in accordance with Section
5.04 hereof.
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<PAGE> 18
Section 9.02 Effect of Termination. Except as provided in
Sections 9.05 and 9.06 hereof, upon termination of this Agreement
pursuant to Section 2.05, Section 2.07, Section 8.02 or Section
9.01, neither Buyer nor Seller (unless such termination was
because of occurrence of an Event of Default as to it) shall have
any further liability or obligation to the other parties
hereunder, except that each party shall remain liable to the
others with respect to any Event of Default as to such party
prior to such termination, and the provisions of Sections 10.05,
10.06 and 10.08 hereof shall survive termination.
Section 9.03 Nonwaiver. The specifications of remedies
herein shall not be deemed to exclude the parties from any other
legal or equitable remedies they may have with respect to this
Agreement (including, without limitation, rights to specific
performance or injunctive relief), except as provided in Sections
2.06 and 9.04 hereof. Failure on the part of any party to
exercise any remedies on default hereunder for any period or
periods shall not operate as an estoppel or as a waiver, or
prevent it at any subsequent time from electing to exercise any
rights as to any subsequent default hereunder.
Section 9.04 Disclaimer of Consequential Damages. NONE OF
THE PARTIES TO THIS AGREEMENT SHALL BE LIABLE TO THE OTHERS FOR
ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF
THE PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT, INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS OR OVERHEAD, WHETHER BASED
UPON BREACH OF CONTRACT, NEGLIGENCE OR OTHER LEGAL THEORY.
Section 9.05 Seller's Remedy in Event of Buyer's Breach by
Failure to Take Actual Requirements. In the event Buyer breaches
this Agreement by its failure to purchase 100% of the Station's
requirements of coal as determined in accordance with Section
1.03 hereof, if such breach continues uncured for thirty (30)
days after receipt of notice thereof from Seller, Seller may
terminate this Agreement pursuant to Section 9.01(b) and Buyer
will be liable to Seller for damages computed in accordance with
N. C. Gen. Stat. Section 25-2-706 or 25-2-708 (November, 1995),
as in effect from time to time, as elected by Seller.
Section 9.06 Buyer's Remedy in Event of Seller's Breach.
In the event Seller defaults in the performance of its
obligations hereunder and Buyer exercises its right to terminate
this Agreement in accordance with Section 2.07 or 9.01(b) hereof,
Seller will be liable to Buyer for damages computed in accordance
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with either N. C. Gen. Stat. Section 25-2-712 or 25-2-713
(November, 1995), as in effect from time to time, as elected by
Buyer.
ARTICLE X
OTHER PROVISIONS
Section 10.01 Entire Agreement. This Agreement contains
the entire agreement of the parties relating to its subject
matter, and supersedes all prior and contemporaneous
negotiations, understandings and agreements, written or oral,
between the parties relating to such subject matter. This
Agreement shall not be amended or modified, and no waiver of any
provision hereof shall be effective, unless set forth in a
written instrument authorized and executed by all the parties
hereto with the same formality as this Agreement.
Section 10.02 Notices. All notices or other communications
which are required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given or made (i)
upon receipt thereof if delivered by hand or courier service with
acknowledgment of delivery, (ii) on the third business day
following the depositing thereof with the United States Postal
Service if sent by registered or certified mail, postage prepaid,
return receipt requested, or (iii) upon the receipt thereof if
transmitted by prepaid telegram or by telecopier or facsimile
transmission, in each case to the respective parties at the
addresses set forth below (or to such other address as such party
may, from time to time, notify the other party in writing):
If to Buyer:
Cogentrix of North Carolina, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Fax No.: (704) 529-1006
Attention: General Counsel
If to Seller:
Pontiki Coal Corporation
C/O MAPCO Coal Sales
1717 South Boulder Avenue
Tulsa, Oklahoma 74119
Fax No.: (918) 582-8421
Attention: Sr. Vice President Marketing
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Section 10.03 Choice of Law. This Agreement shall be
deemed to be a contract made under, and for all purposes shall be
construed in accordance with, the internal laws and judicial
decisions of the State of North Carolina. For the purposes
hereof, Buyer and Seller hereby submit to the jurisdiction of the
state and federal courts in North Carolina.
Section 10.04 Counterparts. This Agreement may be executed
in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
Section 10.05 Confidentiality. Each party shall retain all
information obtained hereunder in strict confidence and not use
it, or disclose it to any person or entity not a party hereto,
except (a) for any information which (i) is at the time of such
disclosure known to the public or thereafter becomes so known,
through no violation by such party of this Agreement, (ii) such
party can demonstrate was in its possession prior to disclosure
under this Agreement or any prior agreements or negotiations
between the parties hereto, or (iii) is required by law to be so
disclosed; and (b) that Buyer may provide a copy of this
Agreement to CP&L, the purchaser of electricity to be generated
by the Station, on a confidential basis. Notwithstanding the
foregoing, any party may provide a copy of this Agreement or
other relevant information with respect thereto to its officers,
employees, affiliates, lenders, lessors, attorneys, consultants
and other representatives to the extent necessary to evaluate the
information received, provided each of them agrees to be bound
with respect thereto in the same manner as the disclosing party.
The provisions of this Section 10.05 shall survive termination of
this Agreement.
Section 10.06 No Brokers. Each party hereto represents and
warrants to the others that such party has not employed or
retained any broker, agent or finder, or agreed to pay any
brokerage or similar fee to any broker, agent or finder on
account of this Agreement or the transactions contemplated
hereby. Each party shall indemnify the others and hold them
harmless against breaches of the foregoing representation and
warranty. The provisions of this Section 10.06 shall survive
termination of this Agreement.
Section 10.07 Assignment. The benefits and burdens of this
Agreement shall inure to and be binding upon the legal
representatives, successors and assigns of the Parties hereto,
except as provided in the following sentences. Any party may
assign its benefits under this Agreement to a corporation or
other entity all of the capital stock or other equity interests
in which is or are owned by the assignor or by a corporation
which owns all of the capital stock of the assignor, provided
that the assignee executes a written assumption of the
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obligations of the assignor hereunder and delivers it to the
nonassigning parties to this Agreement, and provided further,
that the assignor shall not thereby be released from its
obligations hereunder. Otherwise, no party hereto may assign all
or any part of its benefits or burdens under this Agreement, in
whole or in part, by operation of law or otherwise, except with
the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding anything to the
contrary contained herein, Buyer shall have the right to assign
this Agreement in connection with the financing arrangements
relating to the Station, either as collateral security or to
another entity created in connection with such financing, by
notifying Seller of such assignment. If requested by Buyer in
connection with such financing arrangements, Seller agrees to
execute a "Consent and Agreement" subsequent to the execution of
this Agreement in a form mutually satisfactory to the parties
hereto.
Section 10.08 Release of Prior Claims. Buyer and Martiki
Coal Corporation, a Delaware corporation and a wholly-owned
subsidiary of MAPCO ("Martiki"), are parties to that certain Coal
Sales Agreement dated as of March 11, 1986 (the "Existing
Contract") relating to the supply of coal for the Station.
Pursuant to the Existing Contract, Martiki appointed MAPCO as its
agent for the administration of the Existing Contract. The
Existing Contract is scheduled to expire on November 11, 1997.
Provided that (i) this Agreement is not automatically terminated
in accordance with Section 9.01(a) hereof, and (ii) the Coal
Sales Agreement between Buyer and MC Mining, Inc., a Delaware
corporation and an affiliate of MAPCO, relating to the supply of
coal to Buyer's cogeneration facility located in Southport, North
Carolina (the "Southport Agreement"), is not automatically
terminated in accordance with Section 9.01(a) thereof, MAPCO and
Martiki, for themselves and their respective successors and
assigns, have agreed to, and do hereby, unconditionally and
irrevocably release Buyer from and waive (and agree to cause
their affiliates to release Buyer from and waive) any and all
claims which MAPCO or Martiki (or any of their affiliates) may
have against Buyer arising from or relating to a reduction in the
Station's requirements of coal (and accordingly Buyer's purchases
of coal) under or in connection with the Existing Contract.
Seller, MAPCO and Martiki acknowledge and agree (i) that Buyer
would not have entered into this Agreement or the Southport
Agreement but for the agreement of MAPCO and Martiki to grant
such release and waiver, and (ii) that MAPCO and Martiki have
received additional valuable consideration for the release and
waiver granted pursuant to this Section 10.08. Accordingly,
Seller, MAPCO and Martiki further acknowledge and agree that the
release and waiver granted pursuant to this Section 10.08
constitutes an agreement of MAPCO and Martiki which is distinct
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and independent from the remainder of this Agreement, and that
the provisions of this Section 10.08 shall stand alone and
survive the expiration or earlier termination of this Agreement
indefinitely.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate
officers as of the day and year first above written.
SELLER:
PONTIKI COAL CORPORATION
By: /s/ Joseph W. Craft III
Name: Joseph W. Craft III
Title: President and CEO
BUYER:
COGENTRIX OF NORTH CAROLINA, INC.
By: /s/ Ronald A. Munse
Name: Ronald A. Munse
Title: Vice President - Fuels & Transportation
The undersigned join in this Agreement for purposes
of acknowledging and affirming their agreements and
obligations with respect to the provisions of Section 10.08
Martiki Coal Corporation
By: /s/ Joseph W. Craft III
President
MAPCO Coal Inc.
By: /s/ Joseph W. Craft III
President
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EXHIBIT I
IDENTIFICATION OF GENERATING STATION
STATION: Roxboro Station
LOCATION: Roxboro, North Carolina
INDUSTRIAL HOST: Collins and Aikman Company
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EXHIBIT II
PREMIUMS AND PENALTIES FOR VARIATIONS IN BTU CONTENT
In accordance with Section 2.04 of this Agreement, if the
monthly weighted average calorific value "as received" of coal
delivered during any calendar month, is greater than 12,800 BTU
per pound or less than 12,600 BTU per pound, the applicable
premium or penalty shall be computed using the following
formulas:
If the monthly weighted average is less than 12,600 BTU per
pound:.
Penalty = (P) x ( 1 - BTU ) x Q
-----
12,700
If the monthly weighted average is greater than 12,800 BTU
per pound:
Premium = (P) x ( BTU - 1) x Q ;
-----
12,700
provided, however, that, in accordance with Section 2.04, the
Premium payable by Buyer hereunder for any given period shall be
limited to a maximum amount based upon a deemed maximum monthly
weighted average of 13,300 BTU per pound, such that if the
monthly weighted average is actually greater than 13,300 BTU per
pound, the "BTU" amount used for the calculation of the Premium
in the foregoing formula shall nonetheless be 13,300.
Where: P = the applicable Contract Price
determined in accordance with Section 4.01
BTU = the per pound weighted average
calorific value as received of coal delivered
hereunder during the applicable calendar
month (subject to the proviso set forth above
with respect to the deemed maximum level of
BTU content)
Q = the quantity of coal in tons
delivered hereunder during the applicable
calendar month
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<PAGE> 1
EXHIBIT 10.28
COAL SALES AGREEMENT
THIS COAL SALES AGREEMENT (this "Agreement"), dated as of
June 30, 1997, is by and between MC MINING, INC., a corporation
organized and existing under the laws of the State of Delaware
("Seller"); and COGENTRIX OF NORTH CAROLINA, INC., a corporation
organized and existing under the laws of the State of North
Carolina ("Buyer").
RECITALS:
A. Seller is engaged in the business of producing
bituminous coal at facilities it owns and operates in Pike
County, Kentucky.
B. Seller hereby appoints the MAPCO Coal Sales division of
MAPCO COAL INC., a Delaware corporation, with offices at 1717
South Boulder Avenue, Tulsa, Oklahoma 74119 ("MAPCO"), as
Seller's agent for the administration of this Agreement.
C. Buyer owns or leases generating stations and is
authorized to purchase bituminous coal on behalf of the
generating station identified in Exhibit I hereto (the "Station").
D. Buyer is desirous of purchasing from Seller the
Station's entire requirements of bituminous coal during the term
of this Agreement, and Seller is desirous of selling such coal to
Buyer, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 2
ARTICLE I
SALE AND PURCHASE OF COAL; TERM OF AGREEMENT; QUANTITIES
Section 1.01 Sale and Purchase. Buyer agrees to purchase
bituminous coal conforming to the characteristics set forth in
Section 2.01 hereof in the quantities specified in Section 1.03
hereof, and Seller agrees to sell such coal to Buyer, all subject
to the terms and conditions of this Agreement.
Section 1.02 Term. The term of this Agreement shall
commence on January 1, 1998 and shall expire on December 15,
2002, unless sooner terminated as provided herein.
Section 1.03 Quantities. Subject to Section 2.08 hereof,
Buyer agrees to purchase from Seller, and Seller agrees to sell
to Buyer, 100% of the Station's requirements for coal during the
term of this Agreement, as determined in the sole discretion of
Buyer. In no event shall Seller be obligated to supply coal
hereunder in excess of 400,000 tons per calendar year. As used
in this Agreement, ton means 2,000 pounds.
Section 1.04 Orders for Coal; Requirements Forecasts.
Buyer shall place orders for coal hereunder on a monthly basis by
submitting written notice to Seller as soon as reasonably
practicable in each month, but in any event on or before the
twentieth (20th) day of each month, of the Station's requirements
of coal for the following month. In addition, in order to assist
Seller to plan for and anticipate the Station's periodic
requirements of coal, Buyer agrees to deliver to Seller, together
with each such order, a forecast of the Station's estimated
requirements of coal for the following two (2) months. Seller
acknowledges and agrees that such forecasts shall consist merely
of estimates and shall not form the basis for any order for coal
or for any obligation or liability on the part of Buyer to
actually purchase the amounts of coal set forth in such
forecasts.
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<PAGE> 3
Section 1.05 Fluctuations in Quantity. Buyer presently
anticipates that the Station's initial monthly requirements for
coal shall be between 5,000 and 9,000 tons. Notwithstanding the
foregoing, Seller acknowledges and agrees that, due to a variety
of factors (including, without limitation, the right of Carolina
Power & Light Company ("CP&L") from time to time to dispatch the
Station to varying levels of operation ranging from 0% to 100% of
design capacity), the Station's requirements for coal (i) may
vary substantially from such initial estimates and from the
estimates contained in the periodic forecasts delivered to Seller
pursuant to Section 1.04 hereof, (ii) may vary substantially from
month to month or from year to year during the term of this
Agreement, and/or (iii) may be significantly reduced and/or
eliminated entirely. Accordingly, Seller further acknowledges
and agrees that such estimates shall not be construed as an
obligation on the part of Buyer to purchase any minimum quantity
of coal hereunder.
Notwithstanding the immediately preceding paragraph of this
Section 1.05 or anything to the contrary contained in this
Agreement (except as otherwise provided in the following
paragraph), in the event Buyer purchases less than 70,000 tons of
coal hereunder during any calendar year during the term of this
Agreement (such amount to be prorated for any partial calendar
year(s) occurring during the term of this Agreement), Buyer
agrees to pay Seller an annual deficit tonnage penalty equal to
$[xxx] per ton (the "Deficit Tonnage Penalty"), for the difference
between 70,000 tons (or such lesser prorated amount, in the case
of a partial calendar year) and the number of tons of coal
purchased by Buyer hereunder during such calendar year (such
difference being hereinafter referred to as the "Deficit
Tonnage"). To the extent that Buyer's failure to purchase any
amount of coal hereunder is due to a force majeure (as defined in
Section 8.01 hereof), or the inability or failure of Seller for
any reason whatsoever to deliver coal as ordered by Buyer
hereunder, the Deficit Tonnage shall be reduced accordingly. The
Deficit Tonnage Penalty, if any, shall be calculated by Buyer
promptly following the end of each calendar year during the term
3
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 4
hereof during which Buyer purchased less than 70,000 tons of coal
hereunder (such amount to be prorated for any partial calendar
year), and shall be due and payable to Seller no later than
January 31 immediately following such calendar year. Any
disputes regarding the amount of the Deficit Tonnage Penalty due
Seller shall be subject to arbitration in accordance with Article
VII hereof. For purposes of this Section 1.05, purchases of coal
shall be deemed to have been made in the calendar year in which
the order was placed for such coal pursuant to Section 1.04
hereof.
Notwithstanding the immediately preceding paragraph of this
Section 1.05 or anything to the contrary contained in this
Agreement, and in lieu of the Deficit Tonnage Penalty described
above, Buyer agrees that in the event that (a) Buyer elects to
use alternative fuels to provide fifty percent (50%) or more
(based on BTU's) of the thermal input of the Station (including,
without limitation, tire derived fuel), and as a result thereof
Buyer purchases less than 60,000 tons of coal during any calendar
year during the term of this Agreement (such amount to be
prorated for any partial calendar year(s) occurring during the
term of this Agreement), or (b) Buyer elects to repower the
Station to use natural gas, or (c) Buyer and CP&L voluntarily
enter into a contract buy-out reflecting a complete and permanent
termination of the Power Purchase Agreement between Buyer and
CP&L relating to the Station (the "PPA") in return for cash
payment(s) to Buyer, or (d) if Seller terminates this Agreement
as a result of Buyer's failure to pay any Deficit Tonnage Penalty
within ninety (90) days after the date such payment is due (any
of such events described in clauses (a), (b), (c) and (d) above
being hereinafter referred to as a "Triggering Event"), then
Buyer shall pay "Cover Damages" to Seller with respect to each
calendar year or portion thereof during which a Triggering Event
is continuing as calculated in accordance with the following
formula; provided, however, that in the case of a Triggering
Event described in clause (d) above, the Triggering Event shall
be deemed to have been continuing during the entire calendar year
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in respect of which such Deficit Tonnage Penalty was due, and to
continue until December 15, 2002 (unless such Deficit Tonnage
Penalty was due with respect to calendar year 2002, in which case
the Triggering Event shall be deemed to have been continuing from
January 1, 2002 until December 15, 2002):
CD = (110,000Y - Q) x $[xxx] where,
CD = Cover Damages for any given calendar
year or portion thereof during which
a Triggering Event is continuing.
If CD is less than or equal to zero,
then no Cover Damages shall be due for
such period.
Y = The fractional portion of the calendar
year for which Cover Damages are being
calculated during which a Triggering Event
is continuing (expressed as the number of
days during which a Triggering Event is
continuing in such calendar year divided by 365).
Q = The actual quantity of coal (expressed in tons)
purchased from Seller during the calendar year
or portion thereof for which Cover Damages are
being calculated.
Cover Damages shall be calculated by Buyer promptly following the
end of each calendar year during which a Triggering Event was
continuing, and shall be due and payable to Seller no later than
January 31 immediately following each such calendar year.
Notwithstanding the immediately preceding sentence, if any one of
the events described in clauses (a), (b) and (c) is invoked on a
permanent basis as elected by Buyer for the remaining term of
this Agreement, then in such event, Cover Damages shall be
calculated by Buyer promptly following such permanent election
and shall be due and payable to Seller no later than thirty (30)
days following such permanent election made by Buyer. Buyer
shall provide Seller with documentation showing the calculations
5
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 6
used by Buyer to determine the amount of such Cover Damages. Any
disputes regarding whether a Triggering Event has occurred or the
amount of Cover Damages due Seller shall be subject to
arbitration in accordance with Article VII hereof. Illustrative
examples of calculating Cover Damages pursuant to this Section
1.05 are set forth under Exhibit III, attached hereto and
incorporated herein by reference.
ARTICLE II
DESCRIPTION, SAMPLING, AND TESTING OF COAL
Section 2.01 Description of Coal. Seller guarantees that
the coal sold hereunder shall reasonably conform to the following
characteristics, on a monthly weighted average "as received"
basis, when tested at the source mine (as defined in Section
3.02) in accordance with the method described in Section 2.03 or
such other method as may be reasonably agreed to between the
parties from time to time.
(a) Content and Characteristics. The coal sold
hereunder shall have the following characteristics (as
received at the source mine) (all percentages are by
weight):
Average
Moisture content 6.0%
Ash content 8.5%
Sulfur content 0.90%
Calorific Value (BTU/LB.) 13,000
Ash softening Temp. 2,700 degrees Fahrenheit
Volatile matter content 34%
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(b) Size and Condition. The coal sold hereunder shall
be 1-1/4" x 1/4", with 20% maximum of minus 1/4" with the fines
incorporated in such a manner as to form a homogeneous
blend. Additionally, the coal shall be free from impurities
that can be removed through the exercise of reasonable care
during mining, preparation and loading. Seller expects (but
does not warrant) that the coal shall be free flowing and
will not cause Buyer abnormal handling, unloading, dusting,
sampling or utilization difficulty.
(c) Washed Coal. Unless otherwise agreed by the
parties hereto, all coal purchased by Buyer pursuant to the
terms of this Agreement shall be washed coal. Seller shall
obtain the written consent of Buyer prior to the shipment of
any coal pursuant to the terms hereof which is not washed
coal. Buyer agrees to grant such consent subject to the
continued compliance of any such unwashed coal with all
specifications and requirements for coal as set forth in
this Agreement.
(d) Freeze Proofing. Seller agrees to treat the coal
and/or the railcars from time to time as requested by Buyer
with a freezeproofing agent designed to prevent the coal
from becoming non-dischargeable from the railroad car. In
consideration of such service, Buyer shall pay Seller an
amount equal to Seller's cost of the freezeproofing agent
plus ten percent (10%). The per ton charge shall be
determined based upon the pint per ton application rate
requested by Buyer.
Section 2.02 Disclaimer of Warranties. Buyer agrees that
no affirmation of fact, description of the coal to be delivered
or coal samples provided to Buyer, shall constitute a warranty or
any part of the basis of this Agreement, unless the word
"guarantee" is used in connection therewith.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY,
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FITNESS FOR A PARTICULAR PURPOSE, QUALITY, QUANTITY, ARISING FROM A
COURSE OF DEALING OR TRADE USAGE OR OTHERWISE.
Section 2.03 Sampling and Analyses. A mutually acceptable
independent laboratory will collect and analyze samples of each
shipment of coal sold hereunder at the source mine in accordance
with applicable standard procedures and methods of the American
Society for Testing and Materials ("ASTM") in effect as of the
date of sampling. Buyer shall have the option of having a
representative present during any sampling and during the
analysis hereinafter described. Buyer shall further have the
option of collecting and analyzing its own sample at such time.
Sampling and analysis costs shall be divided equally between
Buyer and Seller. The ASTM analyses shall establish the
characteristics of the coal for purposes of determining
compliance with the specifications set forth in Sections 2.01 and
2.05 hereof, and for determining the price adjustments provided
for in Section 2.04 hereof.
All samples collected by the laboratory shall be divided
into two parts. One part shall be retained by the laboratory for
a period of at least thirty (30) days to be analyzed if a dispute
arises between Buyer and Seller, and a second part shall be
analyzed in accordance with this Section 2.03. The laboratory
will analyze the samples in accordance with ASTM procedures and
promptly submit the written results of such analysis to Buyer and
Seller. If a dispute arises between Buyer and Seller over the
result or method of such analyses, and the parties cannot
mutually resolve such dispute, a further analysis of the retained
sample shall be made in accordance with this Section 2.03 by a
mutually agreeable independent laboratory and the results of such
further analysis shall be binding upon the parties. Notice of
objection to analyses shall be given within fifteen (15) days of
receipt of such analyses. Otherwise the analyses shall
conclusively establish the characteristics of the coal. All
analytical charges associated with a disputed analysis shall be
(i) paid by the party that requested the further analysis if the
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<PAGE> 9
original analysis proves to have been correct; or (ii) shared by
the Buyer and Seller equally if the original analysis proves to
have been incorrect.
Having regard to the fact that the result of sampling and
testing may not necessarily be available to the parties prior to
the completion of loading, Buyer shall accept coal as loaded;
provided, however, that price adjustments and remedies for
deficiencies in coal specifications shall be based on sampling
and analysis of the coal as provided in this Section 2.03.
Section 2.04 Price Adjustments for Variance in Average as
Received Coal Characteristics. Buyer shall pay Seller a premium
whenever the monthly weighted average calorific value "as
received" of coal delivered during any calendar month exceeds
13,100 BTU per pound. Seller shall pay Buyer a penalty whenever
the weighted average calorific value "as received" of coal
delivered during any calendar month, is less than 12,900 BTU per
pound. The amount of such premium or penalty per ton of coal
shipped during any calendar month shall be calculated in
accordance with the formulas set forth in Exhibit II hereto.
Notwithstanding the foregoing, the amount of the premium payable
by Buyer during any given period shall be limited to a maximum
amount based upon a deemed maximum monthly weighted average of
13,300 BTU per pound. Accordingly, in the event the monthly
weighted average is actually greater than 13,300 BTU per pound,
the amount of 13,300 BTU shall nonetheless be used for purposes
of calculating the amount of the premium in accordance with the
formula for calculating such premium set forth in Exhibit II.
Section 2.05 Suspension, Rejection of Shipments. In the
event Seller shall deliver coal over any two consecutive calendar
months (including shipments that are subsequently rejected as
provided below) for which the analysis, on a monthly weighted
average basis, delivered in accordance with this Article II,
indicates any one of the following:
(a) BTU content: less than 12,500 BTU per pound;
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<PAGE> 10
(b) Ash content: greater than 9.5%
(c) Sulfur content: greater than .95%
(d) An ash softening temperature of less than
2,500 degrees Fahrenheit; or
(e) Volatile matter of less than 30%
then, in addition to obtaining price adjustments for such coal as
provided in Section 2.04 hereof, Buyer may deliver to Seller
written notice ("Buyer's Notice of Suspension") to suspend
further deliveries of coal until Seller can provide Buyer with
adequate assurances that coal conforming to the specification
limitations set forth in this Section 2.05 will be delivered.
Notwithstanding anything contained herein to the contrary,
Buyer may reject any individual shipment of coal under any of the
following circumstances: (i) if the sulfur content of such
shipment (as disclosed by the analysis referred to in Section
2.03 hereof) is in excess of 0.95%; or (ii) if the ash content
thereof is in excess of 10%; or (iii) with respect to the size of
the coal contained in such shipment, if the percent minus 1/4" is
in excess of 25%.
If Buyer rejects any individual shipment of coal in
accordance with the provisions of the preceding paragraph, Seller
shall promptly remove such rejected shipment at its expense, cure
any deficiency in supply caused thereby and reimburse Buyer for
all transportation, demurrage and handling expenses incurred by
Buyer as a result of such rejection.
If, after thirty (30) days from Buyer's Notice of
Suspension, Seller is unable to deliver coal to Buyer in the
requisite amount which meets the specification limitations set
forth in this Section 2.05, then Buyer shall have the option, at
its sole discretion, to terminate this Agreement by written
notice to Seller not later than ninety (90) days from Buyer's
Notice of Suspension, and in such event the parties hereto shall
have no further obligations or liabilities under this Agreement,
other than with respect to performance required hereunder prior
to such termination.
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Section 2.06 Exclusive Remedies. Except as otherwise
provided in Sections 2.07 and 2.08 hereof, the price adjustments
prescribed by Section 2.04 and the suspension of shipments and/or
the termination of this Agreement as contemplated in Section 2.05
shall constitute Buyer's sole and exclusive remedies for coal
which deviates from the specifications set forth in Section 2.01
hereof.
Section 2.07 Optional Remedy. Notwithstanding Section
2.06, in lieu of termination pursuant to Section 2.05, Buyer may
give written notice to Seller not later than ninety (90) days
from Buyer's Notice of Suspension that Buyer elects to exercise
the Optional Remedy prescribed by this Section 2.07. In such
case, Seller will resume shipments and if Seller fails to deliver
coal in the requisite amount that conforms to all the
specification limitations set forth in Section 2.05 for at least
two (2) consecutive calendar months of the six (6) complete
calendar months following the month in which Buyer gives notice
of its option to exercise the Optional Remedy prescribed by this
Section 2.07 (the "Probation Period"), Seller shall be in default
under the terms of this Agreement and Buyer may terminate this
Agreement and exercise its remedies with respect to such default
pursuant to Section 9.06 hereof. In addition, Buyer shall have
the right during the Probation Period to reject individual
shipments of coal that do not conform to any individual
specification limitation in Section 2.05, and Seller shall
promptly remove any such rejected shipments at its own expense,
cure any deficiency in supply caused thereby and reimburse Buyer
for all transportation, demurrage and handling expenses incurred
by Buyer as a result of such rejection. If Seller delivers coal
in the requisite amount during any two (2) consecutive calendar
months of the Probation Period that meets the monthly
specification limitations set forth in Section 2.05, then the
Probation Period shall end on the last day of such second
calendar month, Seller shall not be in default under the terms
hereof, and Buyer's remedies will thereafter be limited to those
set forth in Sections 2.04, 2.05 and 2.08; provided, however,
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<PAGE> 12
that Buyer may, at its option and in accordance with the
procedures of this Section 2.07, elect to exercise the Optional
Remedy prescribed by this Section 2.07 following any subsequent
Buyer's Notice of Suspension pursuant to Section 2.05. As used
herein, the term "requisite amount" shall mean, with respect to
any calendar month, the amount of coal ordered by Buyer for
delivery during such month.
Section 2.08 Substitute Performance. Notwithstanding
anything contained herein to the contrary, in the event that (i)
Buyer directs Seller to suspend shipments pursuant to Section
2.05, or (ii) Buyer rejects any shipment pursuant to Section 2.05
or 2.07, then Buyer shall have the right to purchase replacement
coal ("Replacement Coal") from alternative sources if the Seller
does not provide to Buyer Replacement Coal having the
characteristics provided in Section 2.01 within a time period
which is reasonably acceptable to Buyer based on Buyer's then
current coal requirements. In the event Buyer purchases
Replacement Coal pursuant to this Section 2.08 (whether from
Seller or a third party), then Seller shall reimburse Buyer for
the difference between the cost of the delivered Replacement Coal
(including transportation costs) and the payments that Buyer
would otherwise have made to Seller and the transportation
carrier for the deliveries of such coal hereunder, and Seller
shall make such payment within thirty (30) days of receipt from
Buyer of an invoice specifying such excess costs.
ARTICLE III
SUPPLY SOURCES
Section 3.01 Identification of Supply Source. The
principal source of the coal to be purchased and sold hereunder
shall be mining facilities owned by the Seller in Pike County,
Kentucky (the "Mine"), which is located in the "Big Sandy" rail
transportation rate district. Seller agrees to produce coal at
the Mine for delivery to Buyer hereunder. Seller represents and
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warrants that it owns, leases or otherwise has the legal right to
mine and sell a sufficient number of tons of recoverable coal
from the Mine to supply coal to Buyer in accordance with this
Agreement. The provisions of this Section 3.01 shall, however,
not prevent Seller from claiming a force majeure event and in the
event of force majeure, Seller may prorate its available coal to
its then existing customers with prior commitments for coal.
Section 3.02 Seller's Right of Substitution. From time to
time, Seller may (but shall not be required to) deliver coal
produced from a source or sources other than the Mine (such coal
shall be referred to as "Substitute Coal"), provided that at
least fifteen (15) days prior to any such delivery, Seller shall
give Buyer notice thereof, and provided further that such
Substitute Coal conforms to the requirements of Section 2.01. If
Seller elects to deliver Substitute Coal and such delivery or
deliveries result in a net increase in the total cost to Buyer of
transporting the coal purchased hereunder to the Station
(exclusive of demurrage and other similar charges assessed
against Buyer for failure to load or unload coal in accordance
with the requirements of applicable railroad tariffs or
contracts), then Seller shall reimburse Buyer for such additional
transportation costs. Buyer shall submit a request for
reimbursement of any such additional transportation cost, and
such request shall document the actual cost of transporting the
Substitute Coal delivered to the Station during the period
covered by such request as well as the transportation cost that
would have been incurred had all the coal been delivered at the
Mine. At Buyer's option, Seller shall either (i) reimburse Buyer
for any such additional transportation costs within thirty (30)
days after receipt of Buyer's request for payment, or (ii) credit
the amount of any such additional transportation costs against
amounts then owed to Seller from Buyer for purchases of coal
hereunder, provided such increased costs are documented as
required by the preceding sentence. This section shall not be
deemed to require Seller to deliver coal produced from any source
other than the Mine and shall not affect the right of the Seller
to claim force majeure as a result of events occurring in
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<PAGE> 14
connection with the Mine. References herein to "source mine"
shall include the Mine and any substitute supply source or
sources, as the case may be, from which coal is supplied by
Seller to Buyer hereunder.
ARTICLE IV
PRICE, BILLINGS, AND PAYMENT
Section 4.01 Contract Price. The "Contract Price" per ton
of coal supplied hereunder (F.O.B. railroad cars at the source
mine) for any given year during the term of this Agreement shall
be the Annual Base Price (defined in Section 4.02) for such year
as set forth in Section 4.02 below. The Annual Base Prices set
forth in Section 4.02 include a cost pass through amount for
Governmental Impositions (as defined in Section 6.01 hereof). Of
the Contract Price for any given year, $[xxx] per ton represents
the initial Governmental Imposition cost pass through portion.
The initial Governmental Imposition cost pass through portion of
the Contract Price includes $[xxx] per ton for the Federal Black
Lung Fee and $[xxx] per ton for the Federal Reclamation Fee. The
Governmental Imposition cost pass through portion of the Contract
Price for any given year shall be subject to adjustments as
provided for under Section 6.01 hereof.
Section 4.02 Annual Base Prices. Subject to adjustments
for changes in the Governmental Imposition cost pass through
portion as provided in Section 6.01 hereof, the "Annual Base
Price" per ton of coal purchased hereunder shall be fixed for
each calendar year during the term of this Agreement as follows:
(a) The Annual Base Price per ton of coal purchased
during the 1998 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(b) The Annual Base Price per ton of coal purchased
during the 1999 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
14
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 15
(c) The Annual Base Price per ton of coal purchased
during the 2000 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(d) The Annual Base Price per ton of coal purchased
during the 2001 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
(e) The Annual Base Price per ton of coal purchased
during the 2002 calendar year shall be $[xxx] F.O.B.
railroad cars at the source mine.
Section 4.03 Invoicing. For each shipment of coal
delivered to Buyer, Seller will promptly forward an invoice to
Buyer showing the rail car numbers, shipping date, source mine
name, shipping point, correct weight, and Contract Price,
including computation thereof. No later than the twentieth
(20th) working day of each calendar month, Seller shall provide
Buyer with a computation of the applicable premium or penalty for
coal delivered during the preceding month, such computation to be
performed in the manner prescribed in Section 2.04 and Exhibit
II. Such notice shall be accompanied by an invoice for the
amount of any premium due Seller or, in the event a penalty is
due Buyer, an indication of the amount of any credit to be
applied against the Contract Price of subsequent shipments. In
the event the credit amount is greater than the Contract Price
for such immediately subsequent shipment, the remaining credit
amount shall be applied in full to each successive invoice amount
until all such credits are extinguished. If all such credits are
not extinguished before the expiration or termination of this
Agreement, then the balance of such credits shall be promptly
refunded by Seller to Buyer in cash.
Section 4.04 Payment and Billing Period. Buyer shall pay
in full the amount of each invoice by wire transfer to Chemical
Bank, New York, New York (the "Bank") for deposit on behalf of
Seller, or to such other bank as Seller may designate to Buyer in
accordance with the notice provisions of Section 10.02 hereof.
Each invoice shall be due and payable thirty (30) days after
loading on railroad cars at the source mine, but in no event
15
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 16
shall an invoice be due and payable until fifteen (15) days after
Buyer has received such invoice. Notwithstanding the foregoing,
if the date on which a payment is due is a weekend day, or a
holiday or other day on which the Bank is closed for business,
then such payment shall be due on the next day on which the Bank
is open for business. Title and risk of loss shall pass to Buyer
upon loading on railroad cars at the source mine. Seller
acknowledges that an escrow account has been established with a
bank (or other financial institution) into which all or
substantially all revenues from the Station are deposited, and
that the escrow agreement executed in connection with such escrow
account provides that disbursements shall be made in accordance
with the terms of the escrow agreement to pay expenses of the
Station, including, without limitation, the payment of amounts
due to Seller hereunder.
Section 4.05 Interest. The amount of any invoice not
paid, or any credit memorandum not issued, when due shall bear
interest from the date the correct invoice was due, or in the
case of the credit memorandum from the date that the credit
should have been applied, through the date that the invoice is
paid or the credit memorandum is applied, at a rate per annum
equal to the rate announced publicly from time to time by
Citibank N.A., New York, New York, as its prime rate for domestic
commercial customers, plus two per cent (2%).
If any invoice for a premium pursuant to Section 2.04 is in
dispute, Buyer shall pay the amount not in dispute pursuant to
Section 4.04 hereof. If upon resolution of the dispute by
settlement or otherwise, it is determined that Seller is due any
payment, then Buyer shall pay interest on the amount due at a
rate per annum equal to the rate calculable in accordance with
the method set forth in the preceding paragraph. If any invoice
other than a premium pursuant to Section 2.04 is in dispute,
Buyer shall pay the disputed amount pursuant to Section 4.04
hereof, and if Buyer is due any credit pursuant to the settlement
of the dispute, then interest on the credit shall be paid by
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Seller at a rate calculable in accordance with the method set
forth in the preceding paragraph.
ARTICLE V
TRANSPORTATION, DELIVERY AND RISK OF LOSS
Section 5.01 Shipment; Tariffs. Pursuant to monthly
orders placed in accordance with Section 1.04 hereof, Buyer shall
specify to Seller on or before the twentieth (20th) day of each
month the tonnages and destinations of shipments to be made
pursuant to this Agreement in the next succeeding month. Coal
sold hereunder will be shipped by rail in 75-car unit train lots
as scheduled by Buyer (or such other mode or combination of modes
as Buyer and Seller may mutually designate from time to time)
from the source mine's loading facilities to the Station, or
other destinations specified by Buyer and acceptable to Seller.
Coal purchased and sold hereunder that is to be shipped by rail
shall be loaded and shipped in accordance with railroad loading
and tonnage requirements that are acceptable to Seller and Buyer.
Section 5.02 Freight Charges and Risk of Loss. Except as
otherwise provided in this Agreement, Buyer shall pay all freight
and other charges imposed by the applicable rail tariffs or
contracts to the destination of the shipment and shall bear the
risk of loss of such shipment after such shipment has been loaded
into railroad cars at the source mine. Notwithstanding anything
to the contrary contained herein, Seller shall reimburse Buyer
for any charges or penalties paid by Buyer to the delivering
railroad solely as a result of Seller's failure to load coal in
accordance with any railroad loading or tonnage requirements that
are acceptable to Seller and Buyer.
Section 5.03 Shipping Notices. Promptly after loading
each shipment Seller shall mail or electronically transmit to
Buyer a notice of shipment which shall include pertinent
information about such shipment as mutually agreed to by Buyer
and Seller from time to time.
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Section 5.04 Weights. The gross weight of coal shipped
hereunder shall be conclusively established by the railroad bill
of lading or waybill, absent manifest error.
ARTICLE VI
GOVERNMENTAL IMPOSITIONS
Section 6.01 Price Adjustment for Changes in Governmental
Impositions. When used herein the term "Governmental Imposition"
means all costs of compliance with all applicable federal, state
and local laws and regulations as they are interpreted and
enforced with respect to coal produced at the Mine, including,
without limitation, all federal, state or local statutes, rules,
regulations or interpretations, the rate of any excise, stamp,
reclamation, severance, use, sales, license, or other tax
assessment, and any charged rates of assessment (other than taxes
measured on or by income not levied directly on the production of
coal), business and occupations taxes, and license fees or other
assessments payable on account of or for the production, mining,
removal, preparation, delivery, shipment, sale, consignment or
billing of coal or on instruments or documents evidencing the
same or on the proceeds thereof, and any law, governmental order,
rule, ordinance, regulation, stipulation, decree, or other
governmental requirement of any kind, or interpretation thereof,
which pertains to coal mining practices, health and safety of
miners, surface subsidence, land and water reclamation, coal
waste disposal and air and water quality standards.
Notwithstanding any other provision of this Article VI, there
shall be no price adjustment under this Article VI as a result of
any noncompliance as of June 1, 1997 of the Mine with any
Governmental Imposition, or any civil or criminal fines or
penalties imposed for failure to comply with any Governmental
Imposition currently existing or hereafter enacted.
If, as and when any change in a Governmental Imposition
occurring after June 1, 1997 affects the Contract Price or the
costs of supplying coal from the Mine, the Contract Price shall
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<PAGE> 19
be adjusted in the same amount that the actual cost per ton of
producing, mining, removing, preparing, loading, selling,
consigning and billing coal pursuant to this Agreement is
reasonably increased as a result of Seller's compliance in a
reasonably cost effective manner with the Governmental
Imposition, including, but not limited to, any investment
required to comply with the Governmental Imposition. In any case
where a Governmental Imposition results in an investment cost,
the adjustment to the Contract Price shall be calculated in
accordance with the following formula:
IY
----
TX
Y = For the year the investment is made, the portion of
such year remaining after the date of such investment
(expressed in decimal form). For each twelve-month
period thereafter, Y = 1.0.
I = The dollar cost of the investment.
T = The shortest life allowed by the Internal Revenue
Service for depreciation purposes of the investment
item, if any, or if none, the remaining life of the Mine.
X = The total quantity of coal in tons mined at the Mine
during the year in which the investment is made.
Notwithstanding anything to the contrary contained in this
Section 6.01, there shall be no price adjustments on invoices
more than 12 months after the due date of such invoice.
Section 6.02 Notice and Substantiation of Contract Price
Adjustments. Seller shall promptly notify Buyer in writing of
the amount and effective date of any claimed adjustment to the
Contract Price pursuant to the provisions of Section 6.01 and
shall furnish Buyer with accurate and detailed computations and
data reasonably necessary to substantiate such adjustment. Buyer
shall have the right to inspect all books and records of Seller
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<PAGE> 20
pertaining to such adjustment. Buyer shall verify or protest
such adjustment within 60 days after receipt of such notice and
computations, or such adjustment shall be deemed conclusively
correct.
If Buyer protests any adjustment to the Contract Price
claimed under Section 6.01, then the matter shall be submitted to
arbitration in accordance with Article VII hereof.
ARTICLE VII
ARBITRATION
Section 7.01 Limited Scope. A controversy or claim
arising out of or relating to this Agreement, except those as to
price of coal purchased and sold pursuant to this Agreement or
the validity of this Agreement, or except as otherwise expressly
excepted from arbitration pursuant to any provision hereof, shall
be submitted to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the
"AAA") then in effect.
Section 7.02 Arbitration Procedures. The party desiring
to submit a matter to arbitration shall give written notice
thereof to the other party and to the AAA which notice shall set
forth the specific issues in controversy. Within thirty (30)
days after such notice, the AAA, in consultation with the parties
and in accordance with its rules shall select and appoint an
arbitrator or arbitrators to conduct the arbitration. The
decision of the AAA with respect to the selection and appointment
of the arbitrator(s) shall be final. Within thirty (30) days
after the appointment of the arbitrator(s), notice shall be given
by the arbitrator(s) to the parties regarding the time and place
of hearing which in no event shall be later than sixty (60) days
after appointment of the arbitrator(s). Unless otherwise agreed
by the Buyer, any arbitration proceeding will take place in
Charlotte, North Carolina.
Section 7.03 Post-Arbitration Award. Within thirty (30)
days after the arbitration hearing, the arbitrator(s) shall
decide the controversy and render an award in writing setting
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<PAGE> 21
forth the issues adjudicated, the resolution thereof, and the
reasons for the award. Payment of the expenses of arbitration,
including the fees of the arbitrator(s), shall be allocated by
the arbitrator(s). The award of the arbitrator(s) shall be
conclusive and binding upon the parties and shall be specifically
enforceable by any court having jurisdiction over either party by
the entry of judgment upon the award.
Section 7.04 Confidentiality of Proceedings. Any
arbitration proceeding under this Agreement shall, unless
otherwise agreed by both Buyer and Seller, be held in confidence
and the arbitrator(s) selected shall agree to maintain the
confidentiality of all information submitted in the arbitration,
to the extent such information is not otherwise in the public
domain.
ARTICLE VIII
FORCE MAJEURE
Section 8.01 Force Majeure Defined. When used herein
"force majeure" shall mean a cause beyond the reasonable control
of and not due to the fault or negligence of Buyer or Seller, as
the case may be, which wholly or partially prevents or delays the
mining, loading or delivery of coal at or from the Mine, or the
receiving, transporting, or delivery of coal by the railroads, or
the unloading, storing, or burning of coal by Buyer at the
Station. Examples (without limitation) of force majeure are the
following: acts of God, war, acts of the public enemy,
insurrections, riots, strikes, labor disputes, shortage of
materials, delays relating to engineering, design, construction
or testing of the Station, fires, explosions, floods, breakdowns
of or damage to the Station, plants, mines, equipment or
facilities, interruptions to or contingencies of transportation
or loading, fuel supplies or electrical power, including
determination of force majeure under provisions of the applicable
tariff, embargoes, boycotts, orders or acts of civil or military
authorities, legislation, regulation or administrative orders, or
any limitation or prohibition on, or inability to obtain
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<PAGE> 22
governmental permits or approvals required by law and necessary
to, the mining, transporting, storing, handling or burning of
coal. When applied to Seller, force majeure includes the failure
of Seller to deliver the quantities of coal set forth in Section
1.03 hereof due to the occurrence of a force majeure event with
respect to the Mine.
Notwithstanding the foregoing, force majeure, for purposes
of this Agreement, shall not include (i) the development or
existence of economic conditions which may adversely affect
Buyer's utilization of coal or Seller's mining, production,
delivery or sale of coal, (ii) acts or omissions of Seller or
Buyer constituting negligence, or mismanagement on the part of
Seller or Buyer, or (iii) a Triggering Event that occurs pursuant
to clause (c) of Section 1.05. If force majeure prevents the
unloading, storing or utilization of coal by Buyer at the
destination or destinations to which the coal is then being
shipped, Buyer shall consider what steps can be taken as to the
transportation and utilization of the coal so as to allow the
coal to be used by Buyer, and if such steps can be accomplished
without unreasonable expense, Buyer shall promptly take such
steps.
Section 8.02 Effect of Force Majeure. If because of force
majeure either Buyer or Seller is rendered wholly or partially
unable to carry out their respective obligations under this
Agreement, and if such party promptly gives the other party
written notice of such force majeure, the obligations and
liabilities of the party giving such notice and the corresponding
obligation of the other party shall be suspended to the extent
made necessary by and during the continuance of such force
majeure; provided, however, that the party claiming force majeure
shall use its best efforts to eliminate the cause or effect of
force majeure as soon as and to the extent possible, except that
labor disputes or strikes shall be settled at the sole discretion
of the party affected. If all the parties hereto agree,
deficiencies in the production or sale of coal hereunder caused
by force majeure may be made up by extending the term of this
Agreement for an additional period not to exceed the term of the
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<PAGE> 23
force majeure condition and continuing shipments until the lost
tonnage has been shipped. However, in the event the force
majeure continues unabated for a period of six (6) months or
more, then the unaffected party may, at its option, terminate
this Agreement by thirty (30) days prior written notice to the
party asserting such force majeure; provided, however, that
Seller may not terminate this Agreement pursuant to this Section
8.02 if the force majeure event has resulted in partial or total
destruction of the Station and Buyer has commenced good faith
efforts to repair the damage caused thereby.
Section 8.03 Duties of the Parties during Force Majeure.
To the extent possible, Buyer and Seller will utilize good faith
efforts to minimize the adverse effects of a force majeure. In
the event of a force majeure event which adversely affects
Seller's ability to supply coal from the Mine, Seller agrees to
equitably allocate among its then existing customers, to the
extent possible, coal which can be sold or used during the
pendency of force majeure. Nothing in the two (2) preceding
sentences shall, however, obligate Buyer to find additional
markets for Seller's coal nor require Seller to supply coal
produced from a source other than the Mine.
ARTICLE IX
TERMINATION; REMEDIES
Section 9.01 Termination.
(a) Automatic Termination. Buyer and Seller acknowledge
that, pursuant to the PPA between Buyer and CP&L relating to the
Station, CP&L has the right to reject this Agreement and to enter
into a replacement coal contract for the supply of coal for the
Station which would render this Agreement ineffective.
Accordingly, and notwithstanding anything contained herein to the
contrary, in the event CP&L chooses to reject this Agreement and
enter into a replacement coal contract for the supply of coal for
the Station pursuant to the PPA, this Agreement shall
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<PAGE> 24
automatically terminate and be of no further force and effect.
Buyer agrees to notify Seller of CP&L's decision promptly after
receipt of notice thereof from CP&L, but in no event later than
December 31, 1997. In the event CP&L exercises its right to
enter into a replacement coal contract for the supply of coal for
the Station as contemplated above and CP&L provides to Buyer an
explanation of its reasons for doing so, Buyer agrees to promptly
inform Seller of such explanation.
(b) Termination upon Default. Either Buyer or Seller may
terminate this Agreement, effective upon written notice of
termination to the other party, upon an occurrence of an Event of
Default as to the other party. An "Event of Default" as to
either party shall mean:
(i) Failure by such party to perform any of its
obligations under this Agreement, and such failure continues
uncorrected for thirty (30) continuous days after notice
thereof from the other party;
(ii) Dissolution of such party; or
(iii) The filing of a petition for relief as to
such party as debtor or bankrupt under the Federal
Bankruptcy Reform Act of 1978 or any similar law of any
jurisdiction (except if such petition is contested by such
party and has been dismissed within sixty (60) days);
insolvency of such party as finally determined by a court
proceeding; the filing with respect to such party of a
petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such party or a
substantial part of its assets; the commencement of any
proceedings relating to such party under any other
reorganization, arrangement, insolvency, adjustment of debt
or liquidation law of any jurisdiction, whether now in
existence or hereinafter in effect, either by such party or
by another, provided that if such proceeding is commenced by
another, such party indicates its approval of such
proceeding, consents thereto or acquiesces therein, or such
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<PAGE> 25
proceeding is contested by such party and has not been
finally dismissed within sixty (60) days; notwithstanding
the foregoing, the events described in this Section
9.01(b)(iii) shall not constitute an Event of Default on
Buyer's part if, following the occurrence of any such event
and its continuance, Buyer, if requested by Seller, pays for
future shipments of coal tendered hereunder prior to
shipment of such coal from the source mine, such payments to
be based on Seller's good faith estimate, of the quantity of
coal to be contained in each such shipment and adjusted
promptly upon determination of the actual quantity of coal
in such shipment as determined in accordance with Section
5.04 hereof.
Section 9.02 Effect of Termination. Except as provided in
Sections 9.05 and 9.06 hereof, upon termination of this Agreement
pursuant to Section 2.05, Section 2.07, Section 8.02 or Section
9.01, neither Buyer nor Seller (unless such termination was
because of occurrence of an Event of Default as to it) shall have
any further liability or obligation to the other parties
hereunder, except that each party shall remain liable to the
others with respect to any Event of Default as to such party
prior to such termination, and the provisions of Sections 10.05
and 10.06 hereof shall survive termination. Notwithstanding
anything contained in this Agreement to the contrary, in the
event that Seller exercises its right to terminate this Agreement
and becomes entitled to receive Cover Damages as contemplated
under clause (d) of Section 1.05, then such termination and Cover
Damages shall constitute Seller's sole and exclusive remedies.
Section 9.03 Nonwaiver. The specifications of remedies
herein shall not be deemed to exclude the parties from any other
legal or equitable remedies they may have with respect to this
Agreement (including, without limitation, rights to specific
performance or injunctive relief), except as provided in Sections
2.06 and 9.04 hereof and the last sentence of Section 9.02
hereof. Failure on the part of any party to exercise any
remedies on default hereunder for any period or periods shall not
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<PAGE> 26
operate as an estoppel or as a waiver, or prevent it at any
subsequent time from electing to exercise any rights as to any
subsequent default hereunder.
Section 9.04 Disclaimer of Consequential Damages. EXCEPT
FOR THE DEFICIT TONNAGE PENALTY AND THE COVER DAMAGES CONTEMPLATED
BY SECTION 1.05 HEREOF, NONE OF THE PARTIES TO THIS AGREEMENT SHALL
BE LIABLE TO THE OTHERS FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF THE PERFORMANCE OR NON-PERFORMANCE OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR OVERHEAD,
WHETHER BASED UPON BREACH OF CONTRACT, NEGLIGENCE OR OTHER LEGAL THEORY.
Section 9.05 Seller's Remedy in Event of Buyer's Breach by
Failure to Take Actual Requirements. In the event Buyer breaches
this Agreement by its failure to purchase 100% of the Station's
requirements of coal as determined in accordance with Section
1.03 hereof, if such breach continues uncured for thirty (30)
days after receipt of notice thereof from Seller, Seller may
terminate this Agreement pursuant to Section 9.01(b) and Buyer
will be liable to Seller for damages computed in accordance with
N. C. Gen. Stat. Section 25-2-706 or 25-2-708 (November, 1995),
as in effect from time to time, as elected by Seller.
Section 9.06 Buyer's Remedy in Event of Seller's Breach.
In the event Seller defaults in the performance of its
obligations hereunder and Buyer exercises its right to terminate
this Agreement in accordance with Section 2.07 or 9.01(b) hereof,
Seller will be liable to Buyer for damages computed in accordance
with either N. C. Gen. Stat. Section 25-2-712 or 25-2-713
(November, 1995), as in effect from time to time, as elected by
Buyer.
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ARTICLE X
OTHER PROVISIONS
Section 10.01 Entire Agreement. This Agreement contains
the entire agreement of the parties relating to its subject
matter, and supersedes all prior and contemporaneous
negotiations, understandings and agreements, written or oral,
between the parties relating to such subject matter. This
Agreement shall not be amended or modified, and no waiver of any
provision hereof shall be effective, unless set forth in a
written instrument authorized and executed by all the parties
hereto with the same formality as this Agreement.
Section 10.02 Notices. All notices or other communications
which are required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given or made (i)
upon receipt thereof if delivered by hand or courier service with
acknowledgment of delivery, (ii) on the third business day
following the depositing thereof with the United States Postal
Service if sent by registered or certified mail, postage prepaid,
return receipt requested, or (iii) upon the receipt thereof if
transmitted by prepaid telegram or by telecopier or facsimile
transmission, in each case to the respective parties at the
addresses set forth below (or to such other address as such party
may, from time to time, notify the other party in writing):
If to Buyer:
Cogentrix of North Carolina, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Fax No.: (704) 529-1006
Attention: General Counsel
If to Seller:
MC Mining, Inc.
C/O MAPCO Coal Sales
1717 South Boulder Avenue
Tulsa, Oklahoma 74119
Fax No.: (918) 582-8421
Attention: Sr. Vice President Marketing
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Section 10.03 Choice of Law. This Agreement shall be
deemed to be a contract made under, and for all purposes shall be
construed in accordance with, the internal laws and judicial
decisions of the State of North Carolina. For the purposes
hereof, Buyer and Seller hereby submit to the jurisdiction of the
state and federal courts in North Carolina.
Section 10.04 Counterparts. This Agreement may be executed
in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
Section 10.05 Confidentiality. Each party shall retain all
information obtained hereunder in strict confidence and not use
it, or disclose it to any person or entity not a party hereto,
except (a) for any information which (i) is at the time of such
disclosure known to the public or thereafter becomes so known,
through no violation by such party of this Agreement, (ii) such
party can demonstrate was in its possession prior to disclosure
under this Agreement or any prior agreements or negotiations
between the parties hereto, or (iii) is required by law to be so
disclosed; and (b) that Buyer may provide a copy of this
Agreement to CP&L, the purchaser of electricity to be generated
by the Station, on a confidential basis. Notwithstanding the
foregoing, any party may provide a copy of this Agreement or
other relevant information with respect thereto to its officers,
employees, affiliates, lenders, lessors, attorneys, consultants
and other representatives to the extent necessary to evaluate the
information received, provided each of them agrees to be bound
with respect thereto in the same manner as the disclosing party.
The provisions of this Section 10.05 shall survive termination of
this Agreement.
Section 10.06 No Brokers. Each party hereto represents and
warrants to the others that such party has not employed or
retained any broker, agent or finder, or agreed to pay any
brokerage or similar fee to any broker, agent or finder on
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account of this Agreement or the transactions contemplated
hereby. Each party shall indemnify the others and hold them
harmless against breaches of the foregoing representation and
warranty. The provisions of this Section 10.06 shall survive
termination of this Agreement.
Section 10.07 Assignment. The benefits and burdens of this
Agreement shall inure to and be binding upon the legal
representatives, successors and assigns of the Parties hereto,
except as provided in the following sentences. Any party may
assign its benefits under this Agreement to a corporation or
other entity all of the capital stock or other equity interests
in which is or are owned by the assignor or by a corporation
which owns all of the capital stock of the assignor, provided
that the assignee executes a written assumption of the
obligations of the assignor hereunder and delivers it to the
nonassigning parties to this Agreement, and provided further,
that the assignor shall not thereby be released from its
obligations hereunder. Otherwise, no party hereto may assign all
or any part of its benefits or burdens under this Agreement, in
whole or in part, by operation of law or otherwise, except with
the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding anything to the
contrary contained herein, Buyer shall have the right to assign
this Agreement in connection with the financing arrangements
relating to the Station, either as collateral security or to
another entity created in connection with such financing, by
notifying Seller of such assignment. If requested
by Buyer in connection with such financing arrangements, Seller
agrees to execute a "Consent and Agreement" subsequent to the
execution of this Agreement in a form mutually satisfactory to
the parties hereto.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate
officers as of the day and year first above written.
SELLER:
MC MINING, INC.
By: /s/ Joseph W. Craft III
Name: Joseph W. Craft III
Title: President and CEO
BUYER:
COGENTRIX OF NORTH CAROLINA, INC.
By: /s/ Ronald A. Munse
Name: Ronald A. Munse
Title: Vice President - Fuels & Transportation
30
<PAGE> 31
EXHIBIT I
IDENTIFICATION OF GENERATING STATION
STATION: Southport Station
LOCATION: Southport, North Carolina
INDUSTRIAL HOST: ADM
31
<PAGE> 32
EXHIBIT II
PREMIUMS AND PENALTIES FOR VARIATIONS IN BTU CONTENT
In accordance with Section 2.04 of this Agreement, if the
monthly weighted average calorific value "as received" of coal
delivered during any calendar month, is greater than 13,100 BTU
per pound or less than 12,900 BTU per pound, the applicable
premium or penalty shall be computed using the following
formulas:
If the monthly weighted average is less than 12,900 BTU per
pound:.
Penalty = (P) x ( 1 - BTU ) x Q
-----
13,000
If the monthly weighted average is greater than 13,100 BTU
per pound:
Premium = (P) x ( BTU - 1) x Q ;
-----
13,000
provided, however, that, in accordance with Section 2.04, the
Premium payable by Buyer hereunder for any given period shall be
limited to a maximum amount based upon a deemed maximum monthly
weighted average of 13,300 BTU per pound, such that if the
monthly weighted average is actually greater than 13,300 BTU per
pound, the "BTU" amount used for the calculation of the Premium
in the foregoing formula shall nonetheless be 13,300.
Where: P = the applicable Contract Price determined in
accordance with Section 4.01
BTU = the per pound weighted average calorific value
as received of coal delivered hereunder during
the applicable calendar month (subject to the
proviso set forth above with respect to the
deemed maximum level of BTU content)
Q = the quantity of coal in tons delivered hereunder
during the applicable calendar month
32
<PAGE> 33
EXHIBIT III
COVER DAMAGES EXAMPLE CALCULATIONS
Below are illustrative examples of calculating Cover Damages
as set forth in Section 1.05, Fluctuations in Quantity.
Example No. 1:
Assume during the calendar year 1998 Buyer orders the
following quantities of coal for the months noted.
1998 January 5,000
March 5,000
May 9,000
August 7,000
December 5,000
------
1998 Total 31,000
Assume on or before May 1, 1999, Buyer has not paid Seller
the Deficit Tonnage Penalty of $[xxx] (70,000 - 31,000 = 39,000
X $[xxx] = $[xxx]), and as a result thereof Seller terminates
the Agreement under Section 1.05, Clause (d). Then in such event
Buyer shall pay Seller Cover Damages in the amount of
$[xxx], calculated as follows:
1998 CD = [(110,000 X 365 days/365 days) - 31,000] X $[xxx] = $[xxx]
1999 CD = [(110,000 X 365 days/365 days) - 0] X $[xxx] = $[xxx]
2000 CD = [(110,000 X 365 days/365 days) - 0] X $[xxx] = $[xxx]
2001 CD = [(110,000 X 365 days/365 days) - 0] X $[xxx] = $[xxx]
2002 CD = [(110,000 X 349 days/365 days) - 0] X $[xxx] = $[xxx]
-------------
Total Cover Damages Due Seller on or before May 1, 1999 = $[xxx]
Example No. 2:
Assume under provisions of Section 1.05 Clause (b), Buyer
has, effective April 1, 1999, elected to repower the Station to
use the natural gas, and such election is on a permanent basis
for the remaining term of the Agreement. Further, assume during
the months of January 1999 through March 1999, Buyer has
purchased 10,000 tons of coal. Then in such event, Buyer shall
pay Seller Cover Damages in the amount of $[xxx],
calculated as follows:
1999 CD = [(110,000 X 275 days/365 days) - 10,000] X $[xxx] = $[xxx]
2000 CD = [(110,000 X 365 days/365 days) - 0] X $[xxx] = $[xxx]
2001 CD = [(110,000 X 365 days/365 days) - 0] X $[xxx] = $[xxx]
2002 CD = [(110,000 X 349 days/365 days) - 0] X $[xxx] = $[xxx]
-------------
Total Cover Damages due Seller on or before May 1, 1999 = $[xxx]
33
- ---------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 1
[NSC-____-8584]
NORFOLK SOUTHERN RAILWAY COMPANY
ISSUED: June 23, 1997 EFFECTIVE: August 25, 1997
<PAGE> 2
EXHIBIT 10.41
C O N F I D E N T I A L
RAILROAD TRANSPORTATION CONTRACT
This Railroad Transportation Contract (this "Contract"), is
made pursuant to 49 U.S.C. Section 10709, as of June 23,1997,
by and between COGENTRIX OF NORTH CAROLINA, INC. ("Industry"),
having a business address at 9405 Arrowpoint Boulevard,
Charlotte, NC 28273-8110 and NORFOLK SOUTHERN RAILWAY
COMPANY. and its subsidiary railroads ("Carrier"), having a
business address at 110 Franklin Road, Roanoke, VA 24042-0026.
1. Effective Date.
This Contract shall take effect on August 25, 1997
(the "Effective Date").
2. Term.
This Contract will be effective from the Effective Date and
shall expire at midnight on December 15, 2002. Notwithstanding
the foregoing, Industry and Carrier acknowledge and agree that,
pursuant to the Power Purchase Agreement (the "PPA") between
Industry and Carolina Power & Light Company ("CP&L") relating to
Industry's cogeneration facility in Roxboro, NC (the "Facility"),
CP&L has the right to reject this Contract and enter into a
replacement contract for the transportation of coal to the
Facility. Accordingly, and notwithstanding anything contained
herein to the contrary, in the event CP&L exercises its right to
reject this Contract and enter into a replacement contract for
the transportation of coal to the Facility pursuant to the PPA,
then this Agreement shall terminate automatically on December 31,
1997 and thereafter be of no further force and effect. Industry
agrees to notify Carrier of CP&L's decision promptly after
receipt of notice thereof from CP&L, but in no event later than
December 31, 1997.
3. Commodity, Origins Destination, Rates and Car Type.
Carrier, acting solely as a contract carrier, agrees to
transport the Commodity from the Origins to Industry's off-
loading facility at the Destination via Carrier routes and at the
Yearly Rates specified below:
A. Commodity: Coal, STCC 11 212 90, to be
consumed at Destination.
B. Route: Carrier-Direct.
C. Car Type: Carrier-Supplied open Top Hopper Cars.
D. Destination: Industry's Facility in Roxboro, NC.
<PAGE> 3
<TABLE>
E. Origins and Rates (See Notes 1-2 below):
<CAPTION>
Origin
District CY 1997 CY 1998 CY 1999 CY 2000 CY 2001 CY 2002
- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kenova $[xxx] $[xxx] $[xxx] $[xxx] $[xxx] $[xxx]
Thacker $[xxx] $[xxx] $[xxx] $[xxx] $[xxx] $[xxx]
<FN>
Notes:
<F1>
1. "CY" shall refer to each calendar year or portion thereof
during the term of this Contract.
<F2>
2. Rates shown are in dollars per net ton (2,000 pounds avoirdupois).
</FN>
</TABLE>
3. Minimum Percentage.
During each calendar year, or portion thereof, during the
term of this Contract (each such period, a "Contract Period"),
Industry agrees to ship, pursuant to this Contract, at least 65%
of Industry's entire receipts of coal at Industry's Facility
located in Roxboro, North Carolina. Surpluses in Contract
Periods may not be credited against deficits in other Contract
Periods. Shipments of coal by other transportation modes during
periods of force majeure, which prevent Carrier from delivering
to Industry a supply of coal, shall not be included in the
computation of the minimum percentage hereunder. Other than with
respect to the percentage requirement set forth above, Carrier
acknowledges and agrees that Industry shall not be obligated to
ship any minimum amount of coal pursuant to this Contract.
If Industry fails to meet the percentage provision during a
Contract Period, Industry agrees to pay a deficit charge to
Carrier. This charge will be computed by multiplying the tonnage
shortfall times one-fourth of the applicable rate (as set forth
in Section 3.E. above) in effect on the last day of the
applicable Contract Period. Industry shall pay this amount to
Carrier within sixty (60) days after the end of the applicable
Contract Period.
4. Force Majeure.
If because of force majeure, shipments cannot be made or
transportation cannot be provided pursuant to this Contract
during a Contract Period, and if the affected party promptly
gives the other party written notice of such force majeure, then
the volume obligation contained in Section 4 shall be adjusted
to the extent made necessary by such force majeure, provided,
however, that the disabling effect of the force majeure shall be
eliminated by the affected party as soon as and to the extent
reasonably possible. Shipments that are delayed as a result of
force majeure but are, or can be, shipped later during the
Contract Period shall not result in any volume adjustment.
2
- --------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 4
The term force majeure, as used herein, shall mean any cause
which is not reasonably within the control of a party, and the
adverse effects of which are not due to the fault or negligence
of said party. Force majeure shall include, but not be limited
to, Acts of God, riot, insurrection, war, fire, flood, explosion,
labor dispute, orders or acts of military or civil authority,
mechanical breakdown of equipment vital to the loading or
unloading operation and acts or disabilities of Carrier including
derailment, and inability to obtain governmental permits or
approvals required by law and necessary to the transporting,
storing or handling of coal.
The party claiming force majeure shall, within five (5)
business days after it learns of the existence of a force majeure
condition, notify the other party hereto of said condition, and
will similarly notify the other party within two (2) business
days of the termination or expiration of each such force majeure
condition.
5. Verification.
Within thirty (30) days after the end of each Contract
Period, Industry shall send a certified statement to Carrier that
must include the following:
(i) the total number of tons of coal which Industry
actually received by all transportation modes from all
originating points (whether an Origin listed under this
Contract or otherwise) at Industry's Facility at
Roxboro, NC, as adjusted in accordance with Section 3
and 4 of this Agreement;
(ii) the number of tons of coal which Industry shipped
under this Contract; and
(iii) the amount of coal shipped under this Contract,
expressed as a percentage of the total amount of coal
received at Industry's Facility in Roxboro, NC.
Industry agrees to allow carrier to inspect the records of
Industry to verify compliance with the percentage provision.
Industry will allow Carrier one (1) year from the last day of the
appropriate Contract Period to make such inspection and such
inspection shall be binding on the parties unless Industry
disputes the results of such inspection by extending a written
notice to Carrier within thirty (30) days from receipt of
inspection results. Upon such dispute, Industry may select a
third party, mutually satisfactory to the parties hereto, to make
an additional inspection at Industry's sole expense. If Carrier
and Industry are still in disagreement after receiving the report
of the third party, the disagreement shall be resolved under the
Commercial Arbitration Rules of the American Arbitration
Association.
6. Incorporation of Tariffs, Rules, Etc.
Shipments of Commodity moving under the terms of this
Contract are subject to all government, AAR and carrier rules,
including NS Conditions of Carriage No. 2, which is attached
hereto and incorporated herein as Exhibit A, that would apply if
3
<PAGE> 5
this Contract were not in effect; provided, however, that where
any such rule conflicts with the provisions of this Contract, the
provisions of this Contract shall control and govern.
7. Car Supply.
Carrier does not guarantee car supply, but will furnish cars
in accordance with the common carrier standard.
8. Agent.
In the event that Industry does not ship to itself from
Origins to Destination, and strictly for purposes of this
Contract, any third party performing any obligation of Industry
under this Contract is considered as its agent.
9. Confidentiality.
The parties shall not disclose the terms of this Contract to
a third party without the prior written consent of the other
party except: (1) as required by law or regulations, (2) as
required or permitted by AAR Rule, (3) to an inspection bureau,
(4) to a parent, subsidiary, affiliated company, (5) to CP&L in
connection with its right to approve this contract under the PPA,
or (6) to any other entity to the extent such disclosure may be
required in connection with any financing or proposed financing
of any of Industry's facilities.
10. Restrictions.
A. No transit, diversion, or reconsignment privileges
are granted.
B. This contract may not be used in connection with a
prior or subsequent rail movement of the Commodity without the
written consent of Carrier, except if otherwise provided herein.
C. Any notices given under this Contract must be in
writing and shall be deemed to be given when posted by U.S. Mail
properly addressed to the other party hereto at the address of
such party as set forth in the preamble of this Contract.
D. The parties rely on the individual credit of each
other by entering into this Contract which may not be transferred
or assigned without the written permission of the other
party(ies) hereto. Subject to the foregoing, this Contract will
inure to the assignees and successors of the parties.
E. The failure of a party to enforce any provision of
this Contract or to prosecute any default will not be considered
as a waiver of that provision or bar to prosecution of that
default unless so indicated in writing.
4
<PAGE> 6
11. Governing Law.
This Contract shall be governed by and construed in
accordance with the laws of the state of North Carolina to the
extent not governed by and construed in accordance with Federal
Law.
12. Consent and Agreement.
If requested by Industry in connection with the financing
arrangements relating to the Facility, Carrier agrees to execute
a "Consent and Agreement" subsequent to the execution of this
Agreement in a form mutually satisfactory to the parties hereto.
13. Entire Understanding and Execution.
This Contract constitutes the entire understanding of the
parties and may not be modified without the written consent of
both parties. It has been executed by the authorized officials
of the parties on the date shown above.
5
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Contract to be executed by their duly authorized representatives
as of the day and year first above written.
COGENTRIX OF NORTH CAROLINA, INC.
By: /s/ Ronald A. Munse
Title: Vice President, Fuels & Transportation
NORFOLK SOUTHERN RAILWAY COMPANY
By: /s/ Mark H. Bower
Title: Assistant Vice President, Export and
Metallurgical Coal Marketing
6
<PAGE> 8
EXHIBIT A
See "NS Conditions of Carriage No. 2" attached hereto.
<PAGE> 9
NORFOLK SOUTHERN RAILWAY COMPANY
NS CONDITIONS OF CARRIAGE # 2
COAL, COKE and IRON ORE
Effective February 20, 1996
Issued By:
Coal Marketing Department
Norfolk Southern Corporation
110 Franklin Road, S. E.
Roanoke, Virginia 24042-0026
Page 1
<PAGE> 10
NS CONDITIONS OF CARRIAGE FOR COAL, COKE AND IRON ORE
CONDITION 1 -- SUBSIDIARIES AND AFFILIATED CARRIERS
These conditions apply to Norfolk Southern and the
subsidiaries and affiliated carriers listed here. References to
"NS" include the listed carriers:
Norfolk Southern Railway Company
Alabama Great Southern Railroad Company, The
Atlantic and East Carolina Railway Company
Camp Lejeune Railroad Company
Chesapeake Western Railway
Cincinnati, New Orleans and Texas Pacific Railway Company, The
Central of Georgia Railroad Company, The
Georgia Southern and Florida Railway Company
Norfolk and Western Railway Company
State University Railroad Company
Tennessee, Alabama & Georgia Railway Company
Tennessee Railway Company
CONDITION 5 -- GENERAL APPLICATION
These Conditions apply to the transportation in interstate
and intrastate commerce of coal, coke and iron ore on NS by NS.
If a movement is covered by a bilateral transportation contract
that incorporates these Conditions, either specifically or by
general incorporation, then these Conditions will apply to that
movement. Specific quotations and tariffs constitute unilateral
offerings of rates and terms, including these Conditions, for the
movement of coal, coke and iron ore on NS whether NS is the
origin carrier or is a connecting carrier in a joint single
factor rate.
However, if there are provisions in an applicable contract,
tariff or quotation that are inconsistent with the terms of these
Conditions, the terms of the applicable contract, tariff or
quotation shall govern.
CONDITION 10 -- APPLICATION OF REFERENCED TARIFFS AND PUBLICATIONS
These Conditions incorporate and include the provisions of
the following tariffs and
Page 2
<PAGE> 11
publications (and their successor publications):
Open and Prepay Station List OPSL 6000-Series
Standard Transportation Commodity Code STCC 6001-Series
Official Railway Equipment Register RER 6412-Series
NS Mileage RPS 6301-Series
Uniform Freight Committee UFC 6000-Series
NS Switching NS 8001
Demurrage Rules and Charges -- RPS 6004-Series and RPS 6008-Series
Weighing and Reweighing NS 9790-Series
Storage and Reshipment - NS Tariff - 4219-A
Diversion and Reconsignment - NS Tariff - 9037-I
Rules and Regulations - NS Tariff - 9219-B
CONDITION 15 -- ABSORPTION OF CONNECTING LINES SWITCHING CHARGES
Rates incorporating these Conditions will include full
absorption by NS of reciprocal switching charges of switch
carriers connecting with NS.
CONDITION 20 -- BILL OF LADING
Transportation by NS under these Conditions shall be subject
to the terms of the Uniform Bill of Lading as contained in the
Uniform Freight Classification UFC 6000-Series, as modified from
time to time.
CONDITION 25 -- LOADING
The consignor/shipper shall load tendered rail cars to full
visible capacity unless NS advises otherwise, shall load in
accordance with the provisions of any applicable contract,
quotation or tariff, and shall notify NS when the cars are
loaded.
CONDITION 30 -- TRANSPORTATION
NS will arrange for reasonable transportation and delivery
in accordance with instructions shown on the Bill of Lading and
other conditions mutually agreed upon by the parties. Separate
services not covered by the Bill of Lading or applicable contract
must be arranged for separately with NS by the consignor or
consignee.
CONDITION 35 -- UNLOADING
Upon arrival and placement of rail cars for unloading at
destination, the consignee will be responsible for unloading cars
in a manner that does not damage equipment and for releasing cars
in a condition suitable for reloading by another shipper. If
consignee fails to remove all lading or
Page 3
<PAGE> 12
other material from a car, the car shall not be considered as
released and shall remain on applicable demurrage or detention
until consignee releases the car in clean condition. If a car is
not properly cleaned, but is released and removed, then the
railroad discovering such failure may undertake to remedy such
failure and the consignee will be responsible for reimbursement
to the railroad for the cost, including associated switching.
In order for cars to be released, consignee must advise the
agent of the delivering railroad by telephone, or by fax on a
mutually agreed form, that the cars are unloaded and available.
Consignee must provide the name of the person furnishing the car
initials and numbers.
CONDITION 40 -- APPLICABLE TRANSPORTATION CHARGES
The charges applicable to the transportation from origin to
destination will be those contained in the applicable contract,
tariff or quotation in effect on the shipping date, as reflected
on the Bill of Lading.
CONDITION 45 -- PAYMENT AND CREDIT
The shipper or consignee holding the applicable contract or
shipping under a tariff or quotation shall be liable to NS for
payment of the transportation charges applying on a shipment
delivered by NS. If credit is established by NS for the party
responsible for payment, the credit period shall be 15 days from
delivery of the shipments, unless otherwise agreed by the
parties. If no approved credit has been established and the
charges have not been prepaid, NS may require payment, or
guarantee of payment, before making delivery.
Placement of cars by NS under a credit agreement shall be
deemed acceptance of the shipment. Acceptance of the shipment
shall be deemed acceptance of responsibility for payment of all
charges occurring on the shipment, including detention and
switching services performed at destination. All payments shall
be in U.S. money and will not be reduced to offset claims,
damages to property, or for other reasons.
CONDITION 50 -- CARRIER LIABILITY FOR LOSS OR DAMAGE TO LADING
NS will assume liability for loss and damage under the terms
of 49 USC 11706 and the terms of the Uniform Bill of Lading,
provided that where provisions maintained by other railroads in
the through route differ, then the rules of the origin carrier
will apply.
<PAGE> 1
EXHIBIT 10.43
[CSXT-C-67123]
RAILROAD TRANSPORTATION CONTRACT
BETWEEN
CSX TRANSPORTATION, INC.
AND
COGENTRIX OF NORTH CAROLINA, INC.
ISSUED JUNE 30, 1997 EFFECTIVE AUGUST, 1997
<PAGE> 2
RAILROAD TRANSPORTATION CONTRACT
THIS RAILROAD TRANSPORTATION CONTRACT [CSXT-C-67123] (this
"Contract"), dated as of June 30, 1997, is by and among COGENTRIX
OF NORTH CAROLINA, INC. ("Industry"), and CSX TRANSPORTATION,
INC. ("Carrier").
1. EFFECTIVE DATE: This Contract will be effective (the
"Effective Date") on August 5, 1997. This Contract shall be
pursuant to the provisions of 49 U.S.C. Section 10709.
2. TERM: The term of this Contract is from the Effective
Date through December 15, 2002. Such term is subdivided into six
(6) separate, consecutive, independent periods, the first of
which consists of the period commencing with the Effective Date
and continuing through December 31, 1997, and the next four (4)
of which consist of each calendar year thereafter and the final
of which shall be from January 1, 2002 through December 15, 2002.
Each such period is hereinafter referred to as a "Contract
Period."
Notwithstanding the foregoing, Industry and Carrier
acknowledge and agree that, pursuant to the Power Purchase
Agreement between Industry and Carolina Power & Light Company
("CP&L") relating to Industry's cogeneration facility in
Southport, NC (the "Plant"), CP&L has the right to reject this
Contract and enter into a replacement contract for the
transportation of Commodity to the Plant. Accordingly, and
notwithstanding anything contained herein to the contrary, in the
event CP&L exercises its right to reject this Contract and enter
into a replacement contract for the transportation of Commodity
to the Plant pursuant to the PPA, then this Contract shall
terminate automatically on December 31, 1997 and thereafter be of
no further force and effect. Buyer agrees to notify Seller of
CP&L's decision promptly after receipt of notice thereof from
CP&L, but in no event later than September 10, 1997.
3. TRANSPORTATION PARTICULARS: Carrier, acting solely as
a contract carrier, agrees to transport Commodity from Origins to
Destination in accordance with the Transportation Particulars
specified below:
COMMODITY AND Steam Coal, in Carrier-Supplied, Open Top
CAR TYPE: Hopper Cars
STCC No.: 11-212-90
ROUTE AND CSXT direct to Leland, NC (for subsequent movement
DESTINATION: in Carrier-Supplied Open Top Hopper Cars via military
railroad to Industry's Plant at Southport, NC).
<PAGE> 3
<TABLE>
ORIGINS AND RATES:
-------------------- Rates -------------------------
<CAPTION>
Origin District Train (75-Car) Volume (40-Cars) Single Car
- -------------- -------------- ---------------- ----------
<S> <C> <C> <C>
Big Sandy $[xxx]/NT $[xxx]/NT $[xxx]/NT
Jellico-Middlesboro $[xxx]/NT $[xxx]/NT $[xxx]/NT
Hazard $[xxx]/NT $[xxx]/NT $[xxx]/NT
Kanawha $[xxx]/NT $[xxx]/NT $[xxx]/NT
<FN>
Notes:
<F1>
- Origins are as defined in Tariff CSXT 8200-Series.
<F2>
- Rates shown are in dollars per net ton of 2,000 lbs. subject
to increases in Paragraph 7.
<F3>
- Volume Incentive: If more than 100,000 tons of coal are
shipped in any Contract Period, Carrier will refund $[xxx] NT
on all tons shipped during such Contract Period. Such
amount shall be due within thirty (30) days after the
receipt of the verification certificate referred to in
Paragraph 7 hereof.
<F4>
- Weighing: The charge for one weighing of each carload of
Commodity moving under this Contract is included in the
Rates provided in this Paragraph 3. Weights shall be
ascertained at the point of origin, or as near thereto as
practicable. All other provisions of Tariff CSXT 8200-
Series, as amended or superseded will govern. Any
additional weighing will be at the expense of Industry,
subject to the same charge applicable if the shipment had
remained under common carriage.
<F5>
- Rates in Case of Automatic Termination. Notwithstanding
anything contained in this Contract to the contrary, if this
Contract is automatically terminated effective as of
December 31, 1997 as contemplated in the second paragraph of
Section 2, then, for the period from the Effective Date
through December 31, 1997, the Rates set forth above shall
each be increased by $[xxx]/NT for each ton of Commodity
shipped during such period. Such amount shall be due on
January 31, 1998. This increase in rates takes into account
the fact that the rates being charged by Carrier to Industry
under their Railroad Transportation Contract in effect
immediately prior to execution of this Contract are greater
than the Rates set forth above.
</FN>
</TABLE>
4. MINIMUM WEIGHT PER CAR: Minimum weight per car shall
be the marked capacity of car unless car is loaded to full
visible or cubical capacity and Industry or its agent so
certifies on shipping order or Bill of Lading. In that event,
actual weight shall apply.
5. MINIMUM PERCENTAGE: During each Contract Period,
Industry agrees to ship, pursuant to this contract, at least 95%
of Industry's entire shipments of Commodity transported by all
transportation modes from all originating points (whether an
Origin listed under this Contract or otherwise), to Industry's
Plant located at Southport, NC. Other than with respect to the
2
- ----------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 4
percentage requirement set forth above, Carrier acknowledges and
agrees that Industry shall not be obligated to ship any minimum
amount of coal pursuant to this Contract.
Surplus Contract Periods may not be credited against deficit
Contract Periods. Purchases of Commodity by Industry shipped by
other transportation modes during periods of Force Majeure (as
defined herein) which prevent Carrier from delivering to Industry
a supply of Commodity shall not be included in the computation of
the minimum percentage hereunder.
If Industry fails to meet the percentage provision during a
Contract Period, Industry agrees to pay liquidated damages
("Liquidated Damages") to the Carrier in an amount equal to $[xxx]
per ton multiplied by the difference between: (a) the tons of
Commodity that should have been tendered pursuant to this
Contract to comply with the percentage provision, and (b) the
tons that were actually tendered pursuant to this Contract. Such
Liquidated Damages shall be the exclusive remedy of the Carrier
if Industry fails to meet such required percentage.
6. RESTRUCTURING EVENT. If at the end of any Contract
Period, Industry shall have failed, solely due to a Restructuring
Event (as defined below), to ship through Carrier the Expected
Level (as defined below) for that Contract Period, Industry shall
pay to Carrier a Restructuring Fee (as defined below). For
purposes of this Section 6: (a) a "Restructuring Event" shall
include (i) any buy-down of capacity, buy-out, or voluntary
termination of the Power Purchase Agreement between Industry and
CP&L (the "Power Agreement"), (ii) any modification to the Power
Agreement intended to reduce the quantity of energy expected to
be sold to CP&L thereunder and (iii) any sale, lease or transfer
of the Plant to any third party which does not also assume the
obligations of Industry under this Contract, and (b) "Expected
Levels" shall be 18,000 tons of Commodity during the first
Contract Period and 60,000 tons of Commodity during each of the
remaining five (5) Contract Periods. No more than one
Restructuring Fee may be payable hereunder and the Restructuring
Fee, if any, to be paid by Industry to Carrier shall depend on
the Contract Period during which the Restructuring Event
occurred, as follows:
<TABLE>
<CAPTION>
Contract Period Restructuring Fees
--------------- ------------------
<S> <C> <C>
1 August 5, 1997 - December 31, 1997 $[xxx]
2 January 1, 1998 - December 31, 1998 [xxx]
3 January 1, 1999 - December 31, 1999 [xxx]
4 January 1, 2000 - December 31, 2000 [xxx]
5 January 1, 2001 - December 31, 2001 [xxx]
6 January 1, 2002 - December 15, 2002 [xxx]
</TABLE>
The provisions of this Section 6 contain the exclusive
remedy of Carrier with respect to a Restructuring Event.
7. VERIFICATION: Industry agrees that, within thirty (30)
days after the end of each Contract Period, Industry shall send a
written certificate to Carrier that must include the following:
3
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 5
(i) the total number of tons of Commodity which Industry
actually shipped by all transportation modes from all
originating points, (whether an Origin listed under
this Contract or otherwise), to Industry's Plant at
Southport, NC.
(ii) the number of tons of Commodity which Industry shipped
under this Contract;
(iii) the amount of coal shipped under this Contract,
expressed as a percentage of the total amount of coal
received at Industry's Plant in Southport, NC; and
(iv) whether the percentage provision of this Contract was
met.
Such certificate shall be sent to:
CSX Transportation
Director - Non-Utility Generation
500 Water St. - J842
Jacksonville, FL 32202
Industry agrees to allow Carrier or Carrier's inspection
bureau to inspect the relevant records of Industry to verify
compliance with the percentage provision. Industry will allow
Carrier or inspection bureau one (1) year from the last day of
the appropriate Contract Period to make such inspection and such
inspection shall be binding on the parties unless Industry
disputes the results of such inspection by extending a written
notice to Carrier within thirty (30) days from receipt of
inspection results. Upon such dispute, Industry may select a
third party, mutually satisfactory to the parties hereto, to make
an additional inspection at Industry's sole expense. If Carrier
and Industry are still in disagreement after receiving the report
of the third party, the disagreement shall be resolved under the
Commercial Arbitration Rules of the American Arbitration
Association. Any additional payment due from Industry to Carrier
as a result of any final adjustments will be paid by Industry
within thirty (30) days of the date of Carrier's adjustment bill
or the date of decision, as the case may be.
8. INCREASE IN RATES: The Rates contained in this
Contract shall be increased by two and one-half percent (2.5%) on
January 1, 1999, and by an additional two and one-half percent
(2.5%) each January 1 thereafter during the term of this
Contract.
9. CONTROL OF ROUTING AND PAYMENT: Industry represents to
Carrier that it controls the routing of the Commodity. Payment
of all rates and charges must be received by Carrier from
Industry within fifteen (15) days of the date of each bill.
Carrier may cancel these credit provisions at any time. Industry
may not credit or withhold any payment due under this Contract as
a setoff in any dispute with Carrier.
10. BILL OF LADING: The nonconflicting provisions of the
Uniform Straight Bill of Lading ("Bill of Lading"), are
incorporated herein by reference. Industry will add the
following to each Bill of Lading:
4
<PAGE> 6
"Subject to Contract CSXT - C - 67123."
11.. DEMURRAGE: Demurrage rules and charges contained in
Tariff CSXT 8100 will govern shipments under this Contract
except: (A) five (5) credits will be allowed for each open-top
hopper car released from unloading during the months of April
through December, and (B) six (6) credits will be allowed for
each open-top hopper car released from unloading during the
months of January, February or March. Demurrage debits and
credits will be computed from the first 12:01 a.m. after proper
notification that car(s) is/are available for movement beyond
Leland, NC to Industry's Plant at Southport, NC.
Movement between the CSXT siding at Leland, North Carolina
and Industry's Plant at Southport is provided outside the scope
of this Contract by the U. S. Military Railroad at Sunny Point
Military Base.
Cars will be considered released when made empty and
properly placed for pick-up by the U. S. Military Railroad at
Sunny Point, North Carolina and telefax notification or telephone
notification, confirmed by telefax notification has been sent to
the railroad office responsible for maintaining records on the
involved movement. The railroad office responsible for this move
is currently located at Leland, North Carolina. Railroad shall
be responsible for notifying Industry if the address of the
railroad office is changed. Notice that cars are ready for
release must include identity of consignee, party furnishing
data, car initial and number.
Cars will not be charged demurrage debits nor earn credits
for days during conditions of force majeure as described in
Paragraph 18.
The provisions of this Section 11 apply only on coal moving
pursuant to this Contract.
12. INCORPORATION OF TARIFFS, RULES, ETC.: This Contract
incorporates herein by reference all tariffs (i.e. other service
terms), statutes and regulations that would apply to the
transportation of Commodity as contemplated hereunder if this
Contract did not exist as of the date of shipment tender;
provided, however, that, the express provisions of this Contract
shall control in the event of any conflict or inconsistency with
the provisions of any such tariff, statute or regulation.
13. DAMAGE CLAIMS: Any claims for loss, damage or delay to
Commodity shipments shall be governed by the same provisions
contained in 49 USC Section 11706 and 49 CFR Section 1005.
14. CAR SUPPLY: Carrier does not guarantee car supply, but
will furnish cars in accordance with the common carrier standard.
15. AGENT: In the event that Industry does not ship to
itself from Origins to Destination, and strictly for purposes of
this Contract, any third party performing any obligation of
Industry under this Contract is considered as its agent.
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<PAGE> 7
16. CONFIDENTIALITY: The provisions of this Contract are
considered confidential and the parties shall not disclose the
terms of this Contract to a third party without the prior written
consent of the other party except: (A) as required by statute,
regulation or court order, (B) to a parent, subsidiary or
affiliated company, (C) to CP&L, (D) to Industry's lender(s) in
connection with any financing relating to the Plant, or (E) to a
party's legal advisors or to an auditing firm that is agreeable
to the confidentiality provisions. Notwithstanding the
foregoing, the terms of this Contract may be disclosed as
follows: (a) as required by statute or regulation; (b) as
required by court order, provided that the non-disclosing party
shall first be given written notice of such required disclosure
and the opportunity to object thereto in legal or equitable
proceedings; (c) to a parent, subsidiary or affiliated company of
the disclosing party, provided that the party receiving the
confidential information shall first have been instructed to
treat the information confidentially and not disclose it to any
third party; (d) to Industry's lender(s) in connection with any
financing relating to the Plant, in accordance with any
applicable confidentiality provisions of the loan agreement(s)
between Industry and lender(s); and (e) to CP&L, provided that
CP&L shall have first agreed in writing to treat the information
confidentially and not disclose it to any third party. This
Section 16 shall survive termination of this Contract for any
reason.
17. RESTRICTIONS:
(A) No transit, diversion or reconsignment privileges are
granted except if rail service beyond Leland, NC becomes
restricted or ceases to exist, shipments en route on Carrier's
lines may be diverted or reconsigned subject to rules and charges
governing common carriage shipments from Origins to Destination
or substitute destination. The administrative charge for such
diversion or reconsigning shall be $[xxx] per trainload, as defined
in Paragraph 3, in lieu of the otherwise applicable charge
published in the Diversion and Reconsignment Tariff.
(B) Industry recognizes that Carrier may abandon trackage
or service to Origin or Destination during the term of this
Contract. If the Destination is abandoned, this Contract will
automatically terminate at the time of abandonment, without
liability to any party, and the percentage provisions of
Paragraph 5 will be prorated as of that date. If a particular
Origin is abandoned, that particular Origin is automatically
deleted from this Contract at the time of abandonment without
liability to any party, but the remainder of the Contract will
continue in full force and effect.
(C) This Contract may not be used in connection with a
prior or subsequent rail movement of the Commodity without the
written consent of Carrier, except if otherwise provided herein.
(D) Any notice given under this Contract must be in writing
and sent by either: (1) U.S. certified, registered or express
mail; (b) wire, or (3) private express carrier and sent to the
appropriate address shown below:
6
- ---------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 8
To Carrier: CSX Transportation
Director - Non-Utilitiy Generation
500 Water St. - J842
Jacksonville, FL 32202
To Industry: General Counsel
Cogentrix of North Carolina, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273
(E) The parties rely on the individual credit of each other
by entering into this Contract which may not be transferred or
assigned without the written permission of the other party(ies)
hereto. Subject to the foregoing, this Contract will inure to
the assignees and successors of the parties.
(F) The failure of a party to enforce any provision of this
Contract or to prosecute any default will not be considered as a
waiver of that provision or a bar to prosecution of that default
unless so indicated in writing.
18. FORCE MAJEURE: A party shall be excused from
performance of its contractual obligations to the extent it is
prevented or delayed in such performance by a cause or condition
which is not reasonably within the control of such party, and the
adverse effects of which are not due to the fault or negligence
of such party (such cause or condition being hereinafter referred
to as "Force Majeure"). Force Majeure shall include, but shall
not be limited to, acts of God; acts of public enemy;
insurrection; riots; labor disputes; strikes; fires; explosions;
floods; breakdown or damage to mines, plants or Carrier's
facilities necessary to load, unload or transport coal;
embargoes; orders or acts of civil or military authorities; and
inability to obtain governmental permits or approvals required by
law and necessary to the transporting, storing or handling of
coal. Upon the termination of such period of Force Majeure, the
obligations hereunder shall resume as if no such event had
occurred.
The parties recognize that the foregoing list of Force
Majeure conditions is not all inclusive. Specific conditions not
listed herein may be brought to the attention of the other
parties for clarification. The parties agree to consider such
conditions in good faith and in the context of the Force Majeure
conditions that are specified, but are not bound to agree to any
condition not specifically listed herein.
The party claiming Force Majeure will: within five (5) days
from the date of disability, excluding Saturdays, Sundays and
holidays, notify the others when it learns of the existence of a
Force Majeure condition and will similarly notify the others
within a period of two (2) days, excluding weekends and holidays,
when the Force Majeure has ended.
19. GOVERNING LAW: This Contract shall be governed by and
construed in accordance with the laws of the State of North
Carolina to the extent not governed by and construed in
accordance with Federal Law.
7
<PAGE> 9
20. ARBITRATION. Any dispute arising out of or relating to
this Contract or the breach, termination or validity thereof
shall be settled through binding arbitration in accordance with
the American Arbitration Association ("AAA") Commercial
Arbitration Rules by three independent and impartial arbitrators.
The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Section 1-16, and any judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Atlanta, Georgia.
The parties reserve the right to enter an appropriate
consent protective order to govern documents, testimony,
information or other items produced or inspected in discovery or
otherwise made available in connection with any arbitration
hereunder. The parties hereby agree that the following
information shall not be subject to discovery absent a specific
showing of relevance and an order by the arbitration panel: (i)
information relating to Carrier's contracts with other utility or
non-utility generators; (ii) information relating to Industry's
transportation contracts with providers other than Carrier; (iii)
information contained in any Power Purchaser Agreement or Power
Sale Agreement between Industry and any third party which does
not concern the Plant; (iv) information relating to each party's
cost structure, contribution or profits under this Contract.
Notwithstanding the parties' agreement to arbitrate
disputes, each party may seek injunctive or other equitable
relief to enforce its rights under this Contract.
21. CONSENT AND ASSIGNMENT: If requested by Industry in
connection with the financing arrangements relating to the Plant,
Carrier agrees to execute a "Consent and Agreement" subsequent to
the execution of this Agreement in a form mutually satisfactory
to the parties hereto.
22. ENTIRE UNDERSTANDING AND EXECUTION: This Contract
represents the entire understanding of the parties and may not be
modified without the written consent of all parties.
23. SURVIVAL. The terms and provisions of this Contract
that expressly by their terms survive the completion of
performance and termination of this Contract shall so survive.
The obligation to pay any amounts due under this Contract at the
time of any termination shall survive such termination.
24. MISCELLANEOUS.
(a) The section headings in this Contract are intended
to be for reference purposes only and shall in no way modify
or restrict any of the terms or provisions hereof.
(b) All rights and remedies conferred under this
Contract or by any other instrument or law shall be
cumulative (except as otherwise provided herein) and may be
exercised singularly or concurrently.
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<PAGE> 10
(c) If any provision of this Contract shall be held to
be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall in no
way be affected or impaired thereby.
(d) This Contract may be executed in any number of
counterparts, each of which shall be deemed an original, but
all such counterparts together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Contract to be executed by their duly authorized representatives
as of the day and year first above written.
COGENTRIX OF NORTH CAROLINA, INC.
By: /s/ James R. Pagano
Title: Group Senior Vice President
CSX TRANSPORTATION, INC.
By: /s/ Thomas R. Howard
Title: Assistant Vice President -
Energy/Industrial
<PAGE> 1
EXHIBIT 10.47(d)
AMENDMENT 7 TO CONTRACT CSXT-C-03951
SUBJECT TO 49 USC Section 10709 AND 49 CFR Section 1313.3(c)
COGENTRIX OF ROCKY MOUNT, INC. ("Industry") and CSX
TRANSPORTATION, INC. ("CSXT") agree to amend the aforementioned
Contract, which has been in effect since October 27, 1989.
1. This Amendment will be effective July 1, 1997.
2. The Contract is modified in the following manner:
(A) Industry and CSXT will use reasonable best efforts to
implement a permanent solution to the grade crossing
blockage concern at Industry's Rocky Mount Cogeneration
Facility.
(B) As a temporary solution, effective on and after July 1,
1997, CSXT will permit Industry to ship seventy-five
(75) car unit trains at the ninety (90) car rate levels
presently applicable in the Contract.
(C) This Seventh Amendment will remain in effect until a more
permanent solution can be implemented, but will terminate
no later than December 31, 1998.
3. All other provisions of the Contract are ratified and
reaffirmed.
COGENTRIX OF ROCKY MOUNT, INC.
By: /s/ Ronald A. Munse
Title: Vice President Fuels and Transportation
CSX TRANSPORTATION, INC.
By: /s/ S. Walters
Title: Director, Non-Utility Generation
<PAGE> 1
EXHIBIT 10.64
GREENHOUSE RESTRUCTURE AMENDMENT
GREENHOUSE RESTRUCTURE AMENDMENT, dated as of March 27, 1997
(this "Amendment") to the following documents:
(i) the LOAN AND REIMBURSEMENT AGREEMENT (as amended,
supplemented or otherwise modified from time to time, the
"Project Loan Agreement"), dated as of May 18, 1994, among (a)
BIRCHWOOD POWER PARTNERS, L.P., a Delaware limited partnership
(the "Borrower"), (b) the several banks parties to the Project
Loan Agreement and identified on the signature pages thereof as a
"Bank" and each other bank or other financial institution which
becomes a party to the Project Loan Agreement pursuant to Section
14.7 thereof (collectively, the "Banks"), (c) JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY, ALLSTATE INSURANCE COMPANY, NEW YORK LIFE
INSURANCE COMPANY, the other financial institutions or
institutional investors parties to the Project Loan Agreement and
identified on the signature pages thereof as an "Institution" and
each other institution which becomes a party to the Project Loan
Agreement pursuant to Section 14.8 thereof (collectively, the
"Institutions"), (d) BANQUE PARIBAS, NEW YORK BRANCH, BARCLAYS
BANK PLC, CREDIT SUISSE FIRST BOSTON and UNION BANK OF
CALIFORNIA, as co-agents for the Banks hereunder (in such
capacity, the "Co-Agents"), (e) CREDIT SUISSE FIRST BOSTON and
CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH, as Issuing Bank (in
such capacity, the "Issuing Bank," and together with the Banks
and the Institutions, the "Lenders") and (f) CREDIT SUISSE FIRST
BOSTON as administrative agent for the Banks and the Issuing Bank
hereunder (in such capacity, the "Administrative Agent");
(ii) the SECURITY DEPOSIT AND INTERCREDITOR AGREEMENT (as
amended, supplemented or otherwise modified from time to time,
the "Security Deposit Agreement"), dated as of May 18, 1994,
among (a) BIRCHWOOD POWER PARTNERS, L.P. (the "Borrower"), a
Delaware limited partnership, (b) BANQUE PARIBAS, NEW YORK
BRANCH, BARCLAYS BANK PLC, CREDIT SUISSE FIRST BOSTON, UNION BANK
OF CALIFORNIA and each other bank or financial institution which
becomes a party as a "Bank" to the Security Deposit Agreement by
executing a Bank Transfer Supplement (as defined therein) in
accordance with Section 9.4 thereof (collectively, the "Banks"),
(c) JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, ALLSTATE
INSURANCE COMPANY, NEW YORK LIFE INSURANCE COMPANY, each of the
other financial institutions or institutional investors parties
to the Security Deposit Agreement and identified on the signature
pages thereof as an "Institution" and each other institution
which becomes a party thereto as an "Institution" by executing an
Institutional Transfer Supplement (as defined therein) in
accordance with Section 9.4 thereof (collectively, the
"Institutions"), (d) CREDIT SUISSE FIRST BOSTON and CREDIT SUISSE
FIRST BOSTON, NEW YORK BRANCH, as Issuing Bank, (e) CREDIT SUISSE
FIRST BOSTON, as Administrative Agent, (f) each of the Banks
parties to the Interest Rate Hedging Agreements (as defined in
the Security Deposit Agreement) and to the Security Deposit
Agreement and identified on the signature pages thereof as a
"Secured Counterparty" and each other Bank that becomes a party
thereto as a "Secured Counterparty" by executing a Security
Deposit Agreement Supplement (as defined therein) in accordance
with Section 9.4 thereof (in such capacity, collectively, the
"Secured Counterparties"), (g) any Bond Trustee (as defined in
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<PAGE> 2
the Security Deposit Agreement) that becomes a party to the
Security Deposit Agreement by executing a Security Deposit
Agreement Supplement in accordance with Section 9.4 thereof (a
"Secured Bond Trustee") and (h) CREDIT SUISSE FIRST BOSTON, as
security agent for the Secured Parties referred to in the
Security Deposit Agreement (in such capacity, the "Security
Agent");
(iii) the LOAN AND CONTRIBUTION AGREEMENT (the "Greenhouse
Loan Agreement") dated as of May 18, 1994, by and between
BIRCHWOOD POWER PARTNERS, L.P., a Delaware limited partnership
(the "Greenhouse Lender") and GREENHOST, INC., a Delaware
corporation (the "Greenhouse Borrower"); and
(iv) the STEAM SALES AGREEMENT dated as of May 18, 1994, by
and between BIRCHWOOD POWER PARTNERS, L.P., a Delaware limited
partnership ("Birchwood"), and GREENHOST, INC., a Delaware
corporation ("Greenhost").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Termination Agreement
dated as of November 8, 1996, Borrower and Dominion Growers of
Fredericksburg, Inc. ("Dominion") have terminated the Sublease
dated May 18, 1994, between Greenhost, Inc., as Sublessor, and
Dominion, as Sublessee;
WHEREAS, the Greenhouse Borrower and the Greenhouse Lender
have entered into the Term Loan and Working Capital Agreement
dated as of November 19, 1996;
WHEREAS, the Project Loan Agreement heretofore has been
amended by (i) that certain First Amendment to Project Loan
Agreement, dated as of July 11, 1994, (ii) that certain Second
Amendment to Project Loan Agreement, dated as of August 12, 1994,
(iii) that certain Third Amendment and Consent to Project Loan
Agreement, dated as of October 1, 1994, (iv) that certain Fourth
Amendment and Consent to Project Loan Agreement, dated as of
December 1, 1994, (v) that certain Fifth Amendment to Project
Loan Agreement, dated as of December 15, 1994, (vi) that certain
Sixth Amendment to Project Loan Agreement, dated as of September
18, 1995, (vii) that certain Seventh Amendment and Consent to
Project Loan Agreement, dated as of November 10, 1995, (viii)
that certain Composite Amendment and Consent to Project Loan
Agreement and Security Deposit Agreement, dated as of April 10,
1996 and (ix) that certain First Amendment to Composite Amendment
and Consent to Project Loan Agreement and Security Deposit
Agreement, dated as of December 18, 1996 (together, the "Project
Loan Agreement Amendments");
WHEREAS, the parties to the Project Loan Agreement have
agreed to amend further the Project Loan Agreement, as set forth
below;
WHEREAS, the Security Deposit Agreement has been amended by
(i) that certain First Amendment to Security Deposit Agreement,
dated as of July 11, 1994, (ii) that certain Second Amendment to
Security Deposit and Intercreditor Agreement, dated as of October
1, 1994, (iii) that certain Third Amendment to Security Deposit
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<PAGE> 3
and Intercreditor Agreement, dated as of December 1, 1994, (iv)
that certain Fourth Amendment to Security Deposit and
Intercreditor Agreement, dated as of November 10, 1995, (v) that
certain Composite Amendment and Consent to Project Loan Agreement
and Security Deposit Agreement, dated as of April 10, 1996 and
(vi) that certain First Amendment to Composite Amendment and
Consent to Project Loan Agreement and Security Deposit Agreement,
dated as of December 18, 1996 (together, the "Security Deposit
Agreement Amendments");
WHEREAS, the parties to the Security Deposit Agreement have
agreed to amend further the Security Deposit Agreement as set
forth below;
WHEREAS, Annex A to both the Project Loan Agreement and the
Security Deposit Agreement ("Annex A") has been amended by (i)
the Project Loan Agreement Amendments, (ii) the Security Deposit
Agreement Amendments and (iii) the Omnibus Amendment to Annex A
(Definitions) of Specified Financing Documents, dated as of
September 18, 1995 (the "Omnibus Amendment");
WHEREAS, the parties hereto have agreed to amend further
Annex A, as set forth below;
WHEREAS, the parties to the Greenhouse Loan Agreement have
agreed to amend the Greenhouse Loan Agreement and Annex A to the
Greenhouse Loan Agreement to reflect the termination of the
Sublease and the entering into of the Term Loan and Working
Capital Agreement, as further set forth below;
WHEREAS, the parties to the Steam Sales Agreement have
agreed to amend the Steam Sales Agreement to reflect the
termination of the Sublease and the entering into of the Term
Loan and Working Capital Agreement, as set forth below; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS.
Unless the context otherwise requires, capitalized terms
used herein but not defined herein shall have the meanings
assigned thereto in the Project Loan Agreement.
II. AMENDMENTS TO THE PROJECT LOAN AGREEMENT
A. Section 7.3(f). Section 7.3(f) of the Project Loan
Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the following:
(f) Prepayments Under Greenhouse Loan Agreement
and New Greenhouse Loan Agreement. If the Greenhouse
Owner shall at any time or from time to time prepay all
or a portion of the loans outstanding under the
Greenhouse Loan Agreement or the New Greenhouse Loan
Agreement, as the case may be, the Borrower shall, on
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<PAGE> 4
the date it obtains knowledge of such prepayment,
provide notice thereof to the Administrative Agent and
the Institutions (the "Greenhouse Prepayment Notice"),
and shall prepay the Bank Loans and/or Institutional
Loans in accordance with this Section 7.3(f) and
Section 7.5 in an amount equal to 85% of the amount of
such prepayment of loans under the Greenhouse Loan
Agreement or the New Greenhouse Loan Agreement, as the
case may be (the "Greenhouse Prepayment Amount"). The
Greenhouse Prepayment Notice shall specify (i) the
Greenhouse Prepayment Amount and (ii) the expected date
of the prepayment of Loans to be made pursuant to this
Section 7.3(f), which shall be the later of (x) the
date of prepayment of loans under the Greenhouse Loan
Agreement or the New Greenhouse Loan Agreement, as the
case may be, and (y) 10 Business Days after the date of
the Greenhouse Prepayment Notice. Upon receipt of any
such Greenhouse Prepayment Notice the Administrative
Agent shall promptly notify the Banks thereof.
Thereafter, and on the date of prepayment specified in
the Greenhouse Prepayment Notice, the Borrower shall
take the actions required by, and apply the proceeds of
such prepayment to the repayment of the Loans in
accordance with, the provisions of Section 7.5.
Prepayments of Loans made pursuant to this Section
7.3(f) shall be applied to the installments of
principal of the Loans in the order that the
corresponding prepayment of loans under the Greenhouse
Loan Agreement or the New Greenhouse Loan Agreement, as
the case may be, is applied to the installments of
principal of such loans thereunder.
B. Section 9.2(m). Section 9.2(m) of the Project Loan
Agreement is hereby amended by deleting the Section in it
entirety and inserting in lieu thereof the following:
(m) Greenhouse Loan and New Greenhouse Loan Agreements. If
all or a portion of the proceeds of such Loan are to be used
by the Borrower to make loans under the Greenhouse Loan
Agreement or the New Greenhouse Loan Agreement, the
Administrative Agent and the Institutions shall have
received a certificate of a Responsible Officer of the
Borrower stating that (i) to the best of his knowledge
(after due inquiry), no event of default under the
Greenhouse Loan Agreement, New Greenhouse Loan Agreement or
Greenhouse Master Lease has occurred and is continuing on
such Borrowing Date, unless such event of default has been
waived by the Borrower with the consent of the
Administrative Agent and the Majority Institutions, and (ii)
all conditions to such loan set forth in the Greenhouse Loan
Agreement or the New Greenhouse Loan Agreement, as the case
may be, (other than the condition that the Borrower obtain a
Loan under this Agreement) have been satisfied, or waived
with the consent of the Administrative Agent and the
Majority Institutions, and such certificate shall be
accompanied by all documents, opinions and certificates
received by the Borrower pursuant to Section 3.4 of the
Greenhouse Loan Agreement and Section 3.5 of the New
Greenhouse Loan Agreement in connection with such borrowing.
C. Section 10.2(c). Section 10.2(c) of the Project Loan
Agreement is hereby amended by deleting the phrase "furnished to
the Greenhouse Owner" and inserting in lieu thereof the word
"prepared".
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<PAGE> 5
D. Section 10.17(b). Section 10.17(b) of the Project Loan
Agreement is hereby amended by deleting the phrase "Greenhouse
Loan Agreement or Section 15.01 of the Greenhouse Sublease" and
inserting in lieu thereof the phrase "Greenhouse Loan Agreement,
the New Greenhouse Loan Agreement or the Greenhouse Master
Lease".
E. Section 10.18. Section 10.18 of the Project Loan
Agreement is hereby amended by deleting the phrase "Section
5.03(b) and (c) of the Greenhouse Sublease" and inserting in lieu
thereof the defined term "Steam Sales Agreement and the
Greenhouse Master Lease." Section 10.18 is hereby further
amended by deleting Section 10.18(b) which begins with the phrase
"the Borrower shall promptly cause funds on deposit" to be
deleted in its entirety and sequentially renumbering the
succeeding clauses as "(b)" and "(c)", respectively and by
deleting from Section 10.18 the sentence which begins with the
phrase "For purposes of this Section 10.18, it is agreed that the
Majority Banks and Majority Institutions" in its entirety.
F. Section 11.5. Section 11.5 of the Project Loan
Agreement is hereby amended by deleting the phrase "with the
proceeds of Loans and Equity Funding Loans" and inserting in lieu
thereof the phrase "and Article 3 of the New Greenhouse Loan
Agreement".
G. Section 11.6. Section 11.6 of the Project Loan
Agreement is hereby amended by inserting the phrase "and the New
Greenhouse Loan Agreement" immediately after the phrase "in
existence on the Closing Date".
H. Section 11.12(a). Section 11.12(a) of the Project Loan
Agreement is hereby amended by deleting the phrase "the
Greenhouse Sublease," the word "and" immediately preceding
Section 11.12(a)(B), and inserting the following immediately
after the phrase "consent under the provisions of Section 11.9":
, and (C) consent to operating agreements, license
agreements or similar arrangements into which the
Greenhouse Owner may enter from time to time which
could not reasonably be expected to cause or result in
a Greenhouse Adverse Change pursuant to Section 10.18
of the Project Loan Agreement or otherwise have a
Material Adverse Effect on the Greenhouse Owner's
ability to perform its obligations under the Steam
Sales Agreement or the Master Lease relating to the
requirement that it take a minimum amount of steam, and
(D) terminate the New Greenhouse Loan Agreement and
related Security Agreement upon payment and
satisfaction in full of the Term Loan and Working
Capital Loan thereunder and in connection therewith
enter into and deliver any appropriate and reasonable
landlord consents relating to the perfection of UCC
collateral interests in the Greenhouse inventory,
stocks or supplies in favor of any lender which
provides working capital financing to the Greenhouse
Owner or any operator or licensee thereof.
I. Section 11.12(b): Section 11.12(b) of the Project Loan
Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the following:
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(b) The Borrower shall not, without the prior
written consent of the Majority Lenders, exercise, or
cause the Greenhouse Owner to exercise, any rights or
remedies under any Greenhouse Document following any
default thereunder, including without limitation any
right to terminate the lending commitments of the
Borrower under the Greenhouse Loan Agreement or the New
Greenhouse Loan Agreement, to declare loans, advances,
rent and/or other amounts owing under the Greenhouse
Loan Agreement or the New Greenhouse Loan Agreement, as
the case may be, the Greenhouse Mortgage or the
Greenhouse Master Lease to be immediately due and
payable, or to foreclose on or exercise other remedies
with respect to all or any portion of the Greenhouse
Collateral.
J. Section 12.1(l). Section 12.1(l) of the Project Loan
Agreement is hereby amended by (i) deleting the phrase
"Greenhouse Sublease providing for the payment of rent or any
provision in the Greenhouse Loan Agreement" and inserting in lieu
thereof the phrase "Greenhouse Loan Agreement or the New
Greenhouse Loan Agreement", (ii) inserting the phrase "or for the
payment of rent under the Greenhouse Master Lease" in Section
12.1(l)(iii) immediately after the words "loans thereunder",
(iii) inserting the phrase "which could reasonably be expected to
have a Material Adverse Effect" immediately after the phrase
"contained in any Project Document" in Section 12.1(l)(iv), and
(iv) deleting the phrase "Greenhouse Sublease and the Greenhouse
Loan Agreement, any failure by the Greenhouse Operator or the"
and inserting in lieu thereof the phrase "Greenhouse Loan
Agreement, the New Greenhouse Loan Agreement or the Greenhouse
Master Lease, any failure by the".
K. Section 12.2(6). Section 12.2(6) of the Project Loan
Agreement is hereby amended by (i) deleting the phrase "or
Section 15.01 of the Greenhouse Sublease" and inserting in lieu
thereof the phrase ", Article 7 of the New Greenhouse Loan
Agreement or the Greenhouse Master Lease", (ii) inserting the
phrase "or the New Greenhouse Loan Agreement" immediately after
the phrase "the Greenhouse Loan Agreement" in Section 12.2(6)(i)
and (iii) deleting the phrase "or Greenhouse Sublease" and
inserting in lieu thereof the phrase ", the New Greenhouse Loan
Agreement or the Greenhouse Master Lease".
L. Section 14.2. Section 14.2 of the Project Loan
Agreement is hereby amended by deleting the following:
Credit Suisse
Tower 49
12 East 49th Street
New York, New York 10017
Attention: Project Finance
Telecopy: 212-325-8049
Telex: 420149
and inserting in lieu thereof the following:
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<PAGE> 7
Credit Suisse First Boston
11 Madison Avenue
19th Floor
New York, New York 10010
Attention: Project Finance
Telecopy: 212-325-8049
Telex: 420149
M. The Project Loan Agreement is hereby amended by deleting
all references to the phrase "Credit Suisse" and inserting in
lieu thereof the phrase "Credit Suisse First Boston".
III. AMENDMENTS TO THE SECURITY DEPOSIT AGREEMENT
A. Section 1.2. Section 1.2 of the Security Deposit
Agreement is hereby amended as follows:
(i) by adding thereto, in alphabetical order, the
following new defined terms:
"Corporation": Greenhost, Inc., a Delaware corporation.
"Dividends": any cash dividends or distributions, any
and all stock or liquidating dividends, other distributions
in property, return of capital or other distributions made
by the Corporation on or in respect of the Pledged
Securities, whether declared from the net profits or excess
cash flow of the Corporation or resulting from a
subdivision, combination or reclassification of the
outstanding capital stock of the Corporation or received in
exchange for the Pledged Securities or of any part thereof
as a result of any merger or consolidation to which the
Corporation may be a party or otherwise.
"New Greenhouse Loan Agreement": the Term Loan and
Working Capital Agreement, dated as of November 19, 1996,
between the Corporation and the Borrower.
"New Greenhouse Loan Notes": (i) the Working Capital
Note executed by Corporation in the form of Exhibit A to the
New Greenhouse Loan Agreement, payable to the order of the
Borrower, in the amount of three million dollars
($3,000,000) and (ii) the Term Note executed by Corporation
in the form of Exhibit B to the New Greenhouse Loan
Agreement payable to the order of the Borrower, in the
amount of two million five hundred thousand dollars
($2,500,000).
"Pledged Securities": all of the issued and outstanding
shares of stock of the Corporation.;
(ii) by deleting from such Section 1.2 the definitions
of "Greenhouse Letter of Credit", "Greenhouse Reserve
Account Cash Deposits" and "Greenhouse Reserve Withdrawal
Event" in their entirety, where such definitions appear in
such Section 1.2;
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<PAGE> 8
(iii) by deleting from such Section 1.2 the definition
of "Security Deposit Collateral" in its entirety and
inserting in lieu thereof "the Accounts, each Debt Service
Letter of Credit issued and outstanding from time to time
and all cash, other instruments, investments and securities
on deposit in the Accounts, excluding, however, the Bond
Transfer Accounts.";
(iv) by deleting the term "Series 1996B" and inserting
in lieu thereof the term "Series 1997" as the term appears
in the definitions for and in the defined terms "Bond
Construction Fund Requisitions", "Bond Construction Fund
Requisition-Series 1996B", "Bond Transfer Accounts", "Bond
Trustee-Series 1996B", "Series 1996B Bond Transfer Account"
and in Section 3.1; and
(v) by (x) renaming the term "Trust Indenture-Series
1996B" to "Trust Indenture-Series 1997" and (y) deleting the
definition thereof in its entirety and inserting in lieu
thereof the following:
the Trust Indenture by and between the Industrial
Development Authority of King George County, Virginia
and Bankers Trust Company, as trustee, dated as of
March 1, 1997.
B. Section 2.9. Section 2.9 of the Security Deposit
Agreement is hereby amended by deleting the phrase "the
Collateral, the Bond Transfer Accounts and the Greenhouse Reserve
Account" and inserting in lieu thereof the following phrase: "the
Collateral and the Bond Transfer Accounts".
C. Section 3.1(a). Section 3.1(a) of the Security Deposit
Agreement is hereby amended by deleting subclause (xi) in its
entirety and sequentially renumbering the succeeding clauses as
"(xi)" through "(xvi)", respectively.
D. Section 3.1(b). Section 3.1(b) of the Security Deposit
Agreement is hereby amended by deleting the phrase "and the
Greenhouse Reserve Account".
E. Section 3.1(c). Section 3.1(c) of the Security Deposit
Agreement is hereby amended by deleting the phrase "and the
Greenhouse Reserve Account".
F. Section 4.4. Section 4.4 of the Security Deposit
Agreement is hereby amended by deleting the phrase "and proceeds
of any Greenhouse Reserve Replenishment Rent".
G. Section 4.6. Section 4.6 of the Security Deposit
Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the word "Deleted.".
H. Section 4.8. Section 4.8 of the Security Deposit
Agreement is hereby amended by deleting the phrase "and the
Greenhouse Reserve Account".
I. Section 5.12. Section 5.12 of the Security Deposit
Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the word "Deleted.".
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<PAGE> 9
J. Section 5.15(c). Section 5.15(c) of the Security
Deposit Agreement is hereby amended by deleting the phrase "the
Greenhouse Reserve Account and".
K. Section 5.15(d). Section 5.15(d) of the Security
Deposit Agreement is hereby amended by deleting the phrase "the
Greenhouse Reserve Account and".
L. Section 9.1. Section 9.1 of the Security Deposit
Agreement is hereby amended by deleting the following:
Credit Suisse
Tower 49
12 East 49th Street
New York, New York 10017
Attention: Project Finance
Telecopy: 212-325-8049
and inserting in lieu thereof the following:
Credit Suisse First Boston
11 Madison Avenue
19th Floor
New York, New York 10010
Attention: Project Finance
Telecopy: 212-325-8049
M. The Security Deposit Agreement is hereby amended by
deleting all references to the phrase "Credit Suisse" and
inserting in lieu thereof the phrase "Credit Suisse First
Boston".
IV. AMENDMENTS TO ANNEX A
A. Access and Utility Easement Agreement. The definition
of "Access and Utility Easement Agreement" in Annex A is hereby
amended by deleting the phrase "the Greenhouse Operator" and
inserting in lieu thereof the phrase "Dominion Growers of
Fredericksburg, Inc.".
B. Accounts. The definition of "Accounts" in Annex A is
hereby amended by deleting the phrase "the Greenhouse Reserve
Account,".
C. Bonds. The definition of "Bond" in Annex A is hereby
amended by deleting the term "Series 1996B" and inserting in lieu
thereof the term "Series 1997".
D. Bond Transfer Accounts. The definition of "Bond
Transfer Accounts" in Annex A is hereby amended by deleting the
term "Series 1996B" and inserting in lieu thereof the term
"Series 1997".
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<PAGE> 10
E. Borrower's Greenhouse Expenses. The definition of
"Borrower's Greenhouse Expenses" in Annex A is hereby amended by
deleting it in its entirety.
F. Cash Operating Costs. The definition of "Cash Operating
Costs" in Annex A is hereby amended by inserting the phrase "or
loaned from time to time by the Borrower to the Greenhouse Owner
under the working capital loan commitment of the New Greenhouse
Loan Agreement" immediately after the phrase "Steam Sales
Agreement in Subsection (vii)".
G. Collateral. The definition of "Collateral" in Annex A
is hereby amended by (i) deleting the word "and" immediately
preceding the phrase "any Bonds" and (ii) inserting the phrase
"and the Pledged Securities" immediately after the phrase "Bond
Pledge Agreement".
H. Greenhouse Bill of Sale. The definition of "Greenhouse
Bill of Sale" in Annex A is hereby amended by deleting the phrase
"the Greenhouse Operator" and inserting in lieu thereof the
phrase "Dominion Growers of Fredericksburg, Inc.".
I. Greenhouse Collateral. The definition of "Greenhouse
Collateral" in Annex A is hereby amended by deleting the phrase
"or the Greenhouse Sublease" and inserting in lieu thereof the
phrase ", the New Greenhouse Loan Agreement, or the Greenhouse
Master Lease".
J. Greenhouse Construction Contract. The definition of
"Greenhouse Construction Contract" in Annex A is hereby amended
by deleting the phrase "the Greenhouse Operator" and inserting in
lieu thereof the phrase "Dominion Growers of Fredericksburg,
Inc.".
K. Greenhouse Deed. The definition of "Greenhouse Deed" in
Annex A is hereby amended by deleting the phrase "the Greenhouse
Operator" and inserting in lieu thereof the phrase "Dominion
Growers of Fredericksburg, Inc.".
L. Greenhouse Documents. The definition of "Greenhouse
Documents" in Annex A is hereby amended by deleting the phrase
"the Greenhouse Sublease" and inserting in lieu thereof the
phrase "the New Greenhouse Loan Agreement, the New Greenhouse
Loan Notes, the New Greenhouse Security Agreement and the Workout
Deeds.".
M. Greenhouse Nondisturbance Agreement. The definition of
"Greenhouse Nondisturbance Agreement" in Annex A is hereby
amended by (i) inserting the phrase "for historical purposes and
in connection with Section 9.1 of the Project Loan Agreement" at
the beginning of such definition and (ii) deleting the phrase
"the Greenhouse Operator" and inserting in lieu thereof the
phrase "Dominion Growers of Fredericksburg, Inc.".
N. Greenhouse Operator. The definition of "Greenhouse
Operator" in Annex A is hereby amended by deleting it in its
entirety and inserting in lieu thereof the phrase "Greenhost,
Inc., a Delaware corporation.".
O. Greenhouse Operator Pledge Agreements. The definition
of "Greenhouse Operator Pledge Agreements" in Annex A is hereby
amended by (i) inserting the phrase "for historical purposes and
in connection with Section 9.1 of the Project Loan Agreement," at
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<PAGE> 11
the beginning of such definition and (ii) deleting the phrase
"Greenhouse Operator" and inserting lieu thereof the phrase
"Dominion Growers of Fredericksburg, Inc.".
P. Greenhouse Owner Pledge Agreements. The definition of
"Greenhouse Owner Pledge Agreement" in Annex A is hereby amended
by deleting it in its entirety and inserting in lieu thereof the
following:
" "Greenhouse Owner Pledge Agreements" means
collectively, (i) the Amended and Restated Stock Pledge
Agreement dated November 19, 1996 between SEI Birchwood,
Inc., a Delaware corporation, as Pledgor, and Birchwood
Power Partners, L.P., a Delaware limited partnership, as
Lender; and (ii) the Amended and Restated Stock Pledge
Agreement dated November 19, 1996 between
Cogentrix/Birchwood Two, L.P., a Delaware limited
partnership, as Pledgor, and Birchwood Power Partners, L.P.,
a Delaware limited partnership, as Lender."
Q. Greenhouse Pledge Agreements. The definition of
"Greenhouse Pledge Agreements" is hereby amended by (i) inserting
the phrase "for historical purposes and in connection with
Section 9.1 of the Project Loan Agreement," at the beginning of
such definition and (ii) deleting the phrase "Greenhouse Owner
Pledge Agreement" and inserting in lieu thereof the phrase
"Greenhouse Owner Pledge Agreements".
R. Greenhouse Prepayment Proceeds. The definition of
"Greenhouse Prepayment Proceeds" in Annex A is hereby amended by
deleting the phrase "Greenhouse Loan Agreement, other than a
mandatory prepayment of loans made with the proceeds of any
payments of Greenhouse Reserve Replenishment Rent under the
Greenhouse Sublease" and inserting in lieu thereof the phrase
"Greenhouse Loan Agreement or the New Greenhouse Loan Agreement
except, so long as an Event of Default shall not have occurred
and is continuing, a mandatory prepayment of loans under Section
4.2(b)(ii) of the New Greenhouse Loan Agreement".
S. Greenhouse Reserve Account. The definition of
"Greenhouse Reserve Account" in Annex A is hereby amended by
deleting it in its entirety.
T. Greenhouse Reserve Replenishment Rent. The definition
of "Greenhouse Reserve Replenishment Rent" in Annex A is hereby
amended by deleting it in its entirety.
U. Greenhouse Reserve Withdrawal Event. The definition of
"Greenhouse Reserve Withdrawal Event" in Annex A is hereby
amended by deleting it in its entirety.
V. Greenhouse Sublease. The definition of "Greenhouse
Sublease" in Annex A is hereby amended by (i) inserting the
phrase "for historical purposes and in connection with Section
9.1 of the Project Loan Agreement," at the beginning of such
definition, (ii) deleting the phrase "the Greenhouse Operator"
and inserting in lieu thereof the phrase "Dominion Growers of
Fredericksburg, Inc." and (iii) deleting the phrase "in
accordance with Section 11.12(a) of the Project Loan Agreement".
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<PAGE> 12
W. New Greenhouse Loans: Annex A is hereby amended by
adding the following definition in alphabetical order:
"New Greenhouse Loans": the working capital loan
and the term loan extended by the Borrower to the
Greenhouse Owner pursuant to the New Greenhouse Loan
Agreement.
X. New Greenhouse Loan Agreement: Annex A is hereby
amended by adding the following definition in alphabetical order:
"New Greenhouse Loan Agreement": the Term Loan and
Working Capital Agreement, dated as of November 19,
1996, between the Borrower and the Greenhouse Owner.
Y. New Greenhouse Loan Notes: Annex A is hereby amended by
adding the following definition in alphabetical order:
"New Greenhouse Loan Notes": (i) the Working
Capital Note executed by Corporation in the form of
Exhibit A to the New Greenhouse Loan Agreement, payable
to the order of the Borrower, in the amount of three
million dollars ($3,000,000) and (ii) the Term Note
executed by Corporation in the form of Exhibit B to the
New Greenhouse Loan Agreement payable to the order of
the Borrower, in the amount of two million five hundred
thousand dollars ($2,500,000).
Z. Project Cash Flow: The definition of "Project Cash
Flow" in Annex A is hereby amended by inserting the phrase "(or
minus) (ii)" immediately after the phrase "Bonus) for such period
plus" and deleting the phrase "(ii) the Borrower's Greenhouse
Expenses, if any, for such period plus (or minus) (iii)".
AA. Project Costs: The definition of "Project Costs" in
Annex A is hereby amended by deleting the word "and" immediately
preceding clause (r) and inserting the phrase "and (s) the New
Greenhouse Loans;" immediately after such clause (r) and
immediately preceding the phrase "excluding, however,".
BB. Project Revenues: The definition of "Project Revenues"
in Annex A is hereby amended by deleting the definition in its
entirety and inserting in lieu thereof the following definition:
"Project Revenues": for any period, the sum of
(i) all revenues received by the Borrower from the sale
of electrical energy pursuant to the Power Purchase
Agreement and from the sale of steam pursuant to the
Steam Sales Agreement, (ii) any other operating
revenues received by the Borrower for such period,
(iii) all payments received (including interest) by the
Borrower of any scheduled repayment of loans or any
mandatory prepayment of loans pursuant to the
Greenhouse Loan Agreement or any payments under the
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Greenhouse Master Lease, (iv) all payments received
(including interest) by the Borrower of any scheduled
repayment of loans or any mandatory prepayment of loans
pursuant to the New Greenhouse Loan Agreement, (v) so
long as any of the Bank Project Notes, the Greenhouse
Loan Note or the New Greenhouse Loan Notes are
outstanding, (1) any and all Dividends paid by the
Corporation with respect to the Pledged Securities, (2)
the net proceeds from the sale or transfer of any of
the assets of the Corporation, after payment of the
Indebtedness (as defined in the New Greenhouse Loan
Agreement) under the New Greenhouse Loan Agreement and
(3) any and all other proceeds, awards, or other
compensation received by the Corporation, less
reasonable fees, expenses and other directly related
costs incurred in connection with the collection of
such funds, (vi) any General Indemnity Payment Proceeds
and (vii) the earnings on Permitted Investments on
deposit in the Accounts to the extent distributed to
the Project Control Account pursuant to the Security
Deposit Agreement; provided, however, that for any
given month, any revenues received by the Borrower (x)
pursuant to a check dated the end of such given month
which is deposited no later than the fifth business day
of the following month, or (y) pursuant to a wire
transfer which is received no later than the fifth
business day of the following month shall be deemed to
be and included as revenue for such given month.
CC. Quarterly Calculation Date: The definition of
"Quarterly Calculation Date" in Annex A is hereby amended by
deleting the phrase "last day of each" and inserting in lieu
thereof the phrase "third Business Day following the end of
each".
DD. Stormwater and Surface Water Runoff Easement Agreement:
The definition of "Stormwater and Surface Water Runoff Easement
Agreement" in Annex A is hereby amended by deleting the phrase
"the Greenhouse Operator" and inserting in lieu thereof the
phrase "Dominion Growers of Fredericksburg, Inc.".
EE. Trust Indenture-Series 1996B. The definition of "Trust
Indenture-Series 1996B" in Annex A is hereby renamed "Trust
Indenture-Series 1997" and amended by deleting the definition in
its entirety and inserting in lieu thereof the following:
the Trust Indenture by and between the Industrial
Development Authority of King George County, Virginia
and Bankers Trust Company, as trustee, dated as of
March 1, 1997.
FF. The following new defined terms shall be added to Annex
A in alphabetical order:
"New Greenhouse Security Agreement": the Security
Agreement by and between Greenhost, Inc. and Birchwood Power
Partners, L.P. dated as of November 19, 1996 and entered
into pursuant to the New Greenhouse Loan Agreement.
"Workout Deeds": the Omnibus Deed, Bill of Sale,
General Assignment and Conveyance by Dominion Growers of
Fredericksburg, Inc. and Dominion Growers, Inc. to
Greenhost, Inc. dated as of November 8, 1996 and the four
(4) Deeds of Bargain and Sale from Dominion Growers of
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Fredericksburg, Inc. to Greenhost, Inc. each dated as of
November 8, 1996 and recorded on book and page numbers
0291/723; 0291/719; 0291/711; and 0291/715 with the Clerk,
Circuit Court, King George County, Virginia.
GG. Annex A is hereby amended by deleting all references to
the phrase "Credit Suisse" and inserting in lieu thereof the
phrase "Credit Suisse First Boston".
HH. Annex A is hereby amended by inserting the phrase
"Certain terms not defined herein nor defined in the Project Loan
Agreement shall have the meanings assigned thereto in the
Security Deposit Agreement." at the end of the introductory
sentence on page 1.
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<PAGE> 15
V. AMENDMENTS TO THE GREENHOUSE LOAN AGREEMENT
A. Section 2.1. Section 2.1 of the Greenhouse Loan
Agreement is hereby amended by deleting the word "Pledgor" and
inserting in lieu thereof the word "Pledgors".
B. Section 2.8(a). Section 2.8(a) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "Neither
Borrower nor Pledgor maintains or contributes to, or has" and
inserting in lieu thereof the phrase "Borrower does not maintain
or contribute to, nor has it".
C. Section 2.13. Section 2.13 of the Greenhouse Loan
Agreement is hereby amended by inserting the phrase "and owning
and operating the Greenhouse" after the phrase "it is a party".
D. Section 3.2. Section 3.2 of the Greenhouse Loan
Agreement is hereby amended by inserting the word "Contract" at
the end of the parenthetical.
E. Section 4.2. Section 4.2 of the Greenhouse Loan
Agreement is hereby amended by inserting the phrase "at the rate
per annum equal to eight percent (8%)".
F. Section 4.3. Section 4.3 of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrase ", but not
more than forty-five (45),"; (ii) by deleting the phrase
"multiples of $100,000 thereof"; and (iii) by deleting subclause
(ii) of Section 4.3 in its entirety.
G. Section 4.4(b). Section 4.4(b) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "eight percent
(8%)" and inserting the phrase "two percent (2%)"; (ii) by
inserting the phrase "over the interest rate provided in Section
4.1(a) above"; and (iii) by deleting the last sentence of
subclause (b).
H. Section 5.1(a). Section 5.1(a) of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrase "or will
cause Sublessee to"; (ii) by deleting the phrase "and Sublessee";
(iii) by deleting the phrase "or Sublessee" each of the two (2)
times such phrase appears in Section 5.1(a); and (iv) by deleting
the phrase "and Article X of the Sublease".
I. Section 5.1(b). Section 5.1(b) of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrase ", or
Sublessee at Borrower's direction,"; (ii) by deleting the phrase
"and Sublease" and (iii) by deleting the phrase "Section
4.3(b)(i)" and inserting in lieu thereof the phrase "Section
4.3(b)".
J. Section 5.2. The first seven words of Section 5.2 of
the Greenhouse Loan Agreement (consisting of the words "At no
time shall Borrower or Sublessee") are hereby deleted and the
following phrase is inserted in lieu thereof: "Except as
otherwise consented to by Lender, so long as the Notes are
outstanding, Borrower shall not".
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K. Section 5.2(i). Section 5.2(i) of the Greenhouse Loan
Agreement is hereby amended (i) by inserting the phrase "in any
material respect" and (ii) by deleting the phrase "the Sublease,
or".
L. Section 5.2(ii). Section 5.2(ii) of the Greenhouse
Loan Agreement is hereby amended (i) by deleting the phrase "or
Section 14.01 of the Sublease,"; and (iii) by deleting the phrase
", or shall cause Sublessee to,".
M. Section 5.2(iii). Section 5.2(iii) of the Greenhouse
Loan Agreement is hereby amended by deleting it in its entirety
and inserting in lieu thereof the following: "(iii) create,
incur, assume or permit to exist any indebtedness, except for (A)
Indebtedness under the Loan Documents, (B) Indebtedness under the
Term Loan and Working Capital Agreement, (C) indebtedness of up
to $5.5 million incurred under documentation reasonably
acceptable to the Administrative Agent which may be secured
solely by Working Capital Property (as defined in Annex A of the
Greenhouse Loan Agreement) or third party collateral following
payment and satisfaction in full of the indebtedness and
obligations under and termination of the New Greenhouse Loan
Agreement and the term loan and working capital loan thereunder,
and (D) indebtedness under any unsecured shareholder loans
subordinated to the Notes;"
N. Section 5.2(iv). Section 5.2(iv) of the Greenhouse
Loan Agreement is hereby amended by inserting the phrase "unless
the distributions or payments received are deposited by the
Pledgors (or by Borrower on behalf of the Pledgors) into the
Project Control Account under the Security Deposit Agreement to
be applied and distributed in accordance with the terms of the
Security Deposit Agreement,".
O. Section 5.2(v). Section 5.2(v) of the Greenhouse Loan
Agreement is hereby amended by adding the phrase "except for
Permitted Investments".
P. Section 5.2(vi). Section 5.2(vi) of the Greenhouse
Loan Agreement is hereby amended by (i) deleting the word
"Pledgor" each of the four (4) times such word appears in Section
5.2(vi) and inserting in lieu thereof the word "Pledgors" and
(ii) inserting the phrase "or as permitted under Section 5.2(iii)
hereunder" at the end of Section 5.2(vi).
Q. Section 5.2(viii). Section 5.2(viii) of the Greenhouse
Loan Agreement is hereby amended by deleting the phrase "and
ownership" and inserting in lieu thereof the phrase ", ownership
and operation (directly or indirectly through one or more
operators or growers)" and by deleting the phrase "and the
sublease of the Site and lease of the Greenhouse Facility to
Sublessee pursuant to the Sublease".
R. Section 5.2(x). Section 5.2(x) of the Greenhouse Loan
Agreement is hereby amended by inserting the phrase ", unless, in
any of the cases under subclauses (A), (B) or (C), such action
would not be material".
S. Section 5.2(xi). Section 5.2(xi) of the Greenhouse
Loan Agreement is hereby amended by deleting the "or Sublessee,
as the case may be,"; and (ii) by deleting the phrase "or
Sublessee".
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T. Section 5.3. Section 5.3 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase ", or cause
Sublessee to,".
U. Section 5.3(b). Section 5.3(b) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrases "or
Sublessee," "or Sublessee's", and "or Sublease".
V. Section 5.3(c). Section 5.3(c) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "or Sublessee"
each of the four (4) times such phrase appears in subsection (c).
W. Section 5.3(d). Section 5.3(d) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "or
Sublessee,".
X. Section 5.3(e). Section 5.3(e) of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "or Sublessee"
each of the three (3) times such phrase appears in the
introductory and concluding language of subsection (e).
Y. Section 5.3(e)(C). Section 5.3(e)(C) of the Greenhouse
Loan Agreement is hereby amended by deleting the phrase "or
Sublessee".
Z. Section 5.3(e)(D). Section 5.3(e)(D) of the Greenhouse
Loan Agreement is hereby amended by deleting the phrase "or
Sublessee".
Y. Section 5.3(e)(G). Section 5.3(e)(G) of the Greenhouse
Loan Agreement is hereby amended by deleting the phrase "the
Sublessee".
Z. Section 5.4. Section 5.4 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrases ", or
Sublessee at Borrower's direction," each of the two (2) times
such phrase appears in Section 5.4.
AA. Section 6.1. Section 6.1 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrases "and Section
18.21 of the Sublease,", "the Sublease," and "or Sublessee".
BB. Section 6.2. Section 6.2 of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrases "and
Sublessee", "the Sublease," and "nor Sublessee"; (ii) by deleting
the phrase "or Sublessee" each of the three (3) times such phrase
appears in Section 6.2; and (iii) by deleting the word "either"
and inserting in lieu thereof the word "it".
CC. Section 6.3. Section 6.3 of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrases "the
Sublease," and "or Sublessee's"; and (ii) by deleting the phrase
"or cause Sublessee to pay" each of the two (2) times such phrase
appears in Section 6.3.
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DD. Section 7.2(ii). Section 7.2(ii) of the Greenhouse
Loan Agreement is hereby amended by deleting subclause (ii) in
its entirety and sequentially renumbering the succeeding clause
"(ii)".
EE. Section 7.2(iii). Section 7.2(iii) of the Greenhouse
Loan Agreement is hereby amended by deleting the phrase "or
Sublease Taxes".
FF. Section 7.5. Section 7.5 of the Greenhouse Loan
Agreement is hereby amended by inserting the word "material"
after the phrase "any of its".
GG. Section 7.7. Section 7.7 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "or Sublease"
in the title to Section 7.7, and by deleting the phrase "or any
Event of Default, as defined in Section 15.01 of the Sublease".
HH. Section 7.9. Section 7.9 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase ", except as
contemplated by the Sublease" and inserting in lieu thereof the
phrase "unless the Indebtedness and Obligations under the
Greenhouse Loan Agreement and the New Greenhouse Loan Agreement
and the loans thereunder have been repaid and satisfied in full
and the Greenhouse Loan Agreement and New Greenhouse Loan
Agreement shall have been terminated."
II. Section 7.12. Section 7.12 of the Greenhouse Loan
Agreement is hereby amended by deleting the word "Pledgor" each
of the two (2) times such word appears in Section 7.12 and
inserting in lieu thereof the word "Pledgors".
JJ. Section 7.14 Section 7.14 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrases "or
Sublessee" and ", the Sublease,".
KK. Section 7.15. Section 7.15 of the Greenhouse Loan
Agreement is hereby amended by deleting it in its entirety and
inserting in lieu thereof the word "Deleted".
LL. Section 8.1. Section 8.1 of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the phrase
"Sublessee, or both,"; and (ii) by deleting the word "Pledgor"
each of the two (2) times such word appears in Section 8.1 and
inserting in lieu thereof the word "Pledgors".
MM. Section 9.1. Section 9.1 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "in each case
only to the extent such amendment, modification or consent,
release or waiver is requested by Sublessee or required as a
result of the occurrence of an Event of Default as defined in the
Sublease".
NN. Section 9.2. Section 9.2 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase ", or cause
Sublessee to,".
18
<PAGE> 19
OO. Section 9.3. Section 9.3 of the Greenhouse Loan
Agreement is hereby amended (i) by deleting the word "Pledgor's"
and inserting in lieu thereof the word "Pledgors' "; and (ii) by
deleting the word "Pledgor" and inserting in lieu thereof the
word "Pledgors".
PP. Section 9.4. Section 9.4 of the Greenhouse Loan
Agreement is hereby amended by deleting the sentence "Further,
unless and until the agency relationship between Borrower and
Sublessee created pursuant to Section 5.03(a) of the Sublease
shall be terminated as provided in said Section 5.03(a), this
Agreement may not be amended or modified without the prior
written consent of Sublessee."
QQ. Section 9.8. Section 9.8 of the Greenhouse Loan
Agreement is hereby amended by deleting the phrase "and under the
Sublease".
RR. Section 9.9. Section 9.9 of the Greenhouse Loan
Agreement is hereby amended by deleting:
"c/o Corporate Trinity Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Attention: Mark A. Ferrucci, President
Telecopy No. (302) 658-5459
Confirmation No. (302) 658-7581
with a copy to: Dominion Growers of Fredericksburg, Inc.
21343 Germanna Highway
Rout 3 Box 18A1
Stevensburg, Virginia 22741
Telecopy No. (703) 399-1777
Confirmation No. (703) 399-1616
and to: Shackleford, Honenberger, Thomas & Willis, P.L.C.
One Perry Plaza
Orange, Virginia 22960-0522
Attention: Christopher J. Honenberger
Telecopy No. (703) 672-2714
Confirmation No. (703) 672-2711"
19
<PAGE> 20
and inserting in lieu thereof:
"Greenhost, Inc.
P.O. Box 67
Sealson, Virginia 22547
Attention: President
Telecopy No. (540) 775-2780
Confirmation No. (540) 775-0400
If hand delivery, send to the following address:
2259 Kings Highway
King George, Virginia 22485
Attention: President"
SS. Section 9.17. Section 9.17 of the Greenhouse Loan
Agreement is hereby amended by deleting the word "Pledgor" each
of the four (4) times such word appears in Section 9.17 and
inserting in lieu thereof the word "Pledgors".
TT. The Greenhouse Loan Agreement is hereby amended by
deleting all references to the phrase "Credit Suisse" and
inserting in lieu thereof the phrase "Credit Suisse First
Boston".
20
<PAGE> 21
VI. AMENDMENTS TO ANNEX A TO THE GREENHOUSE LOAN AGREEMENT
A. Acceptable Issuer. The definition of "Acceptable
Issuer" in Annex A is hereby amended by deleting it in its
entirety.
B. Adjusted Loan Balance. The definition of "Adjusted
Loan Balance" is hereby amended by deleting it in its entirety.
C. Collateral Documents. The definition of "Collateral
Documents" is hereby amended (i) by deleting the word "Agreement"
in subclause (b) and inserting in lieu thereof the word
"Agreements"; and (ii) by deleting in their entirety subclause
(c), and the first subclause (d).
D. Collateral Pledge. The definition of "Collateral
Pledge" is hereby amended (i) by inserting the phrase "as amended
November 19, 1996, and" after the word "Agent,"; and (ii) by
inserting the word "further" after the phrase "as the same may
be".
E. Consequential Damages Event of Default. The definition
of "Consequential Damages Event of Default" is hereby amended by
deleting it in its entirety.
F. Depreciated Value. The definition of "Depreciated
Value" is hereby amended by deleting it in its entirety.
G. DGFI Stock Pledge Agreements. The definition of "DGFI
Stock Pledge Agreements" is hereby amended by deleting it in its
entirety.
H. Event of Default. The definition of "Event of Default"
is hereby amended by deleting the phrase " "Event of Default" in
the Sublease shall have the meaning given in Article 15 of the
Sublease."
I. Fee Mortgagee. The definition of "Fee Mortgagee" is
hereby amended by deleting it in its entirety and inserting in
lieu thereof the phrase "the Security Agent under the Security
Deposit Agreement".
J. Governmental Authority. The definition of
AGovernmental Authority is hereby amended by deleting the phrase
"the Sublessee,".
K. Greenhouse Reserve Account. The definition of
"Greenhouse Reserve Account" is hereby amended by deleting it in
its entirety.
L. Greenhost Stock Pledge Agreement. The definition of
"Greenhost Stock Pledge Agreement" is hereby amended by deleting
it in its entirety.
M. Greenhost Stock Pledge Agreements. Annex A is hereby
amended by adding the following definition in alphabetical order:
21
<PAGE> 22
" "Greenhost Stock Pledge Agreements" means
collectively, (i) the Amended and Restated Stock Pledge
Agreement dated November 19, 1996 between SEI Birchwood,
Inc., a Delaware corporation, as Pledgor, and Birchwood
Power Partners, L.P., a Delaware limited partnership, as
Lender; and (ii) the Amended and Restated Stock Pledge
Agreement dated November 19, 1996 between
Cogentrix/Birchwood Two, L.P., a Delaware limited
partnership, as Pledgor, and Birchwood Power Partners, L.P.,
a Delaware limited partnership, as Lender."
N. Improvements. The definition of "Improvements" is
hereby amended by deleting it in its entirety and inserting in
lieu thereof the following:
" "Improvements" shall mean any and all structures and
appurtenances thereto of every type and kind on, at or under
the Site, including but not limited to, the Inducement
Improvements (as defined in Annex A to the Term Loan and
working Capital Agreement), the Greenhouse Facility,
buildings, outbuildings, garages, sheds, walkways, sprinkler
systems or pipes, garages, roads, curbing, paving,
driveways, parking areas, funds, retaining walls, stairs,
and the Storm Water Piping; provided, however, that
"Improvements" shall not include the Steam Interconnection
Facilities, the metering devices and the Power Station
Piping."
O. Indebtedness. The definition of "Indebtedness" is
hereby amended (i) by deleting the word "Note" and inserting in
lieu thereof the word "Notes" each of the two (2) times such word
appears in the definition, and (ii) by deleting the word
"Pledgor" and inserting in lieu thereof the word "Pledgors".
P. Legal Requirements. The definition of "Legal
Requirements" is hereby amended (i) by deleting the phrases ",
Sublessee", "or Sublessee's as the case may be," and "or
Sublessee"; and (ii) by deleting the word "Pledgor" and inserting
in lieu thereof the word "Pledgors".
Q. Letter of Credit Amount. The definition of "Letter of
Credit Amount" is hereby amended by deleting it in its entirety.
R. Loan Documents. The definition of "Loan Documents" is
hereby amended by deleting the word "Note" and by inserting in
lieu thereof the word "Notes".
S. Note. The definition of "Note" is hereby amended by
deleting it in its entirety.
22
<PAGE> 23
T. Notes. Annex A is hereby amended by adding the
following definition in alphabetical order:
" "Notes" means (i) the Promissory Note executed by
Borrower in the form of Exhibit A to the Greenhouse Loan
Agreement, payable to the order of Lender, in the amount of
Twenty Million Seventy Nine Thousand Dollars ($20,079,000),
(ii) the Working Capital Note executed by Borrower in the
form of Exhibit A to the Term Loan and Working capital
Agreement, payable to the order of Lender, in the amount of
Three Million Dollars ($3,000,000), and (iii) the Term Note
executed by Borrower in the form of Exhibit B to the Term
Loan and Working Capital Agreement, payable to the order of
Lender, in the amount of Two Million Five Hundred Thousand
Dollars ($2,500,0000), and any and all renewals,
reinstatements, rearrangements, enlargements or extensions
thereof or of any promissory note or notes given
thereafter."
U. Obligations. The definition of "Obligations" is hereby
amended (i) by deleting the phrase "Pledgor, or Sublessee, or any
other Person" and inserting in lieu thereof the word "or
Pledgors"; and (ii) by deleting the phrase "Sublessee, Pledgor,
or any other Person in connection therewith, or" and inserting in
lieu thereof the phrase "or Pledgors".
V. Permitted Investments. Annex A is hereby amended by
adding the following definition in alphabetical order:
" "Permitted Investments" means, collectively, (a)
direct obligations of the United States or of any agency or
political subdivision thereof, or obligations guaranteed as
to principal and interest by the United States or by any
agency or political subdivision thereof, in any case
maturing not more than 90 days from the date of acquisition
thereof; (b) certificates of deposit issued by any bank
having capital surplus and undivided profits of at least
U.S.$500,000,000 and a long-term unsecured senior debt
rating of at least "A" by Standard & Poor's and "A2" by
Moody's, in any case maturing not more than 90 days from the
date of acquisition thereof; and (c) commercial paper rated
"P-1" or better by Moody's or "A-1" or better by Standard &
Poor's, in any case maturing not more than 90 days for the
date of acquisition hereof."
W. Pledgor. The definition of "Pledgor" is hereby amended
by deleting it in its entirety.
X. Pledgors. Annex A is hereby amended by adding the
following definition in alphabetical order:
" "Pledgors" means, collectively (i) SEI Birchwood,
Inc., a Delaware corporation, as pledgor under the Amended
and Restated Stock Pledge Agreement dated November 19, 1996
between SEI Birchwood, Inc. and Birchwood Power Partners,
L.P., a Delaware limited partnership, and (ii)
Cogentrix/Birchwood Two, L.P., a Delaware limited
partnership, as pledgor under the Amended and Restated Stock
Pledge Agreement dated November 19, 1996 between
Cogentrix/Birchwood Two, L.P. and Birchwood Power Partners,
L.P., a Delaware limited partnership."
23
<PAGE> 24
Y. Power Station Piping. The definition of "Power Station
Piping" is hereby amended by deleting the word "Subpremises" and
inserting in lieu thereof the word "Premises".
Z. Project Contracts. The definition of "Project
Contracts" is hereby amended by deleting the phrases ", the
Sublease", and "or Sublessee".
AA. Rent, Annual Rent, Base Rent, Calculated Rent,
Supplemental Rent, and Additional Rent. The definition of
"Rent", "Annual Rent", "Base Rent", "Calculated Rent",
"Supplemental Rent" and "Additional Rent" is hereby amended by
deleting it in its entirety.
BB. Salary Cap. The definition of "Salary Cap" is hereby
amended by deleting it in its entirety.
CC. Section 15.02 Payment. The definition of "Section 15.02
Payment" is hereby amended by deleting it in its entirety.
DD. Section 15.02(g) Fair Market Value. The definition of
"Section 15.02(g) Fair Market Value" is hereby amended by
deleting it in its entirety.
EE. Section 19.01 Option Date. The definition of "Section
19.01 Option Date" is hereby amended by deleting it in its
entirety.
FF. Section 19.02 Option Date. The definition of "Section
19.02 Option Date" is hereby amended by deleting it in its
entirety.
GG. Section 21.01 Event of Default. The definition of
"Section 21.01 Event of Default" is hereby amended by deleting it
in its entirety.
HH. Section 21.01 Purchase Price. The definition of
"Section 21.01 Purchase Price" is hereby amended by deleting it
in its entirety.
II. Special Drawing Event. The definition of "Special
Drawing Event" is hereby amended by deleting it in its entirety.
JJ. Sublessee's Letter of Credit. The definition of
"Sublessee's Letter of Credit" is hereby amended by deleting it
in its entirety.
KK. Sublessor. The definition of "Sublessor" is hereby
amended by deleting the phrase ", in its capacity as Sublessor
under the Sublease".
LL. Taxes. The definition of "Taxes" is hereby amended by
deleting it in its entirety.
24
<PAGE> 25
MM. Term Loan and Working Capital Agreement. Annex A is
hereby amended by adding the following definition in alphabetical
order:
" "Term Loan and Working Capital Agreement" means that
Term Loan and Working Capital Agreement dated as of November
19, 1996 as the same may be amended, modified or
supplemented from time to time between Birchwood Power
Partners, L.P., a Delaware limited partnership, as Lender,
and Greenhost, Inc., a Delaware corporation, as Borrower."
NN. Total Liquidated Damages. The definition of "Total
Liquidated Damages" is hereby amended by deleting it in its
entirety.
OO. Unpaid Liquidated Damages. The definition of "Unpaid
Liquidated Damages" is hereby amended by deleting it in its
entirety.
PP. Working Capital Loan Facility. The definition of
"Working Capital Loan Facility" is hereby amended by deleting the
current definition and inserting in lieu thereof the following:
"shall mean the working capital loan facility provided
for in the Term Loan and Working Capital Agreement pursuant
to which Borrower may borrow and reborrow from time to time
up to Three Million Dollars ($3,000,000) and for which
Borrower has granted a security interest to Lender in the
Working Capital Property."
QQ. Working Capital Loan. The definition of "Working
Capital Loan" is hereby amended by deleting the word "Sublessee"
and inserting in lieu thereof the word "Borrower".
RR. Working Capital Property. The definition of "Working
Capital Property" is hereby amended by deleting the word
"Sublessee's" each of the two (2) times such word appears in the
definition and inserting in lieu thereof the word "Borrower's".
SS. Annex A to the Greenhouse Loan Agreement is hereby
amended by deleting all references to the phrase "Credit Suisse"
and inserting in lieu thereof the phrase "Credit Suisse First
Boston".
25
<PAGE> 26
VIII. AMENDMENTS TO THE STEAM SALES AGREEMENT
A. Section 10.5. Section 10.5 of the Steam Sales
Agreement is hereby amended by (i) inserting the phrase "one half
(1/2) of" immediately after the phrase "herein on a monthly basis
for" and (ii) deleting the last three (3) sentences of Section
10.5 and inserting in lieu thereof the following sentence:
The amount of any such reimbursement shall be
based on the average price which Birchwood pays for
fuel oil purchased from third parties during such month
Birchwood is required to partially reimburse Greenhost
under this Section 10.5; provided, however if Birchwood
shall ever purchase fuel oil from an Affiliate during
such month and the purchase price of such fuel oil is
higher than the prevailing market rate for such fuel
oil, any such reimbursement amount due and owing for
such month shall be based on the prevailing market rate
for such fuel oil.
B. Section 24. Section 24 of the Steam Sales Agreement is
hereby amended by deleting the notice addresses for Greenhost in
their entirety and inserting in lieu thereof the following:
Greenhost, Inc.
"P.O. Box 67
Sealson, Virginia 22547
Attention: Thomas E. Dorsey
Telecopy No. (540) 775-2780
If hand delivery, send to the following address:
2259 Kings Highway
King George, Virginia 22485"
C. Section 26.2. Section 26.2 of the Steam Sales
Agreement is hereby amended by deleting the last sentence of
Section 26.2.
D. Section 32. Section 32 of the Steam Sales Agreement is
hereby amended by deleting the phrase "except as set forth in the
Sublease,".
E. Section 36. Section 36 of the Steam Sales Agreement is
hereby amended by deleting the last sentence of Section 36.
F. The Steam Sales Agreement is hereby amended by deleting
all references to the phrase "Credit Suisse" and inserting in
lieu thereof the phrase "Credit Suisse First Boston".
26
<PAGE> 27
VIII. MISCELLANEOUS
A. Conditions to Effectiveness. This Amendment shall
become effective on the date that the Administrative Agent shall
have received counterparts hereof, duly executed by the Borrower,
the Administrative Agent, the Issuing Bank, the Majority Lenders
and the Security Agent.
B. Continuing Effect; No Other Amendments. Except as
expressly amended, modified and supplemented hereby, the
provisions of the Project Loan Agreement and of the Security
Deposit Agreement are and shall remain in full force and Effect.
C. Governing Law. This Amendment as it pertains to the
Project Loan Agreement, the Security Deposit Agreement and Annex
A to the Project Loan Agreement and the Security Deposit
Agreement and the rights and obligations of the parties thereto
shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
This Amendment as it pertains to the Greenhouse Loan
Agreement, Annex A to the Greenhouse Loan Agreement and the Steam
Sales Agreement and the rights and obligations of the parties
thereto shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Virginia.
D. Counterparts. This Amendment may be executed by one or
more of the parties hereto in any number of separate
counterparts, each of which shall be an original and all of which
taken together shall be deemed to constitute one and the same
instrument.
E. Fees and Expenses. The Borrower agrees to reimburse the
Administrative Agent for all of its out-of-pocket costs and
expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Amendment including,
without limitation, the fees and disbursements of Simpson Thacher
& Bartlett, counsel to the Administrative Agent and to the
Security Agreement.
27
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective
proper and duly authorized officers as of the day and year first
above written. The signature(s) of each party shall be in its
capacity as a party to any of the contracts amended hereby and,
in the case of any contract amended hereby and the Amendment to
Deed of Master Lease dated as of March 27, 1997, by and between
Birchwood Power Partners, L.P. and Greenhost Inc.; the Amended
and Restated Short Form Deed of Master Lease dated as of November
19, 1996 by and between Birchwood Power Partners, L.P. and
Greenhost, Inc.; the Amendment to Deed of Trust, Security
Agreement and Assignment of Leases and Rents dated as of March
27, 1997, by and between Greenhost, Inc. and Lawyers Title
Insurance Corporation for the benefit of Birchwood Power
Partners, L.P.; the Amended and Restated Stock Pledge Agreement
dated as of November 19, 1996, by and between Cogentrix/Birchwood
Two, L.P. and Birchwood Power Partners, L.P.; the Amended and
Restated Stock Pledge Agreement dated as of November 19, 1996, by
and between SEI Birchwood Inc. and Birchwood Power Partners,
L.P.; the Amended and Restated Borrower Stock Assignment dated as
of December 23, 1996 by Birchwood Power Partners, L.P. in favor
of Credit Suisse First Boston as Security Agent; the Amended and
Restated Collateral Assignment of Greenhouse Note, Loan Agreement
and Mortgage dated as of November 19, 1996; and the Amendment to
Credit Line Deed of Trust, Assignment and Security Agreement,
dated as of November 19, 1996, by and between Birchwood Power
Partners, L.P. and Lawyers Title Insurance Corporation for the
benefit of Credit Suisse First Boston as Security Agent to which
it is not a party, shall represent its consent to such amendment.
BIRCHWOOD POWER PARTNERS, L.P.
By: SEI Birchwood, Inc., a General Partner
By: /s/ T.E. Dorsey
Name: T.E. Dorsey
Title: Vice President
By: Cogentrix / Birchwood Two, L.P., a
General Partner
By: Cogentrix of Birchwood I, Inc., its
Sole General Partner
By: /s/ Elizabeth L. Rippetoe
Name: Elizabeth L. Rippetoe
Title: Vice President
GREENHOST, INC.
By: /s/ Steve Gillis
Name: Steve Gillis
Title: Vice President
28
<PAGE> 29
CREDIT SUISSE FIRST BOSTON, as Security Agent
By: /s/ Steven Dowe
Name: Steven Dowe
Title: Associate
By: /s/ Larcy V. Maval
Name: Larcy V. Maval
Title: Associate
CREDIT SUISSE FIRST BOSTON and
CREDIT SUISSE FIRST BOSTON, NEW
YORK BRANCH, as Issuing Bank, as
Administrative Agent, as Co-Agent, as a
Bank, as a Secured Counterparty and as
a Secured Party
By: /s/ Steven Dowe
Name: Steven Dowe
Title: Associate
By: /s/ Larcy V. Maval
Name: Larcy V. Maval
Title: Associate
BANQUE PARIBAS, NEW YORK BRANCH as
a Co-Agent, as a Bank and as a Secured Party
By: /s/ Timothy Vincent
Name: Timothy Vincent
Title: Associate
By: /s/ Glenn Tobias
Name: Glenn Tobias
Title: Group Vice President
BANQUE PARIBAS, PARIS as a
Secured Party and as a Secured Counterparty
By: /s/ Janet Strickland
Name: Janet Strickland
Title: Authorized Signatory
By:
Name:
Title:
29
<PAGE> 30
BARCLAYS BANK PLC as a Co-Agent, as a
Bank, as a Secured Counterparty and as a
Secured Party
By: /s/ Salvatore Esposito
Name: Salvatore Esposito
Title: Director
THE TORONTO-DOMINION BANK as a Bank
and as a Secured Party
By: /s/ Lisa Allison
Name: Lisa Allison
Title: Manager, Credit Administration
NATIONAL WESTMINSTER BANK PLC as a Bank
and as a Secured Party
By: /s/ Brian T. Caldwell
Name: Brian T. Caldwell
Title: Vice President
30
<PAGE> 31
BANQUE NATIONALE DE PARIS as a Bank
and as a Secured Party
By: /s/ Peter A. Ryan
Name: Peter A. Ryan
Title: Vice President
By: /s/ Gail J. Notsing
Name: Gail J. Notsing
Title: Vice President
THE FUJI BANK LTD. as a Bank and
as a Secured Party
By:
Name:
Title:
THE BANK OF NOVA SCOTIA as a Bank
and as a Secured Party
By: /s/ Bruce Matheson
Name: Bruce Matheson
Title: Vice President
THE SANWA BANK, LIMITED, NEW YORK
BRANCH, as a Bank and as a Secured Party
By: /s/ Thomas R. Cantello
Name: Thomas R. Cantello
Title: Assistant Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY as an Institution and as a
Secured Party
By: /s/ Barry E. Welch
Name: Barry E. Welch
Title: Senior Investment Officer
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY as an Institution
and as a Secured Party
By: /s/ Barry E. Welch
Name: Barry E. Welch
Title: Vice President - Investments
31
<PAGE> 32
MELLON BANK, N.A., solely in its capacity as
Trustee for the LONG-TERM INVESTMENT TRUST
(as directed by John Hancock Mutual Life
Insurance Company), and not in its
individual capacity
By: /s/ Susan G. Testa
Name: Susan G. Testa
Title: Trust Officer
MELLON BANK, N.A., solely in its capacity as
Trustee for the NYNEX MASTER PENSION TRUST
(as directed by John Hancock Mutual Life
Insurance Company), and not in its
individual capacity
By: /s/ Susan G. Testa
Name: Susan G. Testa
Title: Trust Officer
COMMONWEALTH OF PENNSYLVANIA
STATE EMPLOYES'[SIC] RETIREMENT
SYSTEM, as an Institution and as
a Secured Party
By: John Hancock Mutual Life Insurance
Company, as Investment Adviser
By: /s/ Barry E. Welch
Name: Barry E. Welch
Title: Vice President - Investments
ALLSTATE INSURANCE COMPANY as an
Institution and as a Secured Party
By: /s/ Charles Mires
Name: Charles Mires
Title: Assistant Vice President
By: /s/ Steve M. Laude
Name: Steve M. Laude
Title: Senior Portfolio Manager
32
<PAGE> 33
ALLSTATE LIFE INSURANCE COMPANY as
an Institution and as a Secured Party
By: /s/ Charles Mires
Name: Charles Mires
Title: Assistant Vice President
By: /s/ Steve M. Laude
Name: Steve M. Laude
Title: Senior Portfolio Manager
ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK, as an Institution and
as a Secured Party
By: /s/ Charles Mires
Name: Charles Mires
Title: Assistant Vice President
By: /s/ Steve M. Laude
Name: Steve M. Laude
Title: Senior Portfolio Manager
NEW YORK LIFE INSURANCE COMPANY, as
an Institution and as a Secured Party
By: /s/ Jamie N. Manson
Name: Jamie N. Manson
Title: Investment Manager
UNION BANK OF CALIFORNIA, N.A. as a
Co-Agent, as a Bank, as a Secured
Counterparty and as a Secured Party
By: /s/ Susan K. Johnson
Name: Susan K. Johnson
Title: Vice President
33
<PAGE> 1
EXHIBIT 10.109
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of May 1, 1997 (the
"Agreement"), is made by and between COGENTRIX ENERGY, INC., a
North Carolina corporation (the "Company"), and MARK F. MILLER, a
resident of Nissequogue, New York (the "Employee").
WHEREAS, the Company is in the business of developing
and operating independent power and cogeneration facilities (the
"Business"); and
WHEREAS, the Company and the Employee are mutually
desirous that the Company employ the Employee, and the Employee
accept employment, as President and Chief Operating Officer of
the Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and
of the respective covenants and agreements of the parties herein
contained, the Company and the Employee hereby agree as follows:
1. Duties.
1.1 During the Term (as defined below), the Employee
shall be the President and Chief Operating Officer of the Company
(or such other and comparable titles and positions as shall be
given the Employee by the Board of Directors of the Company (the
"Board")), shall faithfully perform for the Company the duties of
said offices and shall perform such other duties of an executive,
managerial or administrative nature as shall be specified and
designated from time to time by the Chief Executive Officer of
the Company. The Employee shall have such corporate power and
authority as are necessary to perform the duties of such office
and any other office(s) that are so assigned to him. The
Employee shall report directly to the Chief Executive Officer and
Vice-Chairman of the Board. The Employee shall devote
substantially all of his business time and effort to the
performance of his duties hereunder, shall use his best efforts
to advance the best interests of the Company and shall not engage
in outside business activities which materially interfere with
the performance of his duties hereunder.
1.2 The duties to be performed by the Employee
hereunder shall be performed primarily in Charlotte, North
Carolina, subject to reasonable travel requirements on behalf of
the Company. The Company shall not relocate the Employee outside
of Charlotte, North Carolina, without his prior written consent.
2. Term. Subject to Section 12.2, the Company hereby
employs the Employee, and the Employee hereby accepts such
employment, for an initial term commencing as of the date hereof
and ending on the fifth anniversary of such date, unless sooner
terminated in accordance with the provisions of Section 4 (said
initial five-year term and any continuation thereof pursuant to
Section 12.2, unless sooner terminated in accordance with the
provisions of Section 4, being hereinafter referred to as the
"Term").
<PAGE> 2
3. Compensation.
3.1 Base Salary. During the Term and subject to the
next sentence of this Section 3.1, the Employee shall be
compensated at the annual rate of $350,000 ("Base Salary"),
payable on a monthly basis in accordance with the Company's
standard payroll procedures. On each anniversary of the date
hereof, the Base Salary will be increased by an amount which will
not be less than the product (if positive) of (i) the Base Salary
in effect immediately prior to such anniversary and (ii) the
percentage (if positive) by which the Consumer Price Index (All
Items less shelter) for Urban Wage Earners and Clerical Workers,
for the South Region/Population Size B, published by the United
States Government for the month preceding such anniversary
exceeds such index for the comparable month in the preceding
year.
3.2 Incentive Compensation. In addition to the Base
Salary, the Employee shall be entitled to receive a cash bonus
("Bonus") in an amount to be determined following the conclusion
of each fiscal year of the Company during the Term in the sole
discretion of David J. Lewis or the successor Chief Executive
Officer. Any Bonus to which the Employee is entitled under this
Section 3.2 shall be paid to the Employee during the month of
September immediately following the fiscal year to which such
Bonus relates in a manner consistent with the Company's past
practice with respect to payment of bonuses. Notwithstanding the
foregoing, the Bonus for the first and second full fiscal years
of the Company during the Term shall not be less than $80,000 and
$100,000, respectively.
3.3 Profit Sharing. The Employee shall be entitled to
participate in the Company's existing profit sharing plan (the
"Plan"). The Company shall waive the two-year waiting period and
any other vesting or eligibility requirements that otherwise
would apply to the Employee under the Plan. The Employee shall
be entitled to receive an amount in cash (a "Plan Distribution")
equal to the product of (i) 0.7% and (ii) the Company's net
income before taxes for each fiscal year of the Company during
the Term. The Employee shall receive a pro-rated portion of any
Plan Distribution for any partial fiscal year during the Term.
Subject to the next sentence of this Section 3.3, Plan
Distributions shall be paid in accordance with the terms of the
Plan in a manner consistent with the Company's past practice.
Notwithstanding anything to the contrary in this Agreement or the
Plan, the Employee and the Company agree that the Employee's
entitlement to receive Plan Distributions under the Plan upon
termination of the Employee's employment during the Term of this
Agreement for any reason (other than under Section 4.2) shall be
governed by this Agreement and not the Plan.
3.4 Expenses. Upon submission of appropriate invoices
or vouchers, the Company shall pay or reimburse the Employee for
all reasonable expenses actually incurred or paid by him during
the Term in the performance of his duties hereunder.
3.5 Participation in Benefit Plans. The Employee
shall be entitled to participate in any health benefit or other
employee benefit plans available to the Company's key employees
as in effect from time to time, to the extent that he may be
eligible to do so under the applicable provisions of any such
plan. To the fullest extent possible under applicable law, the
Company shall waive any and all vesting periods, minimum service
periods and waiting periods that may otherwise apply to the
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<PAGE> 3
Employee under the Company's health, benefit and other employee
benefit plans available to the Company's key employees.
3.6 Vacation. The Employee shall be entitled to four
weeks of annual vacation and shall be subject to the Company's
standard vacation policy applicable to someone of his position
and seniority. Unused vacation shall not be carried over into
any subsequent year during the Term. The Company shall have no
obligation to pay the Employee for any unused vacation.
3.7 Automobile. As promptly as practicable following
the date hereof, the Company shall pay the Employee an amount in
cash which, after tax, equals the value of the Employee's
existing company automobile. Except as provided in this Section
3.7, the Company shall have no obligation to provide the Employee
an automobile allowance or otherwise furnish to the Employee an
automobile for use during the Term.
3.8 Relocation. The Company shall, at its sole cost
and expense, offer the Employee relocation benefits similar to
the relocation benefits made available to the Employee by his
previous employer.
3.9. Insurance. In addition to providing Employee the
insurance coverage required under Section 3.5, the Company shall,
at its sole cost and expense, provide for the benefit of the
Employee during the Term a whole life insurance policy in the
amount of $5 million, which policy shall be owned by the
Employee. The Company shall pay the Employee such amounts in
cash as are necessary during the Term to pay any income tax
liability the Employee may incur in connection with or arising
out of (i) the whole life insurance policy described above and
(ii) the Company's agreement to pay any such income tax liability
arising therefrom. Upon any termination of the employment of the
Employee, the Employee shall have the right, at his sole cost and
expense, to assume the insurance policy described above and the
Company shall have no obligation to make any payments to maintain
such insurance policy or in the event the Employee elects not to
assume, or make any payments with respect to, such insurance
policy.
4. Termination. The Employee's employment hereunder
may be terminated only upon the expiration of the Term of this
Agreement pursuant to Section 2 above or under the following
circumstances:
4.1 Death. The Employee's employment hereunder shall
terminate automatically upon his death, in which event the
Company shall pay to the Employee's written designee or, if he
has no written designee, to his spouse or, if he leaves no spouse
and has no written designee, to his estate, (i) accrued but
unpaid Base Salary through the date of death, (ii) Base Salary
payable for the remainder of the Term, such amounts to be paid in
the same manner through the remainder of the term as if the
Employee's employment were not terminated, (iii) accrued but
unpaid Bonus through the date of death and (iv) all reasonable
expenses actually incurred or paid by the Employee in the
performance of his duties hereunder prior to the date of death.
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<PAGE> 4
4.2 Disability. The Company may terminate the
Employee's employment hereunder if (i) as a result of the
Employee's incapacity due to physical or mental illness, the
Employee shall have been absent from his duties hereunder on a
full-time basis for an aggregate of 180 consecutive or non-
consecutive business days in any 12 consecutive-month period and
(ii) within 10 days after written notice of termination hereunder
is given by the Company, the Employee shall not have returned to
the performance of his duties hereunder on a full-time basis.
The determination of incapacity or disability under the preceding
sentence shall be made in good faith by the Company based upon
information supplied by a physician selected by the Company or
its insurers and reasonably acceptable to the Employee or his
legal representative. During any period that the Employee fails
to perform his duties hereunder as a result of incapacity due to
physical or mental illness (the "Disability Period"), the
Employee shall continue to receive his full Base Salary hereunder
until his employment is terminated pursuant to this Section 4.2,
provided that amounts payable to the Employee shall be reduced by
the sum of the amounts, if any, paid to the Employee during the
Disability Period under any disability benefit plans of the
Company.
4.3 Termination by the Company.
4.3.1 The Company (i) shall have "cause" to
terminate the Employee's employment hereunder upon the Employee
(A) being convicted of a felony, a crime of moral turpitude or
any crime involving the Company (other than pursuant to actions
taken at the direction or with the approval of the Board),
(B) being found by reasonable determination of the Company, made
in good faith, to have engaged in (1) willful misconduct,
(2) willful or gross neglect, (3) fraud, (4) misappropriation or
(5) embezzlement in the performance of his duties hereunder or
(C) having breached in any material respect the terms and
provisions of this Agreement and failed to cure such breach
within 15 days following written notice from the Company
specifying such breach and (ii) may terminate the Employee's
employment on written notice given to the Employee at any time
following the occurrence of any of the events described in
clauses (i)(A) and (i)(B) above and on written notice given to
the Employee at any time not less than 60 days following the
occurrence of any of the events described in clause (i)(C) above.
In the event the Employee's employment is terminated by the
Company for "cause", the Employee shall be entitled to continue
to receive Base Salary accrued but unpaid and expenses incurred
but not repaid to the Employee, in each case only until the
effective date of such termination.
4.3.2 In the event the Employee's employment is
terminated by the Company other than for "cause", the Employee
shall be entitled to continue to receive (i) Base Salary, (ii) an
amount equal to (A) the average Bonus paid to the Employee during
the three-year period immediately prior to termination by the
Company other than for "cause" or (B) if three years have not
elapsed prior to such termination, the average Bonus paid to the
Employee, or which would have been paid to the Employee pursuant
to this Agreement but for such termination, during the first two
full fiscal years of the Company during the Term, (iii) Plan
Distributions and (iv) the benefits contemplated by Section 3.5
of this Agreement, in each case for the remainder of the Term as
if such employment had not been terminated, such amounts to be
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<PAGE> 5
paid (and benefits to be provided) in the same manner through the
remainder of the Term as if such employment were not terminated
and without offset for earnings from subsequent employment or
otherwise. Notwithstanding the foregoing, if the benefit plans
with respect to the benefits described above do not provide
coverage for or with respect to the Employee after the Employee's
employment is terminated by the Company other than for "cause",
the Company shall, at its sole cost and expense, provide the
Employee supplemental benefits to the extent necessary to afford
the Employee the same benefit coverage that would have been
available to the Employee for the remainder of the Term had his
employment not been terminated.
4.4 Termination by the Employee.
4.4.1 Definitions. For purposes of this Section
4.4, the following terms shall have the respective meanings set
forth below:
(a) "Affiliate" means, with respect to the Company,
any entity directly or indirectly controlled, controlling or
under common control with the Company.
(b) "Acceleration Payment" means an amount in cash
equal to the value of (i) any Bonus accrued but unpaid prior
to the date of termination, (ii) any vacation accrued but
unused prior to the date of termination and (iii) all stock
options, restricted stock awards, stock appreciation rights
and any other similar Company capital-stock based
compensation awards (whether vested or not vested) that have
been granted or awarded to the Employee prior to the date of
termination.
(c) "Change of Control" means: (i) a person,
corporation, entity or group acquires, directly or
indirectly, the beneficial ownership of 50% or more of the
issued and outstanding stock of the Company in a single
transaction or series of transactions, (ii) the Company is a
party to a merger, consolidation or similar transaction and
following such transaction 50% or more of the issued and
outstanding securities of said party is beneficially owned
by a person, corporation, entity or group other than the
Company or an Affiliate of the Company, (iii) the Company
sells or transfers 50% or more of its assets to any other
person or persons other than an Affiliate of the Company,
(iv) the shareholders of the Company approve a plan or
proposal for the liquidation or dissolution of the Company
or (v) during any two-year period, individuals who comprise
a majority of the Board at the beginning of such two-year
period do not comprise a majority of the Board at the end of
such two-year period (such Board composition being referred
to as a "Continuing Majority"). Notwithstanding the
foregoing, the absence of a Continuing Majority during the
Term shall not constitute a Change of Control if such
absence is in contemplation of an initial public offering or
a private placement of the capital stock or other securities
of the Company.
(d) "Good reason" means: (i) the assignment to the
Employee of any duties inconsistent with his status as
President and Chief Operating Officer of the Company or a
material adverse alteration in the nature or status of his
responsibilities from those provided herein or the transfer
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<PAGE> 6
of a significant portion of such responsibilities to one or
more other persons; (ii) the failure by the Company to pay
or provide to the Employee, within 30 days of a written
demand therefor, any amount of compensation or any benefit
which is due, owing and payable pursuant to the terms hereof
or of any applicable plan, program, arrangement or policy;
(iii) the breach in any material respect by the Company of
any of its other obligations or agreements set forth herein
and the failure by the Company to cure such breach within 30
days after written notice thereof from the Employee; or (iv)
the occurrence of a Change of Control.
(e) "Severance" means the sum of (i) the highest Base
Salary that was paid to the Employee at any time prior to
termination by the Employee for good reason, (ii) the
average Bonus paid to the Employee during the three-year
period immediately prior to termination by the Employee for
good reason or, if three years have not elapsed prior to
such termination, the average Bonus paid to the Employee, or
which would have been paid to the Employee pursuant to this
Agreement but for such termination, during the first two
full fiscal years of the Company during the Term, and (iii)
the average Plan Distribution paid to the Employee during
the three-year period immediately prior to termination by
the Employee for good reason or, if three years have not
elapsed prior to such termination, the Plan Distribution (on
an annualized basis) the Employee would have received for
the year during which the Employee's employment was
terminated by the Employee for good reason.
(f) "Severance Benefits" means the benefits
contemplated by Section 3.5 of this Agreement.
(g) "Severance Term" means the longer of (i) three
years and (ii) the remainder of the Term as if the
Employee's employment had not been terminated.
4.4.2 At the election of the Employee for "good
reason," the Employee may terminate his employment immediately
upon written notice to the Company. If during the Term the
Employee's employment is terminated by the Employee for good
reason, the Employee shall be entitled to receive from the
Company (i) Severance and Severance Benefits for each year during
the Severance Term and the Acceleration Payment and (ii) in
addition to the amounts described above, cash payments in an
amount sufficient to ensure that the amounts received under this
Section 4.4.2 as a result of a Change of Control are not subject
to net reductions due to the imposition of excise taxes under
Section 4999 of the Internal Revenue Code of 1986, as amended.
4.4.3 Upon 90 days' prior written notice, the
Employee may terminate his employment with the Company other than
for good reason. If the Employee voluntarily terminates his
employment with the Company other than for good reason, no
further payment shall be due the Employee pursuant to Section 3
above (other than payments for accrued and unpaid Base Salary and
expenses incurred but not repaid to the Employee, in each case
prior to such termination).
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<PAGE> 7
4.5 Effect of Termination on Certain Obligations. No
termination of the employment of the Employee, whether voluntary
or involuntary, shall terminate, affect or impair any of the
obligations or rights of the parties set forth in Sections 3.9, 4
and 5 of this Agreement, all of which obligations and rights
shall survive any termination of employment of the Employee
hereunder.
5. Covenants of the Employee.
5.1 Covenant Against Competition. The Employee
acknowledges that (i) the Company is one of a limited number of
persons who have developed the Business; (ii) the Business is
national and international in scope; (iii) the Employee's work
for the Company will give him access to the confidential affairs
and proprietary information of the Company; (iv) the agreements
and covenants of the Employee contained in this Section 5 are
essential to the business and goodwill of the Company; and (v)
the Company would not have entered into this Agreement but for
the covenants and agreements set forth in this Section 5.
Accordingly, the Employee covenants and agrees that:
(a) During the Term, the Employee shall not, in
the United States or Asia, directly or indirectly, (1) engage in
any business that competes with the Business (or any part
thereof) for the Employee's own account; (2) render any services
to any person (other than the Company) engaged in such
activities; or (3) become interested in any such person (other
than the Company) as a partner, shareholder, principal, agent,
consultant or in any other relationship or capacity; provided,
however, that notwithstanding the above, the Employee may own,
directly or indirectly, solely as an investment, securities of
any such person which are traded on any national securities
exchange or NASDAQ if the Employee (A) is not a controlling
person of, or a member of a group which controls, such person and
(B) does not, directly or indirectly, own 2% or more of any class
of securities of such person.
(b) During the Term and for the period ending
five years following the date upon which the Employee ceases to
be an employee of the Company (the "Restricted Period"), the
Employee shall keep secret and retain in strictest confidence,
and shall not use for his benefit or the benefit of others,
except in connection with the business and affairs of the Company
and its affiliates, all confidential matters relating to the
Business or to the Company and its affiliates learned by the
Employee heretofore or hereafter, directly or indirectly, from
the Company and its affiliates, including, without limitation,
information with respect to (i) prospective facilities, (ii)
sales figures, (iii) profit or loss figures, and (iv) customers,
clients, suppliers, sources of supply and customer lists (the
"Confidential Information"), and shall not disclose such
Confidential Information to anyone outside of the Company and its
affiliates except with the Company's express prior written
consent and except for Confidential Information which (A) is at
the time of receipt or thereafter becomes publicly known through
no wrongful act of the Employee or (B) is received from a third
party not under an obligation to keep such information
confidential and without breach of this Agreement.
(c) All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by the
Employee or made available to the Employee concerning the
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Business or the Company shall be the Company's property and shall
be delivered to the Company at any time on request.
5.2 Rights and Remedies upon Breach. If the Employee
breaches, or threatens to commit a breach of, any of the
provisions of Section 5.1 (the "Restrictive Covenants"), the
Company shall have the following rights and remedies (upon
compliance with any necessary prerequisites imposed by law upon
the availability of such remedies), each of which rights and
remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive
Covenants specifically enforced (without posting bond) by any
court having equity jurisdiction, including, without limitation,
the right to an entry against the Employee of restraining orders
and injunctions (preliminary, mandatory, temporary and permanent)
against violations, threatened or actual, and whether or not then
continuing, of such covenants, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable
injury to the Company and that money damages will not provide an
adequate remedy to the Company.
6. Severability. The Employee acknowledges and
agrees that (i) he has had an opportunity to seek advice of
counsel in connection with this Agreement and (ii) the
Restrictive Covenants are reasonable in geographical and temporal
scope and in all other respects. If it is determined that any of
the provisions of this Agreement, including, without limitation,
any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the provisions of this
Agreement shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
7. Blue-Pencilling. If any court determines that any
of the covenants contained in this Agreement, including, without
limitation, any of the Restrictive Covenants, or any part
thereof, is unenforceable because of the duration or geographical
scope of such provision, the duration or scope of such
provisions, as the case may be, shall be reduced so that such
provision becomes enforceable and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Enforceability; Jurisdictions. The Company and
the Employee intend to and hereby confer jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction
within the geographical scope of the Restrictive Covenants. If
the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of breadth
of scope or otherwise, it is the intention of the Company and the
Employee that such determination not bar or in any way affect the
Company's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of such
Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being,
for this purpose, severable, diverse and independent covenants,
subject, where appropriate, to the doctrine of res judicata.
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9. Indemnification. To the fullest extent permitted
or required by the laws of the State of North Carolina, the
Company shall indemnify and hold harmless (including the advance
payment of expenses) the Employee, in accordance with the terms
of such laws, if the Employee is made a party, or threatened to
be made a party, to any threatened, pending, or contemplated suit
or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that the Employee is or was
an officer or director of the Company or any subsidiary or
affiliate of the Company, against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any
such action, suit or proceeding. The Company's obligations under
this paragraph will survive the termination of this Agreement for
any reason whatsoever.
10. D&O Liability Insurance. During the Term, the
Company shall maintain customary directors' and officers'
liability insurance.
11. Notice. Any notice or other communication
hereunder shall be in writing and shall be mailed or delivered to
the respective parties hereto as follows:
(a) If to the Company:
Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273-8110
Attention: David J. Lewis
with a copy to:
Fennebresque, Clark, Swindell & Hay
Suite 2900
100 North Tryon Street
Charlotte, North Carolina 28202-4011
Attention: John C. Fennebresque
(b) If to the Employee:
Mark F. Miller
22 Teal Way
Nissequogue, NY 11780
The addresses of either party hereto above may be changed by
written notice to the other party.
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12. Amendment; Waiver; Renegotiation.
12.1 This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms of
covenants hereof may be waived, only by a written instrument
executed by the party against whom such modification or waiver is
sought to be enforced. The failure of either party at any time
or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in
this Agreement.
12.2 During the six-month period after the third
anniversary of the date of this Agreement, the parties shall
amend or modify this Agreement upon mutually satisfactory terms.
Such amendments or modifications shall, at the very least, extend
the original Term of this Agreement for an additional five years
after the fifth anniversary of the date of this Agreement, unless
sooner terminated as provided in Section 4 hereof.
13. Benefit and Binding Effect. This Agreement shall
inure to the benefit of and be binding upon the successors and
assigns of the Company, but shall be personal to and not
assignable by the Employee. The obligations of the Company
hereunder are personal to the Employee or where applicable to his
spouse or estate, and shall be continued only so long as the
Employee shall be personally discharging his duties hereunder.
The Company may assign its rights, together with its
obligations, to any corporation which is a direct or indirect
wholly-owned subsidiary of the Company; provided, however, that
the Company shall not be released from its obligations hereunder
without the prior written consent of the Employee, which consent
shall not be unreasonably withheld.
14. Governing Law. This Agreement shall be governed
by the laws of the State of North Carolina regardless of the laws
that might be applicable under principles of conflicts of law.
15. Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original but all such
counterparts together shall constitute one and the same
instrument. Each counterpart may consist of two copies hereof
each signed by one of the parties hereto.
16. Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this
Agreement.
17. Entire Agreement. This Agreement constitutes the
entire understanding between the parties with respect to the
subject matter hereof, superseding all negotiations, prior
discussions and preliminary agreements. No subsequent
modification may be made to this Agreement except by signed
writing of the parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
Witness:________________________ /s/ Mark F. Miller (SEAL)
--------------------
Mark F. Miller
COGENTRIX ENERGY, INC.
By: /s/ David J. Lewis
--------------------
Name: David J. Lewis
Title: CEO & Vice-Chairman
11
<PAGE> 1
EXHIBIT 10.129
CREDIT AGREEMENT
among
COGENTRIX ENERGY, INC.,
The Several Lenders
from Time to Time Parties Hereto
and
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED,
as Agent and as the Issuing Bank
Dated as of May 22, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 26
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 26
2.1 Revolving Credit Commitments 26
2.2 Procedure for Revolving Credit Borrowing 27
2.3 Fees 28
2.4 Termination or Reduction of Commitments 28
2.5 Term Loans 29
2.6 Procedure for Term Loan Borrowing 29
2.7 Repayment of Loans; Evidence of Debt 29
2.8 Prepayments 31
2.9 Conversion and Continuation Options 32
2.10 Minimum Amounts and Maximum Number of Tranches 33
2.11 Interest Rates and Payment Dates 33
2.12 Computation of Interest and Fees 33
2.13 Inability to Determine Interest Rate 34
2.14 Pro Rata Treatment and Payments 34
2.15 Illegality 35
2.16 Requirements of Law 36
2.17 Taxes 37
2.18 Indemnity 39
2.19 Change of Lending Office 39
2.20 Procedure for Term Loan Repayment 39
2.21 Use of Proceeds 40
SECTION 3. LETTERS OF CREDIT 40
3.1 L/C Commitment 40
3.2 Procedure for Issuance of Letters of Credit 41
3.3 Fees, Commissions and Other Charges 42
3.4 L/C Participations 42
3.5 Reimbursement Obligation of the Borrower 43
3.6 Obligations Absolute 44
3.7 Letter of Credit Payments 44
3.8 Issuance Request 45
3.9 Cash Collateralization 45
3.10 Substitution/Replacement of Issuing Bank 46
SECTION 4. REPRESENTATIONS AND WARRANTIES 47
4.1 Financial Information 47
4.2 No Change 48
4.3 Corporate Existence; Compliance with Law 48
4.4 Corporate Power; Authorization; Enforceable
Obligations 48
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4.5 No Legal Bar 49
4.6 No Material Litigation 49
4.7 No Default 49
4.8 Ownership of Property; Liens 49
4.9 Taxes 50
4.10 Federal Regulations 50
4.11 ERISA 50
4.12 Investment Company Act; Public Utility Holding
Company Act; Other Regulations 51
4.13 Subsidiaries 51
4.14 Purpose of Revolving Credit Loans 51
4.15 Environmental Matters 51
4.16 Accuracy of Information; Full Disclosure 53
SECTION 5. CONDITIONS PRECEDENT 53
5.1 Conditions to Initial Extension of Credit 53
5.2 Conditions to Each Revolving Credit Loan and
Each Letter of Credit 55
SECTION 6. AFFIRMATIVE COVENANTS 56
6.1 Financial Statements 56
6.2 Certificates; Other Information 57
6.3 Payment of Obligations 58
6.4 Conduct of Business and Maintenance of Existence 59
6.5 Maintenance of Property; Insurance 59
6.6 Inspection of Property; Books and Records;
Discussions 59
6.7 Notices 59
6.8 Environmental Laws 60
6.9 Indemnification 60
SECTION 7. NEGATIVE COVENANTS 62
7.1 Parent Cash Flow Coverage Ratio 62
7.2 Limitation on Debt 62
7.3 Limitation on Subsidiary Debt 63
7.4 Limitation on Restricted Payments 66
7.5 Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries 67
7.6 Restrictions on Dispositions 68
7.7 Limitations on Transactions with Affiliates 68
7.8 Limitations on Liens 69
7.9 Limitations on Mergers, Consolidations, Sales or
Transfers of Assets by or Involving Borrower 71
7.10 Limitations on Certain Mergers, Consolidations
and Investments by Subsidiaries 71
7.11 CDH Permitted Investments 72
SECTION 8. EVENTS OF DEFAULT 72
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SECTION 9. THE AGENT 76
9.1 Appointment 76
9.2 Delegation of Duties 77
9.3 Exculpatory Provisions 77
9.4 Reliance by Agent 77
9.5 Notice of Default 78
9.6 Non-Reliance on Agent and Other Lenders 78
9.7 Indemnification 79
9.8 Agent in Its Individual Capacity 79
9.9 Successor Agent 79
SECTION 10. MISCELLANEOUS 80
10.1 Amendments and Waivers 80
10.2 Notices 81
10.3 No Waiver; Cumulative Remedies 81
10.4 Survival of Representations and Warranties;
Survival of Certain Agreements and Covenants 82
10.5 Payment of Expenses and Taxes 82
10.6 Successors and Assigns; Participations and
Assignments 82
10.7 Adjustments; Set-off 85
10.8 Counterparts 86
10.9 Severability 86
10.10 Integration 86
10.11 GOVERNING LAW 86
10.12 Submission To Jurisdiction; Waivers 86
10.13 Acknowledgments 87
10.14 WAIVERS OF JURY TRIAL 87
10.15 Confidentiality 87
10.16 Rank 88
SCHEDULES
Schedule I - Lenders' Commitment Percentages and Addresses for Notices
Schedule II - Applicable Margin
Schedule III - Financial Disclosure
Schedule IV - Material Litigation
Schedule V - Subsidiaries of the Borrower
Schedule VI - Environmental Matters
EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Term Note
Exhibit C - Form of CDH Guarantee
Exhibit D - Form of Extension Agreement
Exhibit E-1 - Form of Borrowing Request
Exhibit E-2 - Form of Issuance Request
Exhibit F-1 - Form of Opinion of Moore & Van Allen, PLLC
Exhibit F-2 - Form of Opinion of Menaker & Herrmann
Exhibit G - Form of Assignment and Acceptance
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CREDIT AGREEMENT, dated as of May 22, 1997, among
COGENTRIX ENERGY, INC., a North Carolina corporation (the
"Borrower"), the several banks and other financial institutions
from time to time parties to this Agreement (the "Lenders") and
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, as the issuer
hereunder of the Letters of Credit (as hereinafter defined) and
as agent for the Lenders hereunder.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the higher of
(a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by
the Agent as its prime rate in effect at its principal
office in New York City (the Prime Rate not being intended
to be the lowest rate of interest charged by the Agent in
connection with extensions of credit to debtors); and
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from
three federal funds brokers of recognized standing selected
by it. Any change in the ABR due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective
as of the opening of business on the effective day of such
change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to
which is based upon the ABR.
"Acquisition Debt": Debt of any Person existing at the
time such Person became a Subsidiary of the Borrower (or
such Person is merged into the Borrower or one of its
Subsidiaries) or assumed in connection with the acquisition
of assets from any such Person (other than assets acquired
in the ordinary course of business), including Debt Incurred
in connection with, or in contemplation of, such Person
becoming a Subsidiary of the Borrower (but excluding Debt of
such Person which is extinguished, retired or repaid in
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connection with such Person becoming a Subsidiary of the
Borrower).
"Adjusted Consolidated Net Income": for any period,
for any Person the aggregate Net Income (or loss) of such
Person and its consolidated Subsidiaries for such period
determined in conformity with GAAP plus the Net Income of
any Subsidiary of such Person for prior periods to the
extent such Net Income is actually paid in cash to such
Person during such period plus the Net Income of such Person
(other than a Subsidiary thereof) in which any third Person
has a joint interest for prior periods to the extent such
Net Income is actually paid in cash to such Person during
such period; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the Net Income (or loss) of such
Person (other than a Subsidiary thereof) in which any third
Person has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid in
cash to such Person during such period by such Person in
which the joint interest is held, which dividends and
distributions shall be included in such computation;
(ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to
clause (c)(i) or (c)(ii) of subsection 7.4 (and in such
case, except to the extent includable pursuant to clause (i)
above), the Net Income (if positive) of such Person accrued
prior to the date it becomes a Subsidiary of any other
Person or is merged into or consolidated with such other
Person or any of its Subsidiaries or all or substantially
all of the property and assets of such Person are acquired
by such other Person or any of its Subsidiaries; (iii) the
Net Income of any Subsidiary of such Person, except to the
extent that (A) such Net Income (if positive) is actually
paid in cash to such Person during such period and (B) such
Net Income (if negative) is actually paid in cash to such
Subsidiary during such period; (iv) any gains or losses (on
an after-tax basis) attributable to Asset Sales; (v) the
cumulative effect of a change in accounting principle; and
(vi) any amounts paid or accrued as dividends on Preferred
Stock of such Person or Preferred Stock of any Subsidiary of
such Person.
"Adjusted Parent Operating Cash Flow": for any period,
(i) Parent Operating Cash Flow for such period less (ii) the
sum of the following expenses (determined without
duplication), in each case to the extent paid by the
Borrower during such period and regardless of whether any
such amount was accrued during such period:
(a) development expenses for such period of
the Borrower and its Subsidiaries paid directly by the
Borrower or paid indirectly by the transferring of
funds or other assets (whether through a loan, capital
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<PAGE> 7
contribution or otherwise) to any Subsidiary of the
Borrower (whether by the Borrower or by any of its
Subsidiaries) for the purpose of enabling such
Subsidiary or another Subsidiary to pay any such
expense;
(b) income tax expenses of the Borrower and
its Subsidiaries (computed on a consolidated basis) for
such period; and
(c) corporate overhead expenses of the
Borrower and its Subsidiaries for such period.
"Administration Fee": as defined in subsection 2.3(c).
"Affiliate": as to any Person, any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person. For the
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled
by" and "under common control with") when used with respect
to any Person means the possession, directly or indirectly,
of the power either (a) to vote 10% or more of the
securities having ordinary voting power for the election of
directors of such Person or (b) to direct or cause the
direction of the management and policies of such Person,
whether through the ownership of voting securities, by
contract or otherwise.
"Agent": ANZ in its capacity as the agent for the
Lenders under this Agreement and the other Loan Documents
and its successors in such capacity.
"Aggregate Outstanding Extensions of Credit": as to
any Lender at any time, an amount equal to the sum of
(a) the aggregate principal amount of all Loans made by such
Lender then outstanding and (b) such Lender's Commitment
Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Amortization Amount": the total of all Lenders'
Aggregate Outstanding Extensions of Credit as of the
Revolving Credit Termination Date less the aggregate amount,
if any, of cash on deposit in the Cash Collateral Account on
such date.
"ANZ": Australia and New Zealand Banking Group
Limited.
"Applicable Margin": for the Commitment Fee, for each
Type of Loan and for each Type of Letter of Credit, the rate
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<PAGE> 8
per annum as set forth under the relevant column heading on
Schedule II.
"Asset Acquisition": (i) an investment by the Borrower
or any of its Subsidiaries in any other Person pursuant to
which such Person shall become a Subsidiary of the Borrower
or any of its Subsidiaries or shall be merged into or
consolidated with the Borrower or any of its Subsidiaries or
(ii) an acquisition by the Borrower or any of its
Subsidiaries of the Property of any Person other than the
Borrower or any of its Subsidiaries that constitutes
substantially all of an operating unit or business of such
Person.
"Asset Disposition": with respect to any Person, any
sale, transfer, conveyance, lease or other disposition
(including by way of merger, consolidation or sale-
leaseback) by such Person or any of its Subsidiaries to any
Person (other than to such Person or a Subsidiary of such
Person and other than in the ordinary course of business) of
(i) any Property of such Person or any of its Subsidiaries
or (ii) any shares of Capital Stock of such Person's
Subsidiaries. For purposes of this definition, any
disposition in connection with directors' qualifying shares
or investments by foreign nationals mandated by applicable
law shall not constitute an Asset Disposition. In addition,
the term "Asset Disposition" shall not include (i) any sale,
transfer, conveyance, lease or other disposition of the
Capital Stock or assets of Subsidiaries pursuant to the
terms of any power sales agreements or steam sales
agreements to which such Subsidiaries are parties as of the
date of this Agreement or pursuant to the terms of any power
sales agreements or steam sales agreements to which such
Subsidiaries become a party after such date if the Board of
Directors determines in good faith (evidenced by a Board
resolution) that such provisions are necessary in order to
effect such agreements and are reasonable, (ii) any sale,
transfer, conveyance, lease or other disposition of assets
governed by subsection 7.9, (iii) the sale, transfer,
conveyance, lease or other disposition of the Capital Stock
or assets of the following: (A) Cogentrix of Pennsylvania,
Inc. and (B) ReUse Technology, Inc. and (iv) any transaction
or series of related transactions consisting of the sale,
transfer, conveyance, lease or other disposition of Capital
Stock or assets with a Fair Market Value aggregating less
than $5 million. The term "Asset Disposition" also shall
not include (i) the grant of a Lien by any Person in any
assets or shares of Capital Stock securing a borrowing by,
or contractual performance obligation of, such Person or any
Subsidiary of such Person or any Joint Venture in which such
Person has an interest, which Lien is not prohibited under
subsection 7.8 or under Section 10(a) of the CDH Guarantee
or the exercise of remedies thereunder or (ii) a sale-
leaseback transaction involving substantially all of the
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<PAGE> 9
assets of a Power Generation Facility where a Subsidiary of
the Borrower sells the Power Generation Facility to a Person
in exchange for the assumption by that Person of the Debt
financing the Power Generation Facility and the Subsidiary
leases the Power Generation Facility from such Person.
"Asset Sale": the sale or other disposition by the
Borrower or any of its Subsidiaries (other than to the
Borrower or another Subsidiary of the Borrower) of (i) all
or substantially all of the Capital Stock of any Subsidiary
of the Borrower or (ii) all or substantially all of the
Property of the Borrower or any of its Subsidiaries.
"Assignee": as defined in subsection 10.6(c).
"Assignment and Acceptance": an Assignment and
Acceptance substantially in the form of Exhibit G.
"Attributable Value": as to a Capitalized Lease
Obligation under which any Person is at the time liable and
at any date as of which the amount thereof is to be
determined, the capitalized amount thereof that would appear
on the face of a balance sheet of such Person in accordance
with GAAP.
"Available Commitment": as to any Lender, at any time,
an amount equal to the excess, if any, of (a) such Lender's
Commitment over (b) such Lender's Aggregate Outstanding
Extensions of Credit.
"Average Life": at any date of determination with
respect to any Debt security or Preferred Stock the quotient
obtained by dividing (i) the sum of the product of (A) the
number of years from such date of determination to the dates
of each successive scheduled principal or involuntary
liquidation value payment of such Debt security or Preferred
Stock, respectively, multiplied by (B) the amount of such
principal or involuntary liquidation value payment by
(ii) the sum of all such principal or involuntary
liquidation value payments.
"Board of Directors": either the Board of Directors of
the Borrower or any committee of such Board duly authorized
to act on behalf of such Board.
"Borrower Indenture": the Indenture, dated as of
March 15, 1994, between the Borrower and the First Union
National Bank of North Carolina, a National Banking
Association, as trustee, as amended, supplemented or
otherwise modified from time to time.
"Borrower Indenture Securities": the 8.10% Senior
Notes Due 2004 issued by the Borrower pursuant to the
Borrower Indenture.
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<PAGE> 10
"Borrowing Date": any Business Day specified in a
Borrowing Request pursuant to subsection 2.2 or in a notice
pursuant to subsection 2.6 as a date on which the Borrower
requests the Lenders to make Loans hereunder.
"Borrowing Request": a request and certificate of the
Borrower substantially in the form of Exhibit E-1 (with such
changes thereto as agreed upon from time to time by the
Agent and the Borrower).
"Business": as defined in subsection 4.15(b).
"Business Day": a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are
authorized or required by law to close.
"Capital Stock": with respect to any Person, any and
all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of, or
interests in (however designated), the equity of such Person
which is outstanding or issued on or after the date of this
Agreement, including, without limitation, all Common Stock
and Preferred Stock and partnership and joint venture
interests of such Person.
"Capitalized Lease": as applied to any Person, any
lease of any Property of which the discounted present value
of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the
balance sheet of such Person; "Capitalized Lease Obligation"
means the rental obligations, as aforesaid, under such
lease.
"Cash Collateral Account": as defined in
subsection 3.9(b).
"CDH": Cogentrix Delaware Holdings, Inc., a Delaware
corporation and a Wholly-Owned Subsidiary of the Borrower.
"CDH Guarantee": the Guarantee to be executed and
delivered by CDH, substantially in the form of Exhibit C, as
amended, supplemented or otherwise modified from time to
time.
"CDH Permitted Investments": as defined in the CDH
Guarantee.
"Closing Date": the date on which the conditions
precedent set forth in subsection 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended
from time to time.
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"Commitment": as to any Lender, the obligation of such
Lender to make Loans to and/or issue or participate in
Letters of Credit issued hereunder in an aggregate principal
and/or face amount at any one time outstanding not to exceed
the amount set forth next to such Lender's name under the
caption "Commitment" on Schedule I or set forth in the
Assignment and Acceptance executed by such Lender by which
such Lender became a Lender hereunder, in either such case
as such amount may be reduced from time to time pursuant to
subsection 2.4 and as such amount may be adjusted from time
to time in accordance with subsection 10.6 pursuant to any
Assignment and Acceptance executed by such Lender or
otherwise in accordance with this Agreement.
"Commitment Fee": as defined in subsection 2.3(a).
"Commitment Percentage": as to any Lender at any time,
the percentage set forth next to such Lender's name under
the caption "Commitment Percentage" on Schedule I or set
forth in the Assignment and Acceptance executed by such
Lender by which such Lender became a Lender hereunder, in
either such case as such percentage may be adjusted from
time to time in accordance with subsection 10.6 pursuant to
any Assignment and Acceptance executed by such Lender or
otherwise in accordance with this Agreement.
"Commitment Period": the period from and including the
Closing Date to but not including the Revolving Credit
Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Common Stock": with respect to any Person, Capital
Stock of such Person that does not rank prior, as to the
payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution
or winding up of such Person, to shares of Capital Stock of
any other class of such Person.
"Commonly Controlled Entity": an entity, whether or
not incorporated, which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Consolidated EBITDA": of any Person for any period,
the Adjusted Consolidated Net Income of such Person, plus
(i) income taxes, excluding income taxes (either positive or
negative) attributable to extraordinary and non-recurring
gains or losses or Asset Sales, all determined on a
consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP, (ii) Consolidated
Fixed Charges, (iii) depreciation and amortization expense,
all determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP,
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<PAGE> 12
(iv) all other non-cash items reducing Adjusted Consolidated
Net Income for such period, all determined on a consolidated
basis for such Person and its consolidated Subsidiaries in
accordance with GAAP and (v) the aggregate amount actually
received in cash by such Person during such period relating
to non-cash items increasing Adjusted Consolidated Net
Income for prior periods, and less (i) all non-cash items
increasing Adjusted Consolidated Net Income during such
period and (ii) the aggregate amount actually paid in cash
by such Person during such period relating to non-cash items
reducing Adjusted Consolidated Net Income for prior periods;
provided that depreciation and amortization expense of any
Subsidiary of such Person and any other non-cash item of any
Subsidiary of such Person that reduces Adjusted Consolidated
Net Income shall be excluded (without duplication) in
computing Consolidated EBITDA, except to the extent that the
positive cash flow associated with such depreciation and
amortization expense and other non-cash items is actually
distributed in cash to such Person during such period.
"Consolidated Fixed Charges": of any Person, for any
period, the aggregate of (i) Consolidated Interest Expense,
(ii) the interest component of Capitalized Leases,
determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP excluding
any interest component of Capitalized Leases in respect of
that portion of a Capitalized Lease Obligation of a
Subsidiary that is Non-Recourse to such Person and
(iii) cash and non-cash dividends due (whether or not
declared) on the Preferred Stock of any Subsidiary of such
Person and any Redeemable Stock of such Person.
"Consolidated Interest Expense": of any Person, for
any period, the aggregate interest expense in respect of
Debt (including amortization or original issue discount and
non-cash interest payments or accruals) of such Person and
its consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net
costs associated with Interest Rate Protection Agreements
and any amounts paid during such period in respect of such
interest expense, commissions, discounts, other fees and
charges that have been capitalized; provided that
Consolidated Interest Expense of the Borrower shall not
include any interest expense (including all commissions,
discounts, other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net
costs associated with Interest Rate Protection Agreements)
in respect of that portion of Debt of a Subsidiary of the
Borrower that is Non-Recourse to the Borrower; and provided
further that Consolidated Interest Expense of the Borrower
in respect of a Guarantee by the Borrower of Debt of a
Subsidiary shall be equal to the commissions, discounts,
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<PAGE> 13
other fees and charges that would be due with respect to a
hypothetical letter of credit issued under a bank credit
agreement that can be drawn by the beneficiary thereof in
the amount of the Debt so guaranteed if (i) the Borrower is
not actually making directly or indirectly interest payments
on such Debt and (ii) GAAP does not require the Borrower on
an unconsolidated basis to record such Debt as a liability
of the Borrower.
"Consolidated Total Assets": with respect to any
Person at any time, the total assets of such Person and its
consolidated Subsidiaries at such time determined in
conformity with GAAP.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is
bound.
"Currency Protection Agreement": with respect to any
Person any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed
to protect such Person or any of its Subsidiaries against
fluctuations in currency values to or under which such
Person or any of its Subsidiaries is a party or a
beneficiary on the date of this Agreement or becomes a party
or a beneficiary thereafter.
"Debt": with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person in
respect of letters of credit or bankers' acceptance or other
similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay
the deferred purchase price of property or services, except
Trade Payables, (v) the Attributable Value of all
obligations of such Person as lessee under Capitalized
Leases, (vi) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by
such Person; provided that, for purposes of determining the
amount of any Debt of the type described in this clause, if
recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the lesser of
the Fair Market Value of such asset or the amount of such
Debt, (vii) all Debt of others Guaranteed by such Person to
the extent such Debt is Guaranteed by such Person,
(viii) all Redeemable Stock valued at the greater of its
voluntary or involuntary liquidation preference plus accrued
and unpaid dividends and (ix) to the extent not otherwise
included in this definition, all obligations of such Person
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<PAGE> 14
under Currency Protection Agreement and Interest Rate
Protection Agreements.
"Default": any of the events specified in Section 8,
whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been
satisfied.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
"Environmental Laws": any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time
hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
the rate per annum equal to the rate at which the Agent is
offered Dollar deposits at or about 10:00 A.M., New York
City time, two Eurodollar Business Days prior to the
beginning of such Interest Period in the London interbank
eurodollar market for delivery on the first day of such
Interest Period for the number of days comprised therein and
in an amount comparable to the amount of its Eurodollar Loan
to be outstanding during such Interest Period.
"Eurodollar Business Day": any Business Day on which
dealings in foreign currency and exchange between banks may
be carried on in London, England.
"Eurodollar Loans": Loans the rate of interest
applicable to which is based upon the Eurodollar Rate.
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"Eurodollar Rate": with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
divided by
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in
Section 8, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Excess Cash Flow": of any Person for any period,
Consolidated EBITDA less Consolidated Fixed Charges less any
income taxes actually paid during such period.
"Extension Date": as defined in subsection 2.1(c).
"Extension of Credit": any making of any Loan by a
Lender and any issuance or extension by the Issuing Bank of
any Letter of Credit.
"Fair Market Value": with respect to any Capital
Stock, asset or other Property, the price obtainable for
such Capital Stock, asset or other Property in an arm's-
length sale between an informed and willing purchaser under
no compulsion to purchase and an informed and willing seller
under no compulsion to sell.
"Fee Letter": as defined in subsection 2.3(b).
"Final Maturity Date": the second anniversary of the
Revolving Credit Termination Date.
"Financial Letter of Credit": as defined in clause
(i)(1) of subsection 3.1(b).
"Fixed Charge Ratio": the ratio, on a pro forma basis,
of (i) the aggregate amount of Consolidated EBITDA of any
Person for the Reference Period immediately prior to the
date of the transaction giving rise to the need to calculate
the Fixed Charge Ratio (the "Transaction Date") to (ii) the
aggregate Consolidated Fixed Charges of such Person during
such Reference Period; provided that for purposes of such
computation in calculating Consolidated EBITDA and
Consolidated Fixed Charges, (1) the Incurrence of the Debt
giving rise to the need to calculate the Fixed Charge Ratio
and the application of the proceeds therefrom shall be
assumed to have occurred on the first day of the Reference
Period, (2) Asset Sales and Asset Acquisitions which occur
during the Reference Period or subsequent to the Reference
Period and prior to the Transaction Date (but including any
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Asset Acquisition to be made with the Debt Incurred pursuant
to (1) above) shall be assumed to have occurred on the first
day of the Reference Period, (3) the Incurrence of any Debt
during the Reference Period or subsequent to the Reference
Period and prior to the Transaction Date and the application
of the proceeds therefrom shall be assumed to have occurred
on the first day of such Reference Period, (4) Consolidated
Interest Expense attributable to any Debt (whether existing
or being Incurred) computed on a pro forma basis and bearing
a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable
rate for the entire period unless such Person or any of its
Subsidiaries is a party to an Interest Rate Protection
Agreement (which shall remain in effect for the twelve month
period after the Transaction Date) which has the effect of
fixing the interest rate on the date of computation, in
which case such rate (whether higher or lower) shall be used
and (5) there shall be excluded from Consolidated Fixed
Charges any Consolidated Fixed Charges related to any amount
of Debt which was outstanding during and subsequent to the
Reference Period but is not outstanding on the Transaction
Date, except for Consolidated Fixed Charges actually
incurred with respect to Debt borrowed (as adjusted pursuant
to clause (4)) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains
in effect on the Transaction Date. For the purpose of
making this computation, Asset Sales and Asset Acquisitions
which have been made by any Person which has become a
Subsidiary of the Borrower or been merged with or into the
Borrower or any Subsidiary of the Borrower during the
Reference Period, or subsequent to the Reference Period and
prior to the Transaction Date shall be calculated on a pro
forma basis (including all of the calculations referred to
in clauses (1) through (5) above assuming such Asset Sales
or Asset Acquisitions occurred on the first day of the
Reference Period).
"Fronting Fee": as defined in subsection 3.3(a).
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time,
including, without limitation, those set forth in the
opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant
segment of the accounting profession.
"Governmental Authority": 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.
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"Guarantee" or "Guarantee Obligation": any obligation,
contingent or otherwise, of any Person directly or
indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or
other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-
well, to purchase assets, goods, securities or services, or
to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Incur": with respect to any Debt, to incur, create,
issue, assume, Guarantee or otherwise become liable for or
with respect to, or become responsible for, the payment of,
contingently or otherwise, such Debt; provided that neither
the accrual of interest (whether such interest is payable in
cash or kind) nor the accretion of original issue discount
shall be considered an Incurrence of Debt.
"Insolvency": with respect to any Multiemployer Plan,
the condition that such Plan is insolvent within the meaning
of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the
last day of each March, June, September and December, (b) as
to any Eurodollar Loan having an Interest Period of three
months or less, the last day of such Interest Period, and
(c) as to any Eurodollar Loan having an Interest Period
longer than three months or 90 days, respectively, each day
which is three months or 90 days, respectively, or a whole
multiple thereof, after the first day of such Interest
Period and the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar
Loan:
(i) initially, the period commencing on
the Borrowing Date or conversion date, as the case may
be, with respect to such Eurodollar Loan and ending
one, two, three, six, nine or twelve months thereafter,
as selected by the Borrower in its Borrowing Request or
notice of conversion, as the case may be, given with
respect thereto; and
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(ii) thereafter, each period commencing
on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two,
three, six, nine or twelve months thereafter, as
selected by the Borrower by irrevocable notice to the
Agent not less than three Eurodollar Business Days
prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(1) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is
not a Eurodollar Business Day, such Interest Period
shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would
be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on
the immediately preceding Eurodollar Business Day;
(2) any Interest Period that would otherwise
extend beyond the Revolving Credit Termination Date or
beyond the Final Maturity Date shall end on the
Revolving Credit Termination Date or the Final Maturity
Date, as the case may be;
(3) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the
calendar month at the end of such Interest Period)
shall end on the last Eurodollar Business Day of a
calendar month; and
(4) the Borrower shall select Interest
Periods so as not to require a payment or prepayment of
any Eurodollar Loan during an Interest Period for such
Loan.
"Interest Rate Protection Agreement": with respect to
any Person, any interest rate protection agreement, interest
rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement designed
to protect such Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person
or any of its Subsidiaries is a party or a beneficiary on
the date of this Agreement or becomes a party or a
beneficiary thereafter.
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"Investment": in a Person, any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly,
or other transfer of assets to, such Person.
"Investment Grade": with respect to the Borrower
Indenture Securities, a rating of "Baa3" or better by
Moody's Investors Service, Inc. and a rating of "BBB-" or
better by Standard and Poor's Rating Group.
"Issuance Request": a request and certificate of the
Borrower substantially in the form of Exhibit E-2 (with such
changes thereto as agreed upon from time to time by the
Agent and the Borrower), together with a properly completed
application for a Letter of Credit in such form as the
Issuing Bank may specify from time to time.
"Issuing Bank": ANZ, in its capacity as issuer of any
Letter of Credit, and any L/C Participant issuing any Letter
of Credit pursuant to subsection 3.10(a) or succeeding ANZ
as Issuing Bank pursuant to subsection 3.9(b), in its
capacity as the issuer of each Letter of Credit issued by
it.
"Joint Venture": a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or
other legal form; provided that, as to any such arrangement
in corporate form, such corporation shall not, as to any
Person to which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a
party.
"L/C Fee Payment Date": the last day of each March,
June, September and December.
"L/C Obligations": at any time, an amount equal to the
sum of (a) the aggregate then undrawn and unexpired amount
of the then outstanding Letters of Credit and (b) the
aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to subsection 3.5(a).
"L/C Participants": the collective reference to all
the Lenders.
"Letter of Credit Availability": (a) at any time that
a Lien shall exist on any assets of the Borrower to secure
the Borrower's reimbursement obligations with respect to a
letter of credit issued in favor of Clark Public Utility
District No. 1 in the amount of $20,000,000, an amount equal
to the excess of (i) $30,000,000 over (ii) the then
outstanding L/C Obligations and (b) at any other time, an
amount equal to the excess of (i) the aggregate Commitments
of all the Lenders over (ii) the then Aggregate Outstanding
Extensions of Credits of all the Lenders.
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<PAGE> 20
"Letter of Credit Fee": as defined in subsection 3.3(b).
"Letters of Credit": as defined in subsection 3.1(a).
"Lien": with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of
any kind in respect of such Property. For purposes of this
Agreement, the Borrower shall be deemed to own subject to a
Lien any Property which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention
agreement relating to such Property.
"Loan": any Revolving Credit Loan or Term Loan.
"Loan Documents": this Agreement, the Notes, all
Borrowing Requests, all Issuance Requests, the Fee Letter
and the CDH Guarantee.
"Loan Parties": the Borrower and CDH.
"Majority Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than 50%.
"Mandatory Cash Collateralization Amount": for any
Term Loan Reduction Date, an amount (not less than zero)
that, when added to the Term Loan Payment Amount for such
date, shall equal 25% of the Amortization Amount; provided,
that the Mandatory Cash Collateralization Amount for any
Term Loan Reduction Date shall not be more than the excess,
if any, of the outstanding L/C Obligations on such date over
the aggregate amount of cash on deposit in the Cash
Collateral Account on such date before any deposit made on
such date pursuant to subsection 3.9(a).
"Material Adverse Effect": a material adverse effect
on (a) the business, operations, property, condition
(financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole, (b) the validity or
enforceability of this or any of the other Loan Documents or
the rights or remedies of the Agent, the Issuing Bank or the
Lenders hereunder or thereunder or (c) any Loan Party's
ability to perform any Obligation.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or
petroleum products or any hazardous or toxic substances,
materials or wastes, defined or regulated as such in or
under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
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<PAGE> 21
"Multiemployer Plan": a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": from an Asset Disposition, cash
payments received (including, without limitation, any cash
payment received by way of (a) a payment of principal
pursuant to a note or installment receivable or otherwise,
but only as and when received (including any cash received
upon sale or disposition of such note or receivable) or
(b) any dividend or other distribution on any shares of any
Person's Capital Stock representing directly or indirectly
all or part of the consideration in respect of any Asset
Disposition, but only as and when received, but excluding
any other consideration received in the form of assumption
by the acquiring Person of Debt or other obligations
relating to the Property disposed of in such Asset
Disposition or received in any other noncash form)
therefrom, in each case, net of all legal, title and
recording tax expenses, commissions and other fees and
expenses incurred or payable and all federal, state,
provincial, foreign and local taxes required to be accrued
as a liability under GAAP (i) as a consequence of such Asset
Disposition, (ii) as a result of the repayment of any Debt
in any jurisdiction other than the jurisdiction where the
Property disposed of was located or (iii) as a result of any
repatriation to the United States of America of any proceeds
of such Asset Disposition, and in each case net of a
reasonable reserve for the after tax cost of any
indemnification payments (fixed and contingent) attributable
to seller's indemnities to the purchaser undertaken by the
Borrower or any of its Subsidiaries in connection with such
Asset Disposition (but excluding any payments, which by the
terms of the indemnities will not, under any circumstances,
be made prior to the then Final Maturity Date), and net of
all payments made on any Debt which is secured by such
Property, in accordance with the terms of any Lien upon or
with respect to such Property or which must by its terms or
by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other
payments made to holders of minority interests in
Subsidiaries or Joint Ventures as a result of such Asset
Disposition.
"Net Income": of any Person for any period, the net
income (loss) of such Person for such period, determined in
accordance with GAAP, except that extraordinary and
non-recurring gains and losses as determined in accordance
with GAAP shall be excluded.
"Net Worth": of any Person, as of any date the
aggregate of capital, surplus and retained earnings
(including any cumulative translation adjustment) of such
Person and its consolidated Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its
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<PAGE> 22
consolidated Subsidiaries prepared as of such date in
accordance with GAAP.
"Non-Excluded Taxes": as defined in subsection 2.17.
"Non-Recourse": to a Person as applied to any Debt (or
portion thereof), that such Person is not, directly or
indirectly, liable to make any payments with respect to such
Debt (or portion thereof), that no Guarantee of such Debt
(or portion thereof) has been made by such Person other than
a Guarantee limited in recourse to the Capital Stock of the
Person incurring such Debt (or any shareholder, partner,
member or participant of such Person) and that such Debt (or
portion thereof) is not secured by a Lien on any asset of
such Person other than the Capital Stock of the Person
incurring such Debt or any shareholder, partner, member or
participant of such Person or of the Person whose
obligations were Guaranteed, provided that for purposes of
this definition the status of a Subsidiary as a general
partner of a partnership or Joint Venture shall not, without
more, cause such Person to be, directly or indirectly,
liable to make payments with respect to such Debt or
constitute a Guarantee of such Debt for purposes of
determining whether Debt is Non-Recourse, and provided
further that none of the following shall cause any Debt to
fail to be Non-Recourse: the incurrence of Debt, Guarantees
or Liens jointly by (i) Cogentrix Eastern Carolina
Corporation and Cogentrix of North Carolina, Inc. (or
successor to the merger or other combination of such
entities) with respect to the Power Generation Facilities
located at Elizabethtown, Kenansville, Lumberton, Southport
and Roxboro, North Carolina; (ii) Cogentrix Virginia Leasing
Corporation and James River Cogeneration Company (or
successor to the merger or other combination of such
entities) with respect to the Power Generation Facilities
located at Portsmouth and Hopewell, Virginia; and
(iii) Subsidiaries of the Borrower or Joint Ventures in
which the Borrower or one of its Subsidiaries is a partner,
shareholder, member or other participant, which become such
after the date of this Agreement, incurred thereafter with
respect to the development or acquisition by such
Subsidiaries or Joint Ventures of multiple Power Generation
Facilities, so long as no such Subsidiary or Joint Venture
has any direct or indirect interest in any Power Generation
Facility other than the Power Generation Facilities to be
developed or acquired or in any other business.
"Notes": the collective reference to the Revolving
Credit Notes and the Term Notes.
"Obligations": all of the Debt, obligations and
liabilities of the Loan Parties to the Agent, the Issuing
Bank, the Lenders or to any of them now or in the future
existing under or in connection with this Agreement, the
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<PAGE> 23
Notes, the CDH Guarantee or any other Loan Document (as any
of the foregoing may from time to time be amended, modified,
substituted, extended, or renewed), direct or indirect,
absolute or contingent, due or to become due, now or
hereafter existing.
"Parent Cash Flow Coverage Ratio": for any period, the
ratio of (i) Adjusted Parent Operating Cash Flow for such
period to (ii) Parent Corporate Charges for such period.
"Parent Corporate Charges": for any period, the sum of
the following amounts (determined without duplication), in
each case to the extent paid by the Borrower during such
period and regardless of whether any such amount was accrued
during such period:
(a) interest expenses of the Borrower for
such period, including without limitation all
commissions, discounts, other fees and charges owed
with respect to letters of credit and bankers'
acceptance financing and net costs associated with
Interest Rate Protection Agreements; and
(b) rental payments and other expenses of
the Borrower for such period under any Capitalized
Lease.
"Parent Operating Cash Flow": for any period, the sum
of the following amounts (determined without duplication),
but only to the extent received in cash by the Borrower
during such period and regardless of whether any such amount
was accrued during such period:
(a) dividends and distributions paid to the
Borrower by its Subsidiaries during such period;
(b) development, consulting, management or
other fees paid to the Borrower during such period;
(c) tax-sharing payments made to the
Borrower during such period;
(d) interest, dividends and other
distributions paid during such period with respect to
cash and cash investments of the Borrower (other than
with respect to amounts on deposit in the Cash
Collateral Account except to the extent of any interest
earnings on cash deposited in the Cash Collateral
Account actually paid to the Borrower pursuant to
Section 3.9(c)); and
(e) other cash payments made to the Borrower
by its Subsidiaries other than (i) returns of invested
capital upon liquidation or sale, (ii) payments of the
principal of Debt of any such Subsidiary to the
Borrower and (iii) payments in an amount equal to the
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aggregate amount released from debt service reserve
accounts upon the issuance of Letters of Credit for the
benefit of the beneficiaries of such accounts.
"Participant": as defined in subsection 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Performance Letter of Credit": as defined in clause
(i)(2) of subsection 3.1(b).
"Permitted Holders": (a) George T. Lewis, Jr.,
Robert W. Lewis, David J. Lewis and James E. Lewis
(collectively, the "Current Holders"), (b) members of the
immediate families of the Current Holders, (c) trusts for
the benefit of Current Holders and members of the immediate
families of the Current Holders, and (d) a non-profit
corporation or foundation controlled by any of the Persons
described in (a), (b) or (c) of this definition. Members of
a Person's "immediate family" shall mean such Person's
parents, brothers, sisters, spouse and lineal descendants.
"Permitted Investment": any Investment of the type
specified in clause (iv) of the definition of Restricted
Payment which is made directly or indirectly by the Borrower
and its Subsidiaries; provided that the Person in which the
Investment is made is (a) a Subsidiary which, directly or
indirectly, is or will be engaged in the development,
construction, marketing, management, acquisition, ownership
or operation of a Power Generation Facility or (b) a Joint
Venture; provided further, that, in the case of an
Investment in a Joint Venture, (i) at the time such
Investment is made, the Borrower could Incur at least $1 of
Debt under subsection 7.2; (ii) at the time such Investment
is made, no Event of Default or event that, after the giving
of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing; and
(iii) such Investment is in a Joint Venture which, directly
or indirectly, is or will be engaged in the development,
construction, marketing, management, acquisition, ownership
or operation of a Power Generation Facility.
"Permitted Payments": with respect to the Borrower or
any of its Subsidiaries (i) any dividend on shares of
Capital Stock payable (or to the extent paid) solely in
shares of Capital Stock (other than Redeemable Stock) or in
options, warrants or other rights to purchase Capital Stock
(other than Redeemable Stock); (ii) any dividend or other
distribution payable to the Borrower by any of its
Subsidiaries or by a Subsidiary to a Wholly-Owned
Subsidiary; (iii) the repurchase or other acquisition or
retirement for value of any shares of the Borrower's Capital
Stock, or any option, warrant or other right to purchase
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<PAGE> 25
shares of the Borrower's Capital Stock with additional
shares of, or out of the proceeds of a substantially
contemporaneous issuance of, Capital Stock other than
Redeemable Stock (unless the redemption provisions of such
Redeemable Stock prohibit the redemption thereof prior to
the date on which the Capital Stock to be acquired or
retired was by its terms required to be redeemed); (iv) any
defeasance, redemption, repurchase or other acquisition for
value of any Debt which by its terms ranks subordinate in
right of payment to the Obligations with the proceeds from
the issuance of (x) Debt which is also subordinate to the
Obligations at least to the extent and in the manner as the
Debt to be defeased, redeemed, repurchased or otherwise
acquired is subordinate in right of payment to the
Obligations; provided that such subordinated Debt provides
for no payments of principal by way of sinking fund,
mandatory redemption or otherwise (including defeasance) by
the Borrower (including, without limitation, at the option
of the holder thereof other than an option given to a holder
pursuant to an asset disposition or change of control
covenant which is no more favorable to the holders of such
Debt than the provisions contained in subsections 2.8(b),
7.6, 7.9, 7.10 and 8(j) are to the Lenders and such Debt
provides that the Borrower will not repurchase such Debt
pursuant to such provisions prior to the date that all
Obligations have been paid and performed in full) prior to,
or in an amount greater than, any Stated Maturity of the
Debt being replaced and the proceeds of such subordinated
Debt are utilized for such purpose within 45 days of
issuance or (y) Capital Stock (other than Redeemable Stock);
(v) in respect of any actual payment on account of an
Investment (other than a Permitted Investment) which is not
fixed in amount at the time when made, the amount determined
by the Board of Directors to be a Restricted Payment on the
date such Investment was originally deemed to have been made
(the "Original Restricted Payment Charge") plus an amount
equal to the interest on a hypothetical investment in a
principal amount equal to the Original Restricted Payment
Charge assuming interest at a rate of 7% per annum
compounded annually for a period beginning on the date the
Investment was originally deemed to have been made and
ending with respect to any portion of the Original
Restricted Payment Charge actually paid on the date of
actual payment less any actual payments previously made on
account of such Investment; provided that the Permitted
Payment under this clause (v) shall in no event exceed the
payment actually made; (vi) any amount required to be paid
with respect to an obligation outstanding on the date of
this Agreement; or (vii) a Permitted Investment.
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other
entity of whatever nature.
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"Plan": at a particular time, any employee benefit
plan which is covered by ERISA and in respect of which the
Borrower or a Commonly Controlled Entity is (or, if such
plan were terminated at such time, would under Section 4069
of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Power Generation Facility": an electric power or
thermal energy generation or cogeneration facility or
related facilities (including residual waste management and,
to the extent such facilities are in existence on the date
of this Agreement or are required by contract or applicable
law, rule or regulation, facilities that use thermal energy
from a cogeneration facility), and its or their related
electric power transmission, fuel supply and fuel
transportation facilities, together with its or their
related power supply, thermal energy and fuel contracts and
other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the
marketing, development, construction, management or
operation of the foregoing, as well as other contractual
arrangements with customers, suppliers and contractors.
"Preferred Stock": with respect to any Person, any and
all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of
preferred or preference stock of such Person which is
outstanding or issued on or after the date of this
Agreement.
"Project Properties": as defined in subsection 4.15.
"Property": as to any Person, all types of real,
personal, tangible, intangible or mixed property owned by
such Person whether or not included in the most recent
consolidated balance sheet of such Person under GAAP.
"Redeemable Stock": any class or series of Capital
Stock of any Person that by its terms or otherwise is
(i) required to be redeemed prior to the later of the Final
Maturity Date or the Stated Maturity of the Borrower
Indenture Securities, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time
prior to the later of the Final Maturity Date or the Stated
Maturity of the Borrower Indenture Securities or
(iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Debt having a
scheduled maturity prior to the later of the Final Maturity
Date or the Stated Maturity of the Borrower Indenture
Securities; provided that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require the Borrower to
repurchase or redeem such Capital Stock upon the occurrence
of an "asset sale" or a "change of control" occurring prior
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<PAGE> 27
to the later of the Final Maturity Date or the Stated
Maturity of the Borrower Indenture Securities shall not
constitute Redeemable Stock if the asset disposition or
change of control provision applicable to such Capital Stock
is no more favorable to the holders of such Capital Stock
than the provisions contained in subsections 2.8(b), 7.6,
7.9, 7.10 and 8(j) are to the Lenders and such Capital Stock
specifically provides that the Borrower will not repurchase
or redeem any such Capital Stock pursuant to such provisions
prior to the date that all Obligations have been paid and
performed in full.
"Reference Period": the four complete fiscal quarters
for which financial information is available preceding the
date of a transaction giving rise to the need to make a
financial calculation; provided, that for purposes of this
definition financial information shall not be considered
unavailable for any fiscal quarter on any day that is 30 or
more days after the last day of such fiscal quarter.
"Refinance": to issue Debt in order to substantially
concurrently repay, redeem, defease, refund, refinance,
discharge or otherwise retire for value, in whole or in
part, other Debt or securities.
"Register": as defined in subsection 10.6(d).
"Regulation U": Regulation U of the Board of Governors
of the Federal Reserve System as in effect from time to
time.
"Reimbursement Obligation": the obligation of the
Borrower to reimburse the Issuing Bank pursuant to
subsection 3.5(a) for amounts drawn under Letters of Credit.
"Reorganization": with respect to any Multiemployer
Plan, the condition that such plan is in reorganization
within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in
Section 4043(b) of ERISA, other than those events as to
which the thirty day notice period is waived under
subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Required Lenders": at any time, Lenders the
Commitment Percentages of which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person, and
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
23
<PAGE> 28
of its property or to which such Person or any of its
property is subject.
"Responsible Officer": the chief executive officer or
the president of the Borrower or, with respect to financial
matters, the chief financial officer, the vice president-
finance or the treasurer of the Borrower.
"Restricted Payment": with respect to any Person,
(i) any dividend or other distribution on any shares of such
Person's Capital Stock; (ii) any payment on account of the
purchase, redemption, retirement or acquisition for value of
such Person's Capital Stock; (iii) any defeasance,
redemption, repurchase or other acquisition or retirement
for value prior to the Stated Maturity of any Debt ranked
subordinate in right of payment to the Obligations; and
(iv) any Investment made in an Affiliate (other than the
Borrower or CDH). Notwithstanding the foregoing,
"Restricted Payment" shall not include any Permitted
Payment.
"Revolving Credit Loans": as defined in
subsection 2.1.
"Revolving Credit Note": as defined in
subsection 2.7(e).
"Revolving Credit Termination Date": the third
anniversary of the Closing Date or such later date to which
the Revolving Credit Termination Date shall have been
extended pursuant to subsection 2.1(c); provided, that, if
such day is not a Eurodollar Business Day, the Revolving
Credit Termination Date shall be the next succeeding
Eurodollar Business Day.
"Significant Subsidiary": of a Person, as of any date,
any Subsidiary, or two or more Subsidiaries taken together
in the event of a cross-collateralization of such multiple
Subsidiaries' Debt, which has two or more of the following
attributes: (i) it contributes 20% or more of such Person's
Excess Cash Flow for its most recently completed fiscal
quarter or (ii) it contributed 15% or more of Net Income
before tax of such Person and its consolidated Subsidiaries
for such Person's most recently completed fiscal quarter or
(iii) it constituted 20% or more of Consolidated Total
Assets of such Person at the end of such Person's most
recently completed fiscal quarter.
"Single Employer Plan": any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Stated Maturity": with respect to any debt security
or any installment of interest thereon, the date specified
in such debt security as the fixed date on which any
24
<PAGE> 29
principal of such debt security or any such installment of
interest is due and payable.
"Subsidiary": with respect to any Person, any
corporation or other entity of which a majority of the
Capital Stock or other ownership interests having ordinary
voting power (other than stock or such other ownership
interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of
directors or other persons performing similar functions are
at the time directly or indirectly owned by such Person.
Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Term Loan": as defined in subsection 2.5.
"Term Loan Payment Amount": for any Term Loan
Reduction Date, an amount (not less than zero) equal to the
lesser of (a) the then aggregate outstanding principal
amount of the Term Loans and (b) 25% of the Amortization
Amount; provided, that the Term Loan Payment Amount for the
Term Loan Reduction Date occurring on the Final Maturity
Date shall be equal to the then aggregate outstanding
principal amount of the Term Loans.
"Term Loan Reduction Dates": (a) the dates that are
six months, twelve months and eighteen months after the
Revolving Credit Termination Date and (b) the Final Maturity
Date.
"Term Note": as defined in subsection 2.7(e).
"Trade Payables": with respect to any Person, any
accounts payable or any other indebtedness or monetary
obligation to trade creditors created, assumed or Guaranteed
by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the
acquisition of goods or services.
"Tranche": the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all
of which begin on the same date and end on the same later
date (whether or not such Loans shall originally have been
made on the same day).
"Transferee": as defined in subsection 10.6(f).
"Type": (a) as to any Loan, its nature as an ABR Loan
or a Eurodollar Loan and (b) as to any Letter of Credit, its
nature as a Financial Letter of Credit or a Performance
Letter of Credit.
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"Uniform Customs": the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be
amended from time to time.
"Voting Stock": with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to
vote for the election of directors (or persons fulfilling
similar responsibilities) of such Person.
"Wholly-Owned Subsidiary": with respect to any Person,
any Subsidiary of such Person if all of the Capital Stock or
other ownership interests in such Subsidiary having ordinary
voting power (other than stock or such other ownership
interests having such power only by reason of the happening
of a contingency) to elect the entire board of directors or
entire group of other persons performing similar functions
(other than any director's qualifying shares or Investments
by foreign nationals mandated by applicable law) is owned
directly or indirectly, by one or more Wholly-Owned
Subsidiaries of such Person's Wholly-Owned Subsidiaries, by
such Person.
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in any Notes or any
certificate or other document made or delivered pursuant hereto.
(b) As used herein and in any Notes, and any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Borrower and its Subsidiaries
not defined in subsection 1.1 and accounting terms partly defined
in subsection 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, subsection, Schedule and
Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the
terms and conditions hereof, each Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower
from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding which, when added to
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such Lender's Commitment Percentage of the then outstanding L/C
Obligations, does not exceed the amount of such Lender's
Commitment. During the Commitment Period the Borrower may use
the Commitments by borrowing, prepaying and reborrowing the
Revolving Credit Loans in whole or in part, all in accordance
with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time
be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination
thereof, as determined by the Borrower and notified to the Agent
in accordance with subsections 2.2 and 2.9, provided that no
Revolving Credit Loan shall be made as a Eurodollar Loan after
the day that is one month prior to the Revolving Credit
Termination Date.
(c) The Revolving Credit Termination Date may be
extended, in the manner set forth in this subsection 2.1(c), on
the first anniversary of the Closing Date and each such
anniversary thereafter (each, an "Extension Date"), in each case
for a period of one year after the Revolving Credit Termination
Date theretofore in effect. If the Borrower wishes to request an
extension of the Revolving Credit Termination Date on any
Extension Date, it shall give written notice to that effect to
the Agent not less than 45 nor more than 90 days prior to such
Extension Date, whereupon the Agent shall notify each of the
Lenders of such notice. Each Lender will use reasonable efforts
to respond to such request, whether affirmatively or negatively,
no later than 15 days prior to such Extension Date. If all
Lenders respond affirmatively (any Lender which does not respond
being deemed to have responded negatively), then, subject to
receipt by the Agent prior to such Extension Date of counterparts
of an Extension Agreement in substantially the form of Exhibit D
duly completed and signed by all of the parties hereto, the
Revolving Credit Termination Date shall be extended, effective on
such Extension Date, for a period of one year to the date stated
in such Extension Agreement.
2.2 Procedure for Revolving Credit Borrowing. The
Borrower may borrow under the Commitments during the Commitment
Period on any Business Day in the case of ABR Loans and on any
Eurodollar Business Day in the case of Eurodollar Loans, provided
that the Borrower shall have delivered to the Agent a properly
completed Borrowing Request, duly executed by a Responsible
Officer of the Borrower, which notice shall be irrevocable and
must be received by the Agent prior to 10:00 A.M., New York City
time, (a) three Eurodollar Business Days prior to the requested
Borrowing Date, if all or any part of the requested Revolving
Credit Loans are to be initially Eurodollar Loans or (b) one
Business Day prior to the requested Borrowing Date, otherwise.
In each such Borrowing Request, the Borrower shall, in addition
to any other information required to be therein, specify (i) the
amount to be borrowed, (ii) the requested Borrowing Date,
(iii) whether the borrowing is to be of Eurodollar Loans, ABR
Loans or a combination thereof and (iv) if the borrowing is to be
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entirely or partly of Eurodollar Loans, the respective amounts of
each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing under the Commitments
of ABR Loans and each borrowing under the Commitments of
Eurodollar Loans shall be in an amount equal to $1,000,000 or a
whole multiple of $500,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of
its pro rata share of each borrowing available to the Agent for
the account of the Borrower at the office of the Agent specified
in subsection 10.2 prior to 11:00 A.M., New York City time, on
the Borrowing Date requested by the Borrower in funds immediately
available to the Agent. Such borrowing will then be made
available to the Borrower by the Agent by wire transfer to the
account specified in the Borrowing Request, in the amount of the
aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
2.3 Fees. (a) Commitment Fee. The Borrower agrees
to pay to the Agent for the account of each Lender a commitment
fee (a "Commitment Fee") for the Commitment Period computed at a
rate per annum equal to the Applicable Margin in effect from time
to time for the Commitment Fee, such fee to be paid on the
average daily amount of the Available Commitment of such Lender
during the period for which payment is made. The Commitment Fee
shall be payable quarterly in arrears on the last day of each
March, June, September and December and on the Revolving Credit
Termination Date or such earlier date as the Commitments shall
terminate as provided herein, commencing on the first of such
dates to occur after the date hereof.
(b) Up-Front Fee. The Borrower agrees to pay to ANZ
on the Closing Date for its own account an up-front fee in the
amount as set forth in the letter agreement dated May 22, 1997,
between the Borrower and ANZ (the "Fee Letter").
(c) Administration Fee. The Borrower agrees to pay to
the Agent, for its own account, a non-refundable fee (the
"Administration Fee") for its administration of this Agreement in
the amount and at the times set forth in the Fee Letter.
2.4 Termination or Reduction of Commitments.
(a) Optional. The Borrower shall have the right, upon
not less than thirty days' notice to the Agent, to terminate the
Commitments or, from time to time, to reduce the amount of the
Commitments. Any such reduction shall be in an amount equal to
$1,000,000 or a whole multiple of $500,000 in excess thereof and
shall reduce permanently the Commitments then in effect.
Termination of the Commitments shall also terminate the
obligation of the Lenders to make the Term Loans.
(b) Mandatory. In the event that (i) the Borrower or
any of its Subsidiaries shall at any time before the day that is
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366 days before the Revolving Credit Termination Date receive any
payment representing all or any part of the Net Cash Proceeds of
an Asset Disposition made by the Borrower or any of its
Subsidiaries and (ii) such payment shall not have been invested
in its entirety by the Borrower or its Subsidiaries in the
business or businesses of the Borrower or any of its Subsidiaries
within 364 days of the receipt of such payment, the amount of the
Commitments shall be mandatorily reduced on the day that is 365
days after the receipt of such payment in an amount equal to the
product of (x) the amount of the payment of Net Cash Proceeds not
so invested times (y) the fraction obtained by dividing (A) the
amount of the Commitments then in effect by (B) the sum of the
amount of the Commitments then in effect plus the aggregate
principal amount of the Borrower Indenture Securities then
outstanding.
2.5 Term Loans. Subject to the terms and conditions
hereof, each Lender severally agrees to make a term loan (a "Term
Loan") to the Borrower on the Revolving Credit Termination Date
in an amount not to exceed the amount of the aggregate principal
amount of the Revolving Credit Loans of such Lender then
outstanding. The Term Loans may from time to time be
(a) Eurodollar Loans, (b) ABR Loans or (c) a combination thereof,
as determined by the Borrower and notified to the Agent in
accordance with subsections 2.6 and 2.9.
2.6 Procedure for Term Loan Borrowing. The Borrower
shall give the Agent irrevocable notice (which notice must be
received by the Agent prior to 10:00 A.M., New York City time,
(a) three Eurodollar Business Days prior to the Revolving Credit
Termination Date, if all or any part of the Term Loans are to be
initially Eurodollar Loans or (b) one Business Day prior to the
Revolving Credit Termination Date, otherwise) requesting that the
Lenders make the Term Loans on the Revolving Credit Termination
Date and specifying (i) the amount to be borrowed, (ii) whether
the Term Loans are to be initially Eurodollar Loans, ABR Loans or
a combination thereof, and (iii) if the Term Loans are to be
entirely or partly Eurodollar Loans, the respective amounts of
each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Upon receipt of such notice the Agent
shall promptly notify each Lender thereof. If the aggregate
principal amount of the Term Loans is to be less than the
aggregate principal amount of the Revolving Credit Loans then
outstanding, the Borrower shall pay any difference to the Agent
on behalf of the Lenders on the Revolving Credit Termination
Date. Promptly after the making of its Term Loan each Lender
shall mark any Revolving Credit Note held by it "cancelled" and
deliver the same to the Borrower.
2.7 Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Agent for
the account of each Lender:
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(i) the then unpaid principal amount of each
Revolving Credit Loan of such Lender on the Revolving Credit
Termination Date (or such earlier date on which the
Revolving Credit Loans become due and payable pursuant to
Section 8); and
(ii) the principal amount of the Term Loan of
such Lender in four installments, each payable on a Term
Loan Reduction Date in an aggregate principal amount equal
to such Lender's Commitment Percentage of the Term Loan
Payment Amount for such Term Loan Reduction Date (or the
then unpaid principal amount of such Term Loan, on the date
that the Term Loans become due and payable pursuant to
Section 8).
The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from
the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 2.11.
(b) Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of
the Borrower to such Lender resulting from each Loan of such
Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Agent shall maintain the Register pursuant to
subsection 10.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the amount of each Revolving Credit
Loan and Term Loan made hereunder, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts
of each Lender maintained pursuant to subsection 2.7(b) shall, to
the extent permitted by applicable law, be prima facie evidence
of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest)
the Loans made to such Borrower by such Lender in accordance with
the terms of this Agreement.
(e) The Borrower agrees that it will execute and
deliver to each Lender (i) upon the Closing Date, a promissory
note of the Borrower evidencing the Revolving Credit Loans of
such Lender, substantially in the form of Exhibit A with
appropriate insertions as to date and principal amount (a
"Revolving Credit Note") and (ii) upon the Revolving Credit
Termination Date, a promissory note of the Borrower evidencing
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the Term Loan of such Lender made on such date, substantially in
the form of Exhibit B with appropriate insertions as to date and
principal amount (a "Term Note").
2.8 Prepayments.
(a) Optional. The Borrower may on the last day of any
Interest Period with respect thereto, in the case of Eurodollar
Loans, or at any time and from time to time, in the case of ABR
Loans, prepay the Loans, in whole or in part, without premium or
penalty, upon irrevocable notice to the Agent, specifying the
date and amount of prepayment and whether the prepayment is of
Eurodollar Loans, ABR Loans or a combination thereof, and, if of
a combination thereof, the amount allocable to each, which notice
must be received by the Agent at least (i) three Eurodollar
Business Days prior to the date of prepayment if any of the Loans
to be prepaid are Eurodollar Loans and (ii) one Business Day
prior to the date of prepayment, otherwise. Upon receipt of any
such notice the Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together
with any amounts payable pursuant to subsection 2.18 and accrued
interest to such date on the amount prepaid. Amounts prepaid on
account of the Term Loans may not be reborrowed. Partial
prepayments shall be in an aggregate principal amount of
$1,000,000 or a whole multiple of $500,000 in excess thereof.
(b) Mandatory.
(i) In the event that the Commitments shall
have been reduced pursuant to subsection 2.4 and the
aggregate principal amount of the Revolving Credit Loans
then outstanding, when added to the then outstanding L/C
Obligations, exceed the Commitments in effect after such
reduction less the aggregate amount then on deposit in the
Cash Collateral Account (excluding any amounts then on
deposit representing interest or other earnings thereon),
the Borrower shall apply an amount equal to the amount of
such excess to prepay the Loans or to cash collateralize the
Letters of Credit or both.
(ii) In the event that (1) the Borrower or any
of its Subsidiaries shall at any time on or after the day
that is 366 days before the Revolving Credit Termination
Date receive any payment representing all or any part of the
Net Cash Proceeds of an Asset Disposition made by the
Borrower or any of its Subsidiaries and (2) such payment
shall not have been invested in its entirety by the Borrower
or its Subsidiaries in the business or businesses of the
Borrower or any of its Subsidiaries within 364 days of the
receipt of such payment, the Borrower shall, on the day that
is 365 days after the receipt of such payment, apply an
amount equal to the product of (x) the amount of the payment
of Net Cash Proceeds not so invested times (y) the fraction
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obtained by dividing (A) the amount of the then Aggregate
Outstanding Extensions of Credit of all Lenders by (B) the
sum of the amount of the then Aggregate Outstanding
Extensions of Credit of all Lenders plus the aggregate
principal amount of the Borrower Indenture Securities then
outstanding, to prepay the Loans or to cash collateralize
the Letters of Credit or both.
(iii) Amounts to be applied pursuant to
clause (i) or (ii) of this subsection 2.8(b) shall be
applied first to prepay the principal amount of the Loans
then outstanding until all such Loans shall have been
prepaid in full, and if any excess then remains such excess
shall be deposited in the Cash Collateral Account to be
held, applied or released for application as provided in
subsection 3.9. The particular Loans to be prepaid shall be
designated by the Borrower (or, failing such designation, as
the Agent may determine). Each prepayment shall be applied
to prepay ratably the Loans of the Lenders. Each payment of
principal shall be made together with interest accrued on
the amount prepaid to the date of payment.
2.9 Conversion and Continuation Options. (a) The
Borrower may elect from time to time to convert Eurodollar Loans
to ABR Loans by giving the Agent at least two Eurodollar Business
Days' prior irrevocable notice of such election, provided that
any such conversion of Eurodollar Loans may only be made on the
last day of an Interest Period with respect thereto. The
Borrower may elect from time to time to convert ABR Loans to
Eurodollar Loans by giving the Agent at least three Eurodollar
Business Days' prior irrevocable notice of such election. Any
such notice of conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such notice the Agent shall
promptly notify each Lender thereof. All or any part of
outstanding Eurodollar Loans or ABR Loans may be converted as
provided herein, provided that (i) no Loan may be converted into
a Eurodollar Loan when any Event of Default has occurred and is
continuing and (ii) no Loan may be converted into a Eurodollar
Loan after the date that is one month prior to the Revolving
Credit Termination Date (in the case of conversions of Revolving
Credit Loans) or the Final Maturity Date.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect
thereto by the Borrower giving notice to the Agent, in accordance
with the applicable provisions of the term "Interest Period" set
forth in subsection 1.1, of the length of the next Interest
Period to be applicable to such Loans, provided that no
Eurodollar Loan may be continued as such (i) when any Event of
Default has occurred and is continuing or (ii) after the date
that is one month prior to the Revolving Credit Termination Date
(in the case of continuations of Revolving Credit Loans) or the
Final Maturity Date and provided, further, that if the Borrower
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shall fail to give such notice or if such continuation is not
permitted such Loans shall be automatically converted to ABR
Loans on the last day of such then expiring Interest Period.
2.10 Minimum Amounts and Maximum Number of Tranches.
All borrowings, conversions and continuations of Loans hereunder
and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $1,000,000 or a
whole multiple of $500,000 in excess thereof.
2.11 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to
the Eurodollar Rate determined for such day plus the Applicable
Margin for such Type of Loan.
(b) Each ABR Loan shall bear interest at a rate per
annum equal to the ABR plus the Applicable Margin for such Type
of Loan.
(c) If all or a portion of (i) any principal of any
Loan, (ii) any interest payable thereon, (iii) the Commitment
Fee, the Administration Fee, any Fronting Fee or any Letter of
Credit Fee or (iv) any other amount payable hereunder or under
any other Loan Document shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise), the principal
of the Loans and any such overdue interest, Commitment Fee,
Administration Fee, Fronting Fee, Letter of Credit Fee or other
amount shall bear interest at a rate per annum which is (x) in
the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of any such overdue
interest, Commitment Fee, Administration Fee, Fronting Fee,
Letter of Credit Fee or other amount, the rate described in
paragraph (b) of this subsection plus 2%, in each case from the
date of such non-payment until such overdue principal, interest,
Commitment Fee, Administration Fee, Fronting Fee, Letter of
Credit Fee or other amount is paid in full (as well after as
before judgment).
(d) Interest shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant
to paragraph (c) of this subsection shall be payable from time to
time on demand.
2.12 Computation of Interest and Fees. (a) The
Commitment Fee and, whenever it is calculated on the basis of the
Prime Rate, interest shall be calculated on the basis of a 365-
(or 366-, as the case may be) day year for the actual days
elapsed; and, otherwise, interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Agent
shall as soon as practicable notify the Borrower and the Lenders
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of each determination of a Eurodollar Rate. Any change in the
interest rate on a Loan resulting from a change in the ABR or the
Eurocurrency Reserve Requirements shall become effective as of
the opening of business on the day on which such change becomes
effective. The Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of
each such change in interest rate.
(b) Each determination of an interest rate by the
Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the
absence of manifest error. The Agent shall, at the request of
the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate
pursuant to subsection 2.11(a) or (c).
2.13 Inability to Determine Interest Rate. If prior
to the first day of any Interest Period:
(a) the Agent shall have determined (which
determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest
Period, or
(b) the Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate determined or to
be determined for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (as conclusively
certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If
such notice is given (x) any Eurodollar Loans requested to be
made on the first day of such Interest Period shall be made as
ABR Loans, (y) any Loans that were to have been converted on the
first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans
that were to have been continued as such on such first day shall
be converted on such day to ABR Loans. Until such notice has
been withdrawn by the Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right
to convert Loans to Eurodollar Loans.
2.14 Pro Rata Treatment and Payments. (a) Each
borrowing by the Borrower from the Lenders hereunder, each
payment by the Borrower of the Commitment Fee or any Letter of
Credit Fee and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each
prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the
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respective outstanding principal amounts of the Loans then held
by the Lenders. All payments (including prepayments) to be made
by the Borrower hereunder, whether on account of principal,
interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 11:00 a.m., New York City
time, on the due date thereof to the Agent, for the account of
the Lenders, at the Agent's office specified in subsection 10.2,
in Dollars and in immediately available funds. The Agent shall
distribute such payments to the Lenders promptly upon receipt in
like funds as received. If any payment hereunder (other than a
payment on any Eurodollar Loan) becomes due and payable on a day
other than a Business Day, such payment shall be extended to the
next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then
applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a
Eurodollar Business Day, the maturity thereof shall be extended
to the next succeeding Eurodollar Business Day (unless the result
of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the
immediately preceding Eurodollar Business Day) and, with respect
to payments of principal, interest thereon shall be payable at
the then applicable rate during any such extension.
(b) Unless the Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will
not make the amount that would constitute its Commitment
Percentage of such borrowing available to the Agent, the Agent
may assume that such Lender is making such amount available to
the Agent, and the Agent may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on
the Borrowing Date therefor, such Lender shall pay to the Agent,
on demand, such amount with interest thereon at a rate equal to
the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the
Agent. A certificate of the Agent submitted to any Lender with
respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's
Commitment Percentage of such borrowing is not made available to
the Agent by such Lender within three Business Days of such
Borrowing Date, the Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to
ABR Loans hereunder, on demand, from the Borrower.
2.15 Illegality. Notwithstanding any other provision
herein, if the adoption of or any change in any Requirement of
Law or in the interpretation or application thereof shall make it
unlawful for any Lender to make or maintain Eurodollar Loans as
contemplated by this Agreement, (a) the commitment of such Lender
hereunder to make Eurodollar Loans, continue Eurodollar Loans as
such and convert ABR Loans to Eurodollar Loans shall forthwith be
cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to ABR
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Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period
as required by law. If any such conversion of a Eurodollar Loan
occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to
subsection 2.18.
2.16 Requirements of Law. (a) If the adoption of or
any change in any Requirement of Law or in the interpretation or
application thereof or compliance by any Lender or the Issuing
Bank with any request or directive (whether or not having the
force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender or the Issuing Bank to
any tax of any kind whatsoever with respect to this
Agreement, the CDH Guarantee, any Note, any Letter of
Credit, any Issuance Request or any Eurodollar Loan made by
it, or change the basis of taxation of payments to such
Lender or the Issuing Bank in respect thereof (except for
Non-Excluded Taxes covered by subsection 2.17 and changes in
the rate of tax on the overall net income of such Lender or
the Issuing Bank);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of
funds by, any office of such Lender or the Issuing Bank
which is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(iii) shall impose on such Lender or the Issuing
Bank any other condition;
and the result of any of the foregoing is to increase the cost to
such Lender or the Issuing Bank, by an amount which such Lender
or the Issuing Bank, as the case may be, deems to be material, of
making, converting into, continuing or maintaining Eurodollar
Loans or issuing or participating in Letters of Credit or to
reduce any amount receivable hereunder in respect thereof, then,
in any such case, the Borrower shall promptly pay such Lender or
the Issuing Bank such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be,
for such increased cost or reduced amount receivable.
(b) If any Lender or the Issuing Bank shall have
determined that the adoption of or any change in any Requirement
of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or the Issuing
Bank or any corporation controlling such Lender or the Issuing
Bank with any request or directive regarding capital adequacy
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(whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the
effect of reducing the rate of return on such Lender's or the
Issuing Bank's or such corporation's capital as a consequence of
its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or the Issuing Bank or such
corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or the
Issuing Bank's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender or the
Issuing Bank to be material, then from time to time, the Borrower
shall promptly pay to such Lender or the Issuing Bank such
additional amount or amounts as will compensate such Lender or
the Issuing Bank, as the case may be, for such reduction.
(c) If any Lender or the Issuing Bank becomes entitled
to claim any additional amounts pursuant to this subsection, it
shall promptly notify the Borrower (with a copy to the Agent) of
the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender or the Issuing Bank to the
Borrower (with a copy to the Agent) shall be conclusive in the
absence of manifest error. The agreements in this subsection
shall survive the termination of this Agreement and the payment
of the Notes, the Loans and all other Obligations.
2.17 Taxes. (a) All payments made by the Borrower
under this Agreement and any Notes shall be made free and clear
of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by
any Governmental Authority, excluding net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Agent or the Issuing Bank or any Lender as a result of a
present or former connection between the Agent or the Issuing
Bank or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such
connection arising solely from the Agent or the Issuing Bank or
such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this
Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("Non-
Excluded Taxes") are required to be withheld from any amounts
payable to the Agent or the Issuing Bank or any Lender hereunder
or under any Note, the amounts so payable to the Agent or the
Issuing Bank or such Lender shall be increased to the extent
necessary to yield to the Agent or the Issuing Bank or such
Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the
Borrower shall not be required to increase any such amounts
payable to any Lender that is not organized under the laws of the
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United States of America or a state thereof if such Lender fails
to comply with the requirements of paragraph (b) of this
subsection. Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of the
Issuing Bank or such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing
payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to
remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent, the
Issuing Bank and the Lenders for any incremental taxes, interest
or penalties that may become payable by the Agent or the Issuing
Bank or any Lender as a result of any such failure. The
agreements in this subsection 2.17(a) shall survive the
termination of this Agreement and the payment of the Notes, the
Loans and all other Obligations.
(b) Each Lender that is not incorporated under the
laws of the United States of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case
may be, and (B) an Internal Revenue Service Form W-8 or W-9,
or successor applicable form, as the case may be;
(ii) deliver to the Borrower and the Agent two further
copies of any such form or certification on or before the
date that any such form or certification expires or becomes
obsolete and after the occurrence of any event requiring a
change in the most recent form previously delivered by it to
the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Agent;
unless in any such case an event (including, without limitation,
any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required
which renders all such forms inapplicable or which would prevent
such Lender from duly completing and delivering any such form
with respect to it and such Lender so advises the Borrower and
the Agent. Such Lender shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9,
that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 10.6 shall, upon the
effectiveness of the related transfer, be required to provide all
of the forms and statements required pursuant to this subsection,
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provided that in the case of a Participant such Participant shall
furnish all such required forms and statements to the Lender from
which the related participation shall have been purchased.
2.18 Indemnity. The Borrower agrees to indemnify each
Lender and to hold each Lender harmless from any loss or expense
which such Lender may sustain or incur as a consequence of
(a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in
making any prepayment after the Borrower has given a notice
thereof in accordance with the provisions of this Agreement or
(c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto.
Such indemnification may include an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of
such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the
applicable rate of interest for such Loans provided for herein
(excluding, however, the Applicable Margin included therein, if
any) over (ii) the amount of interest (as reasonably determined
by such Lender) which would have accrued to such Bank on such
amount by placing such amount on deposit for a comparable period
with leading banks in the interbank eurodollar market. This
covenant shall survive the termination of this Agreement and the
payment of the Notes, the Loans and all other Obligations.
2.19 Change of Lending Office. Each Lender agrees
that if it makes any demand for payment under subsection 2.16 or
2.17(a), or if any adoption or change of the type described in
subsection 2.15 shall occur with respect to it, it will use
reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not
be disadvantageous to it, as determined in its sole discretion)
to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to
make payments under subsection 2.16 or 2.17(a), or would
eliminate or reduce the effect of any adoption or change
described in subsection 2.15.
2.20 Procedure for Term Loan Repayment. No later than
three Business Days prior to each Term Loan Reduction Date, the
Borrower shall give the Agent irrevocable notice specifying the
Term Loan Payment Amount for such Term Loan Reduction Date and
whether such payment will be of Eurodollar Loans, ABR Loans or a
combination thereof, and, if of a combination thereof, the amount
allocable to each. The Term Loan Payment Amount for any Term
Loan Reduction Date shall be due and payable by the Borrower on
such date, together with any amounts payable pursuant to
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subsection 2.18 and accrued interest to such date on the amount
paid.
2.21 Use of Proceeds. The Borrower shall use the
proceeds of the Revolving Credit Loans solely for working capital
and general corporate purposes in the ordinary course of
business. The Borrower shall use the proceeds of the Term Loans
solely to pay the Revolving Credit Loans.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and
conditions hereof, the Issuing Bank agrees to issue standby
letters of credit ("Letters of Credit") for the account of the
Borrower or, at the Borrower's request, any Subsidiary of the
Borrower on any Business Day during the Commitment Period in such
form as may be approved from time to time by the Issuing Bank;
provided, that the Issuing Bank shall have no obligation to issue
any Letter of Credit if, after giving effect to such issuance,
the Available Commitment for any Lender, or the Letter of Credit
Availability, would be less than zero.
(b) Each Letter of Credit shall:
(i) be denominated in Dollars and shall be
either (1) a standby letter of credit issued to support
financial obligations (incurred in the ordinary course of
business) of the Borrower or any Subsidiary of the Borrower,
contingent or otherwise, to pay money (a "Financial Letter
of Credit") or (2) a standby letter of credit issued to
support non-financial obligations of the Borrower or any
Subsidiary of the Borrower, contingent or otherwise, to
provide goods or services in the ordinary course of business
(a "Performance Letter of Credit");
(ii) have a face amount of (1) not less than
$300,000 and (2) not more than the amount that would, after
giving effect to the issuance thereof, cause the Available
Commitment of any Lender or the Letter of Credit
Availability to be less than zero; and
(iii) expire (1) no earlier than 30 days after
its date of issue and (2) no later than five Business Days
prior to the then Final Maturity Date.
(c) Each Letter of Credit shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith,
the laws of the State of New York.
(d) The Issuing Bank shall not at any time be
obligated to issue any Letter of Credit hereunder if such
issuance would conflict with, or cause the Issuing Bank or any
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L/C Participant to exceed any limits imposed by, any applicable
Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit.
(a) The Borrower may from time to time request that the Issuing
Bank issue a Letter of Credit by delivering to the Agent and the
Issuing Bank a duly executed and completed Issuance Request
therefor, completed to the satisfaction of the Agent and the
Issuing Bank, and such other certificates, documents and other
papers and information relating to such Letter of Credit as the
Issuing Bank may reasonably request consistent with its current
practices and procedures with respect to letters of credit of the
same type. In addition to such other information as is required
to be therein, the Borrower shall specify in any Issuance
Request:
(i) the proposed party for whose account the requested
Letter of Credit would be issued (which shall be either the
Borrower or a Subsidiary of the Borrower);
(ii) the proposed beneficiary of the requested Letter
of Credit;
(iii) the proposed date of issuance of the requested
Letter of Credit;
(iv) the proposed expiry date of the requested Letter
of Credit;
(v) the proposed terms of the requested Letter of
Credit, including the proposed face amount thereof and
whether it would constitute a Financial Letter of Credit or
a Performance Letter of Credit; and
(vi) the transaction that is to be supported or
financed with the requested Letter of Credit, including
identification of the Power Generation Facility, if any, to
which such Letter of Credit would relate.
(b) Upon receipt of any Issuance Request, the Issuing
Bank will process such Issuance Request and the certificates,
documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures
and shall promptly issue the Letter of Credit requested thereby
(but in no event shall the Issuing Bank be required to issue any
Letter of Credit earlier than three Business Days after its
receipt of the Issuance Request therefor and all such other
certificates, documents and other papers and information relating
thereto) by issuing the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed by the Issuing
Bank and the Borrower. The Issuing Bank shall furnish a copy of
such Letter of Credit to the Borrower promptly following the
issuance thereof.
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3.3 Fees, Commissions and Other Charges. (a) The
Borrower shall pay to the Agent, for the account of the Issuing
Bank, a fronting fee ("Fronting Fee") with respect to each Letter
of Credit in the amount and at the times set forth in the Fee
Letter.
(b) The Borrower shall pay to the Agent, for the
account of the Issuing Bank and the L/C Participants, a letter of
credit fee ("Letter of Credit Fee") with respect to each Letter
of Credit, computed for the period from and including the date of
the issuance of such Letter of Credit and to but excluding the
date such Letter of Credit expires, at a rate per annum,
calculated on the basis of a 365- (or 366-, as the case may be)
day year, equal to the Applicable Margin in effect from time-to-
time for the Type of such Letter of Credit and calculated on the
aggregate amount available for drawing under such Letter of
Credit for each day during the period for which such fee is then
being calculated. Each Letter of Credit Fee shall be payable to
the L/C Participants to be shared ratably among them in
accordance with their respective Commitment Percentages. Each
Letter of Credit Fee shall be payable in arrears on each L/C Fee
Payment Date to occur after the date of issuance of each Letter
of Credit and shall be nonrefundable.
(c) In addition to the foregoing fees and commissions,
the Borrower shall pay or reimburse the Issuing Bank for such
normal and customary costs and expenses as are incurred or
charged by the Issuing Bank in issuing, effecting payment under,
amending or otherwise administering any Letter of Credit.
(d) The Agent shall, promptly following its receipt
thereof, distribute to the Issuing Bank and the L/C Participants
all fees and commissions received by the Agent for their
respective accounts pursuant to this subsection.
3.4 L/C Participations. (a) The Issuing Bank
irrevocably agrees to grant and hereby grants to each L/C
Participant, and, to induce the Issuing Bank to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from the
Issuing Bank, on the terms and conditions hereinafter stated, for
such L/C Participant's own account and risk an undivided interest
equal to such L/C Participant's Commitment Percentage in the
Issuing Bank's obligations and rights under each Letter of Credit
issued hereunder and the amount of each draft paid by the Issuing
Bank thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Bank that, if a draft is paid
under any Letter of Credit for which the Issuing Bank is not
reimbursed in full by the Borrower in accordance with the terms
of this Agreement, such L/C Participant shall pay to the Issuing
Bank upon first demand at the Issuing Bank's address for notices
specified herein an amount equal to such L/C Participant's
Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed.
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(b) If any amount required to be paid by any L/C
Participant to the Issuing Bank pursuant to subsection 0 in
respect of any unreimbursed portion of any payment made by the
Issuing Bank under any Letter of Credit is paid to the Issuing
Bank within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Bank on demand
an amount equal to the product of (i) such amount, times (ii) the
daily average Federal funds rate, as quoted by the Issuing Bank,
during the period from and including the date such payment is
required to the date on which such payment is immediately
available to the Issuing Bank, times (iii) a fraction the
numerator of which is the number of days that elapse during such
period and the denominator of which is 360. If any such amount
required to be paid by any L/C Participant pursuant to
subsection 3.4(a) is not in fact made available to the Issuing Bank
by such L/C Participant within three Business Days after the date
such payment is due, the Issuing Bank shall be entitled to
recover from such L/C Participant, on demand, such amount with
interest thereon calculated from such due date at the rate per
annum applicable to ABR Loans hereunder. A certificate of the
Issuing Bank submitted to any L/C Participant with respect to any
amounts owing under this subsection shall be conclusive in the
absence of manifest error.
(c) Whenever, at any time after the Issuing Bank has
made payment under any Letter of Credit and has received from any
L/C Participant its pro rata share of such payment in accordance
with subsection 0, the Issuing Bank receives any payment related
to such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by
the Issuing Bank), or any payment of interest on account thereof,
the Issuing Bank will distribute to such L/C Participant its pro
rata share thereof; provided, however, that in the event that any
such payment received by the Issuing Bank shall be required to be
returned by the Issuing Bank, such L/C Participant shall return
to the Issuing Bank the portion thereof previously distributed by
the Issuing Bank to it.
3.5 Reimbursement Obligation of the Borrower.
(a) The Borrower agrees to reimburse the Issuing Bank on each
date on which the Issuing Bank notifies the Borrower of the date
and amount of a draft presented under any Letter of Credit and
paid by the Issuing Bank for the amount of such draft so paid.
Each such payment shall be made to the Issuing Bank at its
address for notices specified herein in lawful money of the
United States of America and in immediately available funds.
(b) Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this subsection from the
date such amounts become payable (whether at stated maturity, by
acceleration or otherwise) until payment in full at the rate
which would be payable on any outstanding ABR Loans which were
then overdue.
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(c) Each drawing under any Letter of Credit during the
Commitment Period shall be deemed a request by the Borrower to
the Agent for a borrowing pursuant to subsection 2.2 (Procedure
for Revolving Credit Borrowing) of ABR Loans in the amount of
such drawing. The Borrowing Date with respect to such borrowing
shall be the date of such drawing.
3.6 Obligations Absolute. (a) The Borrower's
obligations under this Section 3 shall be absolute and
unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Bank or any
beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank
that the Issuing Bank shall not be responsible for, and the
Borrower's Reimbursement Obligations under subsection 3.5(a) shall
not be affected by, among other things, (i) the validity or
genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid,
fraudulent or forged, or (ii) any dispute between or among the
Borrower and any beneficiary of any Letter of Credit or any other
party to which such Letter of Credit may be transferred or (iii)
any claims whatsoever of the Borrower against any beneficiary of
such Letter of Credit or any such transferee.
(c) The Issuing Bank shall not be liable for any
error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or
omissions caused by the Issuing Bank's gross negligence or
willful misconduct.
(d) The Borrower agrees that any action taken or
omitted by the Issuing Bank under or in connection with any
Letter of Credit or the related drafts or documents, if done in
the absence of gross negligence of willful misconduct and in
accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing
Bank to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing
Bank shall promptly notify the Borrower of the date and amount
thereof. The responsibility of the Issuing Bank to the Borrower
in connection with any draft presented for payment under any
Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to
determining that the documents (including each draft) delivered
under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
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3.8 Issuance Request. To the extent that any
provision of any Issuance Request related to any Letter of Credit
is inconsistent with the provisions of this Section 3, the
provisions of this Section 3 shall apply.
3.9 Cash Collateralization. (a) The Borrower shall
on each Term Loan Reduction Date deposit in the Cash Collateral
Account an amount equal to the Mandatory Cash Collateralization
Amount for such Term Loan Reduction Date.
(b) All amounts required to be deposited as cash
collateral with the Agent pursuant to subsection 2.8(b),
subsection 3.9(a) or Section 8 shall be deposited in a cash
collateral account established by the Borrower with the Agent
(the "Cash Collateral Account"), to be held, applied or released
for application as provided in this subsection 3.9. The Borrower
hereby grants to the Agent, for the benefit of the Issuing Bank
and the L/C Participants, a security interest in all cash in the
Cash Collateral Account to secure the Obligations. The Borrower
shall execute and deliver to the Agent, for the account of the
Issuing Bank and the L/C Participants, such further documents and
instruments as the Agent may reasonably request to evidence the
creation and perfection of such security interest in the Cash
Collateral Account.
(c) In the event of a payment by the Issuing Bank of a
draft presented under any Letter of Credit, the amount of such
drawing (but not more than the amount in the Cash Collateral
Account at the time) shall be withdrawn by the Agent from the
Cash Collateral Account and shall be paid to the Issuing Bank to
be applied against such drawing. If on any L/C Fee Payment Date
the amount in the Cash Collateral Account exceeds the then
outstanding L/C Obligations, the excess amount shall, so long as
no Default shall have occurred and be continuing, be withdrawn by
the Agent and paid to the Borrower on such L/C Fee Payment Date.
If an Event of Default shall have occurred and be continuing,
such excess amount shall, if and when requested by the Required
Lenders, be withdrawn by the Agent and applied first to repay the
Loans, Reimbursement Obligations and other due and unpaid amounts
required to be paid by the Borrower hereunder and second any
remaining excess shall be paid to the Borrower.
(d) Interest and other payments and distributions made
on or with respect to the cash collateral held by the Agent in
the Cash Collateral Account shall be for the account of the
Borrower and shall constitute cash collateral to be held by the
Agent or returned to the Borrower in accordance with
subsection 3.9(c). Funds held in the Cash Collateral Account
shall be invested in time deposits with the Agent which pay a
market rate of interest for a like deposit with a comparable
financial institution. Beyond the exercise of reasonable care in
the custody thereof, the Agent shall have no duty as to any cash
collateral in its possession or control or in the possession or
control of any agent or bailee or any income thereon or as to the
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preservation of rights against prior parties or any other rights
the preservation of rights against prior parties or any other
rights pertaining thereto. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the
cash collateral in its possession if the cash collateral is
accorded treatment substantially equal to that which it accords
its own property, and shall not be liable or responsible for any
loss or damage to any of the cash collateral, or for any
diminution in the value thereof, by reason of the act or omission
of any agent or bailee selected by the Agent in good faith. All
expenses and liabilities incurred by the Agent in connection with
taking, holding and disposing of any cash collateral (including
customary custody and similar fees with respect to any cash
collateral held directly by the Agent) shall be paid by the
Borrower from time to time upon demand. Upon a Default, the
Agent shall be entitled to apply (and, at the request of the
Required Lenders but subject to applicable law, shall apply) cash
collateral or the proceeds thereof to payment of any such
expenses, liabilities and fees.
3.10 Substitution/Replacement of Issuing Bank.
(a) In the event that the Issuing Bank shall refuse pursuant to
subsection 3.1(d) to issue any Letter of Credit requested by the
Borrower, the Borrower may request any L/C Participant to issue
such Letter of Credit hereunder in substitution for the Issuing
Bank by delivering to such L/C Participant and to the Agent a
duly executed and completed Issuance Request in accordance with
subsection 3.2, and such L/C Participant may agree to issue such
Letter of Credit (but no L/C Participant shall be under any
obligation to do so); provided, that the issuance by such L/C
Participant of such Letter of Credit would not conflict with any
Requirement of Law applicable to any other L/C Participant or
cause any other L/C Participant to exceed any limits imposed by
any applicable Requirement of Law. Any L/C Participant issuing a
Letter of Credit pursuant to this subsection 3.10(a) shall be
deemed hereunder and under the other Loan Documents to be, and to
have all rights, powers, duties and obligations of, the Issuing
Bank for the purposes of such Letter of Credit without any
further act or deed on the part of any of the L/C Participants or
any other party to this Agreement.
(b) If at any time the senior unsecured long-term debt
securities of ANZ shall be rated less than "A1" by Moody's
Investors Service, Inc. or less than "A+" by Standard & Poor's
Rating Group, the Borrower may request any L/C Participant, and
such L/C Participant may agree, to succeed ANZ as Issuing Bank
hereunder (but no L/C Participant shall be under any obligation
to do so). In such event, upon 10 days' prior written notice to
the Agent, ANZ and each L/C Participant but without any further
act or deed on the part of any of the L/C Participants or any
other party to this Agreement, such L/C Participant shall succeed
ANZ as Issuing Bank hereunder and be deemed hereunder and under
the other Loan Documents to be, and to have all rights, powers,
duties and obligations of, the Issuing Bank for the purposes of
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each Letter of Credit issued thereafter by such L/C Participant;
provided, that ANZ shall remain, and have all rights, powers,
duties and obligations of, the Issuing Bank with respect to (i)
any actions taken or omitted to be taken by it while it was
Issuing Bank and (ii) each Letter of Credit issued by ANZ as
Issuing Bank that shall not have been surrendered and returned to
ANZ by the beneficiary thereof in a manner acceptable to ANZ in
its sole discretion.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Issuing Bank and the Lenders
to enter into this Agreement and to make the Loans and issue or
participate in the Letters of Credit, the Borrower hereby
represents and warrants to the Agent, the Issuing Bank and each
Lender that:
4.1 Financial Information. (a) The audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at June 30, 1996 and the related audited
consolidated statements of income and of cash flows for the
fiscal year ended on such date, reported on by Arthur Anderson,
LLP, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the
consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for
the fiscal year then ended.
(b) The unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at March 31, 1997
and the related unaudited consolidated statements of income and
of cash flows for the nine-month period ended on such date,
certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and
correct and present fairly the consolidated financial condition
of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their
consolidated cash flows for the nine-month period then ended
(subject to normal year-end audit adjustments).
(c) All of the financial statements referred to in
clause (a) and (b) above, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved
by such accountants or Responsible Officer, as the case may be,
and as disclosed therein).
(d) Neither the Borrower nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including, without
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limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing
statements or in the notes thereto. During the period from
June 30, 1996 to and including the date of this Agreement there
has been no sale, transfer or other disposition by the Borrower
or any of its consolidated Subsidiaries of any material part of
its business or property and no purchase or other acquisition of
any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial
condition of the Borrower and its consolidated Subsidiaries at
June 30, 1996.
4.2 No Change. (a) Except as disclosed on
Schedule III, since June 30, 1996 there has been no development
or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from March 31,
1997 to and including the date of this Agreement no dividends or
other distributions have been declared, paid or made upon the
Capital Stock of the Borrower nor has any of the Capital Stock of
the Borrower been redeemed, retired, purchased or otherwise
acquired for value by the Borrower or any of its Subsidiaries.
4.3 Corporate Existence; Compliance with Law. Each of
the Borrower and its Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization (except, in the case of the Borrower's
Subsidiaries, to the extent that the failure to be so organized,
validly existing or in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect),
(b) has the corporate or partnership power and authority, and the
legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in
which it is currently engaged (except, in the case of the
Borrower's Subsidiaries, to the extent that the failure to have
such power and authority or legal right could not, in the
aggregate, reasonably be expected to have a Material Adverse
Effect), (c) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its
business requires such qualification (except, in the case of the
Borrower's Subsidiaries, to the extent that the failure to be so
duly qualified or in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect) and,
(d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
4.4 Corporate Power; Authorization; Enforceable
Obligations. The Borrower has the corporate power and authority,
and the legal right, to make, deliver and perform the Loan
Documents to which it is a party and to borrow hereunder and has
taken all necessary corporate action to authorize the borrowings
on the terms and conditions of this Agreement and the Notes and
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to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent or authorization
of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person (other than those that
have been given or made) is required in connection with the
borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Loan Documents to
which the Borrower is a party. This Agreement has been, and each
other Loan Document to which it is a party will be, duly executed
and delivered on behalf of the Borrower. This Agreement
constitutes, and each other Loan Document to which it is a party
when executed and delivered will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
4.5 No Legal Bar. The execution, delivery and
performance of the Loan Documents to which the Borrower is a
party, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien
(other than any Lien created by the Loan Documents) on any of its
or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
4.6 No Material Litigation. Except as disclosed on
Schedule IV, no litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to
the knowledge of the Borrower, threatened by or against the
Borrower or any of its Subsidiaries or against any of its or
their respective properties or revenues (a) with respect to any
of the Loan Documents or any of the transactions contemplated
hereby or thereby or (b) which could reasonably be expected to
have a Material Adverse Effect.
4.7 No Default. The Borrower is not in default under
or in respect of any of its obligations under the Borrower
Indenture, and no "Event of Default" (as defined in the Borrower
Indenture) has occurred and is continuing under the Borrower
Indenture. Neither the Borrower nor any of its Subsidiaries is
in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to
have a Material Adverse Effect. No Default or Event of Default
has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the
Borrower and its Subsidiaries has good record and marketable
title in fee simple to, or a valid leasehold interest in, all its
real property, and good title to, or a valid leasehold interest
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in, all its other property, and none of the Borrower's property
is subject to any Lien except as permitted by subsection 7.8.
4.9 Taxes. Each of the Borrower and its Subsidiaries
has filed or caused to be filed all tax returns which, to the
knowledge of the Borrower, are required to be filed and has paid
all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property
by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the
Borrower or its Subsidiaries, as the case may be); no tax Lien
has been filed, and, to the knowledge of the Borrower, no claim
is being asserted, with respect to any such tax, fee or other
charge.
4.10 Federal Regulations. No part of the proceeds of
any Loans will be used for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms
under Regulation G or Regulation U of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter
in effect. If requested by any Lender or the Agent, the Borrower
will furnish to the Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form G-
1 or FR Form U-1 referred to in said Regulation G or Regulation
U, as the case may be.
4.11 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred
during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan,
and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. No termination of a
Single Employer Plan has occurred, and no Lien in favor of the
PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date on
which this representation is made or deemed made, exceed the
value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any liability under
ERISA if the Borrower or any such Commonly Controlled Entity were
to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent. The present value
(determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees
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participating) of the liability of the Borrower and each Commonly
Controlled Entity for post retirement benefits to be provided to
their current and former employees under Plans which are welfare
benefit plans (as defined in Section 3(1) of ERISA) does not, in
the aggregate, exceed the assets under all such Plans allocable
to such benefits.
4.12 Investment Company Act; Public Utility Holding
Company Act; Other Regulations. The Borrower is not (a) an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of
1940, as amended, or (b) a "holding company," a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended. The Borrower is not subject to
regulation under any Federal or State statute or regulation
(other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Debt.
4.13 Subsidiaries. All the Subsidiaries of the
Borrower at the date of this Agreement are listed on Schedule V.
4.14 Purpose of Revolving Credit Loans. The proceeds
of the Revolving Credit Loans shall be used by the Borrower for
working capital and general corporate purposes in the ordinary
course of business.
4.15 Environmental Matters. Except as set forth on
Schedule VI:
(a) To the best knowledge of the Borrower, the
facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Project
Properties") do not contain, and have not previously
contained, any Materials of Environmental Concern in amounts
or concentrations which (i) constitute or constituted a
violation of, or (ii) could reasonably be expected to give
rise to liability under, any Environmental Law, except in
either case insofar as such violation or liability, or any
aggregation thereof, is not reasonably likely to have a
Material Adverse Effect.
(b) To the best knowledge of the Borrower, the Project
Properties and all operations at the Project Properties are
in compliance, and have been in compliance while owned,
leased or operated by the Borrower or any of its
Subsidiaries, in all material respects with all applicable
Environmental Laws, and there is no contamination at, under
or about the Project Properties or violation of any
Environmental Law with respect to the Project Properties or
the business operated by the Borrower or any of its
Subsidiaries (the "Business") which could materially
interfere with the continued operation of the Project
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Properties or materially impair the fair saleable value
thereof.
(c) Neither the Borrower nor any of its Subsidiaries
has received any notice of violation, alleged violation, non-
compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws
with regard to any of the Project Properties or the
Business, nor does the Borrower have knowledge or reason to
believe that any such notice will be received or is being
threatened, except insofar as such notice or threatened
notice, or any aggregation thereof, does not involve a
matter or matters that is or are reasonably likely to have a
Material Adverse Effect.
(d) To the best knowledge of the Borrower, Materials
of Environmental Concern have not been transported or
disposed of from the Project Properties in violation of, or
in a manner or to a location which could reasonably be
expected to give rise to liability under, any Environmental
Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under
any of the Project Properties (i) in violation of any
applicable Environmental Law which violation, or any
aggregration thereof, could reasonably be expected to give
rise to material liability to the Borrower or any of its
Subsidiaries under any applicable Environmental Law or (ii)
in a manner that could reasonably be expected to give rise
to material liability to the Borrower or any of its
Subsidiaries under any applicable Environmental Law.
(e) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of the
Borrower, threatened, under any Environmental Law to which
the Borrower or any Subsidiary is or will be named as a
party with respect to the Project Properties or the
Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the
Project Properties or the Business that could reasonably be
expected to give rise to material liability to the Borrower
or any of its Subsidiaries under any applicable
Environmental Law.
(f) To the best knowledge of the Borrower, there has
been no release or threat of release of Materials of
Environmental Concern at or from the Project Properties, or
arising from or related to the operations of the Borrower or
any Subsidiary in connection with the Project Properties or
otherwise in connection with the Business, (i) in violation
of any applicable Environmental Law which violation, or any
aggregration thereof, could reasonably be expected to give
rise to material liability to the Borrower or any of its
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Subsidiaries under any applicable Environmental Law or (ii)
in amounts or in a manner that could reasonably give rise to
material liability to the Borrower or any of its
Subsidiaries under any applicable Environmental Law.
4.16 Accuracy of Information; Full Disclosure. No
representation, warranty or other statement made by any Loan
Party in this Agreement, the CDH Guarantee or any other Loan
Document or in any certificate, written statement or other
document furnished to the Agent or any Lender by or on behalf of
any Loan Party pursuant to or in connection with this Agreement,
the CDH Guarantee or any other Loan Document or the transactions
contemplated hereby or thereby, contains any untrue statement of
a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not
misleading. There is no fact known to the Borrower as of the
date of this Agreement which the Borrower has not disclosed to
the Agent and the Lenders in writing prior to the date of this
Agreement which has had, or could reasonably be expected to have,
a Material Adverse Effect.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The
closing hereunder shall not occur until, and the agreement of
each Lender and the Issuing Bank to make the initial Loan or
other Extension of Credit requested to be made by it is subject
to, the satisfaction of the following conditions precedent:
(a) Loan Documents. The Agent shall have received
(i) this Agreement, executed and delivered by a duly
authorized officer of the Borrower, with a counterpart for
each Lender, (ii) for the account of each Lender, a
Revolving Credit Note, dated the Closing Date, conforming to
the requirements hereof and executed and delivered by a duly
authorized officer of the Borrower, and (iii) the CDH
Guarantee, executed and delivered by a duly authorized
officer of CDH, with a counterpart or a conformed copy for
each Lender.
(b) Related Agreements. The Agent shall have
received, with a copy for each Lender, a true and correct
copy, certified as to authenticity by the Borrower, of the
Borrower Indenture.
(c) Corporate Proceedings of the Borrower. The Agent
shall have received, with a counterpart for each Lender, a
copy of the resolutions, in form and substance satisfactory
to the Agent, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents to
which it is a party and (ii) the borrowings contemplated
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hereunder, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which
certificate shall be in form and substance satisfactory to
the Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or
rescinded.
(d) Borrower Incumbency Certificate. The Agent shall
have received, with a counterpart for each Lender, a
Certificate of the Borrower, dated the Closing Date, as to
the incumbency and signature of the officers of the Borrower
executing any Loan Document satisfactory in form and
substance to the Agent, executed by the Secretary or any
Assistant Secretary of the Borrower and countersigned by one
such officer of the Borrower.
(e) Corporate Proceedings of CDH. The Agent shall
have received, with a counterpart for each Lender, a copy of
the resolutions, in form and substance satisfactory to the
Agent, of the Board of Directors of CDH authorizing the
execution, delivery and performance of the CDH Guarantee,
certified by the Secretary or an Assistant Secretary of CDH
as of the Closing Date, which certificate shall be in form
and substance satisfactory to the Agent and shall state that
the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(f) CDH Incumbency Certificate. The Agent shall have
received, with a counterpart for each Lender, a certificate
of CDH, dated the Closing Date, as to the incumbency and
signature of the officer of CDH executing the CDH Guarantee
satisfactory in form and substance to the Agent, executed by
the Secretary or any Assistant Secretary of CDH and
countersigned by such officer of CDH.
(g) Corporate Documents. The Agent shall have
received, with a counterpart for each Lender, true and
complete copies of the certificate or articles of
incorporation and by-laws of each Loan Party, certified as
of the Closing Date as complete and correct copies thereof
by the Secretary or an Assistant Secretary of such Loan
Party.
(h) Fees and Expenses. ANZ shall have received (i)
the fee to be received by it on the Closing Date referred to
in subsection 2.3(b) and (ii) payment for all of its costs
and expenses then payable to it as the Agent pursuant to
subsection 10.5.
(i) Legal Opinions. The Agent shall have received,
with a counterpart for each Lender, the following executed
legal opinions:
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(i) the executed legal opinion of
Moore & Van Allen, PLLC, counsel to the Borrower and
CDH, substantially in the form of Exhibit F-1; and
(ii) the executed legal opinion of
Menaker & Herrmann, special New York counsel to the
Borrower and CDH, substantially in the form of
Exhibit F-2.
Each such legal opinion shall cover such other matters
incident to the transactions contemplated by this Agreement
as the Agent may reasonably require.
(j) Lien Searches. The Agent shall have received the
results of a recent search by a Person satisfactory to the
Agent of the Uniform Commercial Code, judgement and tax lien
filings which may have been filed with respect to personal
property of the Borrower and CDH, and the results of such
search shall be satisfactory to the Agent.
(k) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be
satisfactory in form and substance to the Agent, and the
Agent shall have received such other documents and legal
opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall
reasonably request.
5.2 Conditions to Each Revolving Credit Loan and Each
Letter of Credit. The agreement of each Lender to make any
Revolving Credit Loan, and of the Issuing Bank to issue any
Letter of Credit, requested to be made or issued by it on any
date (including, without limitation, its initial Revolving Credit
Loan or Letter of Credit) is subject to the satisfaction of the
following conditions precedent:
(a) Borrowing or Issuance Request. Except in the case
of a request for a borrowing deemed to be made pursuant to
subsection 3.5(c), the Agent and, in the case of a request
for a Letter of Credit, the Issuing Bank shall have received
a Borrowing Request or Issuance Request, as the case may be,
for such Revolving Credit Loan or Letter of Credit, duly
executed by a Responsible Officer of the Borrower and
completed, with the appropriate insertions and attachments,
to the satisfaction of the Agent and, in the case of an
Issuance Request, the Issuing Bank.
(b) Representations and Warranties. Each of the
representations and warranties made by the Borrower or CDH
in or pursuant to the Loan Documents shall be true and
correct in all material respects on and as of such date as
if made on and as of such date (or, if such representation
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or warranty is expressly stated to have been made as of a
specific date, such specific date).
(c) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to all Extensions of Credit requested to be made on
such date.
(d) Parent Cash Flow Coverage Ratio. The Agent shall
have received a certificate of a Responsible Officer of the
Borrower setting forth in reasonable detail the calculations
and financial information necessary to determine the Parent
Cash Flow Coverage Ratio for the four most recent
consecutive fiscal quarters of the Borrower, and such ratio
shall not have been less than 2.0 to 1 for such period.
Each borrowing of a Revolving Credit Loan by and Letter of Credit
issued at the request of the Borrower hereunder shall constitute
a representation and warranty by the Borrower as of the date
thereof that the conditions contained in this subsection have
been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, until the Commitments
are terminated, all Obligations have been paid and performed in
full, no L/C Obligations are outstanding and all Letters of
Credit have expired and are no longer outstanding, the Borrower
shall:
6.1 Financial Statements. Furnish to each
Lender:
(a) as soon as available, but in any event within
90 days after the end of each fiscal year of the Borrower,
(i) a copy of the audited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of
such year and the related consolidated statements of income
and retained earnings and of cash flows for such year,
setting forth in each case in comparative form the figures
for the previous year, reported on without a "going concern"
or like qualification or exception, or qualification arising
out of the scope of the audit, by Arthur Anderson, LLP or
other independent certified public accountants of nationally
recognized standing, (ii) a copy of the unaudited
consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the
related consolidating statement of income for such year,
setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects and (iii) a
copy of the unaudited balance sheet of CDH as at the end of
such year and the related statements of income and retained
earnings for such year, setting forth in comparative figures
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for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects; and
(b) as soon as available, but in any event not later
than 45 days after the end of each of the first three
quarterly periods of each fiscal year of the Borrower,
(i) the unaudited consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the
Borrower and its consolidated Subsidiaries for such quarter
and the portion of the fiscal year through the end of such
quarter and (ii) the unaudited balance sheet of CDH as at
the end of such quarter and the related statements of income
and retained earnings of CDH for such quarter and the
portion of the fiscal year through the end of such quarter,
setting forth in the case of each of subclause (i) and (ii)
in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in
all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in
all material respects and shall be prepared in reasonable detail
and in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and
disclosed therein).
6.2 Certificates; Other Information. Furnish to each
Lender:
(a) concurrently with the delivery of the financial
statements referred to in clause (i) of subsection 6.1(a), a
certificate of the independent certified public accountants
reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as
specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 6.1(a) and 6.1(b), a
certificate of a Responsible Officer (i) stating that, to
the best of such Officer's knowledge, during such period the
Borrower has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained
in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and
(ii) setting forth in reasonable detail the calculations and
financial information required to establish whether the
Borrower is in compliance with subsection 7.1;
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(c) not later than thirty days prior to the end of
each fiscal year of the Borrower, a copy of the projections
by the Borrower of the consolidated operating budget and
cash flow budget of the Borrower and its consolidated
Subsidiaries for the succeeding fiscal year, such
projections to be accompanied by a certificate of a
Responsible Officer to the effect that such projections have
been prepared on the basis of sound financial planning
practice and that such Officer has no reason to believe they
are based on unreasonable assumptions or misleading in any
material respect;
(d) within five days after the same are filed, copies
of all financial statements and reports which the Borrower
may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental
Authority;
(e) concurrently with the delivery thereof, copies of
all certificates, notices and other written communications
which the Borrower delivers pursuant to the Borrower
Indenture to any party thereto;
(f) not less than 10 days prior to the anticipated date
of any Asset Disposition by the Borrower or any of its
Subsidiaries, a certificate of a Responsible Officer of the
Borrower setting forth (i) a description of the transaction
resulting in such Asset Disposition (including, without
limitation, an identification of the securities, assets or
other Property to be sold or otherwise disposed of), (ii) a
description and valuation of the consideration to be
received by the Borrower or such Subsidiary for such Asset
Disposition and (iii) the date or dates upon which any Net
Cash Proceeds therefrom are anticipated to be received by
the Borrower or such Subsidiary and the amount of the Net
Cash Proceeds anticipated to be received on such date or
each of such dates; and
(g) promptly, such additional financial and other
information as any Lender may from time to time reasonably
request.
6.3 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, (a) all of the Obligations and
(b) all of its other obligations of whatever nature, except in
the case of this clause (b) where the amount or validity thereof
is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower;
provided, that no Default or Event of Default shall exist under
this subsection 6.3(b) unless the aggregate amount of obligations
the Borrower has failed so to pay, discharge or otherwise satisfy
shall be equal to at least $5 million.
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6.4 Conduct of Business and Maintenance of Existence.
Preserve, renew and keep in full force and effect its corporate
existence and take all action necessary to maintain all rights,
privileges and franchises necessary or desirable in the normal
conduct of its business; comply with all Contractual Obligations
and Requirements of Law except to the extent that failure to
comply therewith could not, in the aggregate, have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. Keep or cause
its Subsidiaries to keep all property useful and necessary in its
and its Subsidiaries' businesses in good working order and
condition and maintain and operate such property in accordance
with prudent engineering and business practices no less rigorous
than, in the case of Power Generation Facilities, those customary
in the independent power industry and, in the case of any other
property, those customary in the industry in which such property
is used, except, in either such case, to the extent that the
failure to comply herewith with respect to its Subsidiaries'
businesses could not, in the aggregate, be reasonably expected to
have a Material Adverse Effect; maintain or cause its
Subsidiaries to maintain with financially sound and reputable
insurance companies insurance on all its and its Subsidiaries'
properties in at least such amounts and against at least such
risks (but including in any event public liability, product
liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same
or a similar business; and furnish to each Lender, upon written
request, full information as to the insurance carried.
6.6 Inspection of Property; Books and Records;
Discussions. Keep proper books of records and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and
permit representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its
books and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Borrower and
its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public
accountants.
6.7 Notices. Promptly give notice to the Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its
Subsidiaries (including, without limitation, the Borrower
Indenture) or (ii) litigation, investigation or proceeding
which may exist at any time between the Borrower or any of
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its Subsidiaries and any Governmental Authority, which in
either case, if not cured or if adversely determined, as the
case may be, could reasonably be expected to have a Material
Adverse Effect;
(c) any litigation or proceeding affecting the
Borrower or any of its Subsidiaries in which the amount
involved is $3 million or more or in which injunctive or
similar relief is sought or that could reasonably be
expected to have a Material Adverse Effect; and
(d) the following events, as soon as possible and in
any event within 30 days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan,
a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action
by the PBGC or the Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan.
Each notice pursuant to this subsection shall be accompanied by a
statement of a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action the
Borrower proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply with, and ensure
compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with
and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental
Laws except to the extent that failure to do so could not be
reasonably expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to
the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings
could not be reasonably expected to have a Material Adverse
Effect.
6.9 Indemnification. The Borrower shall pay, and
protect, indemnify and save harmless the Agent, the Issuing Bank
and the Lenders and, in their capacity as such, their officers,
directors, shareholders, controlling persons, employees, agents
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and servants (individually an "Indemnified Party," collectively
the "Indemnified Parties") from and against, all liabilities,
losses, claims, damages, penalties, causes of action, suits,
costs, expenses and disbursements of any kind whatsoever
(including, without limitation, reasonable attorneys' fees and
expenses, but excluding special, exemplary, punitive or
consequential damages suffered by such Indemnified Party)
incurred by or asserted against any Indemnified Party arising out
of, in any way in connection with, or as a result of (a) the
execution, delivery, enforcement, performance or administration
of this Agreement, the CDH Guarantee, any other Loan Document or
any document contemplated hereby or thereby or any of the
transactions contemplated by any Loan Document, (b) the use of
the proceeds of the Loans, (c) the issuance or use of the
proceeds of, or any drawing under, any Letter of Credit or
(d) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnified Party is
a party thereto (including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or
liability under, any Environmental Law applicable to the
operations of the Borrower, any of its Subsidiaries or any of the
Project Properties); provided that the Borrower will not be
liable to any Indemnified Party for such liabilities, losses,
claims, damages, penalties, causes of action, suits, costs and
expenses (including, without limitation, attorneys' fees) or
judgments arising from such Indemnified Party's gross negligence
or wilful misconduct. With respect to any action, suit or
proceeding against it, or any of its officers, directors,
shareholders, controlling persons, employees, agents and
servants, in respect of which indemnity may be sought hereunder,
the Agent, the Issuing Bank and each Lender agrees that it will
give written notice of the commencement of such action, suit or
proceeding to the Borrower within a reasonable time after it is
made a party to such action, suit or proceeding; but the omission
to so notify the Borrower will not relieve the Borrower from any
liability which it might have to any Indemnified Party, except to
the extent that the failure to give notice of the commencement of
such action, suit or proceeding shall preclude the Borrower from
effectively defending such action, suit or proceeding. Upon
receipt of any such notice by the Borrower, the Borrower shall be
entitled to assume the defense of such action, suit or
proceeding, including the employment of counsel and the payment
of all expenses in connection with such defense, and shall have
the right to negotiate and consent to settlement. Any
Indemnified Party shall have the right to employ separate counsel
in any such action, suit or proceeding against it and to
participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party
unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Borrower or (ii) the
Borrower shall have elected not to assume the defense of such
action, suit or proceeding or (iii) such Indemnified Party has
been advised by its own counsel that there are legal defenses
available to such Indemnified Party which are different from,
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additional to or in conflict with the defenses available to the
Borrower. The Borrower shall not be liable for any settlement of
any such action, suit or proceeding effected without its consent,
which consent shall not be unreasonably withheld; but if any such
action, suit or proceeding is settled with the consent of the
Borrower or if there is a final judgment for the plaintiff in any
such action, suit or proceeding (of which the Borrower shall have
been notified), the Borrower shall indemnify and hold harmless
each Indemnified Party from and against any losses, claims,
damages, liabilities or expenses incurred or suffered by reason
of such settlement or judgment. This covenant shall survive the
termination of this Agreement and the payment of the Notes, the
Loans and all other Obligations.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, until the Commitments
are terminated, all Obligations have been paid and performed in
full, no L/C Obligations are outstanding and all Letters of
Credit have expired or are no longer outstanding, the Borrower
shall not do any of the following:
7.1 Parent Cash Flow Coverage Ratio. The Borrower
shall not permit the Parent Cash Flow Coverage Ratio to be less
than 2.0 to 1 for any period of four consecutive fiscal quarters
of the Borrower.
7.2 Limitation on Debt. (a) The Borrower shall not
Incur any Debt, including Acquisition Debt, unless after giving
effect to the Incurrence of such Debt and the receipt and
application of the proceeds therefrom, the Fixed Charge Ratio of
the Borrower would be equal to or greater than 2.0 to 1.
(b) Notwithstanding the foregoing, the Borrower may
Incur each and all of the following:
(i) Debt issued in exchange for, or the
proceeds of which are used to Refinance, Debt of the
Borrower in an amount (or, if such new Debt provides for an
amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged
or Refinanced (plus accrued interest and fees and expenses
related to such exchange or Refinancing), the amount so
exchanged or Refinanced being equal to the lesser of (x) the
principal amount or involuntary liquidation preference of
the Debt so exchanged or Refinanced and (y) if the Debt
being exchanged or Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing;
provided that such Debt of the Borrower will rank pari passu
with or expressly subordinated in right of payment to the
Obligations and the Average Life of the new Debt shall be
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equal to or greater than the Average Life of the Debt to be
exchanged or Refinanced;
(ii) Debt of the Borrower to any of its
Subsidiaries and to any Joint Ventures in which the Borrower
is a direct or indirect partner, shareholder, member or
other participant if such Debt of the Borrower is expressly
subordinated in right of payment to the Obligations;
provided that any transfer of such Debt by a Subsidiary or a
Joint Venture (other than to another Subsidiary or Joint
Venture) will be deemed to be an Incurrence of Debt unless
(x) such Debt has an Average Life which is greater than that
of the Borrower Indenture Securities and which extends to a
date later than the then Final Maturity Date or (y) the
aggregate amount of such Debt which has an Average Life
which is equal to or less than that of the Borrower
Indenture Securities or which extends to, or to a date
earlier than, the then Final Maturity Date does not exceed
$3 million;
(iii) Debt in an aggregate principal amount not
to exceed $10 million at any one time outstanding;
(iv) Debt in respect of Currency Protection
Agreements or Interest Rate Protection Agreements; and
(v) Debt outstanding as of the date of this
Agreement.
For purposes of determining any particular amount of
Debt under this subsection 7.2, Guarantees of, or obligations
with respect to letters of credit supporting, Debt otherwise
included in the determination of such particular amount shall not
be included. For purposes of determining compliance with the
provisions of this subsection 7.2, in the event that an item of
Debt meets the criteria of more than one of the types of Debt
described in the above clauses, the Borrower, in its sole
discretion, shall classify such item of Debt and only be required
to include the amount and type of such Debt in one of such
clauses.
7.3 Limitation on Subsidiary Debt. (a) The Borrower
shall not permit any Subsidiary to Incur, assume or otherwise
cause or suffer to exist, directly or indirectly, any Debt.
(b) Notwithstanding the foregoing, each and all of the
following Debt may be Incurred by a Subsidiary:
(i) Debt outstanding as of the date of this
Agreement;
(ii) Debt owed by a Subsidiary to the Borrower;
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(iii) Debt Incurred to finance the development,
acquisition, construction or operation of a Power Generation
Facility in which such Subsidiary has a direct or indirect
interest; provided that such Debt shall be permitted under
this clause (iii) only to the extent of the amount thereof
which is Non-Recourse to the Borrower and is Non-Recourse to
any other Subsidiary with a direct or indirect interest in
any other Power Generation Facility;
(iv) Debt issued in exchange for, or the
proceeds of which are used to Refinance, outstanding Debt of
such Subsidiary otherwise permitted under this Agreement in
an amount (or, if such new Debt provides for an amount less
than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, with an original
issue price) not to exceed the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses
related to such exchange or Refinancing), the amount so
exchanged or Refinanced being equal to the lesser of (x) the
principal amount or involuntary liquidation preference of
the Debt so exchanged or Refinanced and (y) if the Debt
being exchanged or Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing;
provided that (A) the new Debt shall be Non-Recourse to the
Borrower to no lesser extent than the Debt to be exchanged
or Refinanced, (B) the new Debt shall be Non-Recourse to any
other Subsidiary with a direct or indirect interest in any
other Power Generation Facility to no lesser extent than the
Debt to be exchanged or Refinanced, and (C) the Average Life
of the new Debt shall be equal to or greater than the
Average Life of the Debt to be exchanged or Refinanced;
(v) Debt issued in exchange for, or the
proceeds of which are used to Refinance, outstanding Debt of
such Subsidiary otherwise permitted under this Agreement in
an amount (or, if such new Debt provides for an amount less
than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, with an original
issue price) in excess of the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses
related to such exchange or Refinancing); provided that
(A) the new Debt shall be Non-Recourse to the Borrower to no
lesser extent than the Debt to be exchanged or Refinanced,
(B) the new Debt shall be Non-Recourse to any other
Subsidiary with a direct or indirect interest in any other
Power Generation Facility to no lesser extent than the Debt
to be exchanged or Refinanced, and (C) the Average Life of
the new Debt shall be equal to or greater than the Average
Life of the Debt to be exchanged or Refinanced; provided
further that, after giving effect to the Incurrence of such
new Debt and the retirement of the Debt to be exchanged or
Refinanced, the Fixed Charge Ratio of the Borrower would be
equal to or greater than 2.0 to 1;
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(vi) Debt issued in exchange for, or the
proceeds of which are used to Refinance, outstanding Debt
which is not Non-Recourse to the Borrower or to any other
Subsidiary in an amount (or if such new Debt provides for an
amount less than the principal amount thereof to be due and
payable upon a declaration or acceleration thereof, with an
original issue price) not to exceed the amount so exchanged
or Refinanced (plus accrued interest and fees and expenses
related to such exchange or Refinancing), the amount so
exchanged or Refinanced being equal to the lesser of (x) the
principal amount of the Debt so exchanged or Refinanced and
(y) if the Debt being so exchanged or Refinanced was issued
with an original issue discount, the accreted value thereof
(as determined in accordance with GAAP) at the time of such
Refinancing; provided that the Average Life of the new Debt
shall be equal to or greater than the Average Life of the
Debt to be exchanged or Refinanced;
(vii) Debt Incurred to support the performance
obligations of a Subsidiary engaged in providing
construction management or operating services to a Power
Generation Facility; provided that such Debt shall be
permitted under this clause (vii) only to the extent of the
amount thereof which is Non-Recourse to the Borrower and is
Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility;
(viii) Debt of a Subsidiary Incurred solely to
finance the development, acquisition, construction or
operation of a Power Generation Facility in which such
Subsidiary, the Borrower or another Subsidiary has a direct
or indirect interest; provided, that after giving effect to
the Incurrence of such new Debt and the retirement of any
Debt to be exchanged or Refinanced, the Fixed Charge Ratio
of the Borrower would be equal to or greater than 2.0 to 1;
(ix) Debt Incurred by a Person prior to the
time: (A) such Person became a Subsidiary of the Borrower;
(B) such Person merges with or into a Subsidiary of the
Borrower; or (C) another Subsidiary of the Borrower merges
with or into such Person (in a transaction in which such
Person becomes a Subsidiary of the Borrower); provided that,
giving effect to such transaction, such Debt could have been
Incurred at the time of such merger or acquisition by the
Borrower pursuant to subsection 7.2 or by the Subsidiary
pursuant to either of clauses (iii) or (iv) of this
paragraph (b) of this subsection 7.3; and
(x) Debt Incurred by a Subsidiary of which at
least 80% of each class of Common Stock is owned, directly
or indirectly, by the Borrower, to another Subsidiary of
which at least 80% of each class of Common Stock is owned,
directly or indirectly, by the Borrower.
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For purposes of determining any particular amount of
Debt under this subsection 7.3, Guarantees of, or obligations
with respect to letters of credit supporting, Debt otherwise
included in the determination of such particular amount shall not
be included. For purposes of determining compliance with the
provisions of this subsection 7.3, in the event that an item of
Debt meets the criteria of more than one of the types of Debt
described in the above clauses, the Borrower, in its sole
discretion, shall classify such item of Debt and only be required
to include the amount and type of such Debt in one of such
clauses.
7.4 Limitation on Restricted Payments. The Borrower
will not, and will not permit any Subsidiary to, directly or
indirectly, make any Restricted Payment if at the time of such
Restricted Payment and after giving effect thereto:
(a) an Event of Default or an event that, after the
giving of notice or lapse of time or both would become an
Event of Default, shall have occurred and be continuing;
(b) the Borrower could not Incur at least $1 of Debt
under subsection 7.2(a);
(c) the aggregate amount of all Restricted Payments
made by the Borrower and its Subsidiaries after March 15,
1994 (the amount so made, if other than in cash, to be
determined in good faith by the Board of Directors, as
evidenced by a Board resolution) shall exceed the sum
(without duplication) of: (i) $5 million plus 50% of the
Net Income of the Borrower and its consolidated Subsidiaries
for the period (taken as one accounting period) beginning on
March 15, 1994 and ending on the last day of the fiscal
quarter immediately prior to the date of such calculation;
provided that if Net Income for such period is less than
zero, then minus 100% of the amount of such net loss; plus
(ii) if the Borrower Indenture Securities are Investment
Grade at the time of and after giving effect to the
Restricted Payment (or in the case of a dividend, its
declaration) in connection with which the calculation is
made, an additional 25% of Net Income of the Borrower and
its consolidated Subsidiaries for any period of one or more
completed fiscal quarters ending with the last fiscal
quarter completed prior to the date of such Restricted
Payment during which the Borrower Indenture Securities were
Investment Grade for the entire period; plus (iii) the
aggregate net proceeds (including the Fair Market Value of
proceeds other than cash) received by the Borrower from and
after March 15, 1994 from the issuance and sale (other than
to a Subsidiary) of its Capital Stock (excluding Redeemable
Stock, but including Capital Stock other than Redeemable
Stock issued upon conversion of, or in exchange for,
Redeemable Stock or securities other than its Capital
Stock), and warrants, options and rights to purchase its
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Capital Stock (other than Redeemable Stock), but excluding
the net proceeds from the issuance, sale, exchange,
conversion or other disposition of its Capital Stock
convertible (whether at the option of the Borrower or the
holder thereof or upon the happening of any event) into
(x) any security other than its Capital Stock or (y) its
Redeemable Stock; plus (iv) the net reduction in Investments
of the type specified in clause (iv) of the definition of
"Restricted Payment" resulting from payments of interest on
Debt, dividends, repayments of loans or advances, or other
transfers of assets to the Borrower or other Person that
made the original Investment from the Person in which such
Investment was made; provided that such payment shall not
exceed the amount of the original Investment; plus (v) any
amount previously included as a Restricted Payment on
account of an obligation by the Borrower or any Subsidiary
to make a Restricted Payment which has not actually been
made by the Borrower or any Subsidiary; provided that this
clause (c) shall not prevent the payment of any dividend
within 60 days after the date of its declaration if such
dividend could have been made on the date of its declaration
without violation of the provisions of this subsection 7.4.
7.5 Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Borrower will not, and
will not permit any Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary to
(a) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Subsidiary owned by
the Borrower or any other Subsidiary, (b) make payments in
respect of any Debt owed to the Borrower or any other Subsidiary
of the Borrower, (c) make loans or advances to the Borrower or
any other Subsidiary of the Borrower or (d) transfer any of its
Property to the Borrower or any other Subsidiary, other than
those encumbrances and restrictions created or existing (i) on
the date of this Agreement, (ii) pursuant to this Agreement, the
CDH Guarantee or the Borrower Indenture, (iii) in connection with
the Incurrence of any Debt permitted under clauses (iii) and
(vii) of subsection 7.3(b) hereof; provided that such
encumbrances or restrictions are required in order to effect such
financing and are not materially more restrictive, taken as a
whole, on the ability of the applicable Subsidiary to make the
payments, distributions, loans, advances or transfers referred to
in clauses (a) through (d) above than encumbrances and
restrictions, taken as a whole, customarily accepted (or, in the
absence of any industry custom, reasonably acceptable) in
substantially Non-Recourse financing, (iv) in connection with the
execution and delivery of an electric power or thermal energy
purchase contract to which such Subsidiary is the supplying party
or other contracts with customers, suppliers and contractors to
which such Subsidiary is a party and where such Subsidiary is
engaged, directly or indirectly, in the development,
construction, acquisition or operation of a Power Generation
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Facility; provided that such encumbrances or restrictions are
required in order to effect such contracts and are not materially
more restrictive, taken as a whole, on the ability of the
applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (a) through (d)
above than encumbrances and restrictions, taken as a whole,
customarily accepted (or, in the absence of any industry custom,
reasonably acceptable) in comparable transactions, (v) in
connection with any Debt of a Person outstanding when such Person
becomes a Subsidiary permitted under clause (ix) of
subsection 7.3(b); provided that such encumbrance or restriction
was not Incurred in contemplation of such Subsidiary becoming a
Subsidiary, (vi) in connection with the Incurrence of any Debt
permitted under clause (iv), (v), (vi), (viii) or (to the extent
not covered by (iii) above) (iii) of subsection 7.3(b) hereof;
provided that such encumbrances or restrictions taken as a whole
are not materially more restrictive on the ability of the
applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (a) through (d)
above than those, taken as a whole, customarily accepted (or, in
the absence of any industry custom, reasonably acceptable) in
comparable financing transactions of the same nature as the Debt
being Incurred, (vii) customary non-assignment provisions in
leases or other contracts entered into in the ordinary course of
business of the Borrower or any Subsidiary and (viii) any
restrictions imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all of the
Capital Stock or assets of any Subsidiary or Joint Venture that
apply pending the closing of such sale or disposition.
7.6 Restrictions on Dispositions. Subject to the
provisions of subsections 7.9 and 7.10, the Borrower will not
make and will not permit any of its Subsidiaries to make, any
Asset Disposition unless the Borrower (or the Subsidiary, as the
case may be) receives, at the time of such Asset Disposition,
consideration with a Fair Market Value at least equal to the Fair
Market Value of the securities, assets or other Property sold or
otherwise disposed of. In determining the Fair Market Value of
the consideration received for any Asset Disposition, in addition
to any other adjustment necessary to determine such
consideration's Fair Market Value, any payment or other amount
that is to be received after the date of such Asset Disposition
(whether paid pursuant to a note or installment receivable or
otherwise or in the form of a dividend or distribution on any
shares of any Person's Capital Stock) shall be valued at the net
present value of such payment or other amount calculated by
discounting such payment or other amount to the date of such
Asset Disposition using an assumed discount rate proposed by the
Borrower and reasonably acceptable to the Agent.
7.7 Limitations on Transactions with Affiliates. The
Borrower will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into any transaction after the
date of this Agreement (including, without limitation, the sale,
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purchase or lease of any assets or properties or the rendering of
any services) involving aggregate consideration with respect to
such transaction in excess of $1 million with any Affiliate or
holder of 5% or more of any class of Capital Stock of the
Borrower except for transactions (including, subject to
subsection 7.4, any loans or advances by or to, or guarantee on
behalf of, any Affiliate or holder) made in good faith the terms
of which are fair and reasonable to the Borrower or such
Subsidiary, as the case may be, and are at least as favorable as
the terms which could be obtained by the Borrower or such
Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis with Persons who are not such a holder
or Affiliate; provided that the fairness, reasonableness and
arm's-length nature of the terms of any transaction which is part
of a series of related transactions may be determined on the
basis of the terms of the series of related transactions taken as
a whole. This covenant shall not apply to (a) the payment of
reasonable and customary regular fees to directors of the
Borrower or a Subsidiary of the Borrower (including directors who
are employees), (b) any transaction between the Borrower and any
of its Subsidiaries the terms of which are not unfair or
unreasonable to the Borrower, (c) any Permitted Payment, and any
Restricted Payment not otherwise prohibited by subsection 7.4 or
(d) equipment and real property lease transactions with and loans
to Equipment Leasing Partners, a North Carolina general
partnership, outstanding on the date of this Agreement,
indebtedness of the shareholders of the Borrower outstanding on
the date of this Agreement, the Consulting Agreement between the
Borrower and Robert W. Lewis and Stock Transfer Agreements
between the Borrower and each of Robert W. Lewis, David J. Lewis
and James E. Lewis, in each case as in effect on the date of this
Agreement.
7.8 Limitations on Liens. The Borrower may not Incur
any Debt which is secured, directly or indirectly, with, nor will
the Borrower grant or cause or suffer to exist, a Lien on the
Property of the Borrower now owned or hereafter acquired unless
contemporaneous therewith or prior thereto the Obligations are
equally and ratably secured thereof except for (a) any such Debt
secured by Liens existing on the assets of any entity at the time
such assets are acquired by the Borrower, whether by merger,
consolidation, purchase of assets or otherwise; provided that
such Liens (x) are not created, incurred or assumed in
contemplation of such assets being acquired by the Borrower and
(y) do not extend to any other Property of the Borrower;
(b) Liens granted to secure any other Debt required by its terms
to be equally and ratably secured as a result of the Incurrence
of such Debt; (c) Liens on the Borrower's interests in
Subsidiaries and Joint Ventures in which the Borrower is a
partner, shareholder, member or other participant, which Liens
are granted in good faith in connection with the acquisition of
such assets or as part of the financing of a Power Generation
Facility; provided that such Liens are required in order to
effect such financing and are not materially more restrictive,
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taken as a whole, than Liens, taken as a whole, customarily
accepted (or in the absence of any industry custom, reasonably
acceptable) in substantially Non-Recourse project financing;
(d) Liens on the stock or partnership interest of Subsidiaries
and interests in Joint Ventures in which the Borrower becomes a
partner, shareholder, member or other participant which Liens are
granted in good faith as part of a project financing or the
development of a project; provided that such Liens are required
in order to effect such transaction and are not materially more
restrictive, taken as a whole, than Liens, taken as a whole,
customarily accepted (or in the absence of any industry custom,
reasonably acceptable) in substantially Non-Recourse project
financing; (e) Liens in existence on the date of this Agreement
or established pursuant to this Agreement; (f) purchase money
Liens incurred to secure Debt incurred by the Borrower as
permitted by subsection 7.2, which Debt finances the purchase
price of Property acquired in the ordinary course of business,
and which Liens will not cover any Property other than that being
purchased, improved or constructed; (g) [intentionally omitted];
(h) Liens incurred in connection with Capitalized Lease
Obligations incurred by the Borrower as permitted by
subsection 7.2; (i) Liens in respect of extensions, renewals,
refunding or Refinancing of any Debt secured by the Liens
referred to in clauses (a), (b), (c), (d), (e), (f) or (h) above,
provided that the Liens in connection with such renewal,
extension, refunding or Refinancing shall be limited to all or
part of the specific Property which was subject to the original
Lien; (j) any Lien arising by reason of (A) any judgment, decree
or order or any court, so long as such Lien is being contested in
good faith and is adequately bonded, and any appropriate legal
proceedings which may have been duly initiated for the review of
such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be
initiated shall not have expired, (B) taxes not yet delinquent or
which are being contested in good faith, (C) security for payment
of worker's compensation or other insurance, (D) security for the
performance of tenders, contracts (other than contracts for the
payment of money) or leases, (E) deposits to secure public or
statutory obligations, or to secure permitted contracts for the
purchase or sale of any currency entered into in the ordinary
course of business, (F) operation of law in favor of carriers,
warehousemen, landlords, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of
business for sums which are not yet delinquent or which are being
contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof, (G) easements,
rights-of-way, zoning and similar covenants and restrictions and
other similar encumbrances or title defects which, in the
aggregate, are not material, and which do not in any case
materially detract from the value of the Property subject thereto
or materially interfere with the ordinary conduct of the business
of the Borrower or (H) leases and subleases of property which do
not interfere with the ordinary conduct of the business of the
Borrower, and which are made on customary and usual terms
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applicable to similar properties; or (I) Liens in addition to the
foregoing, provided that the amount of the obligations secured by
such Liens does not exceed in the aggregate $1 million.
7.9 Limitations on Mergers, Consolidations, Sales or
Transfers of Assets by or Involving Borrower. The Borrower shall
not consolidate with, merge with or into, or transfer all or
substantially all of its assets (as an entirety or substantially
an entirety in one transaction or a series of related
transactions), to any Person unless:
(a) the Borrower shall be the continuing Person, or
the Person (if other than the Borrower) formed by such
consolidation or into which the Borrower is merged or to
which properties and assets of the Borrower are transferred
shall be a corporation organized and existing under the laws
of the United States or any state thereof or the District of
Columbia and shall expressly assume in a writing acceptable
to the Lenders all of the Obligations of the Borrower;
(b) immediately after giving effect to such
transaction no Event of Default or event or condition which
through the giving of notice or lapse of time or both would
become an Event of Default shall have occurred and be
continuing;
(c) the Net Worth of the Borrower or the surviving
entity, as the case may be, on a pro forma basis after
giving effect to such transaction is not less than the Net
Worth of the Borrower immediately prior to such transaction;
and
(d) immediately after giving effect to such
transaction on a pro forma basis, the Borrower or the
surviving entity would be able to incur at least $1 of Debt
under subsection 7.2(a).
7.10 Limitations on Certain Mergers, Consolidations
and Investments by Subsidiaries. Without the prior written
consent of the Required Lenders (which shall not be unreasonably
withheld), the Borrower shall not permit any Subsidiary with any
direct or indirect interest in (a) a Power Generation Facility to
make any Investment in, or to consolidate or merge with, any
other Person with a direct or indirect interest in any other
Power Generation Facility or any unrelated business or (b) any
unrelated business to make any Investment in, or to consolidate
or merge with, any other Person with a direct or indirect
interest in any Power Generation Facility; provided, that to the
extent otherwise permitted under this Agreement and the other
Loan Documents (i) Cogentrix Virginia Leasing Corporation and
James River Cogeneration Company may each make Investments in and
consolidate or merge with each other and (ii) CDH, Cogentrix
International Holdings, Inc. and Cogentrix International
Holdings, B.V. may each make any Investment in any Person.
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7.11 CDH Permitted Investments. Notwithstanding any
other provision of this Agreement, the Borrower shall not make
any advance, loan, extension of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting a business unit of, or
make any other Investment in, any Person, other than (i)
Investments in any Subsidiary of the Borrower (or any Person that
will become a Subsidiary of the Borrower as a result of such
Investment) otherwise permitted hereunder (including, without
limitation, subsection 7.4) and under the other Loan Documents
and (ii) CDH Permitted Investments; provided, that so long as the
total of the aggregate amount of CDH Permitted Investments owned
by the Borrower plus the aggregate amount of CDH Permitted
Investments owned by CDH (exclusive of, in the case of both the
Borrower and CDH, any CDH Permitted Investments subject to or
otherwise covered by any Lien other than the Lien created under
this Agreement in the Cash Collateral Account) shall have a value
of $50 million or more, the Borrower may make any Investment that
the Borrower is otherwise permitted to make hereunder (including,
without limitation, subsection 7.4) and under the other Loan
Documents.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be
continuing:
(a) The Borrower shall fail to pay when due any
principal of any Loan or any Reimbursement Obligation in
accordance with the terms hereof; or the Borrower shall fail
to make in full any deposit required to be made hereunder
into the Cash Collateral Account on the day such deposit is
due in accordance with the terms hereof; or the Borrower
shall fail to pay any interest on any Loan, or any fee or
other amount payable hereunder or under any other Loan
Document (including, without limitation, any Commitment Fee,
Administration Fee, Fronting Fee or Letter of Credit Fee),
when due in accordance with the terms hereof, and such
interest or fee or other amount shall remain unpaid for a
period of five or more Business Days after notice to the
Borrower by the party to whom such payment was due (or by
the Agent on behalf of such party); or
(b) Any representation or warranty made or deemed made
by any Loan Party herein, the CDH Guarantee or in any other
Loan Document or which is contained in any certificate,
document or financial or other statement furnished at any
time under or in connection with this Agreement, the CDH
Guarantee or any other Loan Document shall prove to have
been false or misleading as of the time made or furnished in
any material respect and either such false or misleading
representation or warranty (i) has resulted in a Material
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Adverse Effect or (ii) could reasonably be expected to
result in a Material Adverse Effect; or
(c) The Borrower shall default in the observance or
performance of any covenant contained in subsection 7.1, 7.9
or 7.10; or the Borrower shall default in the observance or
performance of any other covenant contained in Section 7 or
CDH shall default in the observance or performance of any
covenant in Section 10 of the CDH Guarantee, and in either
case such default shall continue unremedied for a period of
10 days after the earlier to occur of (i) the date the Agent
shall have provided notice to the Borrower of such default
and (ii) the date a Responsible Officer of the Borrower
shall have learned or reasonably should have learned of such
default; or
(d) The Borrower shall default in the observance or
performance of any other covenant contained in this
Agreement (other than as provided in paragraphs (a) through
(c) of this Section), and such default shall continue
unremedied for a period of 30 Business Days after notice to
the Borrower by the Agent of such default; or
(e) The Borrower or CDH shall (i) default in any
payment of principal of or interest on any Debt (other than
the Loans) or in the payment of any Guarantee Obligation,
beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such
Debt or Guarantee Obligation was created and such default
permits the holder or holders of such Debt or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if
required, such Debt to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or
(ii) default in the observance or performance of any other
agreement or condition relating to any such Debt or
Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of
which default or other event or condition is to cause such
Debt to become due prior to its stated maturity or such
Guarantee Obligation to become payable; provided, however,
that no Default or Event of Default shall exist under this
paragraph unless the aggregate amount of Debt and/or
Guarantee Obligations in respect of which any default or
other event or condition referred to in this paragraph shall
have occurred shall be equal to at least $5 million; or
(f) (i) The Borrower or CDH shall commence any case,
proceeding or other action (A) under any existing or future
law of 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
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it, or seeking to adjudicate it a bankrupt or insolvent, or
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, conservator or other similar
official for it or for all or any substantial part of its
assets, or the Borrower or CDH shall make a general
assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower or CDH any case,
proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or
(B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against
the Borrower or CDH any case, proceeding or other action
seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial
part of its assets which results in the entry of an order
for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60
days from the entry thereof; or (iv) the Borrower or CDH
shall 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), (ii), or (iii) above; or (v) the
Borrower or CDH shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as
they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (ii) any
"accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect
to any Plan or any Lien in favor of the PBGC or a Plan shall
arise on the assets of the Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or
to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, (iv) any Single Employer
Plan shall terminate for purposes of Title IV of ERISA,
(v) the Borrower or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Lenders is likely
to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition
shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or
condition, together with all other such events or
conditions, if any, could reasonably be expected to have a
Material Adverse Effect; or
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(h) One or more judgments or decrees shall be entered
against the Borrower or any Significant Subsidiary involving
in the aggregate a liability (not paid or fully covered by
insurance) of $3 million or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof;
provided, that no Default or Event of Default shall exist
under this paragraph (h) as a result of any such judgment or
decree if such judgment or decree is not against the
Borrower and the Borrower is not liable, by contract or
otherwise, to make any payment in respect of such judgment
or decree; or
(i) (i) The CDH Guarantee shall cease, for any reason,
to be in full force and effect or CDH shall so assert or
(ii) CDH shall fail, at any time, to be a direct Wholly-
Owned Subsidiary of the Borrower; or
(j) (i) Any Person not a Permitted Holder, or any
"group" (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended) not composed
entirely of Permitted Holders, (A) shall have acquired
beneficial ownership of more than 50% of any outstanding
class of Capital Stock having ordinary voting power in the
election of directors of the Borrower or (B) shall obtain
the power (whether or not exercised) to elect a majority of
the Borrower's directors or (ii) during any period of twelve
consecutive calendar months, individuals who were either
(x) directors of the Borrower on the first day of such
period (or who were appointed or nominated for election as
directors of the Borrower by at least a majority of the
individuals who were directors of the Borrower on the first
day of such period) or (y) appointed directors to replace
directors removed solely as a result of death or mental or
physical disability, shall cease to constitute a majority of
the Board of Directors;
(k) an event of default, as defined in any indenture
or instrument evidencing or under which any Significant
Subsidiary has at the date of this Agreement or shall
hereafter have outstanding any Debt, shall happen and be
continuing and either (i) such default results from the
failure to pay principal of such Debt in excess of $10
million at final maturity of such Debt or (ii) as a result
of such default, the maturity of such Debt shall have been
accelerated so that the same shall be or become due and
payable prior to the date on which the same would otherwise
have become due and payable, and such acceleration shall not
be rescinded or annulled within 30 days and the principal
amount of such Debt of any Significant Subsidiary in
default, or the maturity of which has been accelerated
aggregates $10 million or more; provided that such default
shall not be an Event of Default if such Debt is Non-
Recourse to the Borrower in respect of the amounts not paid
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or due upon acceleration and the Borrower could, at the time
of default, Incur at least $1 of Debt under subsection
7.2(a);
then, and in any such event, (A) if such event is an Event of
Default specified in clause (i) or (ii) of paragraph (f) of this
Section with respect to the Borrower, automatically the
Commitments shall immediately terminate and the Loans hereunder
(with accrued interest thereon), the Notes and all other amounts
owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall immediately become due and
payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with
the consent of the Required Lenders, the Agent may, or upon the
request of the Required Lenders, the Agent shall, by notice to
the Borrower declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and
(ii) with the consent of the Required Lenders, the Agent may, or
upon the request of the Required Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued
interest thereon), the Notes and all other amounts owing under
this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents
required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to
which presentment for honor shall not have occurred at the time
of an acceleration pursuant to the preceding paragraph, the
Borrower shall at such time deposit in the Cash Collateral
Account an amount equal to the aggregate then undrawn and
unexpired amount of such Letters of Credit, to be held, applied
or released for application as cash collateral as provided in
subsection 3.9.
Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind
are hereby expressly waived.
SECTION 9. THE AGENT
9.1 Appointment. Each Lender and the Issuing Bank
hereby irrevocably designates and appoints the Agent as the agent
of such Lender and the Issuing Bank under this Agreement and the
other Loan Documents, and each such Lender and the Issuing Bank
irrevocably authorizes the Agent, in such capacity, to take such
action on its behalf under the provisions of this Agreement and
the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms
of this Agreement and the other Loan Documents, together with
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such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender or the Issuing Bank, and
no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or
any other Loan Document or otherwise exist against the Agent.
9.2 Delegation of Duties. The Agent may execute any
of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither the Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable for any action lawfully taken
or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the
Lenders or the Issuing Bank for any recitals, statements,
representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred
to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document or for
the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations
hereunder or thereunder. The Agent shall not be under any
obligation to any Lender or the Issuing Bank to ascertain or to
inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or
records of the Borrower.
9.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan
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Document unless it shall first receive such advice or concurrence
of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall
in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto
shall be binding upon all the Lenders, the Issuing Bank and all
future holders of the Loans.
9.5 Notice of Default. The Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Agent has received notice
from a Lender, the Issuing Bank or the Borrower referring to this
Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default." In the event
that the Agent receives such a notice, the Agent shall give
notice thereof to the Lenders and the Issuing Bank. The Agent
shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders;
provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders and the Issuing Bank.
9.6 Non-Reliance on Agent and Other Lenders. Each
Lender and the Issuing Bank expressly acknowledges that neither
the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Agent hereinafter taken,
including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Agent
to any Lender or the Issuing Bank. Each Lender and the Issuing
Bank represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender or the
Issuing Bank, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial
and other condition and creditworthiness of the Borrower and made
its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender and the Issuing Bank also represents that
it will, independently and without reliance upon the Agent or any
other Lender or the Issuing Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents
expressly required to be furnished to the Lenders and the Issuing
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Bank by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender or the Issuing Bank with any
credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower which may come into the
possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify
the Agent in its capacity as such (to the extent not reimbursed
by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their respective
Commitment Percentages in effect on the date on which
indemnification is sought, from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation,
at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Agent in any way relating to
or arising out of, the Commitments, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred
to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting
solely from the Agent's gross negligence or willful misconduct.
The agreements in this subsection shall survive the termination
of this Agreement and payment of the Notes, the Loans and all
other Obligations.
9.8 Agent in Its Individual Capacity. The Agent and
its Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower as
though the Agent were not the Agent hereunder and under the other
Loan Documents. With respect to the Loans made by it and any
Note issued to it and with respect to any Letter of Credit issued
or participated in by it, the Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as
any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
9.9 Successor Agent. The Agent may resign as Agent
upon 10 days' notice to the Lenders and the Issuing Bank. If the
Agent shall resign as Agent under this Agreement and the other
Loan Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders and the
Issuing Bank, which successor agent (provided that it shall have
been approved by the Borrower), shall succeed to the rights,
powers and duties of the Agent hereunder. Effective upon such
appointment and approval, the term "Agent" shall mean such
successor agent, and the former Agent's rights, powers and duties
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as Agent shall be terminated, without any other or further act or
deed on the part of such former Agent or any of the parties to
this Agreement or any holders of the Loans. After any retiring
Agent's resignation as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the
other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement
nor any other Loan Document, nor any terms hereof or thereof may
be amended, supplemented or modified except in accordance with
the provisions of this subsection. The Required Lenders may, or,
with the written consent of the Required Lenders, the Agent may,
from time to time, (a) enter into with the Borrower written
amendments, supplements or modifications hereto and to the other
Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner
the rights of the Lenders or of the Borrower hereunder or
thereunder or (b) waive, on such terms and conditions as the
Required Lenders or the Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (i) reduce the amount
or extend the scheduled date of maturity of any Loan or of any
installment thereof, or reduce the stated rate of any interest or
fee payable hereunder or extend the scheduled date of any payment
thereof or increase the amount or extend the expiration date of
any Lender's Commitment, in each case without the consent of each
Lender affected thereby, or (ii) amend, modify or waive any
provision of this subsection or reduce the percentage specified
in the definition of Required Lenders or Majority Lenders, or
consent to the assignment or transfer by the Borrower of any of
its rights and obligations under this Agreement and the other
Loan Documents, in each case without the written consent of all
the Lenders, or (iii) amend, modify or waive any provision of
Section 9 without the written consent of the Agent. Any such
waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon
the Borrower, the Lenders, the Issuing Bank, the Agent and all
future holders of the Loans. In the case of any waiver, the
Borrower, the Lenders and the Agent shall be restored to their
former positions and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; no such waiver shall
extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon. Notwithstanding any
provision of this Agreement (including, without limitation, any
provision of this subsection 10.1), the provisions of this
subsection 10.1 shall not apply to any amendment, supplement,
modification, or waiver with respect to the Fee Letter, and the
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Fee Letter and any term thereof may be amended, supplemented or
modified, and any requirement or other provision thereof may be
waived, as permitted under the Fee Letter without meeting any
requirement (including, without limitation, any requirement to
obtain the agreement or consent of any Person) other than as may
be imposed by the Fee Letter.
10.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in
writing (including by facsimile transmission) and delivered by
hand or courier or sent by certified mail or facsimile
transmission and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made (a) in the case
of delivery by hand or courier, when delivered, (b) in the case
of delivery by certified mail, three Business Days after being
deposited in the mails, postage prepaid, or (c) in the case of
delivery by facsimile transmission, when sent and receipt has
been confirmed, addressed as follows in the case of the Borrower,
the Issuing Bank and the Agent, and as set forth in Schedule I in
the case of the other parties hereto, or to such other address as
may be hereafter notified by the respective parties hereto:
The Borrower: Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
Attention: Chief Financial Officer
with copy to General Counsel
Fax: 704-529-1006
The Agent and the
Issuing Bank: Australia and New Zealand Banking Group Limited
1177 Avenue of the Americas
New York, New York 10036-2798
Attention: Paul Clifford/Elizabeth M. Waters
Fax: 212-801-9131
provided that any notice, request or demand to or upon the Agent,
the Issuing Bank or the Lenders pursuant to subsection 2.2, 2.4,
2.6, 2.8, 2.9, 2.14, 2.20 or 3.2 shall not be effective until
received.
10.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Agent or
any Lender, any right, remedy, power or privilege hereunder or
under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
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10.4 Survival of Representations and Warranties;
Survival of Certain Agreements and Covenants. All
representations and warranties made hereunder, in the other Loan
Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the
Loans hereunder. To the extent provided in such subsections, the
agreements and covenants in subsections 2.16, 2.17(a), 2.18, 6.9,
9.7 and 10.5 shall survive the termination of this Agreement and
the payment of the Notes, the Loans and all other Obligations.
10.5 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse the Agent for all its
out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment,
supplement or modification to, or waiver or consent under or in
respect of, this Agreement and the other Loan Documents and any
other documents prepared in connection herewith or therewith, and
the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Agent,
(b) to pay or reimburse each Lender, the Issuing Bank and the
Agent for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of
counsel (including without limitation the allocated fees and
expenses of in-house counsel, if applicable) to each Lender and
of counsel to the Agent and (c) to pay, indemnify, and hold each
Lender, the Issuing Bank and the Agent harmless from, any and all
recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise
and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement,
the other Loan Documents and any such other documents. The
agreements in this subsection 10.5 shall survive the termination
of this Agreement and the payment of the Notes, the Loans and all
other Obligations.
10.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Lenders, the Issuing Bank,
the Agent and their respective successors and assigns, except
that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written
consent of each Lender and the Issuing Bank (except as otherwise
may be permitted by subsection 7.9).
(b) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time sell to one or more banks or other entities
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("Participants") participating interests in any Loan owing to
such Lender, any Commitment of such Lender or any other interest
of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any
such Loan for all purposes under this Agreement and the other
Loan Documents, and the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the
other Loan Documents. No Lender shall be entitled to create in
favor of any Participant, in the participation agreement pursuant
to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve
any matter relating to this Agreement or any other Loan Document
except for those specified in clauses (i) and (ii) of the proviso
to subsection 10.1. The Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall have
been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the
maximum extent permitted by applicable law, be deemed to have the
right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as
a Lender under this Agreement, provided that, in purchasing such
participating interest, such Participant shall be deemed to have
agreed to share with the Lenders the proceeds thereof as provided
in subsection 10.7(a) as fully as if it were a Lender hereunder.
The Borrower also agrees that each Participant shall be entitled
to the benefits of subsections 2.16, 2.17 and 2.18 with respect
to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the
case of subsection 2.17, such Participant shall have complied
with the requirements of said subsection and provided, further,
that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender
would have been entitled to receive in respect of the amount of
the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time and from time to time assign to any Lender or
any affiliate thereof or, with the consent of the Borrower and
the Agent (which in each case shall not be unreasonably
withheld), to an additional bank or financial institution (an
"Assignee") all or any part of its rights and obligations under
this Agreement and the other Loan Documents pursuant to an
Assignment and Acceptance, substantially in the form of
Exhibit G, executed by such Assignee, such assigning Lender (and,
in the case of an Assignee that is not then a Lender or an
affiliate thereof, by the Borrower and the Agent) and delivered
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to the Agent for its acceptance and recording in the Register,
provided that, in the case of any such assignment to an
additional bank or financial institution, the sum of the
aggregate principal amount of the Loans, the aggregate amount of
the L/C Obligations and the aggregate amount of the unused
Available Commitment being assigned is not less than $10 million
(or such lesser amount as may be agreed to by the Borrower and
the Agent). Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder
shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a
Lender hereunder with a Commitment and Commitment Percentage as
set forth therein, and (y) the assigning Lender thereunder shall,
to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations
under this Agreement, such assigning Lender shall cease to be a
party hereto).
(d) The Agent, on behalf of the Borrower, shall
maintain at the address of the Agent referred to in
subsection 10.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the
Commitment of, and principal amounts of the Loans owing to, each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower,
the Agent and the Lenders may (and, in the case of any Loan or
other obligation hereunder not evidenced by a Note, shall) treat
each Person whose name is recorded in the Register as the owner
of a Loan or other obligation hereunder as the owner thereof for
all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of
any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect
thereto being made in the Register.
(e) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Assignee (and, in the case
of an Assignee that is not then a Lender or an affiliate thereof,
by the Borrower and the Agent) together with payment to the Agent
of a registration and processing fee of $2,500, the Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) on
the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of
such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any
prospective Transferee, subject to the provisions of
subsection 10.15, any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates
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which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this
Agreement acknowledge that the provisions of this subsection
concerning assignments of Loans and Notes relate only to absolute
assignments and that such provisions do not prohibit assignments
creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a
"benefitted Lender") shall at any time receive any payment of all
or part of its Loans or the Reimbursement Obligations owing to
it, or interest thereon, or receive any collateral in respect
thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in
Section 8, or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans or the Reimbursement
Obligations owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other
Lender's Loan or the Reimbursement Obligations owing to it, or
shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to
cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each
case whether direct or indirect, absolute or contingent, matured
or unmatured, at any time held or owing by such Lender or any
branch or agency thereof to or for the credit or the account of
the Borrower. Each Lender agrees promptly to notify the Borrower
and the Agent after any such set-off and application made by such
Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application.
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10.8 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of
separate counterparts (including by facsimile transmission), and
all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of
this Agreement signed by all the parties shall be lodged with the
Borrower and the Agent.
10.9 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Agent and
the Lenders with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by
the Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the
other Loan Documents to which it is a party, or for
recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the
United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar
form of mail), postage prepaid, to the Borrower at its
address set forth in subsection 10.2 or at such other
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address of which the Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted
by law or shall limit the right to sue in any other
jurisdiction; and
(e) waives, to the maximum extent not prohibited by
law, any right it may have to claim or recover in any legal
action or proceeding referred to in this subsection any
special, exemplary, punitive or consequential damages.
10.13 Acknowledgments. The Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or
in connection with this Agreement or any of the other Loan
Documents, and the relationship between Agent and Lenders,
on one hand, and the Borrower, on the other hand, in
connection herewith or therewith is solely that of debtor
and creditor; and
(c) no joint venture is created hereby or by the other
Loan Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Lenders or among
the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
10.15 Confidentiality. Each Lender agrees to keep
confidential all non-public information provided to it by the
Borrower pursuant to this Agreement that is designated by the
Borrower in writing as confidential; provided that nothing herein
shall prevent any Lender from disclosing any such information
(i) to the Agent or any other Lender, (ii) to any Transferee
which receives such information having been made aware of the
confidential nature thereof, (iii) to its employees, directors,
agents, attorneys, accountants and other professional advisors,
(iv) upon the request or demand of any Governmental Authority
having jurisdiction over such Lender, (v) in response to any
order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law,
(vi) which has been publicly disclosed other than in breach of
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this Agreement, or (vii) in connection with the exercise of any
remedy hereunder.
10.16 Rank. The parties hereto, for their own benefit
and not for the benefit of or for the purpose of creating any
duty, obligation or liability to any other Person (including,
without limitation, any party to the Borrower Indenture or any
holder of any Borrower Indenture Security), specifically
designate that the Extensions of Credit made by the Lenders and
the Issuing Bank to the Borrower under this Agreement are neither
senior nor subordinate to the Borrower Indenture Securities in
right of payment, except to the extent that the Extensions of
Credit are senior to the Borrower Indenture Securities as a
result of the security interest granted by the Borrower hereunder
in the Cash Collateral Account to the Agent for the benefit of
the Issuing Bank and the L/C Participants.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
COGENTRIX ENERGY, INC.
By: /s/ Thomas F. Schwartz
Title: Vice President - Finance
Treasurer
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED,
as Agent, as the Issuing Bank
and as a Lender
By: /s/ Paul Clifford
Title: Vice President
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Schedule I to
Credit Agreement
LENDERS' COMMITMENT PERCENTAGES
AND ADDRESSES FOR NOTICES
Commitment
Lender Percentage Commitment
Australia and New Zealand Banking Group Limited 100% $50,000,000
Address for Notices:
1177 Avenue of the Americas
New York, New York 10036-2798
Attention: Paul Clifford/
Elizabeth M. Waters
Telephone: 212-801-9713/212-801-9794
Telecopier: 212-801-9131
<PAGE> 95
Schedule II to
Credit Agreement
<TABLE>
APPLICABLE MARGIN
<CAPTION>
Status: Level 1 Level 2 Level 3 Level 4 Level 5
<S> <C> <C> <C> <C> <C>
Commitment Fee: 0.25% 0.30% 0.35% 0.40% 0.50 %
Eurodollar Loans: 0.60% 0.80% 1.00% 1.25% 1.625%
ABR Loans: -0.05% 0.15% 0.35% 0.60% 0.975%
Financial Letters
of Credit: 0.60% 0.80% 1.00% 1.25% 1.625%
Performance
Letters of Credit: 0.40% 0.60% 0.80% 1.05% 1.425%
</TABLE>
For purposes of this Schedule, capitalized terms shall have the meanings
assigned to them in the Credit Agreement (as amended from time to time) to
which this Schedule is appended, provided that the following terms shall have
the following meanings:
"Level 1 Status" exists at any date if, at such date, the Borrower Indenture
Securities are rated BBB- or higher by S&P and Baa3 or higher by Moody's.
"Level 2 Status" exists at any date if, at such date, (i) the Borrower
Indenture Securities are rated BB+ or higher by S&P and Ba1 or higher by
Moody's and (ii) Level 1 Status does not exist.
"Level 3 Status" exists at any date if, at such date, (i) the Borrower
Indenture Securities are rated BB or higher by S&P and Ba2 or higher by
Moody's and (ii) neither Level 1 Status nor Level 2 Status exists.
"Level 4 Status" exists at any date if, at such date, (i) the Borrower
Indenture Securities are rated BB- or higher by S&P and Ba3 or higher by
Moody's and (ii) none of Level 1 Status, Level 2 Status nor Level 3 Status
exists.
"Level 5 Status" exists at any date if, at such date, no other Status exists
or the Borrower Indenture Securities are not rated by both S&P and Moody's or
no Borrower Indenture Securities are outstanding.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Rating Group.
"Status" refers to the determination which of Level 1 Status, Level 2 Status,
Level 3 Status, Level 4 Status or Level 5 Status exists at any date. For
purposes of this determination, the credit rating in effect at any date is
that in effect at the close of business on such date.
<PAGE> 1
EXHIBIT 10.130
GUARANTEE
GUARANTEE, dated as of May 22, 1997, made by COGENTRIX
DELAWARE HOLDINGS, INC., a Delaware corporation (the
"Guarantor"), in favor of the Borrower Creditors (as defined
below).
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of
May 22, 1997 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Cogentrix Energy,
Inc. (the "Borrower"), the lenders from time to time parties
thereto (the "Lenders") and Australia and New Zealand Banking
Group Limited, as the issuing bank thereunder (in such capacity,
the "Issuing Bank") and as agent for the Lenders (in such
capacity, the "Agent"), the Lenders have severally agreed to make
certain loans to the Borrower (the "Loans") and the Issuing Bank
has agreed to issue certain letters of credit for the account of
the Borrower (the "Letters of Credit"; the Loans and the Letters
of Credit, collectively, the "Extensions of Credit") upon the
terms and subject to the conditions set forth therein, the Loans
to be evidenced by certain notes issued by the Borrower under the
Credit Agreement;
WHEREAS, the Borrower owns directly all of the issued
and outstanding stock of the Guarantor;
WHEREAS, the proceeds of the Loans will be used in part
to enable the Borrower to make valuable transfers (as determined
as provided herein) to the Guarantor in connection with the
operation of its business;
WHEREAS, the Guarantor will derive substantial direct
and indirect benefit from the making of the Extensions of Credit;
and
WHEREAS, it is a condition precedent to the obligation
of the Lenders and the Issuing Bank to make their respective
Extensions of Credit under the Credit Agreement that the
Guarantor shall have executed and delivered this Guarantee.
NOW, THEREFORE, in consideration of the premises and to
induce the Agent, the Issuing Bank and the Lenders to enter into
the Credit Agreement and to induce the Lenders and the Issuing
Bank to make their respective Extensions of Credit to the
Borrower under the Credit Agreement, the Guarantor hereby agrees
as follows:
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<PAGE> 2
1. Defined Terms. (a) Unless otherwise defined
herein, terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
(b) As used herein, the following terms shall have the
following meanings:
"Borrower Creditors": the collective reference to the
Agent, the Issuing Bank, the Lenders, the Trustee, the
Holders, the holders of Other Indebtedness and their
respective successors, indorsees, transferees and assigns.
"CDH Permitted Investments":
(i)(A) commercial paper of issuers organized under the
laws of any state of the United States of America rated at
least "A-1" by Standard and Poor's Rating Group ("S&P") and
"Prime-1" by Moody's Investors Service, Inc. ("Moody's");
(B) marketable direct obligations of the United
States of America with maturities of three years or less
from the date of acquisition;
(C) marketable obligations directly and fully
guaranteed as to interest and principal by the United States
of America with maturities of three years or less from the
date of acquisition;
(D) demand deposits with the Agent, and time
deposits, certificates of deposit and banker's acceptances
issued by (1) the Agent or (2) any member bank of the
Federal Reserve System which is organized under the laws of
the United States of America or any state thereof or any
United States branch of a foreign bank, in each case whose
long-term debt securities are rated "A" or better by S&P and
"A2" or better by Moody's;
(E) obligations of the Agent, any bank described in
clause (D) above or any financial institution, in respect of
the repurchase of obligations of the type as described in
clauses (B) and (C) above, provided that such repurchase
obligations shall be fully secured by obligations of the
type described in said clauses (B) and (C) and the
possession of such obligations shall be transferred to, and
segregated from other obligations owned by, the Agent, any
such bank or such financial institution;
(F) eurodollar certificates of deposit issued by
the Agent or any bank described in clause (D) above;
(G) marketable asset-backed securities rated at
least "AA" by S&P and "Aa2" by Moody's;
2
<PAGE> 3
(H) marketable debt obligations of the Federal
National Mortgage Association, the Government National
Mortgage Association or the Federal Home Loan Mortgage
Association secured by a pool of mortgage loans with an
average life of three years or less from the date of
acquisition and rated at least "AA" by S&P and at least
"Aa2" by Moody's; and
(I) corporate debt securities of issuers organized
under the laws of any state of the United States of America
with maturities of three years or less from the date of
acquisition rated not less than "A" by S&P and "A2" by
Moody's;
provided, that for any of the securities of the types
described in subclauses (A), (B), (C), (D), (E), (F), (G),
(H) or (I) above to be CDH Permitted Investments in the
hands of any Person (x) the weighted average maturity from
any date of the securities of such types owned on such date
by such Person shall not be more than one year; and (y) the
value of the securities of any single issuer rated less than
"AAA" by S&P and "Aaa" by Moody's (other than the United
States of America or any agency thereof) owned by such
Person at any time shall not constitute more than 5% of the
value of all of the securities of such types owned by such
Person at such time; and
(ii) shares of money market mutual funds which invest
exclusively in assets satisfying the requirements of
subclauses (A), (B), (C), (D) or (F) of clause (i) of this
definition; provided, that for any such shares of such a
fund to be CDH Permitted Investments in the hands of any
Person, the weighted average maturity from any date of the
securities owned on such date by such fund shall not be more
than one year.
"Credit Agreement Obligations": the collective
reference to the unpaid principal of and interest on the
notes issued by the Borrower under the Credit Agreement and
all other obligations and liabilities of the Borrower in
respect of the payment of any amount by the Borrower to, or
deposit of any amount by the Borrower with, the Agent, the
Issuing Bank or the Lenders (including, without limitation,
(i) interest accruing at the then applicable rate provided
in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and (ii) the
obligations of the Borrower to make deposits into the Cash
Collateral Account), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
3
<PAGE> 4
incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the notes issued by the Borrower
thereunder, the Letters of Credit or any other document
made, delivered or given in connection therewith, whether on
account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to
the Agent, the Issuing Bank or to the Lenders that are
required to be paid by the Borrower or the Guarantor
pursuant to the terms of the Credit Agreement or this
Guarantee).
"Guaranteed Obligations": the collective reference to
(a) the Credit Agreement Obligations, (b) the Indenture
Obligations and (c) all Other Indebtedness.
"Holders": the holders of the notes issued by the
Borrower under the Borrower Indenture.
"Indenture Obligations": the collective reference to
the unpaid principal of and interest on the notes issued by
the Borrower under the Borrower Indenture and all other
obligations and liabilities of the Borrower in respect of
the payment of any amount by the Borrower to, or deposit of
any amount by the Borrower with, the Trustee or the Holders
(including, without limitation, (i) interest accruing at the
then applicable rate provided in the Borrower Indenture
after the maturity of such notes and interest accruing at
the then applicable rate provided in the Borrower Indenture
after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim
for post-filing or post-petition interest is allowed in such
proceeding and (ii) the obligations of the Borrower to make
deposits pursuant to Section 12.1 of the Borrower Indenture
into a "Sinking Fund" for the retirement of the Borrower
Indenture Securities), whether direct or indirect, absolute
or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in
connection with, the Borrower Indenture, the notes issued by
the Borrower thereunder or any other document made,
delivered or given in connection therewith, whether on
account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to
the Trustee or to the Holders that are required to be paid
by the Borrower or the Guarantor pursuant to the terms of
the Borrower Indenture or this Guarantee).
"Other Indebtedness": any unsecured indebtedness of
the Borrower for borrowed money, other than indebtedness
constituting a Credit Agreement Obligation or Indenture
Obligation, existing on the date hereof or hereafter
incurred by the Borrower, but only to the extent the
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<PAGE> 5
Borrower is permitted to Incur such indebtedness under the
Borrower Indenture and the Credit Agreement.
(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Guarantee shall refer
to this Guarantee as a whole and not to any particular provision
of this Guarantee, and section and paragraph references are to
this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
2. Guarantee. (a) Subject to the provisions of
paragraph 2(b), the Guarantor hereby, unconditionally and
irrevocably, guarantees to (i) the Agent, for the ratable benefit
of the Lenders and the Issuing Bank and their respective
successors, indorsees, transferees and assigns, the prompt and
complete payment (and performance, in the case of deposits) by
the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Credit Agreement Obligations,
(ii) the Trustee, for the ratable benefit of the Holders and
their respective successors, indorsees, transferees and assigns,
the prompt and complete payment (and performance, in the case of
deposits) by the Borrower when due (whether at the stated
maturity, by acceleration or otherwise) of the Indenture
Obligations and (iii) each holder of Other Indebtedness and such
holder's successors, indorsees, transferees and assigns, the
prompt and complete payment by the Borrower when due (whether at
the stated maturity, by acceleration or otherwise) of the Other
Indebtedness owed to such holder.
(b) Anything herein or in the Credit Agreement, the
Borrower Indenture, any agreement in respect of Other
Indebtedness or any other document to the contrary
notwithstanding, (i) the maximum liability of the Guarantor
hereunder and under the Credit Agreement, the Borrower Indenture
or any agreement in respect of Other Indebtedness shall in no
event exceed the amount which can be guaranteed by the Guarantor
under applicable federal and state laws relating to the
insolvency of debtors and (ii) the Guarantor shall not be liable,
on account of the Borrower's failure to pay or perform any
Guaranteed Obligation owed to any Borrower Creditor when due, to
pay to such Borrower Creditor any amount hereunder or under the
Credit Agreement, the Borrower Indenture or any agreement in
respect of Other Indebtedness unless the Guarantor shall have
more than $150,000 in assets (other than assets constituting
Investments in Subsidiaries but including, without limitation,
CDH Permitted Investments) on the day that such failure occurred
or thereafter.
(c) The Guarantor further agrees to pay any and all
expenses (including, without limitation, all fees and
disbursements of counsel) which may be paid or incurred by any
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<PAGE> 6
Borrower Creditor in enforcing, or obtaining advice of counsel in
respect of, any rights with respect to, or collecting, any or all
of the Guaranteed Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantor under this
Guarantee.
(d) No payment or payments made by the Borrower, the
Guarantor, any other guarantor or any other Person or received or
collected by any Borrower Creditor from the Borrower, the
Guarantor, any other guarantor or any other Person by virtue of
any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or
in payment of any of the Guaranteed Obligations shall be deemed
to modify, reduce, release or otherwise affect the liability of
the Guarantor hereunder which shall, notwithstanding any such
payment or payments other than payments made by the Guarantor in
respect of the Guaranteed Obligations or payments received or
collected from such Guarantor in respect of the Guaranteed
Obligations, remain liable for the Guaranteed Obligations up to
the maximum liability of the Guarantor hereunder.
3. Right of Set-off. The Guarantor hereby irrevocably
authorizes each Borrower Creditor at any time and from time to
time without notice to the Guarantor, any such notice being
expressly waived by the Guarantor, to set-off and appropriate and
apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured,
at any time held or owing by such Borrower Creditor to or for the
credit or the account of the Guarantor, or any part thereof in
such amounts as such Borrower Creditor may elect, against and on
account of the obligations and liabilities of the Guarantor to
the Borrower Creditor hereunder, in any currency, whether arising
hereunder, under the Credit Agreement, the Borrower Indenture,
any note issued by the Borrower under the Credit Agreement or the
Borrower Indenture, any agreement in respect of Other
Indebtedness or otherwise, as such Borrower Creditor may elect,
whether or not any Borrower Creditor has made any demand for
payment and although such obligations, liabilities and claims may
be contingent or unmatured. The Borrower Creditor shall notify
the Guarantor promptly of any such set-off and the application
made by such Borrower Creditor, provided that the failure to give
such notice shall not affect the validity of such set-off and
application. The rights of each Borrower Creditor under this
Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Borrower
Creditor may have.
4. No Subrogation. Notwithstanding any payment or
payments made by the Guarantor hereunder or any set-off or
application of funds of any of the Guarantor by any Borrower
Creditor, the Guarantor shall not be entitled to be subrogated to
any of the rights of any Borrower Creditor against the Borrower
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<PAGE> 7
or any collateral security or guarantee or right of offset held
by any Borrower Creditor for the payment of any of the Guaranteed
Obligations, nor shall the Guarantor seek or be entitled to seek
any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder.
5. Amendments, etc. with respect to the Guaranteed
Obligations; Waiver of Rights. The Guarantor shall remain
obligated hereunder notwithstanding that, without any reservation
of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of any of the
Guaranteed Obligations made by any Borrower Creditor may be
rescinded by such party and any of the Guaranteed Obligations
continued, and the Guaranteed Obligations, or the liability of
any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived,
surrendered or released by any Borrower Creditor, and the Credit
Agreement, the Borrower Indenture, any note issued by the
Borrower under the Credit Agreement or the Borrower Indenture,
any agreement in respect of Other Indebtedness and any other
documents executed and delivered in connection with the Credit
Agreement, the Borrower Indenture or any agreement in respect of
Other Indebtedness, may be amended, modified, supplemented or
terminated, in whole or in part, as the parties thereto may deem
advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by any Borrower
Creditor for the payment of any of the Guaranteed Obligations may
be sold, exchanged, waived, surrendered or released. When making
any demand hereunder against the Guarantor, a Borrower Creditor
may, but shall be under no obligation to, make a similar demand
on the Borrower or any other guarantor, and any failure by any
Borrower Creditor to make any such demand or to collect any
payments from the Borrower or any such guarantor or any release
of the Borrower or such other guarantor shall not relieve the
Guarantor of its obligations or liabilities hereunder, and shall
not impair or affect the rights and remedies, express or implied,
or as a matter of law, of any Borrower Creditor against the
Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. The
Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Guaranteed Obligations and
notice of or proof of reliance by any Borrower Creditor upon this
Guarantee or acceptance of this Guarantee, the Guaranteed
Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon this Guarantee (subject in
each case to the right of the Guarantor and the Agent to waive,
amend, supplement and modify this Guarantee as provided in
paragraph 14(a) hereof and the termination of this Guarantee and
the discharge of the Guarantor's obligations hereunder as
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<PAGE> 8
provided in Section 15); and all dealings between the Borrower
and the Guarantor, on the one hand, and any of the Borrower
Creditors, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this
Guarantee (subject in each case to the right of the Guarantor and
the Agent to waive, amend, supplement and modify this Guarantee
as provided in paragraph 14(a) hereof and the termination of this
Guarantee and the discharge of the Guarantor's obligations
hereunder as provided in Section 15). The Guarantor waives
diligence, presentment, protest, demand for payment and notice of
default or nonpayment to or upon the Borrower or the Guarantor
with respect to any of the Guaranteed Obligations. The Guarantor
understands and agrees that this Guarantee shall be construed as
a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity, regularity or enforceability
of the Credit Agreement, the Borrower Indenture, any note issued
by the Borrower under the Credit Agreement or the Borrower
Indenture, any agreement in respect of any Other Indebtedness,
any of the Guaranteed Obligations or any other collateral
security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by any Borrower
Creditor, (b) any defense, set-off or counterclaim (other than a
defense of payment or performance) which may at any time be
available to or be asserted by the Borrower against any Borrower
Creditor, or (c) any other circumstance whatsoever (with or
without notice to or knowledge of the Borrower or the Guarantor)
which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for any of the
Guaranteed Obligations, or of the Guarantor under this Guarantee,
in bankruptcy or in any other instance. When pursuing its rights
and remedies hereunder against the Guarantor, any Borrower
Creditor may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Borrower or any
other Person or against any collateral security or guarantee for
any of the Guaranteed Obligations or any right of offset with
respect thereto, and any failure by any Borrower Creditor to
pursue such other rights or remedies or to collect any payments
from the Borrower or any such other Person or to realize upon any
such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower or any such other
Person or any such collateral security, guarantee or right of
offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of
law, of any Borrower Creditor against the Guarantor.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Guaranteed
Obligations is rescinded or must otherwise be restored or
returned by any Borrower Creditor upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the
Borrower or the Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or
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<PAGE> 9
trustee or similar officer for, the Borrower or the Guarantor or
any substantial part of its property, or otherwise, all as though
such payments had not been made.
8. Payments. The Guarantor hereby guarantees to the
Agent, the Issuing Bank and the Lenders that payments hereunder
in respect of the Credit Agreement Obligations will be paid to
the Agent without set-off or counterclaim in U.S. Dollars at the
office of the Agent located at 1177 Avenue of the Americas, New
York, New York 10036-9715.
9. Representations and Warranties. The Guarantor
hereby represents and warrants to the Agent, the Issuing Bank and
the Lenders (and not to any other Borrower Creditor):
(a) The Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and
authority and the legal right to own and operate its property, to
lease the property it operates and to conduct the business in
which it is currently engaged.
(b) The Guarantor has the corporate power and
authority and the legal right to execute and deliver, and to
perform its obligations under, this Guarantee, and has taken all
necessary corporate action to authorize its execution, delivery
and performance of this Guarantee.
(c) This Guarantee constitutes a legal, valid and
binding obligation of the Guarantor enforceable in accordance
with its terms, except as affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an
implied covenant of good faith and fair dealing.
(d) The execution, delivery and performance of this
Guarantee will not violate any provision of any Requirement of
Law or Contractual Obligation of the Guarantor and will not
result in or require the creation or imposition of any Lien on
any of the properties or revenues of such Guarantor pursuant to
any Requirement of Law or Contractual Obligation of the
Guarantor.
(e) No consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or Governmental
Authority and no consent of any other Person (including, without
limitation, any stockholder or creditor of the Guarantor) is
required in connection with the execution, delivery, performance,
validity or enforceability of this Guarantee.
(f) No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to
the knowledge of the Guarantor, threatened by or against the
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Guarantor or against any of its properties or revenues (i) with
respect to this Guarantee or any of the transactions contemplated
hereby or (ii) which could have a material adverse effect on the
business, operations, property or financial or other condition of
the Guarantor.
(g) The Guarantor has good title in all its property,
and none of its property is subject to any Lien of any nature
whatsoever except as permitted under paragraph 10(a) hereof.
(h) The Guarantor has filed or caused to be filed all
tax returns which, to its knowledge, are required to be filed and
has paid all taxes shown to be due and payable on said returns or
on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount
or validity of which are currently being contested in good faith
by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of such
Guarantor). No tax Lien has been filed, and, to the knowledge of
the Guarantor, no claim is being asserted, with respect to any
such tax, fee or other charge.
(i) The unaudited balance sheet of the Guarantor as at
June 30, 1996 and the related unaudited statement of income for
the fiscal year ended on such date, certified by a Responsible
Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the financial
condition of the Guarantor as at such date, and the results of
its operations for the fiscal year then ended. The unaudited
balance sheet of such Guarantor as at March 31, 1997 and the
related unaudited statement of income for the nine-month period
ended on such date, certified by a Responsible Officer, copies of
which have heretofore been furnished to each Lender, are complete
and correct and present fairly the financial condition of the
Guarantor as at such date, and the results of its operations for
the nine-month period then ended (subject to normal year-end
audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods
involved. At the date of the most recent balance sheet referred
to above, the Guarantor had no material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term
lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or
exchange transaction or other financial derivative, which is not
reflected in the foregoing statements or in the notes thereto.
During the period from March 31, 1997, to and including the date
of this Guarantee there has been no sale, transfer or other
disposition by the Guarantor of any material part of its business
or property and no purchase or other acquisition of any business
or property (including any Capital Stock of any other Person)
material in relation to the financial condition of the Guarantor
at March 31, 1997.
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(j) The Borrower directly owns 100% of the outstanding
shares of Capital Stock of the Guarantor.
10. Covenants. The Guarantor hereby covenants and
agrees with the Agent, the Issuing Bank and the Lenders (and not
with any other Borrower Creditor) as follows:
(a) The Guarantor shall not Incur, assume, create or
otherwise cause or suffer to exist, directly or indirectly, any
Debt (other than Debt under this Guarantee) and shall not grant
or cause or suffer to exist any Lien on any property of the
Guarantor now owned or hereafter acquired by the Guarantor.
Notwithstanding the previous sentence of this paragraph 10(a), so
long as all Debt secured by each such Lien described below in
clauses (i), (ii) and (iii) of this sentence is Non-Recourse to
the Guarantor, the Guarantor may grant or cause or suffer to
exist: (i) Liens on the Guarantor's interests in Subsidiaries
and Joint Ventures in which the Guarantor is a partner,
shareholder, member or other participant, which Liens are granted
in good faith in connection with the acquisition of such assets
or as part of the financing of a Power Generation Facility;
provided that such Liens are required in order to effect such
financing and are not materially more restrictive, taken as a
whole, than Liens, taken as a whole, customarily accepted (or in
the absence of any industry custom, reasonably acceptable) in
substantially Non-Recourse project financing; (ii) Liens on the
stock or partnership interest of Subsidiaries of the Guarantor
and interests in Joint Ventures in which the Guarantor becomes a
partner, shareholder, member or other participant which Liens are
granted in good faith as part of a project financing or the
development of a project; provided that such Liens are required
in order to effect such transaction and are not materially more
restrictive, taken as a whole, than Liens, taken as a whole,
customarily accepted (or in the absence of any industry custom,
reasonably acceptable) in substantially Non-Recourse project
financing; and (iii) Liens in respect of extensions, renewals,
refunding or Refinancing of any Debt secured by the Liens
referred to in clauses (i) or (ii) above, provided that the Liens
in connection with such renewal, extension, refunding or
Refinancing shall be limited to all or part of the specific
Property which was subject to the original Lien.
(b) The Guarantor shall not create or otherwise cause
or suffer to exist or become effective any consensual encumbrance
or restriction of any kind on its ability to (i) pay dividends or
make other distributions permitted by applicable law on any of
its Capital Stock, (ii) make payments in respect of any Debt owed
to the Borrower, (iii) make loans or other advances to the
Borrower or (iv) transfer any of its property to the Borrower,
other than those encumbrances and restrictions created or
existing (1) pursuant to the Borrower Indenture as in effect on
the date hereof, the Credit Agreement or this Guarantee;
(2) customary non-assignment provisions in leases or other
contracts entered into in the ordinary course of business of the
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Guarantor; and (3) as a result of any Lien on the property of the
Guarantor permitted under paragraph 10(a) hereof.
(c) The Guarantor shall not make any advance, loan,
extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any
assets constituting a business unit of, or make any other
Investment in, any Person, other than (i) Investments in any
Subsidiary of the Guarantor (or any Person that will become a
Subsidiary of the Guarantor as a result of such Investment) that
the Borrower is permitted to allow the Guarantor to make under
the Credit Agreement (including, without limitation,
subsection 7.4 thereof) and the Borrower Indenture and (ii) CDH
Permitted Investments; provided, that (1) so long as the total of
the aggregate amount of CDH Permitted Investments owned by the
Borrower plus the aggregate amount of CDH Permitted Investments
owned by the Guarantor (exclusive of, in the case of both the
Borrower and the Guarantor, any CDH Permitted Investments subject
to or otherwise covered by any Lien other than the Lien created
under the Credit Agreement in the Cash Collateral Account) shall
have a value of $50 million or more, the Guarantor may make any
Investment that the Borrower is permitted to allow the Guarantor
to make under the Credit Agreement (including, without
limitation, subsection 7.4 thereof) and the Borrower Indenture
and (2) the Guarantor may make loans to AGRO Power Development,
Inc. and its Affiliates, for purposes of financing its or their
acquisition, construction, operation or development of
greenhouses in which the Borrower or one of its Subsidiaries has
or will have an interest, in an aggregate principal amount not to
exceed $10 million at any time, but only to the extent that the
Borrower is permitted to allow the Guarantor to make such loans
under the Credit Agreement (including, without limitation,
subsection 7.4 thereof) and the Borrower Indenture.
11. Authority of Agent. The Guarantor acknowledges
that the rights and responsibilities of the Agent under this
Guarantee with respect to any action taken by the Agent or the
exercise or non-exercise by the Agent of any option, right,
request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guarantee shall, as between the
Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time
to time among them, but, as between the Agent and such Guarantor,
the Agent shall be conclusively presumed to be acting as agent
for the Lenders with full and valid authority so to act or
refrain from acting, and the Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such
authority.
12. Severability. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
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unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. Integration. This Guarantee represents the
agreement of the Guarantor with respect to the subject matter
hereof and there are no promises or representations by any
Borrower Creditor relative to the subject matter hereof not
reflected herein.
14. Amendments in Writing; No Waiver; Cumulative
Remedies. (a) The terms or provisions of this Guarantee may be
waived, amended, supplemented or otherwise modified at any time
and from time to time by a written instrument executed by the
Guarantor and the Agent but not by any other means. Any waiver,
amendment, supplement or modification pursuant to this paragraph
14(a) shall be effective as against all of the Borrower Creditors
notwithstanding any reliance by the Borrower Creditors or any of
them on this Guarantee prior thereto.
(b) Neither the Agent nor the Issuing Bank nor any
Lender nor the Trustee nor any Holder nor any other Borrower
Creditor shall by any act, delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder
or to have acquiesced in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent, the Issuing Bank, any
Lender, the Trustee, any Holder or any other Borrower Creditor,
any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
A waiver by the Agent, the Issuing Bank, any Lender, the Trustee,
any Holder or any other Borrower Creditor of any right or remedy
hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Agent, the Issuing Bank, such
Lender, the Trustee, such Holder or such other Borrower Creditor
would otherwise have on any future occasion.
(c) The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
15. Discharge. This Guarantee and the Guarantor's
obligations hereunder shall remain in full force and effect until
all Credit Agreement Obligations shall have been paid and
performed in full and all Letters of Credit shall have expired or
been terminated (notwithstanding that from time to time the
Borrower may be free from any Credit Agreement Obligations) and,
except as otherwise provided in Section 7 hereof, thereafter this
Guarantee shall terminate and all of the Guarantor's obligations
hereunder shall be discharged in full.
16. Section Headings. The section headings used in
this Guarantee are for convenience of reference only and are not
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to affect the construction hereof or be taken into consideration
in the interpretation hereof.
17. Successors and Assigns. This Guarantee shall be
binding upon the successors and assigns of the Guarantor and
shall inure to the benefit of each Borrower Creditor and each
Borrower Creditor's successors, indorsees, transferees and
assigns.
18. Governing Law. This Guarantee shall be governed
by, and construed and interpreted in accordance with, the law of
the State of New York.
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IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be duly executed and delivered by its duly
authorized officer as of the day and year first above written.
COGENTRIX DELAWARE HOLDINGS, INC.
By: /s/ Thomas F. Schwartz
Title: Vice President - Finance
Treasurer
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EXHIBIT 10.134
VILLAGE FARMS OF MARFA, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of June 4, 1997
THE LIMITED PARTNERSHIP INTEREST REPRESENTED HEREBY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF CERTAIN STATES AND HAVE BEEN
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENT OF THE ACT AND SUCH LAWS. THE LIMITED PARTNERSHIP
INTEREST IS 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
1
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms 1
1.2 Other Definitional Provisions 13
ARTICLE II
GENERAL PROVISIONS
2.1 Formation of Partnership 13
2.2 Name of the Partnership 14
2.3 Business of the Partnership 14
2.4 Registered Office of the Partnership 14
2.5 Liability of the Partners Generally 14
2.6 Office of the Partnership 14
2.7 Duration of the Partnership 14
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Capital Contributions 16
3.2 Additional Capital Contributions 15
3.3 Conditions 16
3.4 Interest 18
3.5 Withdrawals of Capital 18
3.6 Additional Capital Contributions 18
ARTICLE IV
ALLOCATION OF PROFITS AND LOSSES
4.1 Profits and Losses 19
4.2 Capital Account Balances 20
4.3 Minimum Gain Chargeback 20
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4.4 Nonrecourse Deductions 20
4.5 Partner Nonrecourse Deductions 21
4.6 Qualified Income Offset 21
4.7 Curative Allocations 21
4.8 Tax Allocations 21
4.9 Property Subject to 704(b) and 704(c) 21
4.10 Limitations 21
ARTICLE V
DISTRIBUTIONS
5.1 Distribution of Net Distributable Cash 22
5.2 Default Allocations for Cogentrix 22
5.3 Default Allocations for VF 23
ARTICLE VI
MANAGEMENT
6.1 Management of the Partnership 24
6.2 Fundamental Matters 24
6.3 Officers of the Partnership 27
6.4 No Compensation; Reimbursement 28
6.5 Insurance 28
6.6 Cooperation on Tax Matters 29
ARTICLE VII
BOOKS, RECORDS AND BANK ACCOUNTS
7.1 Books and Records 29
7.2 Accounting Basis and Fiscal Year 29
7.3 Reports 29
7.4 Bank Accounts 30
7.5 Tax Returns 30
7.6 Tax Elections 31
7.7 Tax Matters Partner 31
7.8 Withholdings 31
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ARTICLE VIII
TRANSFER OF INTERESTS
8.1 Transfer of a Partner's Interest 31
ARTICLE IX
ADDITIONAL PARTNERS; WITHDRAWAL OF PARTNERS
9.1 Additional Partners 32
9.2 Withdrawal of Partners 33
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 Events of Dissolution 34
10.2 Distributions Upon Liquidation 35
ARTICLE XI
DISPUTE RESOLUTION
11.1 Arbitration 36
11.2 Buy/Sell Option 36
ARTICLE XII
MISCELLANEOUS
12.1 Distributions and Notices 38
12.2 Disclosure Obligations 38
12.3 Successors and Assigns 38
12.4 Amendments 38
12.5 Partition 38
12.6 No Waiver 39
12.7 Entire Agreement 39
12.8 Captions 39
12.9 Counterparts 39
12.10 Applicable Law 39
12.11 Severability 39
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LIST OF SCHEDULES
Schedule 1.1(a) Calculation of Internal Rate of Return
Schedule 1.1(b) Project Budget
Schedule 1.1(c) Project Documents
Schedule 1.1(d) Site
Schedule 6.3 Initial Officers of the Partnership
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AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership dated as of June 4,
1997 of VILLAGE FARMS OF MARFA, L.P. (the "Partnership") is by
and among COGENTRIX OF MARFA, INC., a Delaware corporation
("Cogentrix GP" and a "General Partner"), COGENTRIX GREENHOUSE
INVESTMENTS, INC., a Delaware corporation ("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").
VF Delaware is a Delaware limited liability company owned
99% by Agro Power Development, Inc., a New York corporation
("Agro Power"), and 1% by VF. VF is a Delaware limited liability
company owned 99% by Agro Power and 1% by VF Delaware. Agro
Power has entered into agreements and instruments (as more fully
defined hereafter, the "Project Documents") related to the
development and operation of a venlo style greenhouse located in
the vicinity of Marfa, Texas for the purpose of producing and
selling tomatoes (as more fully defined hereafter, the
"Project"). In order to continue with the development of the
Project and obtain financing for construction and working capital
needs, Agro Power desires that Cogentrix GP and Cogentrix LP
contribute in the aggregate $6,649,434 to the Project. In order
to encourage Cogentrix to contribute such funds to the Project,
Agro Power has agreed (1) to cause VF Delaware and VF to form the
Partnership with Cogentrix GP and Cogentrix LP pursuant to which
all Project Documents will be assigned to the Partnership, as VF
Delaware's contribution to the Partnership, in exchange for a 1%
interest in the Partnership, and likewise as VF's contribution to
the Partnership in exchange for a 49% interest in the
Partnership, (2) that, in exchange for a contribution to the
capital of the Partnership of $980 by Cogentrix LP, Cogentrix LP
will receive a 49% interest in the Partnership, and (3) that, in
exchange for a contribution to the capital of the Partnership of
$20 by Cogentrix GP, Cogentrix GP will receive a 1% interest in
the Partnership. Cogentrix GP and Cogentrix LP have agreed to
make such contributions to the capital of the Partnership on the
terms and conditions set forth herein.
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).
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"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
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.
"After-Tax" means after deducting Cogentrix GP's or
Cogentrix LP's, as applicable, notional project Federal and state
income tax. As used in this definition of After-Tax, the
notional project Federal and state income tax of Cogentrix GP and
Cogentrix LP shall be calculated as follows:
(a) The Partnership's taxable income would be
calculated from the Schedule K most recently filed with the
Internal Revenue Service (or the appropriate successor form
or schedule), which for purposes of clarity would include
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<PAGE> 8
operating income as shown on such Schedule and all
separately stated items of income or loss (except tax exempt
income) as shown on such Schedule.
(b) Assuming the Partnership were taxable as a for-
profit corporation, the Partnership's Federal and state
income tax would be determined based on the taxable income
calculated in (a). For these purposes, it will be assumed
that all of the Partnership's taxable income shall be taxed
at a blended Federal/state rate of 38.0% (subject to
adjustment upward or downward, as applicable, to reflect
changes in the highest marginal corporate Federal tax rate).
(c) The Partnership's notional income tax obligation
as calculated in (b) shall be allocated among the Partners
in the same manner as Profits and Losses are allocated among
the Partners under Article IV hereof.
Provided that, for each quarter end and at year end until such
time as the Partnership has filed a Schedule K with the Internal
Revenue Service and a true-up of taxable income has occurred,
notional project Federal and state income tax for Cogentrix GP
and Cogentrix LP shall be calculated by multiplying Estimated
Taxable Income allocated to Cogentrix GP and Cogentrix LP under
Article IV hereof, as the case may be, by 38.0% (subject to
adjustment upward or downward, as applicable, to reflect changes
in the highest marginal corporate Federal tax rate).
"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.
"Agro Power Investment" means all cash contributions to the
capital of the Partnership made by VF Delaware and VF pursuant to
this Agreement.
"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,
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
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<PAGE> 9
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 value in question 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.
"Budgets" has the meaning set forth in subsection 6.2(i).
"Business Day" means a day other than a Saturday, a Sunday
or any other day on which commercial banks in Texas, 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
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
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<PAGE> 10
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 Marfa, Inc., a Delaware
corporation.
"Cogentrix Investment" means (a) the respective Initial
Capital Contribution of Cogentrix GP and Cogentrix LP and (b) all
subsequent contributions to the capital of the Partnership made
by Cogentrix GP or Cogentrix LP (as the case may be) pursuant to
this Agreement in excess of any Agro Power Investment.
"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.
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<PAGE> 11
"Construction Agreement" means the Commercial Design and
Construction Contract dated May 1, 1997 by and between the
Partnership and Agro Power, as it may be amended, supplemented or
otherwise modified and in effect from time to time.
"Construction/Term Facility" means a loan facility in the
amount of $15,950,396 provided by the Construction/Term Lender
pursuant to the Project Loan Documents.
"Construction/Term Lender" means Village Farms International
Finance Association or its successor under the Construction/Term
Facility.
"Cumulative Distributions to Cogentrix" means the aggregate,
cumulative distributions of Net Distributable Cash received by
Cogentrix GP and Cogentrix LP from the Partnership.
"Cumulative Distributions to VF" means the aggregate,
cumulative distributions of Net Distributable Cash received by VF
Delaware and VF from the Partnership.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del.C. Section 17-101, et seq., as it may be
amended from time to time and any successor to such Act.
"Depreciation" means, for each fiscal year or other period,
an amount equal to the deprecation, amortization, or other cost
recovery deduction allocable with respect to an asset for such
period, except that if the Gross Asset Value of an asset differs
from its adjusted basis for Federal tax purposes at the beginning
of such period, Depreciation shall be an amount which bears the
same ratio to such beginning Gross Asset Value as the Federal
income tax depreciation, amortization or other cost recovery
deduction for such period bears to such beginning adjusted tax
basis; provided that if the Federal income tax depreciation,
amortization, or other cost recovery deduction for such period is
zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected
by the Management Committee.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Equity Funding Date" means the day on which all of the
conditions to the initial drawdown under the Construction/Term
Loan Facility (other than the contributions to the capital of the
Partnership to be made by Cogentrix GP and Cogentrix LP under
Section 3.2) have been met to the satisfaction of the
Construction/Term Lender.
"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.
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<PAGE> 12
"Estimated Taxable Income" means book income of the
Partnership computed in accordance with GAAP adjusted to reflect
the estimated depreciation and amortization timing differences
between financial reporting and income tax reporting.
"First Priority Return" means the receipt by Cogentrix GP
and Cogentrix LP of cash distributions from Net Distributable
Cash in an aggregate amount sufficient to provide each of
Cogentrix GP and Cogentrix LP, as the case may be, with an
Internal Rate of Return on its respective Cogentrix Investment
hereunder of [xxx]% calculated in accordance with Schedule 1.1(a)
(it being understood that any amounts which are part of Cogentrix
Investment pursuant to subsection (b) of the definition of
Cogentrix Investment shall only be entitled to such return from
the date they are actually paid or made).
"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.
"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
7
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 13
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
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 Project Loan Documents.
"Initial Capital Contribution" means, with respect to
Cogentrix GP, the amount of $20 and, with respect to Cogentrix
LP, means the amount of $980.
"Internal Rate of Return" (whether or not capitalized) means
the return to capital calculated at each calendar quarter end in
accordance with Schedule 1.1(a), attached hereto and incorporated
herein by reference.
"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
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<PAGE> 14
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.
"Losses" has the meaning given to it in the definition of
"Profits."
"Management Agreement" means the Management Agreement dated
the same date as this Agreement by and between the Partnership
and VF Delaware, as it may be amended, supplemented or otherwise
modified and in effect from time to time, pursuant to which VF
Delaware will provide operation and maintenance services to the
Partnership.
"Management Committee" means the Management Committee of the
Partnership referred to in Section 6.1.
"Marketing Agreement" means the Marketing 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 agree
to market products produced by the Partnership.
"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 Construction/Term Facility, (b) interest and
fees paid pursuant to the Revolving Facility, or other
borrowings, (c) all cash expenditures of and payments made by the
Partnership, and (d) 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
Project Loan Documents.
"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 Agreement.
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"Operating Management Fee" means a management fee to be paid
to VF Delaware in accordance with the Management 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 Village Farms of Marfa, L.P., the
limited partnership formed pursuant to this Agreement and the
filing of 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.
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"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 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 an approximately 41-acre venlo style
greenhouse to be located on the Site which is to be constructed
in two phases of 20.5-acres each and on which the Partnership
will produce tomatoes for sale under the Marketing Agreement.
"Project Assets" has the meaning set forth in Section
3.1(a).
"Project Budget" means the pro forma budget of total Project
costs attached hereto as Schedule 1.1(b), as amended or modified
from time to time in accordance with subsection 6.2(i).
"Project Credit Facilities" means, collectively, the
Construction/Term Facility and the Revolving Facility.
"Project Documents" means the agreements and instruments
listed on Schedule 1.1(c) attached hereto and incorporated herein
by reference as the same may be amended, supplemented or
otherwise modified in accordance with Section 6.2 hereof and in
effect from time to time.
11
<PAGE> 17
"Project Loan Documents" means the agreements and
instruments executed by, between or among the Partnership, the
Construction/Term Lender, the Revolver Lender, and any other
party relating to the Construction/Term Facility and/or the
Revolving Facility, as the same may be amended, supplemented or
otherwise modified in accordance with Section 6.2 hereof and in
effect from time to time.
"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
otherwise) or prospects of such Person or (ii) materially
adversely affect the ability of such Person to perform its
obligations under the Project Loan Documents or the Project
Documents to which it is a party.
"Revolver Lender" means Village Farms International Finance
Association or its successor under the Revolving Facility.
"Revolving Facility" means a loan facility in the amount of
$2,500,000.00 provided by the Revolver Lender pursuant to a
certain revolving credit agreement between the Revolver Lender
and the Partnership.
"Second Priority Return" means the receipt by Cogentrix GP
and Cogentrix LP of cash distributions of Net Distributable Cash
in an aggregate amount sufficient to provide each of Cogentrix GP
and Cogentrix LP, as the case may be, with an Internal Rate of
Return on its respective Cogentrix Investment of [xxx]% inclusive of
the First Priority Return) calculated in accordance with Schedule
1.1(a), (it being understood that any amounts which are part of
Cogentrix Investment pursuant to subsection (b) of the definition
of Cogentrix Investment shall only be entitled to such return for
the date they are actually paid or made). For purposes of
Article V hereof, Internal Rate of Return shall be calculated at
each calendar quarter end.
"Site" means a parcel of approximately 153 acres located in
the vicinity of Marfa, Texas and more fully described on Schedule
1.1(d) attached hereto and incorporated herein by reference.
"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.
12
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 18
"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.
(d) Unless the context requires otherwise, any
reference in this Agreement to any of the Project Documents
or the Project Loan Documents shall mean any of such
documents as amended, supplemented or modified and in effect
from time to time.
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 in
this 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 shall execute and file
with the Office of Secretary of State of the State of Delaware a
Certificate of Limited Partnership in accordance with Section 17-
13
<PAGE> 19
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 Village Farms of Marfa, 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 develop, construct, 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.
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.
2.6 Office of the Partnership. The Partnership shall
maintain an office and principal place of business in Marfa,
Texas. Pursuant to the Management 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 Marfa,
Texas.
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.
14
<PAGE> 20
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Capital Contributions.
(a) Simultaneously with the execution of the Agreement
by VF Delaware, VF, Cogentrix GP and Cogentrix LP, VF
Delaware and VF shall convey, grant, transfer and assign (or
cause to be conveyed, granted, transferred and assigned) to
the Partnership all of the Project Documents, all the rights
of Agro Power or any Affiliate of Agro Power under the
Project Documents and all the assets and business of every
kind and description, wherever located, real, personal and
mixed, tangible or intangible, owned or held or used by Agro
Power and any Affiliate of Agro Power solely in connection
with the Project (collectively, the "Project Assets"). The
Partnership hereby assumes and agrees to pay when due all
liabilities and obligations of Agro Power and any Affiliate
of Agro Power with respect to the Project Assets and agrees
to be bound by all of the terms of, and to undertake all of
the obligations of Agro Power and any Affiliate of Agro
Power under the Project Documents. For the purposes of the
initial Capital Accounts of the Partners, the Project Assets
and Project Documents contributed to the Partnership by VF
Delaware and VF shall be deemed to have an aggregate gross
fair market value (net of liabilities) of $1,000.
If any consent or approval is required in connection
with the assignment and contribution to the Partnership
pursuant to this subsection 3.1(a) of any Project Asset or
any Project Document, VF Delaware and VF shall have obtained
such consent or approval prior to such assignment and
contribution.
(b) 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.
(c) 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 Contributions. Upon the
satisfaction of or waiver of the conditions set forth in Section
3.3 hereof, on the Equity Funding Date Cogentrix GP shall
contribute to the Partnership $132,989 and Cogentrix LP shall
contribute to the Partnership $6,516,445 either (i) by wire
transfer of immediately available funds to an account designated
in writing by the Partnership or (ii) payment(s) to vendors with
respect to obligations under Project Documents.
15
<PAGE> 21
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 Project Credit Facilities and the Project Loan
Documents shall have been approved by the Management
Committee and the Project Loan Documents will be executed by
all parties thereto. An original executed copy of each
Project Loan Document will be delivered to Cogentrix GP and
a copy thereof delivered to Cogentrix LP as soon as
available.
(b) All conditions to the closing of the
Construction/Term Facility 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 deliveries in connection with the Project which
are required to be received by the Construction/Term Lender
as a condition to the funding of the Construction/Term
Facility and the Revolving Facility shall have been
delivered or received. A copy of all such deliveries and
other evidence of the closing shall be provided to Cogentrix
GP and Cogentrix LP.
(c) The contribution by VF Delaware contemplated by
Section 3.1(a) shall have been made to the satisfaction of
Cogentrix GP and Cogentrix LP and evidence thereof
reasonably satisfactory to Cogentrix GP and Cogentrix LP
shall have been provided to them by VF Delaware.
(d) 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
Project Documents and Project Loan Documents to which
it is a party.
(ii) This Agreement and the Project Documents
and Project Loan Documents to which it is a party have
been duly authorized, executed and delivered by VF
Delaware and VF and constitute the legal, valid and
binding obligations of each of VF Delaware and VF
enforceable against it in accordance with their terms,
except as enforceability may be limited by general
equitable principles and by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally.
16
<PAGE> 22
(iii) Neither the execution, delivery or
performance by VF Delaware or VF of this Agreement or
any of the Project Documents or Project Loan Documents
to which it is a party, nor compliance by it with the
terms and provisions hereof or thereof, including,
without limitation, the assignment of the Project
Documents and Project Assets to the Partnership,
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.
(iv) 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.
(v) The representations and warranties of VF
Delaware or VF or any of their respective Affiliates in
or pursuant to any of the Project Documents or Project
Loan Documents 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.
(e) 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) This Agreement and Project Loan
Documents to which it is a party have been duly
authorized, executed and delivered by Cogentrix GP and
Cogentrix LP and constitute the legal, valid and
binding obligations of each of Cogentrix GP and
Cogentrix LP enforceable against it in accordance with
their terms, except as enforceability may be limited by
general equitable principles and by applicable
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors
generally.
(iii) 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 bylaws or any of the terms, conditions or
17
<PAGE> 23
provisions of any Requirement of Law applicable to it
or its assets or business.
(iv) 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.
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 con
tributed 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 (which,
in the case of such an investment by Cogentrix GP or Cogentrix
LP, would increase the Cogentrix Investment of such Partner or,
in the case of an investment by VF or VF Delaware, would
constitute (and in the case of subsequent investments would
increase) an Agro Power Investment of such Partner) 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 Partner's ownership percentage
shall not change but, in the case of Cogentrix GP and Cogentrix
LP, the amount of the contribution will increase its respective
Cogentrix Investment and, in the case of VF and VF Delaware,
would constitute (or in the case of subsequent contributions
would increase) its respective Agro Power Investment. (As a
result, for example, if Cogentrix were to make an additional cash
contribution to the Partnership under this Section 3.6, and, if
at that time, distributions of cash from Net Distributable Cash
are being allocated pursuant to Section 5.1(b), then
distributions shall continue to be made under Section 5.1(b)
until Cogentrix GP and Cogentrix LP have received distributions
of cash from Net Distributable Cash that will provide Cogentrix
GP and Cogentrix LP with the Second Priority Return on the
Cogentrix Investment (which will have been increased by the
amount of such cash contribution under this Section 3.6)). 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 the Partners,
(b) it shall bear interest at the same rate of interest as the
interest rate then in effect under the Revolving Facility plus 1%
per annum and (c) shall comply in all respects with Project Loan
Documents.
18
<PAGE> 24
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
General Partners to offset any prior allocations of
Loss made to the General 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 4.1(a)(ii)(A) which
have not previously been offset.
(C) Thereafter, Profits shall be allocated
2% to Cogentrix GP and 98% to Cogentrix LP until the
aggregate cumulative Profits allocated to Cogentrix GP
and Cogentrix LP under this subsection (C) equals the
excess of (I) Cumulative Distributions to Cogentrix
over (II) the sum of Cumulative Distributions to VF and
the Cogentrix Investment.
(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 General Partners in the proportion of their Partner
ship 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.
19
<PAGE> 25
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
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.
20
<PAGE> 26
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.
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.
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<PAGE> 27
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:
(a) First, from the date hereof and until each of
Cogentrix GP and Cogentrix LP shall have received
distributions of cash from Net Distributable Cash sufficient
to provide both Cogentrix GP and Cogentrix LP with the First
Priority Return, [xxx]% to Cogentrix LP, [xxx]% to Cogentrix
GP, [xxx]% to VF and [xxx]% to VF Delaware,
(b) Thereafter until each of Cogentrix GP and
Cogentrix LP shall have received distributions of cash from
Net Distributable Cash sufficient to provide both Cogentrix
GP and Cogentrix LP with the Second Priority Return, [xxx]%
to Cogentrix LP, [xxx]% to Cogentrix GP, [xxx]% to VF, and
[xxx]% to VF Delaware, and
(c) Thereafter, [xxx]% to Cogentrix LP, [xxx]% to Cogentrix
GP, [xxx]% to VF and [xxx]% to VF Delaware.
5.2 Default Allocations for Cogentrix. In the event VF
Delaware, VF or Agro Power defaults or breaches any of its
obligations under this Agreement, the Management Agreement, the
Marketing Agreement or the Construction 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
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.
22
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 28
(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 and 49% by VF Delaware.
(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.
6.2 Fundamental Matters. The following matters shall
require the prior unanimous authorization and approval of the
Management Committee:
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(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 and listed on Schedule 1.1(c) hereto, 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
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 Project Loan Documents.
(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
Revolving Credit Facility), voluntary prepayment or
redemption of, or any refinancing or other modification of
the terms of, any Indebtedness.
(i) The adoption and modification of the Operating
Budget or the Project Budget (collectively, the "Budgets").
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(j) The approval of any expenditure or investment not
previously authorized in any 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
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 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 Project Loan Documents.
(q) Establishing committees of the Management
Committee and delegating voting authority to such
committees.
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(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 any Project Document, any
Project Loan Document, the Marketing Agreement or the
Management 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 any Project Document or any Project Loan
Document.
(t) The approval or taking with any action that would
give rise to an event of default under any Project Loan
Document or that would give rise to a right of acceleration
or termination under any Project Loan Document.
(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.
(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.
(ab) Any confession of a judgment against the
Partnership or any Partner.
(ac) The grant of any power of attorney or appointment
of any agent or attorney (other than customs brokers).
(ad) The grant of signature authority to any Person
with respect to any of the Partnership's bank or investment
accounts.
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
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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
Project Loan Documents and subject to subsection 6.2(u),
each General Partner shall be entitled to receive, out of
any 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 Budgets.
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 Project
Loan Documents 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.
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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.
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;
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(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 Agreement, the Marketing Agreement, an
agreement approved by the Management Committee or set
out in any 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
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 Part
ner's Federal income tax returns, including a statement
showing such Partner's share of income, gains, losses, deduc
tions and credits for such year for Federal income tax pur
poses 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 Marfa, 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 Project Loan Documents. 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.
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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
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;
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(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
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
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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:
(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 July 1, 1997 and the
conditions to the initial draw under each of the
Construction/Term Facility Documents and the Revolving
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Facility 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
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 occurrence of an event requiring
dissolution under the Delaware Act;
(iii) the unanimous consent of the General
Partners; or
(iv) 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
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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
Management Agreement or the Marketing Agreement 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 Agreement and the 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 Partner
ship 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.
35
<PAGE> 41
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
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
36
<PAGE> 42
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 Project Loan Documents, such purchase shall be made
directly by the purchasing General Partner. The closing
date for any 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.
37
<PAGE> 43
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
Project Documents, 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
38
<PAGE> 44
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
agreements, understandings, 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.
39
<PAGE> 45
IN WITNESS WHEREOF, the Partners have executed this
Agreement as of the date first above mentioned.
COGENTRIX OF MARFA, 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> 46
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> 47
Schedule 1.1(a)
Calculation of Internal Rate of Return
Internal Rate of Return Calculation
The calculation of the Internal Rate of Return in connection with
determining the First Priority Return and Second Priority Return
will be based upon the cash inflows and cash outflows for
Cogentrix GP and Cogentrix LP. The Internal Rate of Return shall
be computed utilizing Microsoft Excel software version 5.0. The
Internal Rate of Return shall be computed utilizing the @XIRR
function in Excel. For purposes of calculating the Internal Rate
of Return, the cash inflows and cash outflows to Cogentrix GP and
Cogentrix LP shall consist solely of the following:
Partner Contributions
All contributions made by Cogentrix GP and Cogentrix LP will
be reflected as a cash inflow as of the date such
contribution was received by the Partnership. Cogentrix GP
and Cogentrix LP will be credited for a partner contribution
at any time such Partner funds cash into the Partnership.
In addition, to the extent Cogentrix Energy, Inc. or any of
its Affiliates funds cash directly into the Partnership or
pays amounts to other persons to fulfill obligations under
the Agreement or any of the Project Documents or Project
Loan Documents or incurs costs or fees associated with
securing an obligation to make a contribution to the
Partnership, then such funding into the Partnership or such
other payments and/or such costs or fees will be deemed a
capital contribution by Cogentrix GP and Cogentrix LP as of
the day on which such funding or payment is made or such
costs or fees are incurred.
Distributions to Partners
All cash distributions will be reflected as a cash outflow
on a net After-Tax basis (based on allocations of the
Partnership's taxable income (loss) in accordance with
Section 4.1) as of the date such cash distribution was
received by the Partner.
The Internal Rate of Return calculation shall be performed by
Agro Power as of the end of each calendar quarter and is subject
to the approval of Cogentrix GP and Cogentrix LP.
All capitalized terms used in this Schedule 1.1(a) and not
otherwise defined herein shall have the meaning set forth in this
Agreement.
<PAGE> 48
Schedule 1.1(b)
AGRO POWER DEVELOPMENT, INC.
VILLAGE FARMS OF MARFA, L.P.
CONSTRUCTION BUDGET
Greenhouse Construction Contract [xxx]
Headhouse Construction Contract [xxx]
Land Gading Contract [xxx]
Laser Leveling [xxx]
Infrastructure [xxx]
Packing [xxx]
Fence [xxx]
Landscaping [xxx]
Fresh Water Supply (Wells) [xxx]
-------
Subtotal [xxx]
Contingency, Startup & Testing [xxx]
Turnkey Provider [xxx]
Insurance [xxx]
Construction Management Fees [xxx]
Total Turnkey Contract [xxx]
-------
Environmental [xxx]
Engineering & Design [xxx]
Accounting [xxx]
Legal [xxx]
Administration Fee [xxx]
Legal [xxx]
Accounting [xxx]
Bank's Appraisal [xxx]
Bank's Local Counsel [xxx]
Bank's Upfront Fee [xxx]
Title Attorney [xxx]
Title Insurance [xxx]
Interest During Constr. [xxx]
Property Taxes [xxx]
Development Fee [xxx]
-------
Other Transaction Costs [xxx]
Total Construction & Transaction Costs [xxx]
=======
Equity Contribution [xxx]% [xxx]
Construction/Term Facility Loan Amount [xxx]% [xxx]
Total Sources of Funds [xxx]
=======
- --------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 49
Schedule 1.1(c)
Project Documents
1. The West Texas Utility Company Agreement for Electric Service dated as
of March 13, 1997 and as supplemented on March 13, 1997 with the
Economic Development Rider by and between Agro Power, which is assigning
its interest therein to the Partnership, and West Texas Utilities.
2. The Standby/Supplemental Water Contract signed March 13, 1997 to be
effective September 1, 1997 by and between Agro Power, which is
assigning its interest therein to the Partnership, and the City of
Marfa, Texas, a municipal corporation under the laws of the State of
Texas within Presidio County, Texas.
3. The Lease Agreement dated March 14, 1997 by and between Agro Power,
which is assigning its interest therein to the Partnership, and the
County of Presidio, Texas acting by and through its duly authorized
governing body, the Presidio County Commissioners Court.
4. The Gas Sales Contract dated June 16, 1997 between Agro Power, which is
assigning its interest therein to the Partnership, and Southwest Texas
Municipal Gas Corporation, a Texas non-profit corporation operating as
a municipal utility.
<PAGE> 50
Schedule 6.3
Initial Officers of the Partnership
Name Title
Michael A. DeGiglio President
Thomas F. Schwartz Vice President
Albert Van Zeyst Vice President
J. Kevin Cobb Vice President
Michael Minerva Vice President
Lawrence J. Howard Treasurer
Dennis W. Alexander Secretary
Lori T. Hladik Assistant Secretary
Eilene M. Beck Assistant Secretary
<PAGE> 1
EXHIBIT 10.135
VILLAGE FARMS OF BUFFALO, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of September 4, 1997
THE LIMITED PARTNERSHIP INTEREST REPRESENTED HEREBY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF CERTAIN STATES AND HAVE BEEN
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENT OF THE ACT AND SUCH LAWS. THE LIMITED PARTNERSHIP
INTEREST IS 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
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms 2
1.2 Other Definitional Provisions 13
ARTICLE II
GENERAL PROVISIONS
2.1 Formation of Partnership 14
2.2 Name of the Partnership 14
2.3 Business of the Partnership 14
2.4 Registered Office of the Partnership 14
2.5 Liability of the Partners Generally 14
2.6 Office of the Partnership 15
2.7 Duration of the Partnership 15
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Capital Contributions 15
3.2 Additional Capital Contributions 16
3.3 Conditions 16
3.4 Interest 18
3.5 Withdrawals of Capital 18
3.6 Additional Capital Contributions 18
ARTICLE IV
ALLOCATION OF PROFITS AND LOSSES
4.1 Profits and Losses 19
4.2 Capital Account Balances 20
4.3 Minimum Gain Chargeback 20
4.4 Nonrecourse Deductions 21
4.5 Partner Nonrecourse Deductions 21
4.6 Qualified Income Offset 21
4.7 Curative Allocations 21
4.8 Tax Allocations 21
i
<PAGE> 3
4.9 Property Subject to 704(b) and 704(c) 21
4.10 Limitations 21
ARTICLE V
DISTRIBUTIONS
5.1 Distribution of Net Distributable Cash 22
5.2 Default Allocations for Cogentrix 22
5.3 Default Allocations for VF 23
ARTICLE VI
MANAGEMENT
6.1 Management of the Partnership 24
6.2 Fundamental Matters 24
6.3 Officers of the Partnership 28
6.4 No Compensation; Reimbursement 28
6.5 Insurance 28
6.6 Cooperation on Tax Matters 28
ARTICLE VII
BOOKS, RECORDS AND BANK ACCOUNTS
7.1 Books and Records 29
7.2 Accounting Basis and Fiscal Year 29
7.3 Reports 29
7.4 Bank Accounts 30
7.5 Tax Returns 30
7.6 Tax Elections 30
7.7 Tax Matters Partner 30
7.8 Withholdings 31
ARTICLE VIII
TRANSFER OF INTERESTS
8.1 Transfer of a Partner's Interest 31
ii
<PAGE> 4
ARTICLE IX
ADDITIONAL PARTNERS; WITHDRAWAL OF PARTNERS
9.1 Additional Partners 32
9.2 Withdrawal of Partners 32
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 Events of Dissolution 34
10.2 Distributions Upon Liquidation 34
ARTICLE XI
DISPUTE RESOLUTION
11.1 Arbitration 36
11.2 Buy/Sell Option 36
ARTICLE XII
MISCELLANEOUS
12.1 Distributions and Notices 37
12.2 Disclosure Obligations 38
12.3 Successors and Assigns 38
12.4 Amendments 38
12.5 Partition 38
12.6 No Waiver 38
12.7 Entire Agreement 39
12.8 Captions 39
12.9 Counterparts 39
12.10 Applicable Law 39
12.11 Severability 39
iii
<PAGE> 5
LIST OF SCHEDULES
Schedule 1.1(a) Calculation of Internal Rate of Return
Schedule 1.1(b) Project Budget
Schedule 1.1(c) Project Documents
Schedule 1.1(d) Site
Schedule 6.3 Initial Officers of the Partnership
iv
<PAGE> 6
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This Amended and Restated Agreement of Limited Partnership
dated as of September 4, 1997 of VILLAGE FARMS OF BUFFALO, L.P.
(the "Partnership") is by and among COGENTRIX OF BUFFALO, INC., a
Delaware corporation ("Cogentrix GP" and a "General Partner"),
COGENTRIX GREENHOUSE INVESTMENTS, INC., a Delaware corporation
("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").
The Partners are parties to an Agreement of Limited
Partnership dated as of June 16, 1997 (the "Original Agreement")
pursuant to which they formed the Partnership. The Partners
desire to amend and restate the Original Agreement by entering
into this Agreement.
VF Delaware is a Delaware limited liability company owned
99% by Agro Power Development, Inc., a New York corporation
("Agro Power"), and 1% by VF. VF is a Delaware limited liability
company owned 99% by Agro Power and 1% by VF Delaware. Agro
Power has entered into agreements and instruments (as more fully
defined hereafter, the "Project Documents") related to the
development and operation of a venlo style greenhouse located in
the vicinity of Buffalo, New York for the purpose of producing
and selling tomatoes (as more fully defined hereafter, the
"Project"). In order to continue with the development of the
Project and obtain financing for construction and working capital
needs, Agro Power desires that Cogentrix GP and Cogentrix LP
contribute in the aggregate $2,740,700 to the Project. In order
to encourage Cogentrix to contribute such funds to the Project,
Agro Power has agreed (1) to cause VF Delaware and VF to form the
Partnership with Cogentrix GP and Cogentrix LP pursuant to which
all Project Documents will be assigned to the Partnership, as VF
Delaware's contribution to the Partnership, in exchange for a 1%
interest in the Partnership, and likewise as VF's contribution to
the Partnership in exchange for a 49% interest in the
Partnership, (2) that, in exchange for a contribution to the
capital of the Partnership of $980 by Cogentrix LP, Cogentrix LP
will receive a 49% interest in the Partnership, and (3) that, in
exchange for a contribution to the capital of the Partnership of
$20 by Cogentrix GP, Cogentrix GP will receive a 1% interest in
the Partnership. Cogentrix GP and Cogentrix LP have agreed to
make such contributions to the capital of the Partnership on the
terms and conditions set forth herein.
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:
1
<PAGE> 7
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
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
2
<PAGE> 8
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.
"After-Tax" means after deducting Cogentrix GP's or
Cogentrix LP's, as applicable, notional project Federal and state
income tax. As used in this definition of After-Tax, the
notional project Federal and state income tax of Cogentrix GP and
Cogentrix LP shall be calculated as follows:
(a) The Partnership's taxable income would be
calculated from the Schedule K most recently filed with the
Internal Revenue Service (or the appropriate successor form
or schedule), which for purposes of clarity would include
operating income as shown on such Schedule and all
separately stated items of income or loss (except tax exempt
income) as shown on such Schedule.
(b) Assuming the Partnership were taxable as a for-
profit corporation, the Partnership's Federal and state
income tax would be determined based on the taxable income
calculated in (a). For these purposes, it will be assumed
that all of the Partnership's taxable income shall be taxed
at a blended Federal/state rate of 38% (subject to
adjustment upward or downward, as applicable, to reflect
changes in the highest marginal corporate Federal tax rate).
(c) The Partnership's notional income tax obligation
as calculated in (b) shall be (i) reduced by tax credits
available to be utilized to offset the current year's
Federal or state income tax obligation and (ii) allocated
among the Partners in the same manner as Profits and Losses
are allocated among the Partners under Article IV hereof.
Provided that, for each quarter end and at year end until such
time as the Partnership has filed a Schedule K with the Internal
Revenue Service and a true-up of taxable income has occurred,
notional project Federal and state income tax for Cogentrix GP
and Cogentrix LP shall be calculated by multiplying Estimated
Taxable Income allocated to Cogentrix GP and Cogentrix LP under
Article IV hereof, as the case may be, by 38% (subject to
adjustment upward or downward, as applicable, to reflect changes
in the highest marginal corporate Federal tax rate).
"Agreement" means this Amended and Restated Agreement of
Limited Partnership, as further 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.
"Agro Power Investment" means all cash contributions to the
capital of the Partnership made by VF Delaware and VF pursuant to
this Agreement.
"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
3
<PAGE> 9
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,
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 value in question 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.
"Budgets" has the meaning set forth in subsection 6.2(i).
"Business Day" means a day other than a Saturday, a Sunday
or any other day on which commercial banks in New York, 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:
4
<PAGE> 10
(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
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 Buffalo, Inc., a Delaware
corporation.
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<PAGE> 11
"Cogentrix Investment" means (a) the respective Initial
Capital Contribution of Cogentrix GP and Cogentrix LP and (b) all
subsequent contributions to the capital of the Partnership made
by Cogentrix GP or Cogentrix LP (as the case may be) pursuant to
this Agreement in excess of any Agro Power Investment.
"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.
"Construction Agreement" means the Commercial Design and
Construction Contract dated as of July 30, 1997 between the
Partnership and Agro Power for the construction of the Project,
as it may be amended, supplemented or otherwise modified and in
effect from time to time.
"Construction/Term Facility" means a loan facility in the
amount of $10,962,800 provided by the Construction/Term Lender
pursuant to the Project Loan Documents.
"Construction/Term Lender" means Village Farms International
Finance Association or its successor under the Construction/Term
Facility.
"Cumulative Distributions to Cogentrix" means the aggregate,
cumulative distributions of Net Distributable Cash received by
Cogentrix GP and Cogentrix LP from the Partnership.
"Cumulative Distributions to VF" means the aggregate,
cumulative distributions of Net Distributable Cash received by VF
Delaware and VF from the Partnership.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del.C. Section 17-101, et seq., as it may be
amended from time to time and any successor to such Act.
"Depreciation" means, for each fiscal year or other period,
an amount equal to the deprecation, amortization, or other cost
recovery deduction allocable with respect to an asset for such
period, except that if the Gross Asset Value of an asset differs
from its adjusted basis for Federal tax purposes at the beginning
of such period, Depreciation shall be an amount which bears the
same ratio to such beginning Gross Asset Value as the Federal
income tax depreciation, amortization or other cost recovery
deduction for such period bears to such beginning adjusted tax
basis; provided that if the Federal income tax depreciation,
amortization, or other cost recovery deduction for such period is
zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected
by the Management Committee.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
6
<PAGE> 12
"Equity Funding Date" means the day on which all of the
conditions to the initial drawdown under the Construction/Term
Loan Facility (other than the contributions to the capital of the
Partnership to be made by Cogentrix GP and Cogentrix LP under
Section 3.2) have been met to the satisfaction of the
Construction/Term Lender.
"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.
"Estimated Taxable Income" means book income of the
Partnership computed in accordance with GAAP adjusted to reflect
the estimated depreciation and amortization timing differences
between financial reporting and income tax reporting.
"First Priority Return" means the receipt by Cogentrix GP
and Cogentrix LP of cash distributions from Net Distributable
Cash in an aggregate amount sufficient to provide each of
Cogentrix GP and Cogentrix LP, as the case may be, with an
Internal Rate of Return on its respective Cogentrix Investment
hereunder of [xxx]% calculated in accordance with Schedule 1.1(a)
(it being understood that any amounts which are part of Cogentrix
Investment pursuant to subsection (b) of the definition of
Cogentrix Investment shall only be entitled to such return from
the date they are actually paid or made).
"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.
"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;
7
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 13
(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
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,
8
<PAGE> 14
"Indebtedness" includes the obligations of the Partnership to
repay amounts borrowed under, and to pay other amounts owing
under, the Project Loan Documents.
"Initial Capital Contribution" means, with respect to
Cogentrix GP, the amount of $20 and, with respect to Cogentrix
LP, means the amount of $980.
"Internal Rate of Return" (whether or not capitalized) means
the return to capital calculated at each calendar quarter end in
accordance with Schedule 1.1(a), attached hereto and incorporated
herein by reference.
"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.
"Losses" has the meaning given to it in the definition of
"Profits."
"Management Agreement" means the Management Agreement dated
the same date as this Agreement by and between the Partnership
and VF Delaware, as it may be amended, supplemented or otherwise
modified and in effect from time to time, pursuant to which VF
Delaware will provide operation and maintenance services to the
Partnership.
"Management Committee" means the Management Committee of the
Partnership referred to in Section 6.1.
"Marketing Agreement" means the Marketing 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 agree
to market products produced by the Partnership.
"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 Construction/Term Facility, (b) interest and
fees paid pursuant to the Revolving Facility, or other
borrowings, (c) all cash expenditures of and payments made by the
9
<PAGE> 15
Partnership, and (d) 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
Project Loan Documents.
"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 Agreement.
"Operating Management Fee" means a management fee to be paid
to VF Delaware in accordance with the Management Agreement.
"Original Agreement" means the Agreement of Limited
Partnership dated as of June 16, 1997 among the Partners.
"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 Village Farms of Buffalo, L.P., the
limited partnership formed pursuant to this Agreement and the
filing of 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:
10
<PAGE> 16
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 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.
11
<PAGE> 17
"Project" means an approximately 17.2-acre greenhouse to be
located on the Site on which the Partnership will produce
tomatoes for sale under the Marketing Agreement.
"Project Assets" has the meaning set forth in Section
3.1(a).
"Project Budget" means the pro forma budget of total Project
costs attached hereto as Schedule 1.1(b), as amended or modified
from time to time in accordance with subsection 6.2(i).
"Project Credit Facilities" means, collectively, the
Construction/Term Facility and the Revolving Facility.
"Project Documents" means the agreements and instruments
listed on Schedule 1.1(c) attached hereto and incorporated herein
by reference entered into in connection with the Project as the
same may be amended, supplemented or otherwise modified in
accordance with Section 6.2 hereof and in effect from time to
time.
"Project Loan Documents" means the agreements and
instruments executed by, between or among the Partnership, the
Construction/Term Lender, the Revolver Lender, and any other
party relating to the Construction/Term Facility and/or the
Revolving Facility, as the same may be amended, supplemented or
otherwise modified in accordance with Section 6.2 hereof and in
effect from time to time.
"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
otherwise) or prospects of such Person or (ii) materially
adversely affect the ability of such Person to perform its
obligations under the Project Loan Documents or the Project
Documents to which it is a party.
"Revolver Lender" means Village Farms International Finance
Association or its successor under the Revolving Facility.
"Revolving Facility" means a loan facility in the amount of
$1,200,000 provided by the Revolver Lender pursuant to a certain
revolving credit agreement between the Revolving Lender and the
Partnership.
"Second Priority Return" means the receipt by Cogentrix GP
and Cogentrix LP of cash distributions of Net Distributable Cash
in an aggregate amount sufficient to provide each of Cogentrix GP
12
<PAGE> 18
and Cogentrix LP, as the case may be, with an Internal Rate of
Return on its respective Cogentrix Investment of [xxx]% inclusive of
the First Priority Return) calculated in accordance with Schedule
1.1(a), (it being understood that any amounts which are part of
Cogentrix Investment pursuant to subsection (b) of the definition
of Cogentrix Investment shall only be entitled to such return for
the date they are actually paid or made). For purposes of
Article V hereof, Internal Rate of Return shall be calculated at
each calendar quarter end.
"Site" means a parcel of approximately 33 acres located in
the vicinity of Buffalo, New York and more fully described on
Schedule 1.1(d) attached hereto and incorporated herein by
reference.
"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
13
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 19
provision of this Agreement, and section, schedule and
exhibit references are to this Agreement unless otherwise
specified.
(d) Unless the context requires otherwise, any
reference in this Agreement to any of the Project Documents
or the Project Loan Documents shall mean any of such
documents as amended, supplemented or modified and in effect
from time to time.
ARTICLE II
GENERAL PROVISIONS
2.1 Formation of Partnership. The Partners hereby confirm
the formation and establishment of 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 in this Agreement and in the Delaware Act.
Concurrently with the execution of the Original Agreement by VF
Delaware, VF, Cogentrix GP and Cogentrix LP, VF Delaware and
Cogentrix GP 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 Village Farms of Buffalo, 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 develop, construct, 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.
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
14
<PAGE> 20
capital to the Partnership or have any liability for the
debts and obligations of the Partnership.
2.6 Office of the Partnership. The Partnership shall
maintain an office and principal place of business in Buffalo,
New York. Pursuant to the Management 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
Buffalo, New York.
2.7 Duration of the Partnership. The Partnership shall
commence on June 11, 1997 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 and VF agree to convey, grant,
transfer and assign (or cause to be conveyed, granted,
transferred and assigned) to the Partnership all of the
Project Documents, all the rights of Agro Power or any
Affiliate of Agro Power under the Project Documents and all
the assets and business of every kind and description,
wherever located, real, personal and mixed, tangible or
intangible, owned or held or used by Agro Power and any
Affiliate of Agro Power solely in connection with the
Project (collectively, the "Project Assets"). The
Partnership hereby assumes and agrees to pay when due all
liabilities and obligations of Agro Power and any Affiliate
of Agro Power with respect to the Project Assets and agrees
to be bound by all of the terms of, and to undertake all of
the obligations of Agro Power and any Affiliate of Agro
Power under the Project Documents. For the purposes of the
initial Capital Accounts of the Partners, the Project Assets
and Project Documents contributed or to be contributed to
the Partnership by VF Delaware and VF shall be deemed to
have an aggregate gross fair market value (net of
liabilities) of $1,000.
If any consent or approval is required in connection
with the assignment and contribution to the Partnership
pursuant to this subsection 3.1(a) of any Project Asset or
any Project Document, VF Delaware and VF shall have obtained
such consent or approval prior to such assignment and
contribution.
(b) 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.
(c) 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.
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3.2 Additional Capital Contributions. Upon the
satisfaction of or waiver of the conditions set forth in Section
3.3 hereof, on the Equity Funding Date Cogentrix GP shall
contribute to the Partnership $54,794 and Cogentrix LP shall
contribute to the Partnership $2,684,906 either (i) by wire
transfer of immediately available funds to an account designated
in writing by the Partnership or (ii) by payment(s) to vendors
with respect to obligations under Project Documents.
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 Project Credit Facilities and the Project Loan
Documents shall have been approved by the Management
Committee and the Project Loan Documents will be executed by
all parties thereto. An original executed copy of each
Project Loan Document will be delivered to Cogentrix GP and
a copy thereof delivered to Cogentrix LP as soon as
available.
(b) All conditions to the closing of the
Construction/Term Facility 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 deliveries in connection with the Project which
are required to be received by the Construction/Term Lender
as a condition to the funding of the Construction/Term
Facility and the Revolving Facility shall have been
delivered or received. A copy of all such deliveries and
other evidence of the closing shall be provided to Cogentrix
GP and Cogentrix LP.
(c) The contribution by VF Delaware contemplated by
Section 3.1(a) shall have been made to the satisfaction of
Cogentrix GP and Cogentrix LP and evidence thereof
reasonably satisfactory to Cogentrix GP and Cogentrix LP
shall have been provided to them by VF Delaware.
(d) 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
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(C) has taken all necessary action to authorize
the execution, delivery and performance of this
Agreement and the Project Documents and Project Loan
Documents to which it is a party.
(ii) This Agreement and the Project Documents
and Project Loan Documents to which it is a party have
been duly authorized, executed and delivered by VF
Delaware and VF and constitute the legal, valid and
binding obligations of each of VF Delaware and VF
enforceable against it in accordance with their terms,
except as enforceability may be limited by general
equitable principles and by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally.
(iii) Neither the execution, delivery or
performance by VF Delaware or VF of this Agreement or
any of the Project Documents or Project Loan Documents
to which it is a party, nor compliance by it with the
terms and provisions hereof or thereof, including,
without limitation, the assignment of the Project
Documents and Project Assets to the Partnership,
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.
(iv) 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.
(v) The representations and warranties of VF
Delaware or VF or any of their respective Affiliates in
or pursuant to any of the Project Documents or Project
Loan Documents 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.
(e) 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) This Agreement has been duly authorized,
executed and delivered by Cogentrix GP and Cogentrix LP
and constitutes the legal, valid and binding obligation
of each of Cogentrix GP and Cogentrix LP enforceable
17
<PAGE> 23
against it in accordance with its terms, except as
enforceability may be limited by general equitable
principles and by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
the rights of creditors generally.
(iii) 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 bylaws or any of the terms, conditions or
provisions of any Requirement of Law applicable to it
or its assets or business.
(iv) 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.
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 con
tributed 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 (which,
in the case of such an investment by Cogentrix GP or Cogentrix
LP, would increase the Cogentrix Investment of such Partner or,
in the case of an investment by VF or VF Delaware, would
constitute (and in the case of subsequent investments would
increase) an Agro Power Investment of such Partner) 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 Partner's ownership percentage
shall not change but, in the case of Cogentrix GP and Cogentrix
LP, the amount of the contribution will increase its respective
Cogentrix Investment and, in the case of VF and VF Delaware,
would constitute (or in the case of subsequent contributions
would increase) its respective Agro Power Investment. (As a
result, for example, if Cogentrix were to make an additional cash
contribution to the Partnership under this Section 3.6, and, if
at that time, distributions of cash from Net Distributable Cash
are being allocated pursuant to Section 5.1(b), then
distributions shall continue to be made under Section 5.1(b)
until Cogentrix GP and Cogentrix LP have received distributions
of cash from Net Distributable Cash that will provide Cogentrix
GP and Cogentrix LP with the Second Priority Return on the
Cogentrix Investment (which will have been increased by the
amount of such cash contribution under this Section 3.6)). In
the event the Partner elects to make a loan, then such loan shall
18
<PAGE> 24
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 the Partners,
(b) it shall bear interest at the same rate of interest as the
interest rate then in effect under the Revolving Facility plus 1%
per annum and (c) shall comply in all respects with Project Loan
Documents.
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
General Partners to offset any prior allocations of
Loss made to the General 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 4.1(a)(ii)(A) which
have not previously been offset.
(C) Thereafter, Profits shall be allocated
2% to Cogentrix GP and 98% to Cogentrix LP until the
aggregate cumulative Profits allocated to Cogentrix GP
and Cogentrix LP under this subsection (C) equals the
excess of (I) Cumulative Distributions to Cogentrix
over (II) the sum of Cumulative Distributions to VF and
the Cogentrix Investment.
(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 General Partners in the proportion of their Partner
ship 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.
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(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
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.
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<PAGE> 26
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.
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.
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<PAGE> 27
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:
(a) First, from the date hereof and until each of
Cogentrix GP and Cogentrix LP shall have received
distributions of cash from Net Distributable Cash sufficient
to provide both Cogentrix GP and Cogentrix LP with the First
Priority Return, [xxx]% to Cogentrix LP, [xxx]% to Cogentrix
GP, [xxx]% to VF Delaware and [xxx]% to VF,
(b) Thereafter until each of Cogentrix GP and
Cogentrix LP shall have received distributions of cash from
Net Distributable Cash sufficient to provide both Cogentrix
GP and Cogentrix LP with the Second Priority Return, [xxx]%
to Cogentrix LP, [xxx]% to Cogentrix GP, [xxx]% to VF
Delaware, and [xxx]% to VF, and
(c) Thereafter, [xxx]% to Cogentrix LP, [xxx]% to Cogentrix
GP, [xxx]% to VF Delaware and [xxx]% to VF.
5.2 Default Allocations for Cogentrix. In the event VF
Delaware, VF or Agro Power defaults or breaches any of its
obligations under this Agreement, the Management Agreement, the
Marketing Agreement or the Construction 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
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.
22
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[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 28
(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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<PAGE> 29
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.
6.2 Fundamental Matters. The following matters shall
require the prior unanimous authorization and approval of the
Management Committee:
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<PAGE> 30
(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 date of this
Agreement, including without limitation, the Project Loan
Documents, the Marketing Agreement, the Management Agreement
and the Project Documents; provided, that no such approval
shall be required for (i) any contracts and permit
applications in existence prior to the date of this
Agreement and listed on Schedule 1.1(c) hereto, 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
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 Project Loan Documents.
(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
Revolving Credit Facility), voluntary prepayment or
redemption of, or any refinancing or other modification of
the terms of, any Indebtedness.
25
<PAGE> 31
(i) The adoption and modification of the Operating
Budget or the Project Budget (collectively, the "Budgets").
(j) The approval of any expenditure or investment not
previously authorized in any 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 expen
ditures 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
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 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 Project Loan Documents.
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(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 any Project Document, any
Project Loan Document, the Marketing Agreement or the
Management 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 any Project Document or any Project Loan
Document.
(t) The approval or taking with any action that would
give rise to an event of default under any Project Loan
Document or that would give rise to a right of acceleration
or termination under any Project Loan Document.
(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.
(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.
(ab) Any confession of a judgment against the
Partnership or any Partner.
(ac) The grant of any power of attorney or appointment
of any agent or attorney (other than customs brokers).
(ad) The grant of signature authority to any Person
with respect to any of the Partnership's bank or investment
accounts.
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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
Project Loan Documents and subject to subsection 6.2(u),
each General Partner shall be entitled to receive, out of
any 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 Budgets.
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 Project
Loan Documents 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
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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.
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
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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 Agreement, the Marketing Agreement, an
agreement approved by the Management Committee or set
out in any 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
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 Part
ner's Federal income tax returns, including a statement
showing such Partner's share of income, gains, losses, deduc
tions and credits for such year for Federal income tax pur
poses 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 Buffalo, New York
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 Project Loan Documents. 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
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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
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;
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(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
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 docu
ments 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.
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(b) A Partner shall immediately cease to be a Partner
and shall be deemed to have Withdrawn from the Partnership,
in the event:
(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 October 1, 1997 and
the conditions to the initial draw under each of the
Construction/Term Facility Documents and the Revolving
Facility 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
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
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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 occurrence of an event requiring
dissolution under the Delaware Act;
(iii) the unanimous consent of the General
Partners; or
(iv) 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
Management Agreement or the Marketing Agreement other than
amounts then due and owing), the Management Committee or the
liquidator, if any, shall set up such reserves as it deems
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reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership (other than
liability and obligation owing with respect to the
Management Agreement and the 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 Partner
ship 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.
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
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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
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
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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 Project Loan Documents, such purchase shall be made
directly by the purchasing General Partner. The closing
date for any 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
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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
Project Documents, 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
38
<PAGE> 44
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
agreements, understandings, promises and representations made by
either party to the other concerning the subject matter hereof
and the terms applicable hereto, including, without limitation,
the Original Agreement.
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.
39
<PAGE> 45
IN WITNESS WHEREOF, the Partners have executed this
Agreement as of the date first above mentioned.
COGENTRIX OF BUFFALO, 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> 46
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.,
as Limited 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
41
<PAGE> 47
Schedule 1.1(a)
Calculation of Internal Rate of Return
Internal Rate of Return Calculation
The calculation of the Internal Rate of Return in connection with
determining the First Priority Return and Second Priority Return
will be based upon the cash inflows and cash outflows for
Cogentrix GP and Cogentrix LP. The Internal Rate of Return shall
be computed utilizing Microsoft Excel software version 5.0. The
Internal Rate of Return shall be computed utilizing the @XIRR
function in Excel. For purposes of calculating the Internal Rate
of Return, the cash inflows and cash outflows to Cogentrix GP and
Cogentrix LP shall consist solely of the following:
Partner Contributions
All contributions made by Cogentrix GP and Cogentrix LP will
be reflected as a cash inflow as of the date such
contribution was received by the Partnership. Cogentrix GP
and Cogentrix LP will be credited for a partner contribution
at any time such Partner funds cash into the Partnership.
In addition, to the extent Cogentrix Energy, Inc. or any of
its Affiliates funds cash directly into the Partnership or
pays amounts to other persons to fulfill obligations under
the Agreement or any of the Project Documents or Project
Loan Documents or incurs costs or fees associated with
securing an obligation to make a contribution to the
Partnership, then such funding into the Partnership or such
other payments and/or such costs or fees will be deemed a
capital contribution by Cogentrix GP and Cogentrix LP as of
the day on which such funding or payment is made or such
costs or fees are incurred.
Distributions to Partners
All cash distributions will be reflected as a cash outflow
on a net After-Tax basis (based on allocations of the
Partnership's taxable income (loss) in accordance with
Section 4.1) as of the date such cash distribution was
received by the Partner.
The Internal Rate of Return calculation shall be performed by
Agro Power as of the end of each calendar quarter and is subject
to the approval of Cogentrix GP and Cogentrix LP.
All capitalized terms used in this Schedule 1.1(a) and not
otherwise defined herein shall have the meaning set forth in this
Agreement.
<PAGE> 48
Schedule 1.1(b)
Project Budget
Construction Contract [xxx]
Land Lease Deposit [xxx]
Land Acquisition [xxx]
Land Grading [xxx]
Soil Improvement [xxx]
Landscaping [xxx]
Construction Management Fees [xxx]
Turnkey Profit [xxx]
Contingency, Startup & Testing [xxx]
-------
Total Turnkey Contract [xxx]
-------
Engineering & Design [xxx]
Accounting [xxx]
Legal (VFIFA) [xxx]
Legal (other) [xxx]
Insurance [xxx]
Environmental [xxx]
Bank's Engineer [xxx]
Administrative Fee [xxx]
Bank's Local Counsel [xxx]
Bank's Upfront Fee [xxx]
Title Insurance [xxx]
Interest During Construction [xxx]
Professional Consultant [xxx]
Development Fee [xxx]
-------
Other Transaction Costs [xxx]
Total Construction & Transaction Costs [xxx]
-------
Equity Contribution [xxx]% [xxx]
Construction/Term Facility Amount [xxx]% [xxx]
Total Sources of Funds [xxx]
-------
- ------------
[xxx] These portions of this exhibit have been omitted and filed
separately with the Commission pursuant to a request for
confidential treatment.
<PAGE> 49
Schedule 1.1(c)
Project Documents
Ground Lease dated September 4, 1997 between Agro Power
Development, Inc. and The Buffalo Enterprise Development
Corporation
Schedule 1.1(d)
Site
<PAGE> 50
Schedule 6.3
Initial Officers of the Partnership
Name Title
Michael A. DeGiglio President
Thomas F. Schwartz Vice President
Albert Van Zeyst Vice President
J. Kevin Cobb Vice President
Michael Minerva Vice President
Lawrence J. Howard Treasurer
Dennis W. Alexander Secretary
Lori T. Hladik Assistant Secretary
Eilene M. Beck Assistant Secretary
<PAGE> 1
EXHIBIT 21.1
COGENTRIX ENERGY, INC.
SUBSIDIARIES
Cogentrix Energy, Inc. (NC)
Cogentrix Delaware Holdings, Inc. (DE)
Cogentrix Holdings Corporation (NC)
Cogentrix, Inc. (NC)
Cogentrix Eastern Carolina Corporation (NC)
Cogentrix of North Carolina Holdings, Inc. (NC)
Cogentrix of North Carolina, Inc. (NC)
Roxboro/Southport I, Inc. (NC)+
Roxboro/Southport II, Inc. (NC)+
Roxboro/Southport General Partnership (NC)+
Cogentrix of Virginia, Inc. (VA)
Cogentrix Virginia Leasing Corporation (NC)
Cogentrix of Richmond, Inc. (NC)
Cogentrix of Rocky Mount, Inc. (NC)
Cogentrix of Pennsylvania, Inc. (DE)
ReUse Technology, Inc. (NC)
(doing business as: RT Development Company; RT
Environmental Services; RT Grading and Utilities;
and RT Soil Sciences)
Cogentrix - Mexico, Inc. (NC)
Cogeneracion Mexicana, S.A. de C.V. (Mexico)
CI Properties, Inc. (NC)
Cogentrix of Asia Pte Ltd. (Singapore)
Cogentrix of Latin America, Inc. (NC)
Cogentrix of Vancouver, Inc. (NC)
Cogentrix of Rathdrum I, Inc. (NC)+
Cogentrix of Rathdrum II, Inc. (NC)+
Rathdrum Generation Partners Limited Partnership (DE)+
Cogentrix of Birchwood I, Inc. (DE)+/++
Cogentrix of Birchwood II, Inc. (DE)+
Cogentrix/Birchwood One Partners (DE)+/++
Cogentrix/Birchwood Two, L.P. (DE)++
Cogentrix Energy Power Marketing, Inc. (NC)
Cogentrix of Ft. Davis I, Inc. (DE)
Cogentrix Greenhouse Investments, Inc. (DE)
Cogentrix of Pocono, Inc. (DE)
Cogentrix of Marfa, Inc. (DE)
Cogentrix of Buffalo, Inc. (DE)
Cogentrix International Holdings, Inc. (DE)
Cogentrix International Holdings, BV (Netherlands)
Cogentrix Mauritius Company (Mauritius)
Yellow Sea Cogeneration Company, Limited (Mauritius)
Liberty Power/Cogentrix Bolivia, Inc. (DE)
(Partners and Partnerships denoted by plus sign)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 93,484
<SECURITIES> 41,494
<RECEIVABLES> 57,880
<ALLOWANCES> 0
<INVENTORY> 15,723
<CURRENT-ASSETS> 214,360
<PP&E> 684,210
<DEPRECIATION> 169,761
<TOTAL-ASSETS> 859,828
<CURRENT-LIABILITIES> 118,155
<BONDS> 631,624
0
0
<COMMON> 130
<OTHER-SE> 49,579
<TOTAL-LIABILITY-AND-EQUITY> 859,828
<SALES> 341,889
<TOTAL-REVENUES> 365,177
<CGS> 283,918
<TOTAL-COSTS> 283,918
<OTHER-EXPENSES> 69,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,328
<INCOME-PRETAX> (44,710)
<INCOME-TAX> (17,112)
<INCOME-CONTINUING> (27,598)
<DISCONTINUED> 0
<EXTRAORDINARY> (703)
<CHANGES> 0
<NET-INCOME> (28,301)
<EPS-PRIMARY> (100.36)
<EPS-DILUTED> (100.36)
</TABLE>
