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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SIX-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1997
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 March 30, 1997:
282,000
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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COGENTRIX ENERGY, INC.
INDEX TO TRANSITION REPORT ON FORM 10-K
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PART I
Item 1: Business 3
Item 2: Properties 28
Item 3: Legal Proceedings 28
Item 4: Submission of Matters to a Vote of Security Holders 30
PART II
Item 5: Market for the Registrant's Common Stock and Related Shareholder Matters 31
Item 6: Selected Consolidated Financial Data 32
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 34
Item 8: Financial Statements and Supplementary Data 45
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73
PART III
Item 10: Directors and Executive Officers of the Registrant 74
Item 11: Executive Compensation 77
Item 12: Security Ownership of Certain Beneficial Owners and Management 80
Item 13: Certain Relationships and Related Transactions 80
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 83
Signatures 97
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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 and selling electricity and steam in the United States and selected
international markets. 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"). The Company currently has interests in eleven power generation
facilities having an aggregate generating capacity of 1,120 megawatts. In March
1998, the Company acquired ownership interests in two separate 245 megawatt
gas-fired power generation facilities in the Midwestern United States. In
addition, the Company has a pending acquisition, subject to the fulfillment of
all required conditions, of ownership interests in twelve domestic power
generation facilities with an aggregate generating capacity of approximately
2,400 megawatts and a natural gas pipeline. Since its inception in 1983, the
Company has capitalized on its expertise in engineering, construction
management, operations, fuel management and financing capabilities to
successfully expand its operations. Based on net ownership of total 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."
POWER MARKET OUTLOOK
The restructuring of the electric market worldwide has created a trend
away from government-owned electric generation toward a deregulated, competitive
market, both domestically and internationally. In response to increasing
customer demand for access to low cost electricity and enhanced services, new
regulatory initiatives are currently being adopted or considered at both state
and federal levels to increase competition in the domestic power generation
industry. The Company believes that industry trends and such regulatory
initiatives will lead to the transformation of the existing regulated market
which sells to a captive customer base to a more competitive market in which end
users may purchase electricity from a variety of suppliers including non-utility
generators, power marketers, public utilities and others. Management believes
that these market trends will create significant new business opportunities for
companies like Cogentrix Energy, Inc. that have demonstrated the ability to
construct and operate efficient, low cost power generation facilities.
Management also believes that these market trends and changes in the
electric market will result in a disposition of power generation facilities by
utilities, independent power producers and industrial companies. This trend will
create investment opportunities for companies such as Cogentrix Energy, Inc.
that have integrated power services capabilities.
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 Qualified Facilities ("QFs"), are not
required to use alternative or renewable fuels or to have useful thermal energy
output. See "Regulation -- Energy Regulations" herein.
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The Company believes that knowledge gained from developing and
operating power plants in the United States can be applied to take advantage of
selective opportunities in international markets. In order to satisfy an
increase in electric demand, many countries have adopted active government
programs designed to encourage private investment in power generation
facilities. To this end, the Company is actively exploring development of
projects outside of the United States, principally in Asia and Latin America.
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 (or interests therein) 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 240 megawatts primarily using natural gas as fuel.
In developing future projects, the Company anticipates that it will
increasingly participate 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. Through such joint venture
relationships, the Company expects to gain a number of advantages, including
technical expertise possessed by others, enhanced 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 joint venture
partner's human and financial resources. The Company also expects such joint
ventures will enable it to share the risks associated with development of
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 facilities whenever possible.
The Company has identified three market segments in which it intends to
focus its future development activities. These targeted market segments are
acquisitions of domestic generating assets, domestic and foreign industrial
companies and greenfield project development.
ACQUISITIONS OF DOMESTIC GENERATING ASSETS. In pursuing its growth
strategy, the Company intends to focus on opportunities where it is able to
capitalize on its management and technical expertise to identify acquisition
opportunities of domestic generating assets. In pursuing these acquisition
opportunities, the Company seeks to target facilities which have power sales
contracts with electric utilities or customers with significant credit strength
as well as facilities that are highly efficient, low cost energy providers that
can take advantage of opportunities in a deregulated energy market. By pursuing
this acquisition strategy, the Company has already significantly expanded and
diversified its project portfolio. In 1998, the Company has signed agreements
related to acquisitions involving various ownership interests in 14 domestic
generating facilities. As a result of these transactions, the Company will
nearly double its net ownership power generation capacity and substantially
diversify its technology and fuel mix.
DOMESTIC AND FOREIGN INDUSTRIAL COMPANIES. With opportunities for
development in the electric utility market diminishing, the Company is
increasing its focus on the industrial market for new domestic as well as
selected international project development opportunities. Management believes
that establishing relationships with large United States multinational
industrial corporations will also help to serve as an indirect route to the
development of projects in the international market.
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 companies' primary manufacturing objectives. The cost of their energy
supply is a major component of these industrial companies' costs. The Clean Air
Act amendments of 1990 also present challenges for many industrial companies
which must retrofit existing facilities to comply with the new law. The Company
believes that smaller cogeneration facilities with state of the art technology
could readily be employed to replace, or in certain circumstances, upgrade
existing inside the fence cogeneration facilities.
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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 acceptable alternative
structures.
GREENFIELD PROJECT DEVELOPMENT. The Company intends to pursue domestic
development of highly efficient, low cost power generating facilities. In
developing these opportunities, the Company will hedge its exposure to electric
market price risk by entering into arrangements with utilities, fuel suppliers
and/or power markets.
The Company believes that the knowledge and experience that it has
gained in developing and operating facilities in the United States can be
effectively employed in selected situations to develop projects outside the
United States. In pursuing selected international development projects, the
Company intends to focus primarily on the segment of the international market
for generating facilities in the 60 to 240 megawatt range. By concentrating on
the development of smaller facilities, the Company believes that it can
successfully export its proven core business while making relatively smaller
equity investments in international projects. The Company intends to pursue
selected opportunities in Asia and Latin America, where demand for power is
rapidly growing and private investment is encouraged.
ACQUISITIONS OF LS POWER AND BECHTEL ASSETS
In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in two independent power plants in
Whitewater, Wisconsin (the "Whitewater Facility") and Cottage Grove, Minnesota
(the "Cottage Grove Facility"). Each of the Cottage Grove and Whitewater
Facilities is a 245 megawatt gas-fired, combined-cycle cogeneration facility.
The Cottage Grove Facility sells capacity and energy to Northern States Power
Company under a 30-year power sales contract terminating in 2027. The Whitewater
Facility sells capacity and energy to Wisconsin Electric Power Company under a
25-year power sales contract terminating in 2022. Commercial operations of the
facilities commenced in the last half of calendar 1997.
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. ("Bechtel") to acquire Bechtel's ownership interest in twelve
electric generating facilities and one interstate natural gas pipeline in the
United States. The acquisition of these facilities will provide the Company with
a net equity interest of approximately 360 megawatts in a diverse generating
portfolio that comprises approximately 2,400 megawatts in total plant capacity.
These facilities are located in New Jersey, New York, Pennsylvania, West
Virginia, Massachusetts and Florida. Nine of the generating facilities were
developed and are managed by U.S. Generating Company, an indirect, wholly-owned
subsidiary of PG&E Corporation, and are owned in part by affiliates of U.S.
Generating Company.
For further discussion of the acquisitions see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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PROJECTS UNDER DEVELOPMENT
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 executed the Government of Karnataka guaranty of
the full financial obligation of the Karnataka State Electricity Board and the
State Support Agreement which commits the State of Karnataka to facilitate
required government actions. The Company is currently negotiating with the GOI
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 projects the Company is seeking to develop are 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.
PROJECT UNDER CONSTRUCTION
In December 1997, the Company substantially completed construction of a
248 megawatt combined-cycle, gas-fired electric generation facility (the "Clark
Facility") for Public Utility District Number 1 of Clark County, Washington
("Clark") and earned a construction management fee of $4.5 million. Upon final
completion of the facility and acceptance by Clark, the Company will earn an
additional construction management fee of $500,000 and will also share in 50% of
the amount, if any, of the excess of the contract amount ($117 million) over the
actual costs and expenses incurred in constructing the Clark Facility. The
excess is currently expected to be approximately $7 million. Cogentrix of
Vancouver, Inc. ("CVC"), a subsidiary of Cogentrix Energy, Inc., performed the
development and preliminary engineering of the Clark Facility and received a
development fee of $4.5 million in October 1995. CVC is currently managing the
post-completion operations and maintenance of the Clark Facility pursuant to a
two-year 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 a utility to purchase
electric capacity and energy and to schedule transmission 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.
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GREENHOUSE OPERATIONS
The Company has entered into an agreement with Agro Power Development,
Inc. ("Agro"), 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 107 acres of production capacity. These greenhouses are located in
Texas, Pennsylvania and New York.
DESCRIPTION OF THE COMPANY'S FACILITIES IN OPERATION
(The following discussion of the Company's facilities in operation does
not reflect the Company's acquisition on March 20, 1998 of an approximate 74%
ownership interest in two independent power plants from LS Power Corporation.
See the discussion appearing above under the heading "Acquisitions of LS Power
and Bechtel Assets.")
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 that 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. The power sales
agreements for ten of the 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.
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. The fuel supply contracts with respect to each of
the Company's projects are structured so that the fuel cost escalations are
generally matched
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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 fuel 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 fuel prices.
The power sales agreements and the steam sales agreements provide
substantially all of the revenue stream of the Company's facilities. Costs
incurred under the fuel supply agreements (including related transportation
agreements) accounted for approximately 45.7% of the Company's operating
expenses during the six-month period ended December 31, 1997.
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 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.
The Company's existing facilities are 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 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.
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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 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.
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 nine 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 plant. 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.
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.
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FACILITIES IN OPERATION
Set forth in the table and the text below are descriptions of the
Company's eleven plants in operation at December 31, 1997. 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 six-month period ended December 31, 1997, two
regulated utilities, Carolina Power & Light Company ("CP&L") and Virginia
Electric and Power Company ("Virginia Power"), accounted for approximately 85%
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.
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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.
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LUMBERTON, NC $ 30.5 35 CP&L Alamac Knit Fabrics, December 1985 100%
Inc.
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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
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SOUTHPORT, NC $ 82.9 120 CP&L Archer-Daniels- September 1987 100%
Midland Company
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HOPEWELL, VA $ 97.8 120 Virginia Power Allied-Signal December 1987 50%
Corporation
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PORTSMOUTH, VA $ 94.7 120 Virginia Power Clariant June 1988 100%
Corporation
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ROCKY MOUNT, NC $107.2 120 Virginia Power Abbott Laboratories October 1990 100%
d/b/a North Carolina
Power Company
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RINGGOLD, PA $ 32.0 15.5 Pennsylvania Electric Keystone Village April 1991 100%
Company Farms, Inc.
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RICHMOND, VA $243.7 240 Virginia Power E.I. Du Pont de Unit I May 1992; 100%
Nemours & Company Unit II August 1992
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KING GEORGE, VA $364.0 220 Virginia Power Greenhost, Inc. November 1996 50%
(BIRCHWOOD
FACILITY)
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</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
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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.
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.
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 are financed pursuant to a senior credit facility
which provides for a term loan ($26.7 million outstanding at December 31, 1997)
and a $3.3 million letter of credit to secure the obligations of CECC to pay
debt service.
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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.
The ELK Facilities generated $16.4 million of revenues in the six-month
period ended December 31, 1997, $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.
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) 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.
Cogentrix has guaranteed the performance of CNC under the CP&L power
sales agreements.
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.
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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.
CNC has executed long-term coal sales agreements for both the Roxboro
and Southport Facilities with subsidiaries of Alliance Coal Corporation. The
terms of these 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 and Southport
Facilities by ReUse under contracts expiring in December 2002.
The Southport and Roxboro Facilities are financed pursuant to a senior
credit facility which provides for a term loan ($93 million outstanding at
December 31, 1997) and a $6.5 million letter of credit facility to secure the
obligations of CNC to pay debt service. In connection with the financing, 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 $24.9 million of
revenues in the six-month period ended December 31, 1997, $58.2 million of
revenues in fiscal 1997, $86.9 million of revenues in fiscal 1996 and $84.4
million of revenues in fiscal 1995.
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"), which
may operate at a declared capacity of up to 92.5 megawatts. 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 sells electricity to Virginia Power under a power
sales agreement which expires in January 2008. The power sales agreement was
amended, effective in February 1998, to provide Virginia Power economic dispatch
rights on
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the Facility and to eliminate the regulatory disallowance provision in the power
sales agreement, which allocated, in part, the risk of disallowance by the
Virginia State Corporation Commission ("SCC") to JRCC.
Under the amended power sales agreement, JRCC provides up to 92.5
megawatts of capacity to Virginia Power. The amended power sales agreement
provides for scheduled annual increases in energy payments through 2002, which
the Company believes are sufficient to offset scheduled increases in coal and
rail transportation costs. Energy payments from 2003 through 2008 under the
power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices.
In addition to Virginia Power's right to suspend delivery of
electricity for maintenance and emergencies, the Hopewell Facility is also
subject to economic dispatch by Virginia Power. This right allows Virginia Power
to suspend or reduce purchases of energy from the Hopewell 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 JRCC 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. 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, JRCC must pay Virginia Power the difference between payments for
capacity already made and those that would have been allowable under the
applicable avoided cost schedules plus interest.
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. 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.
In February 1998, JRCC refinanced its project debt with the proceeds of
a senior credit facility, which provides for a $80 million term loan and a $5
million debt service reserve letter of credit. In connection with the
refinancing, the Company entered into an agreement for the benefit of the
project lenders to fund cash deficits JRCC could experience as a result of
incurring certain costs, subject to a cap of $10.6 million.
Cogentrix has pledged the stock of CVA as security for the obligations
of JRCC under this senior 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 $24.8 million of revenues in the
six-month period ended December 31, 1997, $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.
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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"), which may operate at a declared capacity of up to
115 megawatts. Commercial operation of the Portsmouth Facility commenced in June
1988.
The Portsmouth Facility sells electricity to Virginia Power under a
power sales agreement which expires in June 2008. The power sales agreement was
amended, effective in December 1997, to provide Virginia Power economic dispatch
rights on the Facility and to eliminate the regulatory disallowance provision in
the power sales agreement, which allocated, in part, the risk of disallowance by
the SCC to CVLC.
Under the amended power sales agreement, CVLC provides up to 115
megawatts of capacity to Virginia Power. The amended power sales agreement
provides for scheduled annual increases in energy payments through 2002, which
the Company believes are sufficient to offset scheduled increases in coal and
rail transportation costs. Energy payments from 2003 through 2008 under the
power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices.
In addition to Virginia Power's right to suspend delivery of
electricity for maintenance and emergencies, the Portsmouth Facility is also
subject to economic dispatch by Virginia Power. This right allows Virginia Power
to suspend or reduce purchases of energy from the Portsmouth 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 CVLC 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.
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 already made and those that would have been allowable under the
applicable avoided cost schedules plus interest.
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 Clariant Corporation
("Clariant") 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. Clariant 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.
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.
In December 1997, CVLC refinanced its project debt with a senior credit
facility which provides for a term loan ($61.5 million outstanding at December
31, 1997), a revolving credit facility ($40.5 million commitment with $-0-
outstanding at December 31, 1997) and a $6 million debt service reserve letter
of credit. In connection with the refinancing,
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the Company entered into an agreement for the benefit of the project lenders to
fund cash deficits CVLC could experience as a result of incurring certain costs,
subject to a cap of $30 million.
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.
The Portsmouth Facility generated $31.3 million of revenues in the
six-month period ended December 31, 1997, $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.
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.
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.
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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 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 is financed pursuant to a term loan ($125.8
million outstanding at December 31, 1997). 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 $25.1 million in revenues in the
six-month period ended December 31, 1997, $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.
In January 1998, the Company signed an agreement with Penelec to
terminate the Ringgold Facility's power purchase agreement with Penelec. This
termination agreement was the result of a request for proposals to buy-back or
restructure power sales agreements issued to all major operating IPP projects in
Penelec's territory in April 1997. The termination agreement with Penelec
provides for a payment to the Company of approximately $25 million which will be
sufficient to retire all of the outstanding project debt. The buy-back of the
power purchase agreement
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is subject to the issuance of an order by the Pennsylvania Public Utility
Commission granting Penelec the authority to fully recover from its customers
the consideration paid to CPA under the buyout agreement. Management does not
expect this event to have an adverse impact on the Company's consolidated
results of operations or financial position.
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 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 three years remain).
The Ringgold Facility is financed pursuant to a senior term loan ($15.7
million outstanding at December 31, 1997) and a subordinated note payable ($7.4
million outstanding at December 31, 1997). 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 accrued interest receivable 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.
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. Given the
current restructuring efforts, the Company intends to continue to provide funds
to CPA, if necessary, for debt service.
The Ringgold Facility generated $4.4 million in revenues for the
six-month period ended December 31, 1997, $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.
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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 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 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 senior credit facility,
which includes (i) a letter of credit ($150.1 million outstanding at December
31, 1997) issued to support commercial paper notes of CR issued from time to
time; (ii) letters of credit ($48.0 million outstanding at December 31, 1997)
issued to support certain revenue bonds issued by the Industrial Development
Authority of the City of Richmond, Virginia; and (iii) letters of credit in an
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
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$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 $41 million in revenues for the
six-month period ended December 31, 1997, $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 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 by the partners of Birchwood and operated by Agro, 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
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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 is financed pursuant to a senior credit facility
which consists of a bank credit facility ($153.6 million outstanding at December
31, 1997), an institutional debt facility ($135.0 million outstanding at
December 31, 1997), 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 senior credit
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.
PRINCIPAL CUSTOMERS
Electric utility customers accounting for more than ten percent of the
Company's revenue for the six-month period ended December 31, 1997 and for each
of the last three fiscal years were as follows:
<TABLE>
<CAPTION>
SIX-MONTH FISCAL YEAR ENDED JUNE 30,
PERIOD ENDED ----------------------------
DECEMBER 31, 1997 1997 1996 1995
------------------- ------ ------ ------
<S> <C> <C> <C> <C>
CP&L 22% 25% 33% 34%
Virginia Power (including NC Power) 63 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,
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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.
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 certain 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 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. A small power production facility may
be a QF if it uses certain alternative fuels as its primary energy input,
subject to limitations on fossil fuel input and size for the facility. 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.
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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 selling exclusively at wholesale 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.
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 Energy Policy Act and PURPA, EWGs,
FUCOs, and owners and operators of QFs are deemed not to be public utility
companies under PUHCA. The Securities and Exchange Commission ("SEC") has also
determined that power marketers are not 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. 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.
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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.
Proposed Legislation.
In addition to federal legislative initiatives, the state commissions
or state legislatures of many states 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 price 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.
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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 Energy 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.
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, most of the
Company's current operating facilities are exempt. The Company's non-exempt
operating facilities have determined their need for allowances and have
accounted for these requirements in their operating budgets and financial
forecasts. 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. 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
25
<PAGE> 26
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.
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. In the fall of 1997, the EPA proposed a call for revisions to state
implementation plans ("SIPs"). This SIP call implements some of the OTAG's
recommendations and goes beyond some of OTAG's recommendations for reductions in
NOx emissions. 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
26
<PAGE> 27
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.
The Kyoto Protocol regarding greenhouse gas emissions and global
warming was signed by the U.S. committing to significant reductions in
greenhouse gas emissions. The U.S. Senate must ratify the agreement for the
protocol to take effect. The Clinton Administration has proposed a package of
legislative and administrative policies to curb greenhouse gases, none of which
are affected by the need for Senate ratification. Management believes that none
of these policies will have a material effect on the consolidated results of
operations or financial position of the Company. Future initiatives on this
issue and the effects on the Company are unknown at this time.
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 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.
27
<PAGE> 28
EMPLOYEES
At December 31, 1997, the Company employed 470 people, approximately
286 of whom are involved in facility operations and 92 of whom are involved in
ash disposal 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 terms of the amended 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 Coal Sales, Inc. ("James River")
and its affiliate, Bell County Coal Corporation. Coal is supplied to the
Southport Facility by Coastal Coal Sales, Inc. ("Coastal"). The coal sales
agreements for both the ELK Facilities and the Southport Facility provide for
the sale and purchase of the coal requirements of those facilities through the
respective contract term.
Under the amended power sales agreement for the Company's Portsmouth
Facility, Virginia Power has from time to time since December 1997 exercised its
right of economic dispatch resulting in significantly reduced fuel requirements
at the facility. Coal is supplied to the Portsmouth Facility by Arch Coal Sales
Company, Inc. ("Arch"). The coal sales agreement with Arch provides for the sale
and purchase of the coal requirements of the Portsmouth Facility during the
period extending 15 years from late 1987, the year of commencement of commercial
operations at the facility.
As a result of the economic dispatch of these facilities and their
consequent reduced fuel requirements, the Company's project subsidiaries
operating these facilities are purchasing significantly less coal. James River,
Coastal and Arch have each initiated either a civil action or an arbitration
proceeding seeking to recover damages and, in some cases, seeking injunctive
relief. A summary of each of these pending disputes is set forth below.
JAMES RIVER DISPUTE (ELK FACILITIES)
In November 1996, James River and its affiliate instituted an action in
the United States District Court for the Eastern District of Kentucky against
CECC claiming breach of contract and fraud in the inducement based on the
reduction in fuel requirements at the ELK Facilities. In this complaint, James
River and its affiliate sought specific performance and, in the alternative, an
unspecified amount of damages.
CECC filed a motion to dismiss the complaint for (i) lack of
jurisdiction and (ii) failure to state a claim upon which relief can be granted.
Prior to the court ruling on the motion, the case was transferred in September
1997 to the United States District Court, Western District of North Carolina.
The CECC motion to dismiss was taken up by the North Carolina court, which by
order dated January 8, 1998 denied the motion to dismiss count I (breach of
contract) and granted the motion to dismiss count II (fraud in the inducement).
James River filed an amended complaint on January 29, 1998, and CECC refiled its
motion to dismiss count II of the amended complaint on February 24, 1998. The
motion to dismiss is under consideration by the court.
28
<PAGE> 29
The coal sales agreement for the ELK Facilities contains an arbitration
provision requiring contract disputes to be submitted to arbitration in
Charlotte, North Carolina. Upon resolution of the pending Motion, CECC may seek
enforcement of that provision.
COASTAL DISPUTE (SOUTHPORT FACILITY)
In October 1996, Coastal initiated an arbitration proceeding against
CNC through the American Arbitration Association in Charlotte, North Carolina.
The notice of arbitration alleged breach of contract based on the reduction in
fuel requirements at the Southport Facility. The arbitration was conducted by a
three-member panel during the period September 30 through October 3, 1997, and
an arbitration award was rendered on October 22, 1997 in favor of CNC denying
any recovery to Coastal ("Arbitration Award").
On January 20, 1998, ANR Coal Company, L.L.C. ("ANR"), as successor to
Coastal, filed a complaint in United States District Court for the Western
District of North Carolina (the "Court") seeking an order vacating the
Arbitration Award. The principal basis of the complaint is an allegation that
the impartial third arbitrator of the panel was improperly biased and failed to
make complete disclosure of pertinent information during the selection process.
CNC filed its motion to dismiss, motion to confirm and answer on February 17,
1998. The matter is currently under consideration by the Court. CNC does not
believe the allegations of ANR in the complaint are meritorious or provide a
basis upon which the Court could properly vacate the Arbitration Award.
ARCH DISPUTE (PORTSMOUTH FACILITY)
In March 1998, Arch filed a complaint in the United States District
Court, Southern District of West Virginia against the Company's project
subsidiary that owns and operates the Portsmouth Facility alleging a breach of
contract. In the complaint, Arch seeks a determination that CVLC (i) is
obligated to purchase approximately 360,000 tons of coal per year, (ii) breached
the Coal Agreement by wrongfully reducing its requirements of coal, and (iii)
violated a duty of good faith and fair dealing owed to Arch. Arch also seeks a
determination that CVLC is obligated to purchase approximately 360,000 tons of
coal per year and damages for CVLC's failure to purchase such quantities of
coal.
The claims made by Arch directly contradict the clear, overriding
provisions of the coal sales agreement, which specifically provide that
notwithstanding any provision in the agreement to the contrary, CVLC shall not
be obligated to purchase more than the Portsmouth Facility's requirements of
coal. Furthermore, the coal agreement contains an arbitration clause, which the
Company believes is enforceable, that requires any disputes between the parties
to be resolved by arbitration in Charlotte, North Carolina.
The Company is confident that the claims made by Arch against CVLC will
ultimately be resolved in favor of CVLC. CVLC will vigorously defend the matter,
seek to enforce the terms of the agreement against Arch, including the
arbitration clause, and otherwise continue to perform under the agreement as
required.
SUMMARY OF COAL PURCHASE AGREEMENT DISPUTES
Management believes that, as to the James River and Arch suits, there
is no basis for certain claims and there are meritorious defenses as to the
remainder. Management believes the Coastal Arbitration Award was the product of
an arbitration process that was entirely proper and in accordance with American
Arbitration Association guidelines and procedures. The Company intends to
vigorously contest the actions of James River, Arch and ANR (Coastal) and is
confident that they will be resolved in favor of the Company. The Company has
established reserves which management believes to be adequate to cover any costs
which may result from these matters. The ultimate disposition of the James
River, Arch and ANR (Coastal) actions, in the judgement of management, will not
have a material adverse impact on the Company's consolidated results of
operations or financial position.
29
<PAGE> 30
OTHER ROUTINE LITIGATION
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 impact on the consolidated financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
30
<PAGE> 31
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 - For the fiscal year ended June 30, 1997, the Company's
board of directors declared a dividend on its outstanding common stock
of $5.0 million, which was paid in September 1997. The Company's board
of directors declared a dividend on its outstanding common stock of
$2.1 million for the six-month period ended December 31, 1997, which
was paid in March 1998. 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. 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.
31
<PAGE> 32
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
data as of and for the six-month period ended December 31, 1997 and 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 the
six-month period ended December 31, 1997 and 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.
Effective January 1, 1998, the Company changed its fiscal year to
commence on January 1 and conclude on December 31 of each year. The Company's
fiscal year previously commenced each July 1, concluding on June 30 of the
following calendar year.
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED YEARS ENDED JUNE 30,
DECEMBER -------------------------------------------------------------
31, 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Electric $ 154,810 $ 315,203 $ 356,459 $ 357,674 $ 351,892 $ 338,645
Steam 12,721 26,686 27,703 23,320 22,254 22,637
Income from unconsolidated investments
in power projects 1,186 574 3,862 1,116 0 0
Other 9,229 10,343 22,522 2,992 1,939 1,037
--------- --------- --------- --------- --------- ---------
Total operating revenue 177,946 352,806 410,546 385,102 376,085 362,319
--------- --------- --------- --------- --------- ---------
Operating expenses:
Operating costs 93,689 204,446 245,582 235,006 239,225 236,568
General, administrative and development 18,242 39,425 29,983 30,499 26,664 25,116
Depreciation and amortization 20,407 40,047 37,842 37,642 36,290 28,851
Loss on impairment and cost of removal of
cogeneration facilities 0 65,628 0 0 0 0
--------- --------- --------- --------- --------- ---------
Total operating expenses 132,338 349,546 313,407 303,147 302,179 290,535
--------- --------- --------- --------- --------- ---------
Operating income 45,608 3,260 97,139 81,955 73,906 71,784
Other income (expense):
Interest expense (25,680) (56,328) (58,354) (59,621) (50,736) (45,479)
Investment and other income 4,334 13,184 7,478 8,269 4,335 4,110
Equity in net income (loss) of affiliates, net (1,813) (813) (1,758) 8,696 (650) 0
Minority interest in income of joint venture (2,273) (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 20,176 (44,710) 39,756 34,510 23,766 27,901
Benefit (provision) for income taxes (7,971) 17,112 (15,961) (13,337) (9,307) (11,508)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary gain (loss)
and cumulative effect of change in accounting
principle 12,205 (27,598) 23,795 21,173 14,459 16,393
Extraordinary gain (loss) on early extinguishment
of debt, net (1,502) (703) 0 0 3,055 0
Cumulative effect of change in method of
accounting for income taxes 0 0 0 0 (875) 0
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 10,703 $ (28,301) $ 23,795 $ 21,173 $ 16,639 $ 16,393
========= ========= ========= ========= ========= =========
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER ----------------------------------------------------
31, 1997 1997 1996 1995 1994 1993
-------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $822,974 $859,828 $921,641 $930,733 $944,185 $868,369
======== ======== ======== ======== ======== ========
Project financing debt(1) $567,705 $591,694 $616,588 $661,891 $702,736 $723,435
======== ======== ======== ======== ======== ========
Parent debt(2) $100,000 $100,000 $100,000 $100,000 $100,000 $ 32,037
======== ======== ======== ======== ======== ========
Total shareholders' equity $ 58,298 $ 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.
33
<PAGE> 34
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 is engaged in the acquisition, development, ownership, and
operation of power generation facilities and the sale of electricity and steam
in the United States and selected international markets. The Company owns
(entirely or in part) eleven power generation facilities having an aggregate
generating capacity of 1,120 megawatts. In March 1998, the Company acquired an
ownership interest in two gas-fired power generation facilities in the Midwest
United States, having an aggregate generating capacity of 490 megawatts. In
addition, the Company has a pending acquisition, subject to the fulfillment of
all required conditions, of ownership interests in twelve power generation
facilities in Florida and the Northeastern United States, comprising an
aggregate generating capacity of approximately 2,400 megawatts. Upon completion
of the pending acquisition, the Company's net interest in power generation
facilities will be 1,675 megawatts, an increase from 840 megawatts in 1994.
Each of the Company's generating facilities relies on a power sales
agreement for the majority of its revenues. During the six-month period ended
December 31, 1997, two regulated utilities, CP&L and Virginia Power, accounted
for approximately 85% of the Company's consolidated revenues. As the result of
the Company's recent growth, the Company's operations will become more diverse
with regard to both geography and fuel source and will become less dependent on
any single project or customer.
Each of the Company's power generation facilities produces electricity
for sale to a utility and thermal energy for sale to an industrial user. The
electricity and thermal energy generated by these facilities are typically sold
under long-term power or steam sales agreements, generally having original terms
of 20 to 30 years. Several of the Company's generating facilities originally
sold electricity under long-term must-run power sales agreements, which
obligated the utility to purchase all electricity generated by the power
generation facility. Over the last two years, the Company has amended the
majority of these must-run power sales agreements to provide the utility the
ability to suspend or reduce purchases of energy from the facilities if the
utility determines it can operate its system for a designated period more
economically. These amended power sales agreements are structured such that the
Company continues 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 are reduced (or possibly eliminated) as a
result of economic dispatch, primarily cover variable operating and maintenance
costs as well as fuel and fuel transportation costs. The restructuring of a
must-run power sales agreement to an economic dispatch power sales agreement
causes a significant reduction in electric revenues recognized under the
contract, which is offset by a corresponding reduction in fuel cost and
operations and maintenance expense. In response to the reduction in fuel
requirements at certain of the facilities at which the Company has restructured
the power sales agreement, the facilities' coal suppliers have instituted
various legal proceedings against the Company seeking to recover damages. See
"Legal Proceedings" herein.
Certain of the Company's power sales agreements either terminate in
years 2000 through 2002 or provide for a significant reduction in capacity
payments received under such agreements after 2002. Accordingly, revenues
recognized by the Company under these power sales agreements after 2002 will be
eliminated or significantly reduced.
34
<PAGE> 35
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.
The domestic power generation industry is currently going through a
period of significant change as many states are implementing or considering
regulatory initiatives designed to increase competition. In addition to
restructuring activities in various states, there have also been several
industry restructuring bills introduced in Congress (see Item 1. Business -
Regulation). The Company cannot predict the final form or timing of the proposed
restructurings and the impact, if any, that such restructurings would have on
the Company's existing business or consolidated results of operations. The
Company believes that any such restructuring would not have a material adverse
effect on its power sales agreements and, accordingly, believes that its
existing business and results of consolidated operations would not be materially
adversely affected, although there can be no assurance in this regard.
In 1996, the Company began making investments in partnerships formed to
develop, construct and operate greenhouses to produce tomatoes. These
partnerships are currently operating greenhouses with a combined total of 107
acres of production capacity. The Company has a 50% interest in each of these
partnerships and accounts for these investments under the equity method.
35
<PAGE> 36
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 six-month period ended December 31, 1997 and 1996
(unaudited) and the years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
-------------------------------------- ------------------------------------
1997 1996 1997 1996
---------------- ------------------ ---------------- ----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total operating revenues $ 177,946 100% $ 181,149 100% $ 352,806 100% $ 410,546 100%
Operating costs 93,689 53 108,348 60 204,446 58 245,582 60
General, administrative and
development 18,242 10 16,017 9 39,425 11 29,983 7
Depreciation and amortization 20,407 11 18,610 10 40,047 11 37,842 9
Impairment and cost of removal -- -- 65,628 36 65,628 19 -- --
---------- --- ---------- ---- ---------- --- ---------- ---
Operating income (loss) $ 45,608 26% $ (27,454) (15)% $ 3,260 1% $ 97,139 24%
========== === ========== ==== ========== === ========== ===
</TABLE>
Six-Month Period Ended December 31, 1997 as compared to the Six-Month Period
Ended December 31, 1996
Total operating revenues decreased 1.8% to $177.9 million for the
six-month period ended December 31, 1997 as compared to $181.1 million for the
six-month period ended December 31, 1996. This decrease was primarily
attributable to the significant decrease in electric revenues resulting from the
amendment in September, 1996, of the Company's power sales agreements with CP&L
on the Elizabethtown, Lumberton, Kenansville, Roxboro, and Southport Facilities.
The decrease in operating revenues was also due to a decrease in steam revenues
at the Hopewell and Southport Facilities resulting from a decrease in demand for
steam by the Facilities' steam hosts. These decreases in operating revenues were
partially offset by a $4.5 million construction management fee earned by the
Company in December, 1997, related to the construction of an electric generation
facility for Clark, as well as a $3.1 million increase in electric revenues at
the Rocky Mount and Portsmouth Facilities. The increase in electric revenues at
the Rocky Mount Facility was due to an increase in on-peak megawatt hours
provided to the purchasing utility, while the increase in electric revenues at
the Portsmouth Facility was mainly attributable to the restructured power sales
agreement with the purchasing utility eliminating Portsmouth's accrued
obligation to return previously disallowed capacity payments to the purchasing
utility. The decreases in operating revenues were also offset by a $0.8 million
increase in income from unconsolidated investments in power projects which was
primarily the result of earnings generated by the Company's investment in the
Birchwood Facility, which commenced commercial operations in November 1996. This
increase in earnings was partially offset by the impact of the Company selling
its investment in Bolivian Power Company Limited ("Bolivian Power") in December
1996. The Company recognized approximately $427,000 in income from
unconsolidated investments in power projects during the six-month period ended
December 31, 1996 related to its investment in Bolivian Power.
Operating costs decreased 13.5% to $93.7 million for the six-month
period ended December 31, 1997 as compared to $108.3 million for the six-month
period ended December 31, 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. The decrease in operating expense was also due to reductions
in maintenance costs at the Rocky Mount Facility, at which Facility the Company
performed routine maintenance during the six-month period ended December 31,
1996. The decrease in operating costs was also related to transaction costs
incurred in connection with project debt refinancings completed during the
six-month period ended December 31, 1996, and severance costs incurred by
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the Lumberton, Elizabethtown, Kenansville, Roxboro, and Southport Facilities in
the six-month period ended December 31, 1996 associated with the reduction of
the workforce at those Facilities due to the amendment of their power sales
agreements. These decreases were partially offset by an increase in operating
costs incurred by ReUse related to an increase in third party ash services
activity during the six-month period ended December 31, 1997 and an increase in
maintenance costs at the Portsmouth Facility related to routine maintenance
performed during the six-month period ended December 31, 1997.
General, administrative and development expenses increased 13.9% to
$18.2 million for the six-month period ended December 31, 1997 as compared to
$16.0 million for the six-month period ended December 31, 1996. The increase in
general, administrative and development expenses related primarily to incentive
compensation expense incurred in December 1997 related to the successful
completion of the Clark Facility. The increase was also attributable to
severance costs incurred during the six-month period ended December 31, 1997
related to the reduction of the workforce at the corporate office.
During the six-month period ended December 31, 1996, the Company
undertook an analysis of the post-contract operating environment for all of its
operating facilities in light of the dramatic market changes taking place in the
power generation industry. As a result of this analysis, the Company recorded a
loss on impairment of cogeneration facilities of $57.3 million and recognized an
$8.3 million liability related to the Company's estimated cost of removal
obligations under certain land leases (see discussion below under "Fiscal Year
Ended June 30, 1997 as compared to Fiscal Year Ended June 30, 1996"). Also, as
part of this analysis the Company reviewed the depreciable lives of its
operating facilities and concluded that, effective January 1, 1997, the
Lumberton, Elizabethtown, Kenansville, Roxboro, and Southport Facilities would
be depreciated over the remaining terms of these Facilities' power sales
agreements. The 9.7% increase in depreciation and amortization expense in the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996 related primarily to this change in the estimated useful
lives of these facilities.
The decrease in investment and other income for the six-month period
ended December 31, 1997 as compared to the six-month period ended December 31,
1996 is due to the Company recognizing a one-time gain on the sale of its
investment in Bolivian Power in December 1996. The Company sold its investment
in 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.
Interest expense decreased 8.75% to $25.7 million for the six-month
period ended December 31, 1997 as compared to $28.1 million for the six-month
period ended December 31, 1996. The decrease in interest expense was primarily
attributable to a decrease in the weighted average debt outstanding from $719
million for the six-month period ended December 31, 1996 to $680 million for the
six-month period ended December 31, 1997. The decrease in weighted average debt
outstanding related to scheduled maturities of the Company's project financing
debt.
Equity in net loss of affiliates increased to $1.8 million for the
six-month period ended December 31, 1997 as compared to $1.1 million for the
six-month period ended December 31, 1996. The increase in equity in net loss was
primarily attributable to the Company recognizing its share of losses from its
investments in greenhouse facilities in Texas, Pennsylvania, and New York during
the six-month period ended December 31, 1997. These greenhouse facilities were
either not yet in commercial operation, had just started commercial operation or
the Company did not yet hold an investment interest in them during the six-month
period ended December 31, 1996. The increase in equity in net loss of affiliates
was partially offset by a reduction in development costs associated with the
termination in December 1996 of funding for a partnership pursuing development
opportunities in Latin America.
The increase in minority interest in income of joint venture for the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996 related to an increase in the net income of the Hopewell
Facility. The increase in net income of the Hopewell Facility related primarily
to a reduction of maintenance costs incurred at the Hopewell facility during the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996. The increase in net income is also due to a reduction
in the amount of interest expense incurred during the six-month period ended
December 31, 1997 as compared to the six-month period ended December 31, 1996
related to a
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decrease in the amount of project debt outstanding at the Hopewell Facility, and
transaction costs incurred in connection with the refinancing of Hopewell's
project debt during the six-month period ended December 31, 1996.
The extraordinary loss on early extinguishment of debt for the
six-month period ended December 31, 1997 related to the refinancing of the
Portsmouth Facility's project debt in December, 1997. The loss consisted of a
write-off of the deferred financing costs on the Portsmouth Facility's original
project debt and net swap termination fees on interest rate swap agreements
hedging the original project debt. The extraordinary loss on early
extinguishment of debt for the six-month period ended December 31, 1996 related
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.
The provision for income taxes for the six-month period ended December
31, 1997 represented an effective rate of 39.6% of income before income taxes as
compared to an effective rate of 38.3% of loss before benefit for income taxes
for the six-month period ended December 31, 1996. The increase in effective rate
for the six-month period ended December 31, 1997 related to a reduced
recognition of losses for state income tax purposes in the prior year. A more
complete discussion of income taxes is included in Note 7 of Notes to
Consolidated Financial Statements.
Fiscal Year Ended June 30, 1997 as compared to Fiscal Year Ended June 30, 1996
Total operating revenues decreased 14.1% to $352.8 million for fiscal
1997 as compared to $410.5 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. The decrease in
operating revenues was also due to a net decrease in income from unconsolidated
investments in power projects which was primarily attributable to the Company
selling its investment in Bolivian Power in December 1996. The Company
recognized approximately $3.9 million in income from unconsolidated investments
in power projects 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 income from unconsolidated investments
was partially offset by earnings generated by the Company's investment in the
Birchwood Facility, which commenced commercial operations in November 1996.
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 was 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
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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,
represented 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' power sales agreements.
The 5.8% increase in depreciation and amortization expense in fiscal 1997 as
compared to fiscal 1996 related 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
related 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 was 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 decrease in equity in net loss of affiliates to $800,000 for fiscal
1997 as compared to equity in net loss of $1.8 million in fiscal 1996 was
primarily due to 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 equity in net loss in fiscal
1997 was also due to earnings generated by the Company's investment in a
greenhouse facility in Texas which commenced commercial operations in November
1996.
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
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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 represented 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 related 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
related to the write-off of the deferred financing costs on the Elizabethtown,
Lumberton and Kenansville Facilities' original project debt, which was
refinanced in September 1996.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the six-month
period ended December 31, 1997 were generated by net income of $10.7 million,
increases due to adjustments for depreciation and amortization of $20.4 million,
deferred income taxes of $4.6 million, write-off of deferred financing costs of
$1.4 million, minority interest in income of joint venture of $.8 million, and
distributions from and equity in net loss of unconsolidated affiliates of $9.1
million, which were partially offset by a net $5.2 million use of cash
reflecting changes in other working capital assets and liabilities. Cash flow
provided by operating activities of $41.8 million, proceeds from project finance
borrowings of $62.7 million, and $3.1 million of cash escrows released were
primarily used to purchase property, plant and equipment additions of $.7
million, to purchase marketable securities of $.8 million, to make investments
in a greenhouse facility of $2.7 million, to provide $.9 million of funds to a
development joint venture company, to pay deferred financing costs of $1.5
million, to repay project finance borrowings of $86.8 million and to pay a
dividend to common shareholders of $5.0 million.
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 and joint ventures is substantially non-recourse to the
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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 agreements for the benefit of
the project lenders to three project subsidiaries to fund cash deficits the
projects may experience as a result of incurring certain costs, subject to an
aggregate cap of $51.9 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 December 31, 1997, the Company had long-term debt (including the
current portion thereof) of approximately $667.7 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 $61.4 million to $81.4 million in the five-year period
ending December 31, 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 unanticipated events, the Company's ability to
generate cash from operating activities is significantly impaired, the Company
could be required to curtail its development activities to meet its debt service
obligations.
In 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 (the "Corporate Credit Facility") with a term
of three years ("Revolving Term"). The Corporate Credit Facility provides for
one-year extensions of the Revolving Term, subject to lender consent. The
Company can utilize the Corporate Credit Facility in the form of direct advances
or the issuance of unsecured letters of credit. The outstanding balance of the
Corporate 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 December 31, 1997, the Company had
no advances or letters of credit outstanding under the Corporate Credit
Facility. In March 1998, the Company borrowed $50 million under the Corporate
Credit Facility to fund a portion of the purchase price related to the
Whitewater and Cottage Grove acquisitions.
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. Management does not believe that
such restrictions or limitations will adversely affect its ability to meet its
debt obligations. 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,
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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 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.
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 December 1997, the Company substantially completed construction of a
248 megawatt combined-cycle, gas-fired electric generation facility for Clark
and earned a construction management fee of $4.5 million. Upon final completion
of the facility and acceptance by Clark, the Company will earn an additional
construction management fee of $500,000 and will also share in 50% of the
amount, if any, of the excess of the contract amount ($117 million) over the
actual costs and expenses incurred in constructing the Clark Facility. The
excess is currently expected to be approximately $7 million.
In December 1997, the Company renegotiated the project financing
arrangements for its Portsmouth Facility. The amended agreements resulted in an
extension of the final maturity date of the loan by three months and an increase
in the amount of commitment provided by the project lenders in the form of a
$40.5 million revolving credit facility. This revolving credit facility is
available to be drawn by the Portsmouth Facility at any time for general
corporate purposes, including paying dividends to Cogentrix Energy, Inc. In
March 1998, the Portsmouth Facility borrowed $20 million under the revolving
credit facility and distributed such amount to Cogentrix Energy, Inc. for
purposes of funding a portion of the purchase price related to the Whitewater
and Cottage Grove acquisitions.
In February 1998, the Company renegotiated the project financing
arrangements for its Hopewell Facility, in which it owns a 50% interest. The
amended agreements resulted in a $34.6 million increase in outstanding
indebtedness of JRCC and extended the final maturity date of the loan by six
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 $16.6 million, which
was used by the Company to fund a portion of the acquisition price related to
the Whitewater and Cottage Grove acquisitions.
In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in the Whitewater Facility and the Cottage
Grove Facility. Each of the Cottage Grove and Whitewater Facilities are 245
megawatt gas-fired, combined-cycle cogeneration facilities. Commercial
operations of the facilities commenced in the last half of calendar 1997. The
aggregate acquisition price for the equity interest in the Cottage Grove and
Whitewater Facilities was $158.0 million. In addition, the Company pre-funded a
$16.7 million distribution to the previous owners. This distribution represented
unused construction contingency and cash flows that were accumulated by the
Cottage Grove and Whitewater Facilities prior to January 1, 1998. Cogentrix
Energy, Inc. will be entitled to a distribution of the $16.7 million in 1998.
The purchase price was funded with proceeds of the Corporate Credit Facility and
corporate cash balances.
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire an ownership interest in twelve electric generating
facilities, comprising a net equity interest of 360 megawatts, and one
interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the Bechtel Asset Acquisition, which is subject to
customary conditions including the obtaining of certain consents and regulatory
approvals, is currently expected to occur in calendar 1998.
In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of senior notes in a Rule 144A offering with a covenant
to register exchange notes with the U.S. Securities and Exchange Commission.
These senior notes will be unsecured and will rank pari passu with the Company's
$100 million of outstanding Senior Notes due 2004.
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The proceeds will be used by the Company to finance the Bechtel Asset
Acquisition and to repay the outstanding borrowings under the Corporate Credit
Facility.
For the fiscal year ended June 30, 1997, the Company's board of
directors declared a dividend on its outstanding common stock of $5.0 million,
which was paid in September 1997. The Company's board of directors declared a
dividend on its outstanding common stock of $2.1 million for the six-month
period ended December 31, 1997, which was paid in March 1998. The board of
directors' policy, which is subject to change at any time, provides for a
dividend payout ratio of no more than 20% of the Company's net income for the
immediately preceding fiscal year. In addition, under the terms of the Indenture
of the Senior Notes and the Corporate Credit Facility, the Company's ability to
pay dividends and make other distributions to its shareholders is restricted.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand as well as
economic conditions 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 attempts to hedge 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 on a portion
of its indebtedness.
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.
RECENTLY ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STATEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the Company
effective January 1, 1998. The Company believes this pronouncement will not have
a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This pronouncement
establishes standards for reporting information about operating segments in
annual and interim financial statements. SFAS No. 131 will be adopted by the
Company effective January 1, 1998. The Company believes this pronouncement will
not have a material effect on its financial statements.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The majority of the
Company's internal financial information systems are in the process of being
replaced with a fully compliant new system. This new system is expected to be
fully implemented by January 1, 1999. The Company is also evaluating its plant's
operating systems. Based on present information, the Company believes that only
minor
43
<PAGE> 44
modifications and upgrades will be required for the operating systems to be Year
2000 compliant. As such, the Company does not anticipate that the costs incurred
to complete the necessary transition to ensure Year 2000 compliance will have a
material impact on the Company's consolidated results of operations or financial
position. Any costs necessary to modify existing systems to ensure Year 2000
compliance will be expensed as incurred. The Company is also communicating with
customers, suppliers, financial institutions and others to coordinate Year 2000
conversion. In the event that any of the Company's significant customers or
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
CHANGE OF CORPORATE FISCAL YEAR
Effective January 1, 1998, the Company changed its fiscal year to
commence on January 1 and conclude on December 31 of each year. The Company's
fiscal year previously commenced each July 1, concluding on June 30 of the
following calendar year.
44
<PAGE> 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants 46
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1997, June 30, 1997
and June 30, 1996 48
Consolidated Statements of Operations For the Six-Month Periods Ended
December 31, 1997 and 1996 (unaudited) and the Years Ended June 30, 1997, 1996 and 1995 49
Consolidated Statements of Changes in Shareholders' Equity For the Six-Month Period Ended
December 31, 1997 and the Years Ended June 30, 1997, 1996 and 1995 50
Consolidated Statements of Cash Flows For the Six-Month Periods Ended
December 31, 1997 and 1996 (unaudited) and 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 69
</TABLE>
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 December 31, 1997, June 30, 1997 and June 30, 1996, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the six-month period ended December 31, 1997 and 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 December 31, 1997, June 30, 1997 and June 30, 1996, and the
results of their operations and their cash flows for the six-month period ended
December 31, 1997 and 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,
March 20, 1998.
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 cash flows and of shareholders' equity 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
La Paz, Bolivia
February 28, 1997
47
<PAGE> 48
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997, JUNE 30, 1997 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 71,833 $ 62,596 $ 33,351
Restricted cash 27,742 30,888 42,203
Marketable securities 42,118 21,494 0
Restricted investments 0 20,000 0
Accounts receivable 49,781 57,880 57,331
Inventories 15,210 15,723 19,086
Other current assets 2,465 5,779 2,883
-------- -------- --------
Total current assets 209,149 214,360 154,854
PROPERTY, PLANT AND EQUIPMENT,
Net of accumulated depreciation: December 31, 1997, $188,227;
June 30, 1997, $169,761; June 30, 1996, $156,215 496,589 514,449 604,491
LAND AND IMPROVEMENTS 2,540 2,540 2,424
DEFERRED FINANCING, START-UP AND ORGANIZATION COSTS,
Net of accumulated amortization: December 31, 1997, $16,592;
June 30, 1997, $17,509; June 30, 1996, $19,653 21,085 22,601 25,105
RESTRICTED INVESTMENTS 0 0 63,695
NATURAL GAS RESERVES 2,384 2,829 3,611
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 79,072 84,599 56,028
OTHER ASSETS 12,155 18,450 11,433
-------- -------- --------
$822,974 $859,828 $921,641
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 74,680 $ 62,370 $ 48,416
Accounts payable 13,755 22,147 21,453
Accrued compensation 4,923 12,290 4,393
Accrued interest payable 2,935 3,308 4,063
Accrued dividends payable 2,140 5,000 4,759
Other accrued liabilities 8,182 13,040 8,816
-------- -------- --------
Total current liabilities 106,615 118,155 91,900
LONG-TERM DEBT 595,112 631,624 670,900
DEFERRED INCOME TAXES 25,872 23,074 46,971
MINORITY INTEREST IN JOINT VENTURE 15,131 14,354 22,044
OTHER LONG-TERM LIABILITIES 21,946 22,912 6,816
-------- -------- --------
764,676 810,119 838,631
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130 130
Net unrealized gain on available for sale securities 26 0 0
Accumulated earnings 58,142 49,579 82,880
-------- -------- --------
58,298 49,709 83,010
-------- -------- --------
$822,974 $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 SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS (LOSS) PER COMMON SHARE)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- -----------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 154,810 $ 162,909 $ 315,203 $ 356,459 $ 357,674
Steam 12,721 13,284 26,686 27,703 23,320
Income from unconsolidated investments in power projects 1,186 348 574 3,862 1,116
Other 9,229 4,608 10,343 22,522 2,992
--------- --------- --------- --------- ---------
177,946 181,149 352,806 410,546 385,102
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Fuel expense 60,500 71,350 131,405 171,310 168,184
Operations and maintenance 33,189 36,998 73,041 74,272 66,822
General, administrative and development expenses 18,242 16,017 39,425 29,983 30,499
Depreciation and amortization 20,407 18,610 40,047 37,842 37,642
Loss on impairment and cost of removal of
cogeneration facilities 0 65,628 65,628 0 0
--------- --------- --------- --------- ---------
132,338 208,603 349,546 313,407 303,147
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) 45,608 (27,454) 3,260 97,139 81,955
OTHER INCOME (EXPENSE):
Interest expense (25,680) (28,144) (56,328) (58,354) (59,621)
Investment and other income 4,334 7,729 13,184 7,478 8,269
Equity in net income (loss) of unconsolidated affiliates, net (1,813) (1,088) (813) (1,758) 8,696
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST IN
INCOME OF JOINT VENTURE, INCOME TAXES
AND EXTRAORDINARY LOSS 22,449 (48,957) (40,697) 44,505 39,299
MINORITY INTEREST IN INCOME OF JOINT VENTURE (2,273) (1,614) (4,013) (4,749) (4,789)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 20,176 (50,571) (44,710) 39,756 34,510
BENEFIT (PROVISION) FOR INCOME TAXES (7,971) 18,895 17,112 (15,961) (13,337)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 12,205 (31,676) (27,598) 23,795 21,173
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT (1,502) (703) (703) 0 0
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 10,703 ($ 32,379) ($ 28,301) $ 23,795 $ 21,173
========= ========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss $ 43.28 ($ 112.32) ($ 97.87) $ 84.38 $ 75.08
Extraordinary loss (5.33) (2.49) (2.49) 0.00 0.00
--------- --------- --------- --------- ---------
$ 37.95 ($ 114.81) ($ 100.36) $ 84.38 $ 75.08
========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 282,000 282,000 282,000 282,000 282,000
========= ========= ========= ========= =========
</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 SIX-MONTH PERIOD ENDED DECEMBER 31, 1997 AND THE YEARS ENDED
JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR DIVIDENDS PER COMMON SHARE)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (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
Net unrealized gain on available
for sale securities, net of
deferred income tax
provision of $14 0 26 0 26
Net income 0 0 10,703 10,703
Common stock dividends
($7.59 per common share) 0 0 (2,140) (2,140)
---- ----- -------- --------
Balance, December 31, 1997 $130 $ 26 $ 58,142 $ 58,298
==== ===== ======== ========
</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 SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
--------------------- ----------------------------------
1997 1996 1997 1996 1995
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,703 $ (32,379) $(28,301) $ 23,795 $ 21,173
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,407 18,610 40,047 37,842 37,642
Loss on impairment and cost of removal of
cogeneration facilities 0 65,628 65,628 0 0
Deferred income taxes 4,628 (24,192) (27,585) 8,569 7,718
Extraordinary loss on early extinguishment of debt,
non-cash portion 1,395 1,173 1,173 0 0
Minority interest in income of joint venture,
net of dividends 777 (8,848) (7,690) 3,407 3,680
Gain on sale of investment in Bolivian Power 0 (3,243) (3,137) 0 0
Equity in net (income) loss of unconsolidated affiliates 627 740 239 (2,104) (11,057)
Dividends received from unconsolidated affiliates 8,491 288 7,152 617 14,853
Loss on sale of securities, net 0 0 0 890 0
Decrease (increase) in accounts receivable 8,099 4,113 (549) (795) (1,313)
Decrease in inventories 958 718 4,145 667 317
Increase (decrease) in accounts payable (8,392) 1,792 (61) 1,628 (2,708)
Increase (decrease) in accrued liabilities (12,598) (1,731) 12,121 3,809 585
Decrease (increase) in other 6,710 (550) 866 141 564
-------- -------- -------- -------- --------
Net cash flows provided by operating activities 41,805 22,119 64,048 78,466 71,454
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (732) (837) (2,956) (1,555) (8,171)
Decrease (increase) in marketable securities (834) 0 22,201 (12,456) 1,506
Investments in affiliates (3,591) (750) (58,222) (6,516) (48,323)
Proceeds from sale of investment in Bolivian Power, net 0 25,504 25,398 0 0
Decrease (increase) in restricted cash 3,146 12,929 11,315 (8,190) (4,157)
-------- -------- -------- -------- --------
Net cash flows provided by (used in) investing activities (2,011) 36,846 (2,264) (28,717) (59,145)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable and long-term debt 62,728 67,750 70,661 406 1,622
Repayments of notes payable and long-term debt (86,761) (63,535) (95,552) (46,642) (42,513)
Increase in deferred financing costs (1,524) (2,584) (2,889) 0 (93)
Common stock dividends paid (5,000) (4,759) (4,759) (4,235) (3,328)
-------- -------- -------- -------- --------
Net cash flows used in financing activities (30,557) (3,128) (32,539) (50,471) (44,312)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,237 55,837 29,245 (722) (32,003)
CASH AND CASH EQUIVALENTS, beginning of period 62,596 33,351 33,351 34,073 66,076
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 71,833 $ 89,188 $ 62,596 $ 33,351 $ 34,073
======== ======== ======== ======== ========
</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 December 31, 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 December 31, 1997, June 30, 1997
and June 30, 1996 of $121,396,000, $104,960,000 and $37,117,000, respectively,
are netted against the related reimbursed costs of $120,531,000, $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
December 31, 1997, June 30, 1997 and June 30, 1996, fuel and spare parts
inventories are comprised of the following (dollars in thousands):
52
<PAGE> 53
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
------------ -------- --------
<S> <C> <C> <C>
Coal $ 8,230 $ 8,274 $11,951
Natural gas 700 700 700
Spare parts 6,280 6,749 6,435
------- ------- -------
$15,210 $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 $427,000, $900,000 and $1,458,000 less than the cost of these
inventories on a FIFO basis as of December 31, 1997, June 30, 1997 and June 30,
1996, 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.
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.
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.
Investments in Affiliates - Investments in affiliates include
investments in unconsolidated entities which own or derive revenues from power
projects currently in operation, investments in unconsolidated entities which
own and operate greenhouses, and investments in unconsolidated development joint
venture entities. The Company's share of income or loss from investments in
operating power projects is included in operating revenues in the accompanying
consolidated statements of operations. The Company's share of income or loss
from investments in greenhouses and development joint venture entities is
included in other income (expense) in the accompanying consolidated statements
of operations.
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 63% and 22% of revenues in the six-month period ended December 31,
1997, 62% and 25% of revenues in the year ended June 30, 1997, 55% and 33% of
revenues in the year ended June 30, 1996, and 57% and 34% of revenues in the
year ended June 30, 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
53
<PAGE> 54
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.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This pronouncement
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income is defined as the
total of net income and all other non-owner changes in equity. This statement
will be adopted by the Company effective January 1, 1998. The Company believes
this pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This pronouncement
establishes standards for reporting information about operating segments in
annual and interim financial statements. SFAS No. 131 will be adopted by the
Company effective January 1, 1998. The Company believes this pronouncement will
not have a material effect on its financial statements.
Change of Fiscal Year - Effective January 1, 1998, the Company changed
its fiscal year to commence on January 1 and conclude on December 31 of each
year. The Company's fiscal year previously commenced each July 1, concluding on
June 30 of the following calendar year.
Reclassifications -- Certain amounts included in the accompanying
consolidated financial statements for the fiscal years ended June 30, 1997, 1996
and 1995 have been reclassified from their original presentation to conform with
the presentation for the six-month period ended December 31, 1997.
3. INVESTMENT IN DEBT SECURITIES
At December 31, 1997, investments in debt securities included in
marketable securities in the accompanying consolidated balance sheet consisted
of government securities and corporate obligations. The Company's net unrealized
gain of $40,000 on its investment in debt securities is reported in the
accompanying consolidated statements of changes in shareholders' equity, net of
$14,000 in deferred income taxes.
At June 30, 1997, investments in debt securities included in restricted
cash and marketable securities in the accompanying consolidated 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
statements 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.
54
<PAGE> 55
4. INVESTMENTS IN UNCONSOLIDATED POWER PROJECTS
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 income from unconsolidated investments in power projects 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 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
======== ========
<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 initially 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
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
55
<PAGE> 56
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 $1,727,000 and $147,000 in income
from unconsolidated investments in power projects, net of premium amortization,
in the accompanying consolidated statements of operations for the six-month
period ended December 31, 1997 and for the year ended June 30, 1997,
respectively, 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, 1997, 1996, and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $ 30,577 $ 25,701 $ 1,234
Noncurrent assets 374,560 385,171 313,402
-------- -------- --------
Total assets $405,137 $410,872 $314,636
======== ======== ========
Current liabilities $ 6,818 $ 89,599 $ 92,968
Noncurrent liabilities 335,134 321,247 221,668
Shareholders' equity 63,185 26 0
-------- -------- --------
$405,137 $410,872 $314,636
======== ======== ========
INCOME STATEMENT DATA:
Operating revenues $ 69,275 $ 9,745 $ 0
Operating income 35,087 4,527 0
Net income 6,451 26 0
</TABLE>
5. INVESTMENT IN OTHER UNCONSOLIDATED AFFILIATES
DEVELOPMENT JOINT VENTURES
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,
56
<PAGE> 57
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 owns 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.
Other Development Joint Ventures - The Company makes investments in
other joint venture partnerships whose purpose is to develop power projects. The
Company utilizes the equity method of accounting for those partnerships in which
it holds an ownership interest between 20% and 50%. The Company recognized
approximately $103,000 in equity losses for the six-month period ended December
31, 1997, and $1,257,000, $1,758,000 and $1,546,000 in equity losses for the
years ended June 30, 1997, 1996 and 1995, respectively, related to its
investments in these partnerships. These losses are reflected in equity in
income (loss) of affiliates in the accompanying consolidated statements of
operations.
GREENHOUSES
The Company has entered into an agreement with Agro Power Development,
Inc., a developer and operator of greenhouse facilities, to make investments in
partnerships which develop, construct and operate greenhouses which produce
tomatoes. As of December 31, 1997, the Company held a 50% interest in four
limited partnerships which had a combined 107 acres of production capacity in
operation. The Company is accounting for its investment in these partnerships
under the equity method. The Company recognized approximately $1,710,000 in
equity losses and $444,000 in equity income from affiliates in the accompanying
consolidated statements of operations for the six-month period ended December
31, 1997 and the year ended June 30, 1997, respectively, related to its
investments in these partnerships.
6. LONG-TERM DEBT
The following long-term debt was outstanding as of December 31, 1997,
June 30, 1997, and June 30, 1996, respectively (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
--------- --------- ---------
<S> <C> <C> <C>
PROJECT FINANCING DEBT:
HOPEWELL FACILITY:
As of December 31, 1997 and June 30, 1997 - Note payable to banks;
As of June 30, 1996 - commercial paper notes payable, net of
unamortized issue discount of $87 $ 45,417 $ 49,513 $ 42,403
PORTSMOUTH FACILITY:
Note payable to banks 61,489 60,500 68,250
ROCKY MOUNT FACILITY:
Note payable to financial institution 125,761 126,409 127,576
RINGGOLD FACILITY:
Note payable to banks 15,737 16,900 18,799
RICHMOND FACILITY:
Commercial paper notes payable, net of unamortized issue discount of
$365, $409 and $319, respectively, and tax-exempt bonds 198,113 203,651 214,379
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
Notes payable to banks 26,716 31,688 44,464
ROXBORO AND SOUTHPORT FACILITIES:
Note payable to banks 93,036 102,074 99,750
OTHER 1,436 959 967
--------- --------- ---------
Total Project Financing Debt 567,705 591,694 616,588
SENIOR NOTES (including unamortized gain on hedge transaction of
$2,087, $2,300 and $2,728, respectively) 102,087 102,300 102,728
--------- --------- ---------
Total Long-Term Debt 669,792 693,994 719,316
Less: Current portion (74,680) (62,370) (48,416)
--------- --------- ---------
Long-term portion $ 595,112 $ 631,624 $ 670,900
========= ========= =========
</TABLE>
Information related to each of these borrowings is as follows:
57
<PAGE> 58
HOPEWELL FACILITY:
In July 1996, the Hopewell Facility's project debt agreement was
amended, which effectively replaced 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 .875% per annum through July 1999 and 1.125%
thereafter (6.81% at December 31, 1997). Principal is payable quarterly with
interest payable the earlier of the maturity of the applicable LIBOR term or
quarterly through June 2002. The Hopewell Facility's project debt agreement
was amended in February 1998 (see Note 14).
PORTSMOUTH FACILITY:
The Portsmouth Facility's project debt agreement was amended in
December 1997, resulting in the extension of the final maturity of the loan
by three months to December 31, 2002. The amended terms of the loan
agreement also increased the outstanding credit commitment from the project
lenders by $40.5 million in the form of a revolving credit facility. As of
December 31, 1997, there were no outstanding balances under this credit
facility. The amended terms of the loan agreement provide for interest to
accrue at an annual rate equal to the applicable LIBOR rate, as chosen by
the Company, plus an additional margin of .875% through December 1998 and
1.0% thereafter (6.845% at December 31, 1997). The banks' outstanding credit
commitment under the loan agreement is reduced quarterly, with interest
payable the earlier of the maturity of the applicable LIBOR term or
quarterly through December 2002. The loan agreement also provides for a $6
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 Portsmouth Facility could
experience as a result of incurring certain costs, subject to a cap of $30
million.
An extraordinary loss of $2,458,000 was recorded in the six-month
period ended December 31, 1997 related to the write-off of unamortized
deferred financing costs from the original senior loan of $1,395,000 and net
swap termination fees of $1,063,000 related to interest rate swap agreements
hedging the original project debt. This extraordinary loss is shown net of a
tax benefit of $956,000 in the accompanying consolidated statements of
operations.
ROCKY MOUNT FACILITY:
The note payable to financial institution consists of a $125,761,000
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 $15,737,000 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 December 31,
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.
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 $150,114,000 as of December 31, 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 7.17% at December 31, 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 December 31,
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
(6.875% at December 31, 1997). 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
58
<PAGE> 59
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 (6.94% at
December 31, 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 the fiscal
year ended June 30, 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 statements 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 (6.94% at December 31, 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 December 31, 1997 and June 30, 1997 are
$259,191,000 and $391,371,000, 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 7.06% to a weighted average
effective rate of 7.29% at December 31, 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.
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 with an initial term of three years
(the "Corporate Credit Facility"). The Corporate Credit Facility allows for
direct advances or the issuance of letters of credit. The outstanding
balance at the end of the three-year term (May 2000) 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 Corporate Credit Facility are
currently 30 basis points per annum, payable each quarter on the outstanding
unused portion of the Corporate Credit Facility. As of December 31, 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 Corporate 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.
59
<PAGE> 60
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
Corporate Credit Facility agreement. These covenants did not restrict the
Company's ability to declare a $2.1 million dividend to the Company's
shareholders for the six-month period ended December 31, 1997.
Future maturities of long-term debt at December 31, 1997, net of
unamortized issue discounts on commercial paper notes and excluding the
unamortized balance of the deferred gain on the Senior Notes hedge transaction,
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
<S> <C>
1998 $ 74,680
1999 78,823
2000 81,442
2001 79,099
2002 61,417
Thereafter 292,244
--------
$667,705
========
</TABLE>
Cash paid for interest on the Company's long-term debt amounted to
$29,249,000, $54,458,000, $58,253,000 and $58,952,000 for the six-month period
ended December 31, 1997 and the years ended June 30, 1997, 1996 and 1995,
respectively.
60
<PAGE> 61
7. INCOME TAXES
The provision (benefit) for income taxes for the six-month period ended
December 31, 1997 and the years ended June 30, 1997, 1996 and 1995 consists of
the following (dollars in thousands):
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER ---------------------------------
31, 1997 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current
Federal $ 1,047 $ 9,025 $ 6,893 $ 5,264
State 1,340 978 499 355
-------- -------- -------- --------
2,387 10,003 7,392 5,619
-------- -------- -------- --------
Deferred
Federal 4,917 (23,085) 6,406 6,191
State (289) (4,500) 2,163 1,527
-------- -------- -------- --------
4,628 (27,585) 8,569 7,718
-------- -------- -------- --------
$ 7,015 $(17,582) $ 15,961 $ 13,337
======== ======== ======== ========
Statements of Operations Captions
Tax effect of extraordinary loss $ (956) $ (470) $ 0 $ 0
Provision (benefit) for income taxes 7,971 (17,112) 15,961 13,337
-------- -------- -------- --------
$ 7,015 $(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>
SIX-MONTH
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER -------------------------
31, 1997 1997 1996 1995
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Federal statutory tax rate 35.0% (35.0)% 35.0% 35.0%
State income taxes, net of loss
carryforwards and federal tax impact 3.3 (5.0) 4.6 4.2
Other 1.3 1.7 .5 (.6)
---- ----- ---- ----
Effective tax rate 39.6% (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 December 31,
1997, June 30, 1997 and June 30, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
Net current deferred tax (asset) liability $ (1,615) $ (3,460) $ 228
Net noncurrent deferred tax liability 25,872 23,074 46,971
-------- -------- --------
Net deferred tax liability $ 24,257 $ 19,614 $ 47,199
======== ======== ========
</TABLE>
61
<PAGE> 62
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 December 31, 1997, June 30, 1997 and
June 30, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation/amortization and book/tax basis differences $ 60,072 $ 60,575 $ 86,246
Book/tax timing differences on joint venture interest 11,727 8,528 8,656
Other 5,323 5,592 6,554
-------- -------- --------
77,122 74,695 101,456
-------- -------- --------
Deferred tax assets:
Depreciation/amortization and book/tax basis differences 11,626 10,873 6,697
Operating loss carryforwards 2,726 2,194 16,762
Accrued expenses not currently deductible 7,066 8,721 3,005
Investment tax credit carryforwards 2,291 749 5,127
Alternative minimum tax credit carryforwards 23,537 25,537 17,227
Other 5,619 7,007 5,439
-------- -------- --------
52,865 55,081 54,257
-------- -------- --------
Net deferred tax liability $ 24,257 $ 19,614 $ 47,199
======== ======== ========
</TABLE>
At December 31, 1997, the Company had federal investment tax
carryforwards of approximately $1,086,000 expiring 2002 and $1,205,000 expiring
in 2006 and alternative minimum tax credit carryforwards of approximately
$23,537,000 with no expiration date available to reduce its future federal
income tax liabilities.
Cash paid for income taxes amounted to $4,142,000, $8,271,000,
$7,023,000 and $4,664,000 for the six-month period ended December 31, 1997 and
the years ended June 30, 1997, 1996 and 1995, respectively.
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 December
31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
YEAR ENDED EQUIPMENT
DECEMBER 31, ELP PROVIDERS TOTAL
-------------- ------- ----------- -------
<S> <C> <C> <C>
1998 $ 1,633 $ 411 $ 2,044
1999 1,316 317 1,633
2000 1,275 257 1,532
2001 1,260 93 1,353
2002 1,260 0 1,260
Thereafter 6,073 0 6,073
</TABLE>
62
<PAGE> 63
9. LOSS ON IMPAIRMENT AND COST OF REMOVAL OF COGENERATION FACILITIES
During the fiscal year ended June 30, 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
future performance of these assets. Because of the risks and uncertainties
associated with any projections, there can be no assurances, however, that
actual events will be consistent with the assumptions made, and future cash
flows may be greater or less than those projected. The analysis also resulted in
the recognition of an $8.3 million liability related to the Company's estimated
cost of removal obligations under the land leases for the Elizabethtown,
Lumberton and Kenansville Facilities. The total impairment loss and cost of
removal of $65.6 million has been reflected in the accompanying consolidated
statements 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, increased approximately $6.1 million per year as a
result of the changes in estimated useful lives and the impairment loss
recognized during the fiscal year ended June 30, 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.
63
<PAGE> 64
Effective December 1997, the Company amended the power sales agreement
on its Portsmouth Facility. This amendment provided the purchasing utility
additional rights related to the dispatch of the Facility. The terms of the
amended power sales agreement also eliminated Portsmouth's accrued obligation to
return previously disallowed capacity payments to the purchasing utility.
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.
Construction Agreement -- In October 1995, the Company delivered to
Clark a $20 million letter of credit, provided by a bank, which was
collateralized with a pledge of marketable securities. This letter of credit
supported certain contingent obligations of the Company under the Construction
Agreement. In December 1997, the Company substantially completed construction of
the Clark Facility and earned a construction fee of $4.5 million, which is
included in other operating revenue in the accompanying consolidated statement
of operations for the six-month period ended December 31, 1997. The $20 million
letter of credit was also released to the Company at this time. Upon final
completion of the Clark Facility and acceptance by the owner, the Company will
earn an additional $500,000 fee. 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.
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 for the fiscal year ended June 30, 1996
and $3,950,000 for the fiscal year ended June 30, 1995. During the fiscal year
ended June 30, 1997, the Company incurred $10.7 million of expenses in
connection with the restructuring or termination of these incentive compensation
plans. During the six-month period ended December 31, 1997, the Company incurred
$1,067,000 of expense related to 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 $804,000 in the six-month period ended December 31, 1997,
$1,618,000 in the fiscal year ended June 30, 1997, $1,629,000 in fiscal 1996 and
$1,612,000 in fiscal 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 $2,685,000 at
December 31, 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 a certain subsidiary's
obligation capped at $1.5 million and certain subsidiaries' performance under
their contracts with one Utility. In addition, Cogentrix Energy, Inc. has
indemnified the project lenders of certain subsidiaries for any cash deficits
such subsidiaries could experience as a result of incurring certain costs,
subject to an aggregate cap of $51.9 million, which includes the impact of the
JRCC refinancing in February 1998 (see Note 14).
64
<PAGE> 65
Pending Claims and Litigation -- Effective September 1996, the Company
amended the power sales agreements on its Elizabethtown, Lumberton, Kenansville,
Roxboro and Southport facilities. Under the amended terms of these power sales
agreements, 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, one of the coal
suppliers for these facilities initiated an arbitration proceeding and another
filed a civil action against certain subsidiaries of the Company. The
arbitration proceeding was completed in October, 1997, with the arbitration
panel denying any recovery to the coal supplier. The coal supplier subsequently
challenged the arbitration panel's ruling. Management believes that the coal
supplier's claims provide no basis by which a court could vacate an arbitration
ruling. With respect to the civil action filed by the other coal supplier,
management believes that there is no basis for certain claims and there are
meritorious defenses as to the remainder. The Company intends to vigorously
defend the pending civil action.
Effective December 1997, the Company amended the power sales agreement
on its Portsmouth facility. Under the amended terms, the purchasing utility has
exercised its right of economic dispatch which has led to significant reductions
in that facility's fuel requirements. In response to the reduced fuel
requirements, the coal supplier for the Portsmouth facility has filed a civil
action against a subsidiary of the Company. Management believes that there is no
basis for certain claims of the coal supplier and there are meritorious defenses
as to the remainder. The Company intends to vigorously defend the pending civil
action.
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 disputes will not have a material adverse impact on
the Company's consolidated financial position or results of operations.
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.
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 $42,170,000 at December 31, 1997,
$49,187,000 at June 30, 1997,and $59,287,000 at June 30, 1996. 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.
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 December 31, 1997, June 30, 1997, and June 30, 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 December 31, 1997,
June 30, 1997, and June 30, 1996 (Note 3). The fair value of the Company's
fixed-rate borrowings at December 31, 1997 is $8,376,000 greater than the
historical carrying value of $225,761,000. At June 30, 1997, the fair value of
the Company's fixed-rate borrowings was $1,759,000 lower than the historical
carrying value of $226,409,000, and 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.
65
<PAGE> 66
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 December 31,
1997, the gross unrealized loss on the interest rate protection agreements was
$2,670,000. As of June 30, 1997, the gross unrealized gains and losses on the
Company's interest rate protection agreements were $3,130,000 and $2,102,000,
respectively, resulting in an estimated net unrealized gain of $1,028,000, and
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 $118,000, $450,000 and $678,000 as of
December 31, 1997, June 30, 1997 and June 30, 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 $869,000, $1,968,000, $2,041,000, and
$2,158,000 for the six-month period ended December 31, 1997 and 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
$100,000, $374,000, $442,000, and $510,000 for the six-month period ended
December 31, 1997 and the years ended June 30, 1997, 1996 and 1995,
respectively.
Three shareholders, who are also employees of the Company, terminated
their participation in certain management incentive compensation plans during
the fiscal year ended June 30, 1997 (Note 10). The Company recognized $3.5
million of expense related to the termination of the shareholders' participation
in these plans.
14. SUBSEQUENT EVENTS
Cogentrix of Pennsylvania, Inc.
In January 1998, the Company signed an agreement with Pennsylvania
Electric Company ("Penelec") to terminate the Ringgold Facility's power purchase
agreement. This termination agreement was the result of a request for proposals
to buy-back or restructure power sales agreements issued to all operating IPP
projects in Penelec's territory in April 1997. The termination agreement with
Penelec provides for a payment to the Company of approximately $25 million which
will be sufficient to retire all of Cogentrix of Pennsylvania, Inc.'s ("CPA")
outstanding project debt. The buy-back of the power purchase agreement is
subject to the issuance of an order by the Pennsylvania Public Utility
Commission granting Penelec the authority to fully recover from its customers
the consideration paid to CPA under the buyout agreement. Management does not
expect this event to have an adverse impact on the Company's consolidated
results of operations or financial position.
James River Cogeneration Company
Effective February 1998, James River Cogeneration Company ("James
River"), a joint venture owned 50% by the Company, which owns a cogeneration
facility located in Hopewell, Virginia (the "Hopewell Facility"), amended its
power sales agreement with Virginia Power to provide Virginia Power additional
rights related to the dispatch of the Hopewell
66
<PAGE> 67
Facility. In connection with the amendment of the power sales agreement, the
Company amended the terms of the existing project debt on the Hopewell Facility.
The amended terms of the Hopewell project debt resulted in an extension
of the final maturity of the note payable by six months to December 31, 2002 and
increased outstanding borrowings $34.6 million, the proceeds of which (net of
transaction costs) were paid as a distribution to the James River partners. The
amended note payable accrues interest at an annual rate equal to the applicable
LIBOR rate, as chosen by the Company, plus an additional margin of .875% through
February 1998 and 1.00% thereafter. The amended note payable also provides for a
$5 million letter of credit to secure the project's obligation to pay debt
service. Cogentrix Energy, Inc. has indemnified the lenders of the note payable
for any cash deficits the Hopewell Facility could experience as a result of
incurring certain costs, subject to a cap of $10.6 million. An extraordinary
loss of $2.4 million will be recorded in the first quarter of 1998 related to
the write-off of unamortized deferred financing costs from the original project
debt and a swap termination fee on an interest rate swap agreement hedging the
original project debt.
The pro forma future maturities of long-term debt as of December 31,
1997, excluding unamortized issue discounts on commercial paper notes and the
unamortized balance of the deferred gain on the Senior Notes hedge transaction
and taking into account the amended project debt agreement for the Hopewell
Facility, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
<S> <C>
1998 $ 78,261
1999 85,625
2000 87,663
2001 84,578
2002 73,553
Thereafter 292,608
---------
$ 702,288
=========
</TABLE>
Whitewater and Cottage Grove Transaction
In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in two power generation facilities in
Whitewater, Wisconsin (the "Whitewater Facility") and in Cottage Grove,
Minnesota (the "Cottage Grove Facility"). Each of the Cottage Grove and
Whitewater Facilities are 245 megawatt gas-fired, combined-cycle cogeneration
facilities. Commercial operations of the facilities commenced in the last half
of calendar 1997. The Cottage Grove Facility sells capacity and energy to
Northern States Power Company under a 30-year power sales contract terminating
in 2027. The Whitewater Facility sells capacity and energy to Wisconsin Electric
Power Company under a 25-year power sales contract terminating in 2022. The
aggregate acquisition price for the equity interest in the Cottage Grove and
Whitewater Facilities was $158.0 million. In addition, the Company pre-funded a
$16.7 million distribution to the previous owners. This distribution represented
unused construction contingency and cash flows that were accumulated by the
Cottage Grove and Whitewater Facilities prior to January 1, 1998. Cogentrix
Energy, Inc. will be entitled to a distribution of the $16.7 million in calendar
1998. The purchase price was funded with proceeds of the Corporate Credit
Facility and corporate cash balances.
Bechtel Asset Acquisition
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire an ownership interest in 12 electric generating
facilities, comprising a net equity interest of approximately 360 megawatts, and
one interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the Bechtel Asset Acquisition, which is subject to
customary conditions including the obtaining of certain consents and regulatory
approvals, is currently expected to occur in calendar 1998. Management
anticipates accounting for these investments under the equity method.
67
<PAGE> 68
In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of senior notes in a Rule 144A offering with a covenant
to register exchange notes with the U.S. Securities and Exchange Commission.
These senior notes will be unsecured and will rank pari passu with the Company's
$100 million of outstanding Senior Notes due 2004. The proceeds will be used by
the Company to finance the Bechtel Asset Acquisition and to repay the
outstanding borrowings under the Corporate Credit Facility. In connection with
this anticipated debt offering, the Company executed an interest rate agreement
in March 1998 covering a notional amount of $237 million for a period of four
months to hedge against fluctuations in interest rates prior to the completion
of the debt offering.
68
<PAGE> 69
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED BALANCE SHEETS OF REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,264 $ 10,028 $ 9,268
Restricted cash 2,411 1,688 1,716
Accounts receivable 1,343 6,161 4,029
Accounts receivable from affiliates 9,038 8,671 5,460
Restricted investments 0 20,000 0
Other current assets 143 309 405
-------- -------- --------
Total current assets 21,199 46,857 20,878
-------- -------- --------
INVESTMENT IN SUBSIDIARIES (ON THE EQUITY METHOD) 154,321 154,016 179,361
-------- -------- --------
EQUIPMENT, net of accumulated depreciation of $2,971, $2,748
and $2,287, respectively 918 1,038 1,213
-------- -------- --------
OTHER ASSETS:
Restricted investments 250 0 20,000
Income tax benefit 49,765 46,048 36,002
Deferred financing costs, net of accumulated amortization of $1,200,
$1,027 and $713, respectively 2,086 2,260 2,398
Notes receivable from affiliates 7,126 921 1,001
Other 4,316 3,797 1,619
-------- -------- --------
Total other assets 63,543 53,026 61,020
-------- -------- --------
Total Assets $239,981 $254,937 $262,472
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,472 $ 8,808 $ 4,298
Accounts payable to affiliate 1,857 1,858 50
Accrued liabilities 15,513 20,543 14,078
Accrued dividends 2,140 5,000 4,759
-------- -------- --------
Total current liabilities 21,982 36,209 23,185
-------- -------- --------
LONG-TERM LIABILITIES:
Notes payable to affiliates 44,405 54,675 46,176
Long-term debt 102,087 102,300 102,728
Other 13,235 12,044 7,373
-------- -------- --------
Total long-term liabilities 159,727 169,019 156,277
-------- -------- --------
Total liabilities 181,709 205,228 179,462
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock 130 130 130
Accumulated earnings 58,142 49,579 82,880
-------- -------- --------
Total shareholders' equity 58,272 49,709 83,010
-------- -------- --------
Total Liabilities and Shareholders' Equity $239,981 $254,937 $262,472
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
69
<PAGE> 70
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF OPERATIONS OF REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER ----------------------------------
31, 1997 1997 1996 1995
------------ -------- -------- --------
<S> <C> <C> <C> <C>
INCOME:
Development and construction management fees $ 4,649 $ 1,275 $ 0 $ 197
Operating management fees 8,501 20,239 10,549 9,576
-------- -------- -------- --------
Total income 13,150 21,514 10,549 9,773
-------- -------- -------- --------
OPERATING EXPENSES:
General, administrative and development expenses 17,948 38,381 25,123 27,180
Depreciation and amortization 639 1,253 1,302 1,221
-------- -------- -------- --------
Total operating expenses 18,587 39,634 26,425 28,401
-------- -------- -------- --------
OPERATING LOSS (5,437) (18,120) (15,876) (18,628)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (4,655) (10,634) (8,735) (7,723)
Investment and other income 705 2,523 1,736 690
-------- -------- -------- --------
Total other expense (3,950) (8,111) (6,999) (7,033)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (9,387) (26,231) (22,875) (25,661)
INCOME TAX BENEFIT 3,718 10,047 9,173 9,906
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES 16,372 (12,117) 37,497 36,928
-------- -------- -------- --------
NET INCOME (LOSS) $ 10,703 $(28,301) $ 23,795 $ 21,173
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
70
<PAGE> 71
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS OF REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER ----------------------------------
31, 1997 1997 1996 1995
------------ -------- -------- --------
<S> <C> <C> <C> <C>
NET CASH FLOWS USED IN OPERATING ACTIVITIES $(15,188) $(17,692) $ (23) $(24,462)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted investments 19,750 0 (20,000) 0
Property, plant and equipment additions (102) (286) (232) (532)
Investments in subsidiaries, net 16,067 13,228 7,422 31,178
-------- -------- -------- --------
Net cash flows provided by (used in) investing activities 35,715 12,942 (12,810) 30,646
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliate 8,230 10,944 18,500 0
Decrease (increase) in restricted cash (723) 28 660 (681)
Decrease (increase) in notes receivable from affiliates (6,205) 80 0 0
Increase in deferred financing costs (93) (176) 0 (93)
Repayment of long-term notes payable to affiliates (18,500) (607) (3,560) (1,500)
Dividends paid (5,000) (4,759) (4,235) (3,328)
-------- -------- -------- --------
Net cash flows provided by (used in) financing activities (22,291) 5,510 11,365 (5,602)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,764) 760 (1,468) 582
CASH AND CASH EQUIVALENTS, beginning of period 10,028 9,268 10,736 10,154
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 8,264 $ 10,028 $ 9,268 $ 10,736
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- CASH DIVIDENDS RECEIVED $ 41,619 $ 56,614 $ 44,548 $ 37,952
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
71
<PAGE> 72
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 benefit for income taxes has been
computed based on the Company's consolidated effective income tax rate.
Change of Fiscal Year -- Effective January 1, 1998, Cogentrix Energy,
Inc. changed its fiscal year to commence on January 1 and conclude on December
31 of each year. Cogentrix Energy, Inc.'s fiscal year previously commenced each
July 1, concluding on June 30 of the following calendar year.
Reclassification -- Certain amounts included in the condensed financial
statements for the fiscal years ended June 30, 1997, 1996 and 1995 have been
reclassified from their original presentation to conform with the presentation
for the six-month period ended December 31, 1997.
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 Senior Notes 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 December 31, 1997, excluding the
unamortized balance of the deferred hedge gain, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
<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 "Corporate Credit Facility")
with an initial term of three years (the "Revolving Term"). The Corporate Credit
Facility provides for one-year extensions of the Revolving Term, subject to
lender consent. The Corporate 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 Corporate Credit Facility are
currently 30 basis points per annum, payable each quarter on the outstanding
unused portion of the Corporate Credit Facility. As of December 31, 1997,
Cogentrix Energy, Inc. had no borrowings or letters of credit outstanding.
72
<PAGE> 73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
73
<PAGE> 74
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. 70 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 51 Group Senior Vice President, General Counsel, Secretary and Director
W. E. Bill Garrett 67 Director
John A. Tillinghast 70 Director
James R. Pagano 38 Group Senior Vice President -- Chief Financial Officer
B. Yamin Afshar 54 Senior Vice President - Marketing and Development
Kartar B. Singh 57 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
1993, 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, 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 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 for Northrop Grumman in Bethpage, New York. He joined
Northrop Grumman in 1982 and held successive positions in the material, law and
contracts departments before being named Vice President, Contracts and Pricing
at Northrop's B-2 Division in 1991. In 1993, he became Vice President Business
Management at the B-2 Division. In 1994, Northrop acquired the Grumman
Corporation and Mr. Miller was named Vice President-Business Management for the
newly formed Electronics and Systems Integration Division, a position he held
until his move to Cogentrix. 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.
74
<PAGE> 75
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. 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.
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. Mexico, Guatemala and Italy have
honored him with prestigious awards for his work in the region. Mr. Garrett
currently serves on the boards of the National Capital Bicentennial Celebration,
the American Land Conservancy, and Partners for Livable Communities.
JOHN A. TILLINGHAST was elected a Director of the Company on March 19,
1998, filling a position left vacant since the death of former board member T.
Louis Austin, Jr. last year. Mr. Tillinghast has served since 1994 as President,
Chairman and CEO of Great Bay Power Corporation, a public utility in Dover, New
Hampshire. He also has served since 1997 as the President, Chairman and CEO of
BayCorp Holdings, Ltd., the holding company for Great Bay Power Corporation.
After graduating from Columbia University in 1949 with BS and MS degrees in
mechanical engineering, Mr. Tillinghast began a 30-year career with American
Electric Power Company, rising through the engineering ranks to become Vice
Chairman of the Board in charge of engineering and construction. Prior to his
current position at Great Bay Power Corporation, he served as Chairman of the
Energy Engineering Board of the National Academy of Sciences, Director of the
Edison Electric Institute and is a Fellow of the American Society of Mechanical
Engineers. Mr. Tillinghast is registered as a professional engineer in nine
states and holds two U.S. and seven foreign patents.
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.
75
<PAGE> 76
B. YAMIN AFSHAR was appointed Senior Vice President - Marketing and
Development of the Company in September 1997, prior to which he was Senior Vice
President -- International Development since joining the Company in 1994. 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 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.
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 1979 to 1983, Mr. Singh
was Chief Estimator and Chief Planning and Scheduling Engineer with Main. Mr.
Singh has 32 years' experience in engineering, estimating, planning and
scheduling and construction in the utility and industrial sector.
76
<PAGE> 77
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the calendar year ended
December 31, 1997 and for the two 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 calendar year ended December 31, 1997 and (ii)
the four most highly compensated executive officers of the Company incumbent at
December 31, 1997, other than the chief executive officer, for the year then
ended (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND TWELVE-MONTH ---------------------------------------- ALL OTHER
PRINCIPAL POSITION PERIOD ENDING SALARY (1) BONUS (2) TOTAL COMPENSATION(3)
------------------ ------------- ---------- --------- ----- ---------------
<S> <C> <C> <C> <C> <C>
George T. Lewis, Jr. December 31, 1997 $674,086 $332,080 $1,006,166 $955,624
Chairman of the Board June 30, 1997 666,647 332,080 998,727 994,992
June 30, 1996 649,100 381,810 1,030,910 60,960
David J. Lewis December 31, 1997 613,960 841,239 1,455,199 920,329
Vice Chairman and Chief Executive June 30, 1997 565,317 695,824 1,261,141 929,829
Officer June 30, 1996 351,720 359,500 711,220 45,040
James E. Lewis December 31, 1997 364,524 415,163 779,687 910,523
Executive Vice President June 30, 1997 360,347 345,124 705,471 928,883
June 30, 1996 349,720 279,950 629,670 37,380
James R. Pagano December 31, 1997 223,532 345,033 568,565 28,412
Group Senior Vice President June 30, 1997 194,498 180,000 374,498 28,912
and Chief Financial Officer June 30, 1996 155,243 137,367 292,610 17,570
Dennis W. Alexander December 31, 1997 284,086 175,033 459,119 21,845
Group Senior Vice President June 30, 1997 272,068 70,000 342,068 21,472
and General Counsel June 30, 1996 220,946 198,840 419,786 15,332
</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 33 employees, including all of the
Named Executive Officers participate, and (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 the fiscal year
ended June 30, 1997, which amounts are included under the column
heading "Bonuses."
77
<PAGE> 78
COMPENSATION PURSUANT TO INCENTIVE COMPENSATION PLANS
Profit-Sharing Plan
The Company has a non-qualified incentive compensation plan for the
benefit of approximately 42 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. For the
twelve-month period ended December 31, 1997, David J. Lewis earned $190,065,
James E. Lewis earned $114,039, and James R. Pagano and Dennis W. Alexander each
earned $95,033 under the Profit Sharing Plan, all of which was earned during the
six-month period ended December 31, 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.
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 or during the
twelve-month period ended December 31, 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. were paid $1,157,996, $1,119,816 and $1,247,259,
respectively.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
David J. Lewis
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.
78
<PAGE> 79
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.
George T. Lewis, Jr.
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 $646,000 for the year ended December 31,
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.
Dennis W. Alexander
When he joined the Company in January 1994, the Company entered into an
employment agreement with Dennis W. Alexander to serve as Senior Vice President,
General Counsel and Secretary. The Agreement also provides that Mr. Alexander
shall be a member of the Board of Directors. Under the employment agreement, Mr.
Alexander is entitled to a minimum base annual salary of $180,000, subject to
adjustment in future years. He is also entitled to participate in the Company's
Profit Sharing Plan (at a level of no less than 0.3% of net income before taxes)
and Executive Incentive Bonus Plan. The employment agreement is for a one year
term that renews automatically at the end of each calendar year unless the
Company previously exercises its right to terminate Mr. Alexander. The Company
has the right to terminate Mr. Alexander upon 30 days' written notice (with a
material change in his title, authority, duties or current compensation
following a change in control of the Company constituting a de facto termination
by the Company). In the event the Company terminates his employment, Mr.
Alexander is entitled to receive (within 30 days of his termination) a severance
payment in an amount equal to his total compensation received in the prior
calendar year (including any fees he received for serving as a member of the
Board of Directors).
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 year ended December
31, 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.
79
<PAGE> 80
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 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 distribution Mr. Lewis received
pursuant to his facility cash flow compensation agreement for the six-month
period ended December 31, 1997 was $100,000.
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
80
<PAGE> 81
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 $329,892 for the six-month period
ended December 31, 1997, $1,021,400 for the fiscal year ended June 30, 1997,
$1,112,000 for the fiscal year ended June 30, 1996 and $1,244,000 for the fiscal
year ended June 30, 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 $398,526 for the six-month period
ended December 31, 1997, $834,000 for the fiscal year ended June 30, 1997,
$817,000 in the fiscal year ended June 30, 1996, and $801,000 for the fiscal
year ended June 30, 1995.
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 $56,000 for the
six-month period ended December 31, 1997 and $112,000 for each of the years
ended June 30, 1997, 1996 and 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 six-month period ended December 31, 1997 for these shareholders and
the outstanding balances at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
LARGEST BALANCE
OUTSTANDING DURING THE
SIX-MONTH PERIOD ENDED OUTSTANDING
---------------------- BALANCE AS OF
SHAREHOLDER/DIRECTOR DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------- ----------------- -----------------
<S> <C> <C>
George T. Lewis, Jr. $140,000 $28,000
</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 six-month period ended December 31, 1997 was
$44,000. ELP had no indebtedness to Cogentrix as of December 31, 1997.
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 the fiscal
year ended June 30, 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.
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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.
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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.
<TABLE>
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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
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)
</TABLE>
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<TABLE>
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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)
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)
10.6(b) Fifth Amendment and Restatement of the Power
Purchase and Operating Agreement, dated January
28, 1998, between James River Cogeneration Company
and Virginia Electric and Power Company (Hopewell
Facility).
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)
10.7(a) Third Amendment and Restatement of the Power
Purchase and Operating Agreement, dated December
5, 1997, between Cogentrix Virginia Leasing
Corporation and Virginia Electric and Power
Company (Portsmouth Facility).
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)
</TABLE>
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<TABLE>
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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)
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) (10.26). (*)(16)
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) (10.28).
(*)(16)
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)
</TABLE>
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<TABLE>
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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)
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)
</TABLE>
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<TABLE>
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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)
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) (10.41). (*)(16)
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) (10.43). (*)(16)
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) (10.47(d)). (16)
</TABLE>
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<TABLE>
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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)
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)
10.51(a) First Amendment to the Amended and Restated Senior
Term Loan Agreement, dated as of December 1, 1997,
among Cogentrix Eastern Carolina Corporation, the
Lenders party thereto, Credit Lyonnais New York
Branch, as Issuing Bank and Agent (Elizabethtown,
Lumberton and Kenansville Facilities).
10.52 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)
10.52(a) First Amendment to the Amended and Restated Loan
Agreement and Guarantee, dated as of December 1,
1997, 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).
</TABLE>
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10.53 Third Amended and Restated Application for Letter
of Credit and Reimbursement Agreement, dated as of
February 11, 1998, among James River Cogeneration
Company, the Banks named therein, and Credit
Lyonnais, as Issuing Bank and Agent (Hopewell
Facility).
10.54 Third Amended and Restated Loan Agreement, dated
as of December 22, 1997, among Cogentrix Virginia
Leasing Corporation, the lenders party thereto and
Credit Lyonnais, as the Agent, Issuing Bank and a
Lender (Portsmouth Facility).
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)
10.55(c) Third Amendment, dated as of December 1, 1997, 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 Ther Prudential
Insurance Company of America, as Credit Facility
Agent (Rocky Mount Facility).
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)
10.56(a) Third Amendment, dated as of December 1, 1997, to
the 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 (Ringgold
Facility).
10.57 Amended and Restated Subordinated Note dated April
22, 1994 of Cogentrix of Pennsylvania, Inc.
payable to Cogentrix Delaware Holdings, Inc.
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)
</TABLE>
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10.58(d) Seventh Amendment, dated as of December 1, 1997,
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).
10.59 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) (10.64).(16)
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)
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 Third Amended and Restated Security Deposit
Agreement, dated as of February 11, 1998, among
James River Cogeneration Company, Cogentrix of
Virginia, Inc., Credit Lyonnais, as Grantee and
Issuing Bank, and First Union National Bank, as
Security Agent (Hopewell Facility).
10.68 Third Amended and Restated Security Deposit
Agreement, dated as of December 22, 1997, among
Cogentrix Virginia Leasing Corporation, Credit
Lyonnais, as Agent and Issuing Bank, and First
Union National Bank, as Security Agent (Portsmouth
Facility).
</TABLE>
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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)
10.77(b) Amendment No. 3 to Pledge and Security Agreement,
dated as of February 11, 1998, by and between
Cogentrix, Inc., as Pledgor, and Credit Lyonnais,
as Grantee (Hopewell Facility).
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)
10.78(b) Amendment No. 3 to Assignment and Security
Agreement, dated as of February 11, 1998, between
Cogentrix of Virginia, Inc. and Credit Lyonnais,
as Grantee (Hopewell Facility).
10.79 Third Amended and Restated Pledge Agreement, dated
as of December 22, 1997, made by Cogentrix, Inc.,
as Pledgor, and Credit Lyonnais, as Agent
(Portsmouth Facility).
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)
</TABLE>
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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)
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)
</TABLE>
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<PAGE> 93
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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)
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.
(10.109). (16)
10.110 Employment Agreement, dated as of January 1, 1994,
between Dennis W. Alexander and Cogentrix Energy,
Inc.
10.111 Power Purchase Agreement, dated as of September
30, 1994, between Mangalore Power Company and
Karnataka Electricity Board (Phase One Facility)
(10.1).(6)
10.112 Power Purchase Agreement, dated as of September
30, 1994, between Mangalore Power Company and
Karnataka Electricity Board (Phase Two Facility)
(10.2).(6)
10.113 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)
</TABLE>
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<PAGE> 94
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10.114 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)
10.115 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)
10.116 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)
10.117 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)
10.118 Amended and Restated Limited Partnership Agreement
of Birchwood Power Partners, L.P., dated December
15, 1994 (Birchwood Facility) (10.6).(8)
10.119 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)
10.120 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)
10.121 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)
10.122 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)
10.123 Supplemental Retirement Savings Plan (10.132).(10)
10.124 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)
10.125 Consulting and Noncompetition Employment
Agreement, dated as of August 11, 1995, between
Cogentrix Energy, Inc. and George T. Lewis, Jr.
(10.135). (10)
10.126 Joint Development Agreement, dated as of July 14,
1995, between Cogentrix Mauritius Company and
Malconna Company Limited (10.136).(*)(10)
10.127 Support Agreement, dated as of July 14, 1995, from
Cogentrix Energy, Inc. to Malconna Company Limited
(10.137). (10)
10.128 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 (10.129).(16)
10.129 Guarantee, dated as of May 22, 1997, made by
Cogentrix Delaware Holdings, Inc., the Guarantor,
in favor of the Borrower Creditors (10.130).(16)
10.130 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)
</TABLE>
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10.131 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)
10.132 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)
10.133 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.
(10.134).(*)(16)
10.134 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. (10.135). (*)(16)
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.
</TABLE>
----------------------------
(*) 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.
(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.
95
<PAGE> 96
(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.
(16) Incorporated by reference to the Form 10-K (File No. 33-74254)
filed September 29, 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.
The Company filed a Current Report on Form 8-K, dated December
5, 1997, with respect to the official signing of three project documents with
the Indian State of Karnataka related to the Mangalore Power Project, being
co-developed in India by Cogentrix Energy, Inc. and China Light & Power
(International), Ltd.
96
<PAGE> 97
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: March 30, 1998 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 March 30, 1998
- --------------------------------
George T. Lewis, Jr.
/s/ David J. Lewis Vice Chairman of the Board, Chief March 30, 1998
- -------------------------- Executive Officer and Director
David J. Lewis
/s/ Mark F. Miller President, Chief Operating Officer March 30, 1998
- -------------------------- and Director
Mark F. Miller
/s/ Betty G. Lewis Director March 30, 1998
- --------------------------
Betty G. Lewis
/s/ James E. Lewis Executive Vice President and Director March 30, 1998
- --------------------------
James E. Lewis
Director March , 1998
- ---------------------------
Robert W. Lewis
/s/ Dennis W. Alexander Group Senior Vice President, General March 30, 1998
- ------------------------------- Counsel, Secretary and Director
Dennis W. Alexander
/s/ W. E. Garrett Director March 30, 1998
- -------------------------------
W. E. Garrett
/s/ John A. Tillinghast Director March 30, 1998
- -------------------------------
John A. Tillinghast
/s/ James R. Pagano Group Senior Vice President, March 30, 1998
- -------------------------- Chief Financial Officer-
James R. Pagano (Principal Financial Officer)
/s/ Thomas F. Schwartz Senior Vice President - Finance and March 30, 1998
- ------------------------------ Treasurer (Principal Accounting Officer)
Thomas F. Schwartz
</TABLE>
97
<PAGE> 1
-----------------------------------------------------------------
AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
-----------------------------------------------------------------
Effective as of December 19, 1997
<PAGE> 2
INDEX OF AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
ARTICLE I
OFFICES
Section 1. Principal Office
Section 2. Registered Office
Section 3. Other Offices
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting
Section 2. Substitute Annual Meeting
Section 3. Special Meetings
Section 4. Place of Meeting
Section 5. Notice of Meeting
Section 6. Waiver of Notice
Section 7. Closing of Transfer Books or
Fixing of Record Date
Section 8. Voting Lists
Section 9. Voting Groups
Section 10. Quorum
Section 11. Proxies
Section 12. Voting of Shares
Section 13. Votes Required
Section 14. Action of Shareholders Without Meeting
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers
Section 2. Number, Term and Qualifications
Section 3. Vacancies
Section 4. Removal
Section 5. Compensation
<PAGE> 3
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings
Section 2. Special Meetings
Section 3. Notice
Section 4. Waiver of Notice
Section 5. Quorum
Section 6. Manner of Acting
Section 7. Presumption of Assent
Section 8. Action by Directors Without Meeting
Section 9. Meetings by Conference Telephone
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee
Section 2. Other Committees
Section 3. Vacancy
Section 4. Removal
Section 5. Minutes
Section 6. Responsibility of Directors
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation
Section 2. Appointment and Term
Section 3. Compensation of Officers
Section 4. Removal of Officers
Section 5. Bonds
Section 6. Chief Executive Officer
Section 7. Chief Operating Officer
Section 8. Chairman
Section 9. Vice Chairman
Section 10. President
Section 11. Vice Presidents
Section 12. Secretary
Section 13. Assistant Secretaries
Section 14. Treasurer
Section 14. Assistant Treasurers
<PAGE> 4
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts
Section 2. Loans
Section 3. Checks and Drafts
Section 4. Deposits
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares
Section 2. Transfer of Shares
Section 3. Lost Certificates
Section 4. Holder of Record
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions
Section 2. Seal
Section 3. Fiscal Year
Section 4. Pronouns
Section 5. Amendments
ARTICLE X
INDEMNIFICATION
Section 1. Coverage
Section 2. Indemnification Limitations
Section 3. Payment
Section 4. Evaluation
Section 5. Consideration
Section 6. Definitions
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
(as of December 19, 1997)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located in Charlotte, Mecklenburg County, North Carolina, or at such
other place as the Board of Directors shall determine.
Section 2. Registered Office. The registered office of the corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical to the principal office. The address of the registered office
may be changed from time to time by the Board of Directors.
Section 3. Other Offices. The corporation may, from time to time, have
offices at such places, either within or without the State of North Carolina, as
the Board of Directors may designate or as the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the third Thursday in the month of March in each year, at the hour of
9:30 o'clock a.m. or such other time on such day designated in the notice of the
meeting, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday in the State of North Carolina, such meeting
shall be held on the next succeeding business day.
Section 2. Substitute Annual Meeting. If the annual meeting shall not
be held on the day designated by these Bylaws for the annual meeting of
shareholders, or at any adjournment thereof, then a substitute annual meeting
may be called in accordance with Section 3 of this Article and the meeting so
called shall be designated and treated for all purposes as the annual meeting.
<PAGE> 6
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the Chief Executive Officer or by the Board of Directors or shall
be called by the Secretary at the written request of shareholders holding at
least one-tenth of all shares entitled to vote at the meeting. Any such
shareholder request must be signed, dated and delivered to the Secretary and
must describe the purpose or purposes for which the meeting is to be held.
Section 4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of North Carolina, as the place of
meeting for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of North
Carolina, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation.
Section 5. Notice of Meeting. Written or printed notice stating the
time and place of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chief Executive Officer,
the Secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the record of
shareholders of the corporation, with postage thereon prepaid. In addition to
the foregoing, notice of a substitute annual meeting shall state that the annual
meeting was not held on the day designated by these Bylaws and that such
substitute annual meeting is being held in lieu of and is designated as such
annual meeting.
If a meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment. If a new record
date for the adjourned meeting is fixed, however, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.
Section 6. Waiver of Notice.
(a) A shareholder may waive any notice required by law, the
Articles of Incorporation, or these Bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the
corporation for inclusion in the minutes or filing with the corporate
records.
(b) A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting
business at the meeting; and
6
<PAGE> 7
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is
voted upon.
Section 7. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, seventy (70) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days and,
in the case of a meeting of shareholders, not less than ten (10) full days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired, and except where the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
Section 8. Voting Lists. After fixing a record date for a meeting, the
Secretary of the corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of a shareholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
shareholder. The shareholders' list shall be available for inspection by any
shareholder, beginning two (2) business days after notice of the meeting is
given for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or his agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of N.C. Gen. Stat. (6)55-16-02(c), as may be hereafter amended, to
copy the list, during regular business hours and at his expense, during the
period it is available for inspection. The Secretary of the corporation shall
7
<PAGE> 8
make the shareholders' list available at the meeting, and any shareholder or his
agent or attorney is entitled to inspect the list at any time during the meeting
or any adjournment.
Section 9. Voting Groups. All shares of one or more classes or series
that under the Articles of Incorporation or the North Carolina Business
Corporation Act are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Except as provided in the immediately following
sentence, a majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. Shares entitled to vote as a separate voting group may take
action on a matter at the meeting only if a quorum of such shares exists. A
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
The shareholders at a meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn; and at any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting.
Section 11. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact.
An appointment of a proxy is effective when received by the Secretary
or other officer or agent authorized to tabulate votes. An appointment is valid
for eleven (11) months unless a different period is expressly provided in the
appointment form.
Section 12. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Except as otherwise provided by law, the Articles of Incorporation or
these Bylaws, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action.
Shares of its own stock owned by the corporation directly, or
indirectly through a corporation in which it owns, directly or indirectly, a
majority of the shares entitled to vote for directors, shall not be voted at any
meeting and shall not be counted in determining the total
8
<PAGE> 9
number of outstanding shares at a given time entitled to vote; provided that
this provision does not limit the power of the corporation to vote its own
shares held by it in a fiduciary capacity.
At each election for directors every shareholder entitled to vote at
such election shall have the right (i) to vote the number of shares standing of
record in his name for as many persons as there are directors to be elected and
for whose election he has a right to vote or (ii) to cumulate his votes for
directors; provided, that shares otherwise entitled to vote cumulatively may not
be voted cumulatively at a particular meeting unless: (a) the meeting notice or
proxy statement accompanying the notice states conspicuously that cumulative
voting is authorized; or (b) a shareholder or proxy who has the right to
cumulate his votes announces in open meeting, before voting for directors
starts, his intention to vote cumulatively; and if such announcement is made,
the chair shall declare that all shares entitled to vote have the right to vote
cumulatively and shall announce the number of shares present in person and by
proxy, and shall thereupon grant a recess of not less than one hour nor more
than four hours, as he shall determine, or of such other period of time as is
unanimously then agreed upon.
Section 13. Votes Required. The vote of a majority of the shares voted
at a meeting of shareholders, duly held at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting except as otherwise provided by law, by the Articles of
Incorporation or by these Bylaws. Any provision in these Bylaws prescribing the
vote required for any purpose as permitted by law may not itself be amended by a
vote less than the vote prescribed therein.
Section 14. Action of Shareholders Without Meeting. Any action which
may be taken at a meeting of the shareholders may be taken without a meeting if
the action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents signed by all the
shareholders before or after such action, describing the action taken and
delivered to the corporation for inclusion in the minutes or filing with the
corporate records. A consent signed under this Section has the effect of a
meeting vote and may be described as such in any document.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
managed under the direction of, the Board of Directors.
Section 2. Number, Term and Qualifications. The number of directors
constituting the Board of Directors shall be nine (9).
The directors shall be elected at the annual meeting of the
shareholders (except as herein otherwise provided for the filling of vacancies)
and each director shall hold office until the next
9
<PAGE> 10
annual shareholders' meeting following his election or until such director's
earlier death, resignation, retirement, removal or disqualification. A decrease
in the number of directors shall not shorten an incumbent director's term.
Despite the expiration of a director's term, such director shall continue to
serve until a successor shall be elected or qualifies or until there is a
decrease in the number of directors. Directors need not be residents of the
State of North Carolina or shareholders of the corporation. Those persons who
receive the highest number of votes at a meeting at which a quorum is present
shall be deemed to have been elected.
Section 3. Vacancies. Except as otherwise provided by law or the
Articles of Incorporation, any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors even
though less than a quorum or by the sole remaining director. Any vacancy created
by an increase in the authorized number of directors shall be filled only by
election at an annual meeting or at a special meeting of shareholders.
Any director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
At a special meeting of shareholders the shareholders may elect a
director to fill any vacancy not filled by the directors.
Section 4. Removal. Any director may be removed at any time with or
without cause by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors. If cumulative
voting is authorized, a director may not be removed if the number of votes
sufficient to elect him under cumulative voting is voted against his removal.
However, unless the entire Board is removed, an individual director shall not be
removed when the number of shares voting against the proposal for removal shall
be sufficient to elect a director if such shares could be voted cumulatively at
an annual election.
Section 5. Compensation. The Board of Directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending meetings of the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. In addition to the
annual meeting of the Board of Directors, the Board of Directors shall meet once
in each calendar quarter, other than the calendar quarter in which the annual
meeting occurs, on such dates established annually in advance by the Board of
Directors of the Corporation. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings without other notice than such
resolution.
10
<PAGE> 11
Section 2. Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of North Carolina, as the place
for holding any special meeting of the Board of Directors called by them.
Section 3. Notice. The person calling the meeting shall give or cause
to be given oral or written notice of special meetings of the Board of Directors
to each director not less than three (3) days before the date of the meeting by
any usual means of communication.
Neither the business transacted at, nor the purposes of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 4. Waiver of Notice.
(a) A director may waive any notice required by law, the
Articles of Incorporation, or these Bylaws before or after the date and
time stated in the notice. Except as provided by subsection (b), the
waiver must be in writing, signed by the director entitled to the
notice, and delivered to the corporation for filing with the minutes or
corporate records.
(b) A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at
the beginning of the meeting (or promptly upon his arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or consent to action taken at the meeting.
Section 5. Quorum. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, a majority of the Directors fixed by these Bylaws
shall constitute a quorum for the transaction of business.
Section 6. Manner of Acting. If a quorum is present when a vote is
taken, the affirmative act of the majority of the directors present is the act
of the Board of Directors, except as otherwise provided in these Bylaws.
Section 7. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting;
(b) His dissent or abstention from the action taken is entered
in the minutes of the meeting; or
11
<PAGE> 12
(c) He files written notice of his dissent or abstention with
the presiding officer of the meeting before its adjournment or with the
corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor
of the action taken.
Section 8. Action by Directors Without Meeting. Action required or
permitted by law to be taken at a Board of Directors' meeting may be taken
without a meeting if the action is taken by all members of the Board. The action
must be evidenced by one or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records. Action taken under this Section is
effective when the last director signs the consent unless the consent specifies
a different effective date. A consent signed under this Section has the effect
of a meeting vote and may be described as such in any document.
Section 9. Meetings by Conference Telephone. Any one or more directors,
upon reasonable notice to the Secretary of the Corporation, may participate in a
meeting of the Board or a committee by means of a conference telephone or
similar communications device by which all directors participating may
simultaneously hear each other during the meeting, and such participation in a
meeting shall be deemed presence in person at such meeting.
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by these Bylaws, may
designate two or more directors to constitute an Executive Committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors to the extent permitted
by applicable law; provided, however, that one of the designees must be a
director who owns less than five percent (5%) of the common stock of the
Corporation.
Section 2. Other Committees. The Board of Directors may create one or
more other committees and appoint members of the Board of Directors to serve on
them. Each committee must have two or more members, who serve at the pleasure of
the Board of Directors. The creation of a committee and appointment of members
to it must be approved by the greater of:
(a) A majority of all the directors in office when the action
is taken; or
(b) The number of directors constituting a quorum under the
Articles of Incorporation or these Bylaws.
Section 3. Vacancy. Any vacancy occurring in any committee shall be
filled by a majority of the number of directors fixed by these Bylaws at a
regular or special meeting of the Board of Directors.
12
<PAGE> 13
Section 4. Removal. Any member of a committee may be removed at any
time with or without cause by a majority of the number of directors fixed by
these Bylaws.
Section 5. Minutes. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 6. Responsibility of Directors. The designation of a committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility or liability imposed
upon it or him by law.
Any resolutions adopted or other action taken by a committee within the
scope of the authority delegated to it by the Board of Directors shall be deemed
for all purposes to be adopted or taken by the Board of Directors.
If action taken by a committee is not thereafter formally considered by
the Board, a director may dissent from such action by filing his written
objection with the Secretary with reasonable promptness after learning of such
action.
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation. The executive officers of the
corporation shall consist of a Chief Executive Officer, a Chief Operating
Officer, a Chairman, a President, a Secretary, a Treasurer and such Vice
Chairmen, Executive Vice Presidents, Group Senior Vice Presidents, and such
other officers as the Board of Directors may from time to time appoint. The
Chief Executive Officer may appoint officers of the corporation, other than the
executive officers, provided that each such other officer shall be subordinate
to an executive officer. The same individual may simultaneously hold more than
one office in the corporation, but no individual may act in more than one
capacity where action of two or more officers is required.
Section 2. Appointment and Term. The executive officers of the
corporation shall be appointed by the Board of Directors. Officers other than
the executive officers may be appointed by the Chief Executive Officer. Each
officer shall hold office until his/her death, resignation, retirement, removal,
disqualification or his/her successor shall have been appointed. The appointment
of an officer does not itself create contract rights.
Section 3. Compensation of Officers. The base salary and annual
performance bonus for the Chief Executive Officer of the corporation shall be
fixed by the Board of Directors after receiving the recommendation of the
Compensation Committee. The base salary of all other officers of the corporation
shall be fixed by the Chief Executive Officer. Notwithstanding the foregoing,
the annual and any special adjustment to base salary applicable to all exempt
employees of the corporation shall be effective for all officers without
specific approval by the Board of Directors or the Chief Executive Officer. No
officer whose base salary is fixed by the Board of Directors shall serve the
corporation in any other capacity and receive additional compensation
13
<PAGE> 14
therefor from the corporation unless such additional compensation be authorized
by the Board of Directors.
Section 4. Removal of Officers. The Board of Directors may remove any
officer at any time with or without cause, but such removal shall not itself
affect the officer's contract rights, if any, with the corporation.
Section 5. Bonds. The Board of Directors may by resolution require any
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned upon the faithful performance of the
duties of his respective office or position, and to comply with such other
conditions as may from time to time be required by the Board of Directors.
Section 6. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, supervise
the management of the corporation. He shall, when present, preside at all
meetings of the shareholders and at all meetings of the Board of Directors.
He shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation. The Chief Executive Officer may sign, with
the Secretary or an Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 7. Chief Operating Officer. The Chief Operating Officer of the
corporation, subject to the control of the Board of Directors and supervision
and direction of the Chief Executive Officer, shall supervise and control the
day-to-day operation of the corporation in accordance with these Bylaws.
In the absence of the Chief Executive Officer, or in the event of the
death, inability or refusal to act of the Chief Executive Officer, the Chief
Operating Officer shall perform the duties of the Chief Executive Officer, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. He shall sign any deeds,
mortgages, bonds, contract, or other instruments which may be lawfully executed
on behalf of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be delegated by the Board of Directors to some other officer or agent;
and, in general, he shall perform all duties incident to the office of Chief
Operating Officer and such other duties as may be prescribed by the Chief
Executive Officer or by the Board of Directors. The Chief Operating Officer may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the corporation.
Section 8. Chairman. The Chairman shall have such powers and perform
such duties as the Board of Directors or the Chief Executive Officer may from
time to time prescribe, and shall perform such other duties as may be prescribed
in these Bylaws. The Chairman may sign, with the
14
<PAGE> 15
Secretary or an Assistant Secretary, certificates for shares of the corporation.
Unless the Board of Directors indicates otherwise, the Chairman shall be the
Chief Executive Officer.
Section 9. Vice Chairmen. Each Vice Chairman shall have such powers and
perform such duties as the Board of Directors or the Chief Executive Officer may
from time to time prescribe, and shall perform such other duties as may be
prescribed in these Bylaws. Each Vice Chairman may sign, with the Secretary or
an Assistant Secretary, certificates for shares of the corporation.
Section 10. President. The President shall have such powers and perform
such duties as the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer may from time to time prescribe, and shall perform such other
duties as may be prescribed in these Bylaws. The President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the corporation.
Unless the Board of Directors indicates otherwise, the President shall be the
Chief Operating Officer.
Section 11. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer
or the Chief Operating Officer may from time to time prescribe, and shall
perform such duties as may be prescribed in these Bylaws. Each Vice President
may sign, with the Secretary or an Assistant Secretary, certificates for shares
of the corporation.
Section 12. Secretary. The Secretary shall: (a) attend all meetings of
the shareholders and of the Board of Directors, keep the minutes of such
meetings in one or more books provided for that purpose, and perform like duties
for the standing committees when required; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents, the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
stock transfer books of the corporation; and (f) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the Board of Directors, by the Chief Executive
Officer, or by the Chief Operating Officer, under whose supervision he shall be.
The Secretary shall keep or cause to be kept in the State of North
Carolina at the corporation's principal place of business a record of the
corporation's shareholders, giving the names and addresses of all shareholders
and the number and class of shares held by each, and such other records as are
required to be kept at the corporation's principal office by N.C. Gen. Stat.
(6)55-16-01 and any successor to such statute.
Section 13. Assistant Secretaries. In the absence of the Secretary or
in the event of his death, inability or refusal to act, any Assistant Secretary,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Secretary. They shall perform such other duties
as
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<PAGE> 16
may be assigned to them by the Secretary, by the Chief Executive Officer, by the
Chief Operating Officer, or by the Board of Directors.
Any Assistant Secretary may sign, with the Chief Executive Officer, the
Chief Operating Officer, the Chairman, a Vice Chairman, the President or a Vice
President, certificates for shares of the corporation.
Section 14. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for money due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
depositories as shall be selected in accordance with the provisions of Article
VII, Section 4 of these Bylaws; and (b) in general perform all of the duties
incident to the office of Treasurer, and such other duties as from time to time
may be assigned to him by the Chief Executive Officer, by the Chief Operating
Officer, or by the Board of Directors.
Section 15. Assistant Treasurers. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the Assistant Treasurers in
the order of their length of service as Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall perform the duties of the Treasurer,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the Treasurer. They shall perform such other duties as may be
assigned to them by the Treasurer, by the Chief Executive Officer, by the Chief
Operating Officer, or by the Board of Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for
the payment of money, issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such depositories as the Board of Directors may select.
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<PAGE> 17
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares of the corporation's classes
or series without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as shall be
determined by the Board of Directors. Certificates shall be signed by the Chief
Executive Officer, the Chief Operating Officer, the Chairman, a Vice Chairman,
the President or a Vice President and by the Secretary or an Assistant
Secretary. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number and class of shares and the date
of issue, shall be entered on the stock transfer books of the corporation. When
shares are represented by certificates, the corporation shall issue and deliver,
to each shareholder to whom such shares have been issued or transferred,
certificates representing the shares owned by him. When shares are not
represented by certificates, then within a reasonable time after the issuance or
transfer of such shares, the corporation shall send the shareholder to whom such
shares have been issued or transferred a written statement of the information
required by law to be on certificates.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and, when shares
are represented by certificates, on surrender for cancellation of the
certificate for such shares.
Section 3. Lost Certificates. The Board of Directors or the Chief
Executive Officer may direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation claimed to have been lost or
destroyed, upon receipt of an affidavit of such fact from the shareholder. When
authorizing such issuance of a new certificate, the Board of Directors or the
Chief Executive Officer may require that the shareholder give the corporation a
bond in such sum as the Board or the Chief Executive Officer may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate claimed to have been lost or destroyed or may require
the shareholder to agree to indemnify the corporation against any claims that
may be made against the corporation with respect to the certificate claimed to
have been lost or destroyed.
Section 4. Holder of Record. The corporation may treat as an absolute
owner of shares the person in whose name the shares stand of record on its books
just as if that person had full competency, capacity and authority to exercise
all rights of ownership irrespective of any knowledge or notice to the contrary
or any description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of any other
person appearing upon its records or upon the share certificate except that any
person furnishing to the corporation proof of his appointment as a fiduciary
shall be treated as if he were a holder of record of its shares.
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ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may grant, distributions and share dividends
pursuant to law and subject to the provisions of its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 4. Pronouns. Each reference to pronouns herein shall be
construed in the masculine, feminine, neuter, singular or plural, as the context
may require.
Section 5. Amendments. The Board of Directors may amend or repeal the
Bylaws, except to the extent otherwise provided by law, the Articles of
Incorporation or a Bylaw adopted by the shareholders, and except that a Bylaw
adopted, amended or repealed by the shareholders may not be readopted, amended
or repealed by the Board of Directors unless the Articles of Incorporation or a
Bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular Bylaw or the Bylaws generally.
ARTICLE X
INDEMNIFICATION
Section 1. Coverage. Any person who at any time serves or has served as
a director or officer of the corporation, serving in a capacity of Vice
President or any more senior office, or in such capacity at the request of the
corporation for any other corporation, partnership, joint venture, trust or
other enterprise, or as a trustee or administrator under an employee benefit
plan, or such other person as the Board of Directors may determine, shall have a
right to be indemnified by the corporation to the fullest extent permitted by
law against (a) reasonable expenses, including reasonable attorneys' fees,
actually incurred by him in connection with any threatened, pending or completed
action, suit or proceeding (and any appeal thereof), whether civil, criminal,
administrative, investigative or arbitrative, and whether or not brought by or
on behalf of the corporation, seeking to hold him liable by reason of the fact
that he is or was acting in such capacity, and (b) reasonable payments made by
him in satisfaction of any judgment, money decree, fine (including, without
limitation, an excise tax assessed with respect to an employee benefit plan),
penalty or settlement for which he may have become liable in any such action,
suit or proceeding.
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Section 2. Indemnification Limitations. The corporation shall not be
liable under Section 1 of this Article to indemnify or agree to indemnify any
person described therein against any liability or litigation expense he may
incur on account of his activities which were at the time taken known or
believed by him to be clearly in conflict with the best interests of the
corporation, including, but not limited to, any activity from which he derived
an improper personal benefit. As used herein, the term, "improper personal
benefit," does not include any such person's reasonable compensation or other
reasonable incidental benefit for or on account of his service as a director,
officer or employee of the corporation.
Section 3. Payment. Expenses incurred by such person shall be paid in
advance of the final disposition of such investigation, action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation.
Section 4. Evaluation. The Board of Directors of the corporation shall
take all such action as may be necessary and appropriate to authorize the
corporation to pay the indemnification required by this Article X, including
without limitation, to the extent needed, making a determination that
indemnification is permissible under the circumstances and a good faith
evaluation of the manner in which the claimant for indemnity acted and of the
amount of indemnity due him, and giving notice to and obtaining approval by, the
shareholders of the corporation.
Section 5. Consideration. Any person who at any time after the adoption
of this Article X serves or has served in any of the aforesaid capacities for or
on behalf of the corporation shall be deemed to be doing or to have done so in
reliance upon, and as consideration for, the right of indemnification provided
herein. Such right shall inure to the benefit of the legal representatives of
any such person and shall not be exclusive of any other rights to which such
person may be entitled apart from the provisions of this Article X. Any repeal
or modification of these indemnification provisions shall not affect any rights
or obligations existing at the time of such repeal or modification.
Section 6. Definitions. For purposes of this Article X, terms defined
by the North Carolina Business Corporation Act and used but not defined herein
shall have the meanings assigned to them by the Act.
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<PAGE> 1
FIFTH AMENDMENT AND
RESTATEMENT OF THE
POWER PURCHASE AND OPERATING AGREEMENT
BETWEEN
JAMES RIVER COGENERATION COMPANY
AND
VIRGINIA ELECTRIC AND POWER COMPANY
Dated January 28, 1998
<PAGE> 2
FIFTH AMENDMENT AND RESTATEMENT OF THE
POWER PURCHASE AND OPERATING AGREEMENT
BETWEEN
JAMES RIVER COGENERATION COMPANY
AND
VIRGINIA ELECTRIC AND POWER COMPANY
THIS AGREEMENT, which includes the Exhibits A, B, and C hereto, dated
this 28th day of January 1998, amends and restates the Power Purchase and
Operating Agreement between James River Cogeneration Company ("Operator") and
Virginia Electric and Power Company ("Virginia Power"), a corporation organized
and existing under the laws of the Commonwealth of Virginia (with all amendments
prior to the date hereof, the "Existing Agreement").
WHEREAS, Operator owns and operates a Cogeneration facility located
within Virginia Power's certificated retail service area adjacent to Allied
Signal Inc. industrial facility in Hopewell, Virginia, with a total maximum
rating of approximately 110,000 kW at a power factor of 0.85 (such facility
hereinafter referred to as the "Facility"); and
WHEREAS, Operator wishes to sell the Facility's Net Electrical Output
and Capacity to Virginia Power; and
WHEREAS, the Existing Agreement provides Virginia Power with limited
Dispatch rights; and
WHEREAS, Section 6.10 of the Existing Agreement requires Operator to
negotiate in good faith with Virginia Power to provide additional dispatch
rights to Virginia Power if Operator or its affiliates own additional Qualifying
Facilities in the Virginia Power service area; and
WHEREAS, affiliates of Operator now own additional Qualifying
Facilities in the Virginia Power service area; and
WHEREAS, pursuant to Article VII of this Agreement, Operator and
Virginia Power have negotiated such additional Dispatch rights; and
WHEREAS, Section 5.6 of the Existing Agreement contains certain
provisions allocating, in part, the risk of a disallowance by the Virginia State
Corporation Commission ("SCC") to Operator; and
WHEREAS, pursuant to this Agreement Virginia Power is willing to
eliminate Section 5.6 of the Existing Agreement;
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants and agreements hereinafter set forth, Operator and Virginia Power
agree to the following:
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<PAGE> 3
ARTICLE I: DEFINITIONS
1.1 "Agreement" means this Fifth Amendment and Restatement of the Power
Purchase and Operating Agreement entered into by and between Virginia Power and
Operator, including all exhibits and schedules and any subsequent modifications
thereof or amendments thereto made with the mutual consent of the Parties
hereto.
1.2 "Base Index" means the final value of the Gross Domestic Product
Implicit Price Deflator published by the Bureau of Economic Analysis of the U.S.
Department of Commerce in the Survey of Current Business for the year ending
December 31, 1997.
1.3 "Breach" means the failure of either Party to meet any of its
obligations under this Agreement.
1.4 "Business Day" means 8:00am through 5:00pm, Monday through Friday
excluding holidays recognized by Virginia Power.
1.5 "Capacity" means the rate (measured in kilowatts) at which the Net
Electrical Output is made available for delivery at the Interconnection Point.
1.6 "Capacity Payment" means the daily amount that Virginia Power shall
pay Operator for the right to Dispatch the Capacity, computed as provided in
Section 5.5.
1.7 "Capacity Purchase Price" means the price per kilowatt per Day that
Virginia Power shall pay Operator for Capacity, as set forth in Section 5.5.
1.8 "Contract Year" means each of (i) the period that begins on the
Effective Date and ends on the following November 30, 1998; (ii) each one-year
period occurring after the period in clause (i) above through November 30, 2007;
and (iii) the period that begins on December 1, 2007 and ends on January 9,
2008.
1.9 "Cogeneration" means the sequential production of electricity and
heat, steam or other useful work from the same fuel source.
1.10 "Cold Start" means the condition described in Section 7.2(b).
1.11 "Current Index" means the value of the Gross Domestic Product
Implicit Price Deflator published by the Bureau of Economic Analysis of the U.S.
Department of Commerce in the Survey of Current Business for the year ending
December 31 of the current Contract Year as last published before April 1 of
such Contract Year.
1.12 "Day" means the 24-hour period beginning and ending at 12:00
midnight the prevailing Eastern Standard or Daylight Savings Time.
1.13 "Dependable Capacity" shall initially be set at 92,500 kW and
shall be reset from time to time (i) by the most recent Test conducted in
accordance with the provisions of Article VIII or (ii) as otherwise provided in
Section 5.6, if applicable.
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<PAGE> 4
1.14 "Designee" means the person or entity specified by Virginia Power
or empowered by applicable law, regulation or order to issue Dispatch
Instructions respecting the Facility.
1.15 "Design Limits" means the operating limitations on Operator's duty
to respond to Dispatch Instructions, as provided in Section 7.2.
1.16 "Dispatch" means the right of Virginia Power or its Designee to
commence, increase, decrease or cease the delivery of Net Electrical Output in
conjunction with the distribution of the total Virginia Power requirements of
electrical energy among available electric energy sources for optimum system
economy, with due consideration of the operating limitations of the Facility
reflected by the Design Limits, operating limits applicable to other generating
units which Virginia Power operates or from which Virginia Power receives energy
and capacity, incremental Virginia Power generating costs, incremental energy
and capacity purchase costs, incremental transmission losses, load flow
considerations, the availability of other sources of electrical energy and
capacity given scheduled or forced outages, off-system commitments and
opportunities for the sale of electrical energy and capacity and other
operational considerations as determined by Virginia Power.
1.17 "Dispatch Instructions" means the rate of Net Electrical Output
specified from time to time by Virginia Power or its Designee in accordance with
Article VII as communicated orally or in writing.
1.18 "Dispatch Variance" means a discrepancy between the Facility's Net
Electrical Output level and the level specified in the Dispatch Instructions as
defined in Section 5.6(b).
1.19 "Effective Date" means the Effective Date of this Agreement
determined as set forth in Section 2.3.
1.20 "Existing Agreement" means the Power Purchase and Operating
Agreement between the Parties, dated as of December 31, 1985, as amended prior
to the date of this Agreement.
1.21 "Electrical Requirements" means the Operator's requirements of
electricity for utilization in the Facility that are not self-generated by the
Facility.
1.22 "Energy Purchase Price" means the price per kilowatt-hour Virginia
Power shall pay Operator for the Net Electrical Output, computed as set forth in
Section 5.3 of this Agreement.
1.23 "Facility" means Operator's Cogeneration facility located in
Hopewell, Virginia, including auxiliary equipment, the characteristics of which
are described herein.
1.24 "Force Majeure" means an event as defined in Section 10.4.
1.25 "Hazardous Condition" means a condition that presents a threat of
physical injury or death to persons or physical damage or destruction of
property.
1.26 "Hot stand-by" means the condition of the Facility as described in
Section 7.2(b)(ii).
1.27 "Incremental System Cost (ISC)" means the estimated hourly
incremental system cost that forms the basis for Virginia Power's real time
pricing that Virginia Power offers to certain of its customers on an
experimental basis under a SCC approved experimental tariff pursuant to SCC Case
No.
3
<PAGE> 5
PUE940080. Should Virginia Power's mechanism for determining such costs as
set forth in its current effective tariff be rescinded or amended so as to alter
the calculation of the ISC pursuant to this Agreement, Virginia Power's
Incremental System Cost shall be determined pursuant to a mechanism that in
Virginia Power's determination best replicates Virginia Power's incremental
energy cost for the next Day.
1.28 "Interconnection" means the construction, installation, and
maintenance of all Interconnection Facilities required for Virginia Power to
receive the Net Electrical Output.
1.29 "Interconnection Costs" means the reasonable costs of connection,
switching, metering, transmission, distribution, safety equipment, and
administrative costs incurred by Virginia Power directly related to the
construction, installation and maintenance of Interconnection Facilities to the
extent that such costs exceed the costs Virginia Power would have incurred to
satisfy Operator's Electrical Requirements.
1.30 "Interconnection Facilities" means all the facilities installed
for the purpose of Interconnection of the Facility to Virginia Power's system,
including, but not limited to, all metering and telemetering equipment, wherever
located; transmission and distribution lines and equipment; transformers and
associated equipment; relay and switching equipment; and safety equipment.
1.31 "Interconnection Point" means the physical point as shown in
Exhibit A where the Facility and Virginia Power's system are connected.
1.32 "Interest" means the compensation to be paid and received for the
accrual of monetary obligations under this Agreement, computed monthly and
prorated daily from the time each such obligation to pay interest arises based
on an annual interest rate equal to the Prime Rate plus two percent. For
purposes hereof, the Prime Rate shall mean the rate of interest from time to
time publicly announced by The Chase Manhattan Bank, N.A., at its principal
office, presently located at 1 Chase Manhattan Plaza, New York, New York 10081,
as its prime commercial lending rate, determined for each obligation to pay
interest, at the time such obligation to pay interest arises.
1.33 "Month" means the period beginning at 12:00 midnight on the last
Day of a month and ending at 12:00 midnight on the last Day of the next month.
1.34 "Non-Peak Period" means the months of March, April, May, October
and November and the periods June 1 through June 14 and September 16 through
September 30, inclusive.
1.35 "Net Electrical Output" means the electrical energy generated by
the Facility (in excess of the Facility's consumption of such electrical
generation) and delivered to Virginia Power at the Interconnection Point
pursuant to Virginia Power's Dispatch Instructions or during a Test conducted in
accordance with Article VIII.
1.36 "Notice of Available Capacity" means the notice provided each Day
prior to 9:00am by Operator to Virginia Power setting the Facility's maximum
available Capacity level subject to Dispatch for the next Day, as required and
further described in Sections 5.5 and 5.6; provided that for the Day on which
Operator provides Virginia Power the notice of closing and evidence required
pursuant to Section 2.3, such notice may be provided at any time prior to 5:00pm
on such Day.
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<PAGE> 6
1.37 "Notice Period" means (i) for Tests being conducted after the
Facility has been Dispatched off-line and not maintained in a Hot stand-by
condition, 14 hours and 15 minutes and (ii) for Tests being conducted from a Hot
stand-by condition, 2 hours and 45 minutes.
1.38 "On-Peak Hours" means the period between 7:00am and 10:00pm,
exclusive of any Day that is not a Business Day.
1.39 "Operator Requested Test" means a Test requested by Operator
pursuant to Section 8.3 for determining the Dependable Capacity of the Facility
in accordance with the provisions of Article VIII.
1.40 "Parties" means Operator and Virginia Power.
1.41 "Party" means Operator or Virginia Power.
1.42 "Peak Period" means the months of December, January, February and
the period from June 15 through September 15, inclusive.
1.43 "Prudent Practices" means the practices generally followed by the
electric industry, as changed from time to time, which generally include, but
may not be limited to, engineering and operating considerations.
1.44 "Qualifying Facility" means a Cogeneration facility, which is a
qualifying facility under Subpart B of Subchapter K, Part 292 of Chapter I,
Title 18, Code of Federal Regulations.
1.45 "SCC" means the Commonwealth of Virginia State Corporation
Commission.
1.46 "Scheduled Outage" means a planned reduction of the Capacity of
the Facility that has been coordinated with Virginia Power and is required for
inspection, preventive maintenance, or corrective maintenance.
1.47 "Term" means the term of this Agreement as provided in Article
III.
1.48 "Test" means an Operator Requested Test or a Virginia Power
Requested Test.
1.49 "Test Period" means the six-hour period beginning with the
expiration of the Notice Period that precedes a Test.
1.50 "Termination" means the cessation by the mutual consent of the
Parties hereto, by termination as provided in Article X, by other operation of
this Agreement, or by law of this contractual relationship between Virginia
Power and Operator.
1.51 "Virginia Power Requested Test" means a Test requested by Virginia
Power in accordance with Section 8.2 for determining the Dependable Capacity of
the Facility in accordance with the provisions of Article VIII.
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<PAGE> 7
ARTICLE II: REPRESENTATIONS AND EFFECTIVENESS
2.1 Each Party warrants and represents to the other that it has
obtained all necessary corporate and regulatory approvals for the execution,
delivery and performance of this Agreement and that the Agreement is binding on
that Party in accordance with its terms, subject to the laws and equitable
principles respecting bankruptcy.
2.2 Operator shall use its best efforts to arrange for and close upon
refinancing of the existing project debt for the Facility by February 16, 1998.
2.3 Within two business days of the closing of such refinancing,
Operator shall notify Virginia Power of such closing and provide evidence
satisfactory to Virginia Power that Banque Paribas, New York Branch, consents to
this Agreement or has waived Article 2 and Article 7 of the Consent and
Agreement provided by Virginia Power dated December 1, 1986 with respect to the
Existing Agreement. The Existing Agreement shall remain in full force and effect
until 12:01 am of the later to occur of (a) the Day following the Day on which
the Operator provides notice and evidence required by the immediately preceding
sentence or (b) January 29, 1998 (the "Effective Date"), whereupon and at which
time the Existing Agreement shall be superseded and replaced by this Agreement.
Thereafter, both Parties shall be discharged of all further obligations under or
arising out of the Existing Agreement except for such obligations that shall
exist as of the Effective Date; provided, however, notwithstanding the
foregoing, upon the Effective Date Operator shall be released and forever
discharged of all liability and responsibility arising out of or accrued
pursuant to Section 5.6 of the Existing Agreement.
2.4 The duties and obligations created by Articles IV through XI of
this Agreement shall not be effective until the Effective Date.
2.5 If the Effective Date does not occur on or before March 9, 1998,
either Party may terminate this Agreement without further obligation, such
termination to be effective immediately upon delivery of a notice of termination
to the other Party.
ARTICLE III: TERM OF AGREEMENT
Subject to Article II above, this Agreement shall continue in effect
through January 9, 2008.
ARTICLE IV: INTERCONNECTION
4.1 Interconnection shall be made as shown in Exhibit A.
4.2 Operator shall be responsible for the design, construction,
installation, maintenance, and ownership of Operator's Interconnection
Facilities on its side of the Interconnection Point.
4.3 Virginia Power shall be responsible for the design, construction,
installation, maintenance, and ownership of all Interconnection Facilities on
Virginia Power's side of the Interconnection Point, and Virginia Power-owned
metering and telemetering facilities (including CTs and PTs), wherever located.
6
<PAGE> 8
4.4 (a) Operator shall pay for all Interconnection Costs as defined in
Section 1.29, by making a continuing monthly facilities charge payment at the
rate calculated for excess transmission facilities (69 kV and above). This
continuing monthly rate is presently calculated at 0.36 percent of the
Interconnection Cost of $3,077,975. Such monthly charge shall be subject to
change if Virginia Power's Interconnection Facilities change or if and when the
SCC approves a different rate for excess transmission facilities provided in
accordance with Section IV or any successor section of Virginia Power's Terms
and Conditions on file with the SCC from time to time.
(b) In the event any excess Interconnection Facilities are required
which are rated below 69 kV, the charge for such facilities will be based on the
distribution facilities charge rate in effect with the SCC from time to time.
4.5 In addition to payments for excess Interconnection Facilities,
Operator shall pay for any necessary rearrangement or relocation of existing
Virginia Power-owned facilities by making a one-time payment equal to the actual
cost for the rearrangement or relocation of such facilities. Operator will pay
for such work in the same manner as Virginia Power charges its other customers
for similar work. No continuing monthly charge shall be assessed on these
payments.
4.6 In the event it becomes necessary for Virginia Power to alter, add
to, or rearrange the Virginia Power-owned Interconnection Facilities to continue
to conduct interconnected operations in accordance with Prudent Practices,
Operator shall be notified of the alterations, additions or rearrangements
required and of the costs of such work. Operator shall pay Virginia Power the
reasonable cost of such work as additional Interconnection Costs in the manner
prescribed in Sections 4.4 and 4.5 of this Agreement.
4.7 Operator shall provide, at its expense, all Interconnection and
protective devices reasonably required by Virginia Power. Virginia Power
reserves the right to modify or expand its requirements for Interconnection and
protective devices in conformance with Prudent Practices. Virginia Power shall
allow Operator a reasonable time for complying with any such modified or
expanded requirements.
4.8 Either Party shall notify the other in advance of any changes in
their respective systems that will affect the proper coordination of protective
devices on the two systems.
4.9 Operator shall provide for the purpose of telemetering, at its
expense, a telecommunication circuit to the Regional Operations Center serving
the operating division where the Facility is located.
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<PAGE> 9
ARTICLE V: SALE OF ENERGY AND CAPACITY TO VIRGINIA POWER
5.1 Subject to Operator's obligations to its steam host, Operator
agrees to utilize Prudent Practices to maintain the Facility in such a manner as
to have 92,500 kW of Capacity available for Dispatch by Virginia Power at all
times except during Scheduled Outages and Force Majeure events. During the Term
hereof, Operator shall not sell, contract to sell or otherwise provide the
electrical energy generated by the Facility (in excess of the Facility's
consumption of such electrical energy) or its Capacity to any person or entity
other than Virginia Power.
5.2 Operator agrees to sell and Virginia Power agrees to purchase the
Net Electrical Output.
5.3 For each kilowatt-hour of Net Electrical Output, Virginia Power
shall pay Operator an amount equal to the sum of (i) the Variable O&M Component
plus (ii) the Fuel Component, computed as set forth below in this Section 5.3
(the "Energy Purchase Price"):
(a) Initially, the Variable O&M Component shall be
$0.00374/kWh. Commencing April 1, 1999 and each April 1 thereafter, the
initial Variable O&M Component ($0.00374/kWh) shall be adjusted by the
percentage change (rounded to the nearest 0.01 percent) between the
Base Index and the Current Index. If such index is materially changed
or ceases to be published, a mutually acceptable successor index shall
be substituted.
(b) For any Month, the Fuel Component (expressed in $/kWh)
shall be equal to the product of (i) the Cost of Fuel and (ii) the Heat
Rate divided by 1,000,000. The Cost of Fuel shall be the delivered cost
to Operator of coal purchased and delivered to the Facility for use in
the generation of electricity, accounted for on a "last in, first out"
basis, including commodity costs, normal transportation costs (e.g.,
excluding demurrage payable or reimbursable by Operator), and costs of
freeze protection and other treatment of the coal during transportation
or storage, all reduced to an average charge stated in $/MMBtu computed
in the manner set forth on Exhibit C. Exhibit C provides a Monthly
projection of Operator's Cost of Fuel for the period from January 1,
1997 to October 31, 2002. Operator shall compute and provide Virginia
Power with the actual Cost of Fuel within 15 days of the end of each
Month. For purposes of computing the Fuel Component, however, the Cost
of Fuel shall not exceed the applicable value set forth on Exhibit C.
In the event that Operator amends, modifies or replaces its existing
coal or rail agreements or otherwise reasonably believes that the
actual Cost of Fuel will be less than the amounts set forth on Exhibit
C, Operator will forward to Virginia Power a revised projection of such
delivered Cost of Fuel. The Heat Rate used to compute the Fuel
Component shall be 11,100 Btu per kilowatt-hour.
(c) Operator may, with at least one-week prior written notice
to Virginia Power, specify a discount to the Energy Purchase Price,
provided that (i) Operator may not specify more than one discount
factor to be applied to the Energy Purchase Price, (ii) the discounted
Energy Purchase Price must go into effect at 12:01am on any Day and end
at 12:00pm on any Day, and (iii) the discount to the Energy Purchase
Price shall be effective for at least one week. Operator may revise, or
revoke a discount to the Energy Purchase Price with at least one week
written notice to Virginia Power.
(d) Operator's existing coal supply and transportation
arrangements expire October 20, 2002. Prior to such expiration,
Operator shall arrange for coal supply and
8
<PAGE> 10
transportation contracts for the remainder of the Term hereof. At the
time Operator solicits proposals for a replacement coal supply,
Operator shall invite Virginia Power to submit a proposal for the
supply of coal for use in the Facility during the remainder of the Term
hereof, such coal to be delivered F.O.B. the Facility. If Virginia
Power elects to submit a proposal and such proposal conforms in all
material respects to the material provisions of Operator's general coal
supply solicitation, Operator shall consider Virginia Power's proposal
along with other proposals it may receive. All proposals will be
evaluated on a delivered cost basis.
(e) If Virginia Power's proposal is selected, the delivered
cost of the coal thereafter provided by Virginia Power shall be the
basis for determining the Cost of Fuel hereunder; provided, however,
Virginia Power shall have the option to deliver that portion of the
coal utilized by the Facility that is allocable (in a manner to be
mutually agreed) to the Net Electrical Output purchased and sold
hereunder at no charge to Operator, in which case such Cost of Fuel
shall be reduced to reflect the full amount of such reduction in
Operator's cost.
(f) If Virginia Power submits a proposal which conforms in all
material respects to the material provisions of Operator's general coal
supply solicitation, but Operator selects the proposal of another
supplier, the delivered coal cost derived from Virginia Power's
proposal thereafter shall become the basis for determining the Cost of
Fuel hereunder unless the actual delivered cost of coal results in a
lower Energy Purchase Price hereunder.
(g) If Virginia Power is selected as the coal supplier for the
Facility, Operator will thereafter be excused from any non-performance
under this Agreement and will be entitled to receive Capacity Payments
which would have been earned in the absence of such non-performance to
the extent such non-performance results from Virginia Power's failure
to deliver coal in accordance with its coal supply agreement with
Operator. In addition, such coal supply agreement shall provide that to
the extent of Virginia Power's non-performance thereof, Operator shall
have the right to purchase replacement coal. The delivered cost of such
replacement coal shall be used in determining the Cost of Fuel
hereunder during any such period of non-performance by Virginia Power
provided Operator uses reasonable efforts to secure the most economic
supply of replacement coal available at that time.
5.4 In addition to the Energy Purchase Price, the Operator shall be
paid the following cycling charge and stand-by charges:
(a) A cycling charge of $1,055 (per generating unit) for each
time the Facility is Dispatched off-line (hereinafter "off-line" is
considered to mean "to a Net Electrical Output level of zero") and (i)
is not directed to maintain a Hot stand-by condition or (ii) goes
off-line at the expiration or termination of a Hot stand-by condition.
This cycling charge shall not be payable if the Facility is taken
off-line by Operator other than in accordance with the Dispatch
Instructions.
(b) A Hot stand-by charge of $70.86/hour for each hour or part
thereof that the Facility is held in Hot stand-by per the Dispatch
Instructions.
Commencing April 1, 1999 and each April 1 thereafter, the cycling charge and Hot
stand-by charge each shall be adjusted by the percentage change (rounded to the
nearest 0.01 percent) between the Base Index and the Current Index. If such
index is materially changed or ceases to be published, a mutually acceptable
successor index shall be substituted.
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<PAGE> 11
5.5 Subject to the exceptions and limitations provided in Section 5.6,
for each Day that the Operator provides Capacity from the Facility, Virginia
Power shall pay Operator an amount equal to the product of (a) the lesser of (i)
the Dependable Capacity for such Day and (ii) the Capacity for such Day
specified in Operator's Notice of Available Capacity and (b) the applicable
Capacity Purchase Price for such Day ("Capacity Payment"). The applicable
Capacity Purchase Price shall vary each calendar year and for the Peak Period
and the Non-Peak Period of each calendar year as follows:
<TABLE>
<CAPTION>
Capacity Purchase Price (per kW per Day)
Calendar Year Peak Period Non-Peak Period
<S> <C> <C>
1998 thru 2002 $1.4112 $1.008
2003 thru 2008 $0.38464 $0.27474
</TABLE>
5.6 The Capacity Payments shall be subject to the following conditions
and limitations:
(a) No Capacity Payment shall be payable for any Day in which
the Facility is not made available by Operator for Dispatch on-line for
any reason (including the occurrence of a Force Majeure event declared
by Operator).
(b) No Capacity Payment shall be payable for any Day on which
Virginia Power records a Dispatch Variance. As used herein, a
"Variance" shall mean a metered variation in the Net Electrical Output
of the Facility greater than plus or minus 5.0 percent of the level
then specified in the Dispatch Instructions (taking into account
applicable "ramp up" and "ramp down" rates set out in the Design
Limits). A "Dispatch Variance" shall occur any time that there are two
Variances during any Day but only if (i) Virginia Power notifies
Operator of each such Variance (by telephone or facsimile), (ii) the
second such Variance is recorded by Virginia Power at 30 minutes after
the time of the notice given to Operator respecting the first such
Variance and (iii) Virginia Power provides notice of the second
Variance within a reasonable time after it is recorded (but in no event
later than four hours after it is recorded).
(c) Following a Dispatch Variance as described in Section
5.6(b) above, the Dependable Capacity of the Facility for subsequent
Days shall be deemed to equal the highest two hour average Net
Electrical Output achieved during the remainder of the Day on which
such Dispatch Variance occurred (i.e., following Operator's receipt of
the second notice of Variance) and Capacity Payments shall be made
based on this level; provided that if during the remainder of such Day
the Facility operates at the level specified in the then-current
Dispatch Instructions for a period of at least two consecutive hours
without receiving notice of a Variance and continues operating without
notice of a Variance until the Facility is Dispatched off-line, then
subject to there being no subsequent Dispatch Variance as described in
Section 5.6(b), the Dependable Capacity of the Facility shall be the
level set in the last Test conducted in accordance with Article VIII.
(i) If the Facility does not operate for two
consecutive hours following the occurrence
of a Dispatch Variance, then the Dependable
Capacity shall be reset at zero.
(ii) A Dependable Capacity level set as a result
of a Dispatch Variance shall apply until
reset in accordance with this Section 5.6(c)
or as the result of a Test in accordance
with Article VIII.
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<PAGE> 12
(iii) At any time that the Dependable Capacity for
the Facility is set at a level lower than
92,500 kW, Operator shall continue to
provide daily Notices of Available Capacity,
and if in accordance with any such notice
the Facility is Dispatched to a Net
Electrical Output level greater than the
current Dependable Capacity level and as a
result Operator demonstrates that the
Facility is able to operate continuously at
such Net Electrical Output level without
receiving notice of a Variance for a period
of not less than two consecutive clock hours
(i.e., as measured by Virginia Power's
meters used to determine payment) and
maintain such level until Dispatched to a
different Net Electrical Output level or
off-line, then the Dependable Capacity shall
be reset at such Net Electrical Output level
in computing the Capacity Payments payable
by Virginia Power for future Days, again
until the Dependable Capacity of the
Facility is reset as the result of a Test or
until there is a subsequent Dispatch
Variance.
(iv) Nothing herein shall be deemed to obligate
Virginia Power or its Designee to Dispatch
the Facility on-line to any Net Electrical
Output level or to increase the Net
Electrical Output level specified in the
Dispatch Instructions for the purpose of
allowing Operator a "demonstration period"
in which to increase the level of Capacity
Payments otherwise payable hereunder.
(d) The aggregate of the Capacity Payments to be made in any
Contract Year shall not exceed the applicable Capacity Payment Cap set
forth below:
<TABLE>
<CAPTION>
Annual Capacity
Contract Year Ending Payment Cap
<S> <C>
November 30, 1998 $29,789,000*
November 30, 1999 $35,532,000
November 30, 2000 $35,532,000
November 30, 2001 $34,377,000
November 30, 2002 $34,272,000
November 30, 2003 $11,419,000
November 30, 2004 $9,341,000
November 30, 2005 $9,341,000
November 30, 2006 $9,341,000
November 30, 2007 $9,341,000
January 9, 2008 $1,024,000
</TABLE>
*The cap set forth above for the Contract Year ending November 30, 1998 shall be
reduced by the product of (i) 1.10 and (ii) the sum of the following amounts:
(i) 0.07001 $/kWh for each kilowatt-hour of Net
Electrical Output generated by the Facility
(x) in excess of 28,767,000 kWh from January
1, 1998 through January 28, 1998 and (y) in
excess of zero kWh
11
<PAGE> 13
on or after January 29, 1998 and until the
Effective Date and, in each case, purchased
by Virginia Power under the Existing
Agreement at the On-peak Energy purchase
price for 1998 set forth in Section 5.2(a)
of the Existing Agreement;
(ii) 0.0002 $/kWh for each kilowatt-hour of Net
Electrical Output generated by the Facility
(x) in excess of 25,315,000 kWh from January
1, 1998 through January 28, 1998 and (y) in
excess of zero kWh on or after January 29,
1998 and until the Effective Date and, in
each case, purchased by Virginia Power under
the Existing Agreement at the Off-peak
Energy purchase price for 1998 set forth in
Section 5.2(a) of the Existing Agreement.
ARTICLE VI: OPERATION AND MAINTENANCE
6.1 By September 1 of each Contract Year, Operator shall initiate
discussion with Virginia Power to establish Scheduled Outage periods for the
next Contract Year. The Scheduled Outage periods, which in the aggregate shall
not exceed 30 Days per generating unit in any Contract Year and shall be limited
to the Non-Peak Period, will be finalized to Virginia Power's reasonable
satisfaction by October 31 of each Contract Year; provided, however, if the
Parties cannot agree as to the Scheduled Outage periods for the next Contract
Year by October 31, Virginia Power shall establish the Scheduled Outage periods
for the next Contract Year during the Non-Peak Period closest to the period(s)
requested by Operator when the outages can be scheduled consistent with
maintaining Virginia Power's ability to meet its overall service obligations and
contractual commitments with other suppliers and purchasers of electrical energy
and capacity.
6.2 The Net Electrical Output shall be 60 hertz, three-phase
alternating current at a nominal voltage of 230,000 volts. The Net Electrical
Output shall be metered at the Interconnection Point. Each electrical generator
at the Facility has a nameplate rating of 67,500 kVA at 0.85 power factor and
shall be operated, within the design limits of the generating units, at the
voltage specified by Virginia Power.
(a) Operator shall not change, alter, modify or tamper with
Virginia Power-owned Interconnection Facilities. If Operator changes,
alters, modifies or tampers with Virginia Power-owned Interconnection
Facilities without the prior written consent of Virginia Power,
Operator shall repay to Virginia Power immediately upon demand all
overpayments determined by Virginia Power to have been paid to Operator
for Net Electrical Output or Capacity not actually delivered or
available (as the case may be), subject, however, to the provisions of
Section 6.2(b).
(b) If Operator disputes any allegation by Virginia Power that
Operator has changed, altered, modified or tampered with Virginia
Power-owned Interconnection Facilities, such dispute shall be resolved
in a proceeding in the appropriate judicial or regulatory forum. During
the pendency of any such proceeding, Virginia Power shall continue to
accept and pay for Net Electrical Output from the Facility pursuant to
the terms of this Agreement. If Operator is found, by final
adjudication of such judicial or regulatory forum, to have changed,
altered, modified or tampered with Virginia Power-owned Interconnection
Facilities, Operator shall immediately
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<PAGE> 14
repay to Virginia Power the overpayments referred to in Section 6.2(a)
together with Interest from the date Virginia Power first demanded
repayment.
6.3 Operator's Interconnection Facilities shall be subject to
reasonable inspection by Virginia Power or by Virginia Power's authorized
representative during business hours after reasonable notice to Operator. Such
inspection shall not be construed as approval by Virginia Power of Operator's
method of operation and maintenance, and such inspection shall not impose on
Virginia Power any notice obligations or other responsibilities to Operator with
respect to the adequacy or appropriateness of Operator's operation and
maintenance practices.
6.4 Operator shall have its protective relays calibrated and the
protective circuits operationally checked in the presence of authorized Virginia
Power personnel at least once every two years by a person qualified to perform
such service. Virginia Power shall be notified in writing by Operator of the
results of these operational checks. Operator will give Virginia Power 15 days
advanced notice of relay calibrations and operational checks of the protective
circuits.
6.5 The Parties shall maintain communications which shall include, but
not be limited to, system paralleling or separation, scheduled or unscheduled
shutdowns, equipment clearances, periodic load reports, maintenance schedules,
tagging of Interconnection interrupting devices, meter tests, relay tests,
billing, and other routine communication. The Parties shall develop mutually
acceptable methods of notification and designate their respective personnel who
are to receive notices.
6.6 Virginia Power shall have the right to disconnect temporarily
without notice Operator's Interconnection Facilities if, in Virginia Power's
opinion, a Hazardous Condition exists and such disconnection appears reasonably
necessary to protect Virginia Power's customers, employees or agents, or the
property of any of them. Such temporary interruptions or reductions shall end as
soon as possible consistent with Prudent Practices.
6.7 Virginia Power, with reasonable notice to Operator, may construct,
install, open, maintain, repair, replace, investigate, inspect, or test any part
of Operator's Interconnection Facilities or any of Virginia Power's
Interconnection Facilities, equipment, or any other part of Virginia Power's
system that can affect the Facility's operation.
6.8 From time to time, unusual system conditions may exist during which
Operator can assist Virginia Power in maintaining the integrity of the Virginia
Power system. Operator shall cooperate with Virginia Power whenever Virginia
Power notifies Operator of such condition or problem.
6.9 The effectiveness of this Agreement is expressly conditioned and
contingent upon Operator's Facility being a Qualifying Facility pursuant to the
FERC regulations in effect as of the date of this Agreement.
6.10 The Parties agree to revise the operating procedures to reflect
this Agreement no later than 30 Days after the Effective Date hereof.
6.11 Operator shall provide Virginia Power with Facility performance
and event data in a format consistent with the then NERC Generating Availability
Data Systems reporting standards. The frequency of such performance and event
data submittals shall be as specified by Virginia Power from time to time.
13
<PAGE> 15
ARTICLE VII: DISPATCH
7.1 Subject to Section 7.2, Operator shall operate the Facility at the
Net Electrical Output levels specified from time to time in the Dispatch
Instructions.
7.2 Notwithstanding Section 7.1, Operator's duty to operate or alter
the operation of the Facility in accordance with the Dispatch Instructions shall
be subject to the following conditions and limitations (hereinafter the "Design
Limits"):
(a) When the Facility is Dispatched any Day, whether from an
off-line or on-line condition, the Dispatch Instructions shall specify
a Net Electrical Output level not lower than the lesser of (i) 80
megawatts or (ii) 90 percent of the Capacity level specified in the
Notice of Available Capacity for such Day.
(b) If the Facility has been off-line for any reason, it shall
not be required to be synchronized and achieve a Net Electrical Output
level of 80 megawatts sooner than the applicable "ramp up" periods
indicated below:
(i) Cold Starts. From a Cold Start condition
i.e., any time the Facility has been
Dispatched off-line and is not being
maintained in a Hot stand-by condition, the
Facility can be synchronized with Virginia
Power's system within nine hours of receipt
of Dispatch Instructions requiring Net
Electrical Output and can achieve a Net
Electrical Output level of 80 megawatts
within 14 hours of receipt of such Dispatch
Instructions.
(ii) Hot Starts. From a "Hot stand-by" condition,
the Facility can achieve a Net Electrical
Output level of 80 megawatts within 2.5
hours of receipt of Dispatch Instructions.
(c) Reduction from an on-line Net Electrical Output level to
an off-line condition can take place within 1.5 hours of receipt of
such Dispatch Instructions.
(d) The "ramp-up" of the Facility from 80 megawatts to a
higher Dispatch level can be accomplished at a rate of two
megawatts/minute. The "ramp down" from a previous Dispatch level to a
level of 80 megawatts or above can be accomplished at a rate of three
megawatts/minute.
(e) Operator shall not synchronize the Facility with the
Virginia Power system sooner than the time specified in Virginia
Power's then-current Dispatch Instructions. If no time is designated in
the Dispatch Instructions, then Operator shall synchronize the Facility
with Virginia Power's system no sooner than the applicable Design
Limits.
(f) Once the Facility has been Dispatched on-line, the
Facility shall not be required to be off-line sooner than 5.5 hours
after the Facility is required to achieve the lesser of 80 megawatts or
the Net Electrical Output level specified in the Dispatch Instructions.
14
<PAGE> 16
(g) Virginia Power or its Designee shall have the right to
direct Operator to hold the Facility in a Hot stand-by condition for up
to 12 hours from the time in which the Facility goes off-line by so
notifying Operator as part of the Dispatch Instructions directing the
Facility off-line. Virginia Power or its Designee may direct that the
Facility be removed from a "Hot stand-by" condition at any time through
appropriate Dispatch Instructions. Notwithstanding the provisions of
Section 7.2(e), the Facility may be synchronized with Virginia Power's
system during Hot stand-by.
7.3 On Friday of each week Virginia Power or its Designee will provide
Operator a non-binding schedule of anticipated Dispatch Instructions for the
following Week.
7.4 Operator shall provide the Notice of Available Capacity by
facsimile to Virginia Power's System Operations Center or to the operations
center of Virginia Power's Designee, as applicable, as well as Virginia Power's
Capacity Acquisition Department.
7.5 Operator may, from time to time, upon written notice request
Virginia Power to allow the Facility to generate electricity in order for
Operator to test and/or evaluate its equipment ("Operator Requested
Generation"). Such Operator Requested Generation shall be scheduled at least
three Business Days in advance with Virginia Power and shall be subject to the
approval of Virginia Power. Payments for the Net Electrical Output during an
Operator Requested Generation period shall equal (on a kWh basis) the lower of:
(i) the Energy Purchase Price; or (ii) the lowest fossil fuel-fired generating
cost (excluding variable operation and maintenance expenses) achieved at a
Virginia Power fossil-fueled power station at the time Virginia Power approves
Operator's request (hereinafter defined as the "Operator Requested Generation
Price"). If Virginia Power determines Dispatch is necessary, and this
determination is made before or during a Virginia Power approved Operator
Requested Generation period, then Virginia Power may cancel or interrupt, as the
case may be, the Operator Requested Generation period and subsequently Dispatch
the Facility as it deems appropriate, in which case the compensation for Net
Electrical Output shall be the Energy Purchase Price.
ARTICLE VIII: TESTING FOR DEPENDABLE CAPACITY
8.1 The Facility's Dependable Capacity shall be set initially at 92,500
kW and may change from time to time pursuant to the provisions of this Article
VIII.
8.2 Virginia Power shall have the right to request Virginia Power
Requested Tests to reset the Facility's Dependable Capacity from time to time as
set forth below:
(a) Virginia Power Requested Tests shall be limited to six per
Contract Year, exclusive of any Virginia Power Requested Tests which
result in a Tested Capacity less than the Capacity level indicated in
the Notice of Available Capacity for the Day on which Virginia Power
requested the Test be performed. The maximum number of permitted
Virginia Power Requested Tests will be prorated for Contract Years
which are less than 365 Days based on the number of Days in the
Contract Year, with the prorated number to be rounded up to the next
whole number.
(b) If Virginia Power requests a Test, the Test Period shall
be deemed to begin immediately following expiration of the applicable
Notice Period.
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<PAGE> 17
(c) The Net Electrical Output level of the Facility shall not
be limited by Dispatch Instructions during a Virginia Power Requested
Test.
(d) The duration of each Virginia Power Requested Test will be
six hours unless the Test is terminated earlier by Virginia Power.
(e) Virginia Power shall not request a Test during (i) a
Scheduled Outage or (ii) on any Day after a Dispatch Variance has
occurred or (iii) on any Day that the Facility's maximum available
Capacity has been set at zero per Operator's Notice of Available
Capacity.
(f) During a Virginia Power Requested Test, Operator will be
paid for Net Electrical Output in accordance with Section 5.3 and will
be paid the cycling charge, if applicable, pursuant to Section 5.4.
8.3 Operator shall have the right to request Operator Requested Tests
to reset the Facility's Dependable Capacity from time to time. Operator
Requested Tests shall be initiated and conducted by Virginia Power in a manner
consistent with the following:
(a) Operator may request an Operator Requested Test by
providing an oral or written request to Virginia Power by 5:00pm on any
Day. The Test will be performed on a subsequent Day but not later than
the end of the fifth Day following the Day on which the Test was
requested. Virginia Power shall notify Operator prior to the start of
any test, after which the Test Period shall commence following the
applicable Notice Period.
(b) The Net Electrical Output level of the Facility will not
be limited by Dispatch Instructions during an Operator Requested Test.
(c) The duration of each Operator Requested Test shall be six
hours unless terminated earlier by Virginia Power.
(d) During an Operator Requested Test, Operator will be paid
for Net Electrical Output delivered at a level equal to the lesser of
(i) $0.001/kWh lower than Virginia Power's ISC in effect during such
test or (ii) the applicable Energy Purchase Price. Operator will not be
entitled to receive a cycling charge following any Operator Requested
Test unless the Facility had been Dispatched on-line prior to the start
of the Test.
(e) Virginia Power will perform Operator Requested Tests
during On-Peak Hours.
8.4 Following any Test, the Dependable Capacity of the Facility shall
be reset at a level equal to the average hourly Net Electrical Output level of
the Facility recorded during the Test Period, except that for hours in which the
Capacity level so recorded exceeded 92,500 kW the Capacity level shall be deemed
to have equaled 92,500 kW. If the Test is terminated prior to the end of the
Test Period by Virginia Power, or if Virginia Power fails to perform an Operator
Requested Test within five Days from Operator's request for such Test, the
Dependable Capacity shall be reset to 92,500 kW. The Dependable Capacity
established by any Test shall be reset effective 12:01am on the Day following
the Day on which Virginia Power provided notice of the Test or on which Operator
requested such Test.
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<PAGE> 18
ARTICLE IX: METERING AND BILLING
9.1 Virginia Power shall own and maintain all meters and metering
devices used to measure the delivery and receipt of electrical energy and
Capacity for purposes of computing payments due hereunder.
9.2 Virginia Power shall install, own, and maintain telemetering
equipment at Operator's expense as an Interconnection Cost. Operator shall
reimburse Virginia Power for these costs as provided in Section 4.4. Operator
agrees to contract for separately and pay for all costs associated with the
lease of a dedicated telephone line for telemetering purposes from the telephone
company serving the Facility.
9.3 All meters and metering equipment used to determine the Net
Electrical Output and Capacity level of the Facility shall be sealed, and the
seals broken only by Virginia Power personnel when the meters are to be
inspected, tested, or adjusted; provided, however, that Operator shall receive
prior notice thereof and shall have the right to be present.
9.4 On a regular schedule and, in addition, upon reasonable request by
Operator, Virginia Power will test the meter(s) in accordance with the
provisions for meter testing in Virginia Power's approved Terms and Conditions
for Supplying Net Electrical Output as filed with the SCC. Operator shall have
the right to have a representative present during any metering inspection, test,
or adjustment. When, as a result of such a test, a meter is found to be no more
than two percent fast or slow, no adjustment will be made in the amount paid to
Operator for energy, or energy and Capacity, delivered to Virginia Power. If the
meter is found to be more than two percent fast or slow because of incorrect
calibration, Virginia Power will calculate the correct amount delivered to
Virginia Power for a period equal to one-half of the time elapsed since the most
recent test, but in no case for a period in excess of 12 months. The previous
payments by Virginia Power for this period shall be subtracted from the amount
of payments that are calculated to have been owed under this Agreement. If the
difference is a positive number, that difference shall be paid by Virginia Power
to Operator; if the difference is a negative number, that difference shall be
paid by Operator to Virginia Power. Unless better data are available from a
mutually-acceptable source, the percentage registration of a meter will be
calculated by the "weighted average" of light load and full load, which is
calculated by giving a value of 1 to the light load and a value of 4 to the full
load.
9.5 Whenever it is found that, for any reason other than incorrect
calibration or tampering, the metering apparatus has not registered the true
amount of Net Electrical Output which has been delivered by Operator to Virginia
Power, the Net Electrical Output delivered during the entire period of incorrect
registration shall be estimated, based upon all known pertinent facts, and the
amount of Net Electrical Output so estimated will be used in calculating the
corrected amounts to be paid to Operator. The adjusted amount will be for a
period equal to one-half of the time elapsed since the most recent test of the
metering apparatus, but in no case for a period in excess of 12 months. Any
overpayments or underpayments by Virginia Power for energy, or energy and
Capacity, delivered by Operator to Virginia Power shall be corrected in the
manner described in Section 9.4.
9.6 Meters shall be read, and bills rendered, according to the meter
reading and billing schedule established by Virginia Power but no less often
than every 40 days. Payment for Net Electrical Output, delivered to Virginia
Power and Capacity made available to Virginia Power during the billing period
shall be made on the third Business Day of the second Month after the Month such
Net Electrical Output and Capacity was provided to Virginia Power via wire
transfer to an account specified by notice
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<PAGE> 19
from Operator and its lender. If the third Business Day occurs on the lender's
holiday, payment will be wired on the next Business Day.
9.7 Operator agrees to pay an administrative charge to Virginia Power
to reflect all reasonable costs incurred by Virginia Power for meter reading and
billing. The monthly meter reading and billing charge will equal the basic
customer charge in Schedule 6 - Large General Service. Such charge shall change
from time to time when the SCC approves a different rate in Schedule 6.
ARTICLE X: TERMINATION AND BREACH
10.1 Termination of this Agreement shall occur only upon the expiration
of the Term, or upon a material breach of this Agreement by either Party that is
not cured within 60 days (30 days in the case of a failure to make a required
payment hereunder) following receipt of written notice of such breach to the
breaching Party from the non-breaching Party, provided, however, that if any
such breach (other than a failure to make any required payment hereunder) cannot
by the exercise of due diligence be cured within such 60-day period, the
non-breaching Party shall not have the right to terminate this Agreement so long
as the breaching Party, within such 60-day period, has commenced and continues
to diligently proceed with the cure of such breach so as to effect such cure as
soon as possible but in no event later than 90 days following receipt of the
written notice of breach referred to in this Section 10.1.
10.2 Refusal by Virginia Power to purchase Net Electrical Output from
Operator's Facility in accordance with Sections 6.6 or 6.7 of this Agreement
shall not be a breach of this Agreement.
10.3 If this Agreement is terminated for any reason other than breach
by Virginia Power prior to the end of the Term, Operator shall, in addition to
any amounts then due and owing hereunder and any other liabilities, be liable to
Virginia Power for the total difference (including accrued Interest) between the
payments for Capacity already made, if any, by Virginia Power to Operator and
the payments for Capacity that should have been paid to Operator for short term
Capacity furnished at the rate set forth in Schedule 19 or any successor
schedule in effect at the time the contract is entered into. For the sole
purpose of the calculation set forth in the immediately preceding sentence, the
payments "already made" for Capacity by Virginia Power subsequent to the
Effective Date shall be deemed to equal the lesser of (i) $11 million per
calendar year or (ii) the actual Capacity Payments made by Virginia Power to
Operator during such calendar year pursuant to Section 5.5. Notwithstanding
anything contained in this Agreement to the contrary but without limiting the
foregoing provisions of this Section 10.3, neither Party shall be liable to the
other for the other's cost of replacement power, loss of profits, or other
consequential or incidental damages arising out of a termination or breach of
this Agreement.
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<PAGE> 20
10.4 Either Party shall be excused from performance of this Agreement
or from a delay in performance if and to the extent that it shall be prevented
from performing or delayed by storm, flood, lightning, earthquake, explosion,
unavoidable shortages of material or supplies, civil disturbance, labor dispute,
act of God or the public enemy, action of a court, or any other cause beyond the
reasonable control of such Party (hereinafter considered events of "Force
Majeure"). If either Party asserts that a Force Majeure event affecting its
performance has occurred, that Party must notify the other Party as soon as
practicable by telephone and within 48 hours after telephone notification, in
writing of the cause of the event and the expected duration of the Force
Majeure. In the event the Facility is rendered unavailable for Dispatch due to a
Force Majeure event declared by Operator, Virginia Power's obligation to make
Capacity Payments shall cease during those hours.
10.5 Should Operator or any of its affiliates ever desire to dispose of
its right, title, or interest in the Facility (hereinafter called "Transfer
Interest") other than the sale and leaseback of the Facility to provide
financing for the Facility, it shall offer the Transfer Interest to the steam
buyer if the steam buyer has the right of first refusal, with the intent that
the steam buyer shall continue to operate the Facility in accordance with the
provisions of this Agreement pursuant to an assignment of this Agreement. If the
steam user shall decline to purchase the Transfer Interest, or the steam buyer
does not have a right of first refusal, Operator will offer to sell such
interest to Virginia Power at its fair market value, not to exceed the net
investment in the Facility, which shall be determined as the initial investment
less any investment tax credits less accumulated depreciation calculated on a
straight line basis over the design life of the Facility. If Virginia Power
agrees to purchase the Transfer Interest and there is disagreement as to the
fair market value of the Transfer Interest, then either Party shall be entitled
to submit the dispute to a panel of three arbitrators. If the Parties are unable
to agree as to the terms and conditions of such contract, then either Party
would be entitled to submit the dispute to a panel of three arbitrators. Each of
the Parties would pick one arbitrator and the two arbitrators would pick the
third arbitrator. The decision of the arbitrators would be binding upon the
Parties. The expenses of such arbitration, excluding attorneys' fees, shall be
equally divided among the parties. The arbitration shall be held in Richmond,
Virginia or such other place as the Parties may mutually agree. The arbitrators
shall initiate the hearing as promptly and expeditiously as possible after their
selections (and both Parties shall cooperate to this end) and shall conclude the
hearings within thirty days of their commencement unless the arbitrators
expressly find that additional time is necessary for completion of the hearings
for reasons in the best interest of the Parties. The award of the arbitrators
shall be made no later than thirty days from the date of the closing of the
hearings. Except as expressly modified by the foregoing provisions of this
Section 10.5, the Commercial Rules of the American Arbitration Association shall
apply to any arbitration arising from this Section 10.5.
Notwithstanding anything herein contained to the contrary, the provisions of
this Section 10.5 shall only be binding on the Operator (James River
Cogeneration Company) and its affiliates (it being understood and agreed that
the foregoing paragraph shall not apply to any transfer by Operator to any
affiliate of Operator so long as such affiliate agrees to be bound by the
foregoing paragraph) and not on any successor or assign, and, without limiting
the generality of the foregoing, the sale, lease or other transfer of the
Facility by one or more lenders holding a lien on the Facility or by a lessor of
the Facility, or by the Operator or an affiliate thereof upon request of such
lender or lenders or lessor, or by a court pursuant to foreclosure or other
proceedings, or by a trustee in bankruptcy or receiver of Operator or any
affiliate thereof, shall not be subject to the provisions of this Section 10.5
and upon any such sale, lease or transfer the provisions of this Section 10.5
shall terminate and be null and void.
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<PAGE> 21
ARTICLE XI: MISCELLANEOUS
11.1 This Agreement shall be interpreted in accordance with the laws of
the Commonwealth of Virginia.
11.2 Operator shall not assign or transfer this Agreement or any claims
or interest therein without the prior written consent of Virginia Power, which
shall not be withheld unreasonably.
11.3 During the Term of this Agreement and for a period of five years
following the Termination or expiration hereof, Virginia Power or its designated
third-party auditors shall have access to all of Operator's books and records
relating to this Agreement (including but not limited to records related to
components of Operator's delivered cost of fuel to the Facility) during any
Business Day and shall be entitled to make any copies of these records as
necessary to conduct thorough and complete audits of the components of the
payment made by Virginia Power hereunder.
11.4 Each Party shall keep complete and accurate records and all other
data required by each of them for the purpose of proper administration of this
Agreement.
(a) All such records and data shall be maintained for a
minimum of five years after the creation of such records or data and
for any additional period required by regulatory agencies with
jurisdiction over the Parties; provided, however, that Operator shall
not dispose of or destroy any such records or data even after five
years without 30 Days prior notice to Virginia Power
(b) Operator shall maintain an accurate and up-to-date
operating log at the Facility with records of: (i) real and reactive
power production for each clock hour; (ii) changes in operating status,
including outages and Scheduled Outages; and (iii) any unusual
conditions found during inspections.
(c) Either Party shall have the right from time to time upon
14 Days written notice to the other Party, to examine the records and
data of the other Party relating to this Agreement any time during the
period the records or data are required to be maintained.
11.5 The failure of either Party to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by the other
Party of any provisions hereof, shall not be construed to be a waiver of such
provisions nor to affect the validity of this Agreement or any part hereof or
the right of such Party thereafter to enforce each and every such provision.
11.6 The termination or expiration of this Agreement shall not
discharge either Party hereto from any obligation it owes to the other Party
under this Agreement by reason of any transactions, loss, cost, damage, expense
or liability which shall occur or arise (or the circumstances, events, or basis
of which shall occur or arise) prior to such termination or expiration. The
Parties intend that any such obligation owed (whether the same shall be known or
unknown at the termination or expiration of this Agreement or whether the
circumstances, events, or basis of the same shall be known or unknown at the
termination or expiration of this Agreement) shall survive the termination or
expiration of this Agreement.
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<PAGE> 22
11.7 The Parties understand and agree that this Agreement and any
amendments thereto may be filed in accordance with applicable law and may be a
matter of public record. Operator and Virginia Power shall use all reasonable
efforts to maintain the confidentiality of the negotiations relating to the
preparation and execution of this Agreement; provided, however, that nothing
herein shall prohibit the disclosure of any such information (a) to the extent
required by statute, rule, regulation or judicial process and (b) to counsel and
auditors of Operator or Virginia Power, to any party in connection with the
financing of Operator's Facility and to their respective counsel, accountants or
to independent engineers or experts with whom any of the foregoing parties may
consult and who have agreed to maintain the confidentiality of this Agreement
and the terms hereof.
11.8 Subject to the provisions of Section 11.11, each Party agrees to
defend, indemnify and hold harmless the other Party against any and all claims,
liability, loss, damage, or expense to the extent caused by or resulting from
the negligent acts or omissions of that Party, its employees, or its agents,
with respect to claims asserted by persons or entities that are not Parties.
11.9 This Agreement is not binding until executed by a duly authorized
representative of each Party.
11.10 Operator shall keep current during the Term of this Agreement
adequate liability insurance coverage, all necessary licenses, permits, and
approvals for the ownership, construction, operation, and maintenance of its
Facility and Interconnection Facilities from the FERC and from any and all other
federal, state, and local agencies, commissions, and authorities with
jurisdiction over Operator and/or Operator's Facility and Interconnection
Facilities.
11.11 Operator shall maintain during the Term of this Agreement, (a)
such liability insurance coverage as shown in Exhibit B (such insurance to be
evidenced by an insurance certificate providing that such insurance shall not be
canceled or terminated without 30 days written notice to Virginia Power), and
(b) all licenses, permits and approvals for the ownership, operation and
maintenance of its Facility and Interconnection Facilities from the FERC and
from any and all other federal, state and local agencies, commissions and
authorities with jurisdiction over Operator and/or Operator's Facility and
Operator's Interconnection Facilities; provided however, that the failure of the
Operator to comply with the provisions of the foregoing clause (b) shall not
constitute a default by Operator under this Agreement if either (x) such failure
does not affect the ability of Operator to operate or maintain the Facility and
provide Net Electrical Output in accordance with the Dispatch Instructions or
(y) if requested by Virginia Power, Operator suspends operation of the Facility
until such failure is cured and agrees that it shall receive no Capacity
Payments hereunder during such period of suspension.
11.12 Whenever under this Agreement, future agreement of the Parties is
required, but such agreement cannot be reached, either Party may petition the
SCC for arbitration of the issue and the SCC's decision shall be final and
binding on the Parties.
11.13 During the Term hereof, Operator shall purchase its Electrical
Requirements from Virginia Power at the applicable tariff rate selected by
Operator or such other rate as the Parties may agree.
11.14 This Agreement constitutes the entire agreement between Operator
and Virginia Power with respect to the subject matter herein and supersedes any
prior or contemporaneous agreements or understandings between the Parties.
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<PAGE> 23
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers this 28th day of January, 1998.
VIRGINIA ELECTRIC AND POWER COMPANY
By: /s/ E. Paul Hilton
--------------------------
Name: E. Paul Hilton
Title: Vice President - Regulations
JAMES RIVER COGENERATION COMPANY
By: COGENTRIX OF VIRGINIA, INC.,
a general partner
By: /s/ Thomas J. Bonner
--------------------------
Name: Thomas J. Bonner
Title: Assistant Vice President - Results
By: CAPISTRANO COGENERATION COMPANY,
a general partner
By: /s/ Mark E. Irwin
--------------------------
Name: Mark E. Irwin
Title: Vice President
22
<PAGE> 24
EXHIBIT B
Operator shall keep current during the term of this Agreement the
following insurance coverage:
a) Workers' compensation insurance which complies with the laws of the
Commonwealth of Virginia and employers' liability insurance with limits of
$100,000 for each accident, and $500,000 in the aggregate for each
employee-disease.
b) Comprehensive general liability insurance including but not limited to
coverage for premises, operations and independent contractors with a limit of
$1,000,000 each occurrence
c) Excess umbrella liability insurance with a limit of $1,000,000 per
occurrence and in aggregate.
Virginia Power shall be named as an additional insured on the policies required
in b) and c) above, and the policies shall provide that the coverage thus
afforded Virginia Power shall be deemed primary and not supplementary to any
other coverage Virginia Power may obtain or maintain.
<PAGE> 25
EXHIBIT C
JAMES RIVER COGENERATION CO.
PROJECTED FUEL COSTS
<TABLE>
<CAPTION>
Jan 2002-
1998 1999 2000 2001 Oct 2002
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Coal & Rail Cost ($/ton) 75.11 78.81 82.68 86.75 91.03
Freezing Proofing & Testing ($/ton) 0.02 0.02 0.02 0.02 0.02
Delivered Fuel Cost ($/ton) 75.14 78.63 82.71 86.78 91.05
Fuel Heating Value (Btu/lb of coal) 12,922 12,922 12,922 12,922 12,922
Delivered Fuel Cost ($/MMBtu) 2.9073 3.0502 3.2002 3.3578 3.5232
</TABLE>
C-1
<PAGE> 1
RESTATEMENT OF THE
POWER PURCHASE AND OPERATING AGREEMENT
BETWEEN
COGENTRIX VIRGINIA LEASING CORPORATION
AND
VIRGINIA ELECTRIC AND POWER COMPANY
Dated December 5, 1997
<PAGE> 2
THIRD AMENDMENT AND RESTATEMENT OF THE
POWER PURCHASE AND OPERATING AGREEMENT
BETWEEN
COGENTRIX VIRGINIA LEASING CORPORATION
AND
VIRGINIA ELECTRIC AND POWER COMPANY
THIS AGREEMENT, which includes the Exhibits A, B, and C hereto, dated
this 5th day of December 1997, amends and restates the Power Purchase and
Operating Agreement between Cogentrix Virginia Leasing Corporation ("Operator")
and Virginia Electric and Power Company ("Virginia Power"), a corporation
organized and existing under the laws of the Commonwealth of Virginia (with all
amendments prior to the date hereof, the "Existing Agreement").
WHEREAS, Operator owns and operates a Cogeneration facility located
within Virginia Power's certificated retail service area adjacent to the
Clariant Corporation industrial facility in Portsmouth, Virginia, with a total
maximum rating of approximately 115,000 kW at a power factor of .85 (such
facility hereinafter referred to as the "Facility"); and
WHEREAS, Operator wishes to sell the Facility's Net Electrical Output
and Capacity to Virginia Power; and
WHEREAS, the Existing Agreement provides Virginia Power with limited
Dispatch rights; and
WHEREAS, Section 6.10 of the Existing Agreement requires Operator to
negotiate in good faith with Virginia Power to provide additional dispatch
rights to
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<PAGE> 3
Virginia Power if Operator or its affiliates own additional Qualifying
Facilities in the Virginia Power service area; and
WHEREAS, affiliates of Operator now own additional Qualifying
Facilities in the Virginia Power service area; and
WHEREAS, pursuant to Article VII of this Agreement, Operator and
Virginia Power have negotiated such additional Dispatch rights; and
WHEREAS, Section 5.6 of the Existing Agreement contains certain
provisions allocating, in part, the risk of a disallowance by the Virginia State
Corporation Commission ("SCC") to Operator; and
WHEREAS, the SCC has previously disallowed certain payments made by
Virginia Power to Operator relating to Gross Receipts Taxes; and
WHEREAS, Operator is obligated to return such disallowed payments with
interest to Virginia Power pursuant to Section 5.6 of the Existing Agreement;
and
WHEREAS, pursuant to this Agreement Virginia Power is willing to
eliminate Section 5.6 of the Existing Agreement and eliminate the accrued
obligation of Operator to return such disallowed payments with interest to
Virginia Power (the restructured Capacity Payments herein include consideration
for the elimination of the previously disallowed Gross Receipts Tax component of
Operator's compensation hereunder);
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants and agreements hereinafter set forth, Operator and Virginia Power
agree to the following:
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<PAGE> 4
ARTICLE I: DEFINITIONS
1.1 "Agreement" means this Third Amendment and Restatement
of the Power Purchase and Operating Agreement entered into by and between
Virginia Power and Operator, including all exhibits and schedules and any
subsequent modifications thereof or amendments thereto made with the mutual
consent of the Parties hereto.
1.2 "Base Index" means the final value of the Gross Domestic Product
Implicit Price Deflator published by the Bureau of Economic Analysis of the U.S.
Department of Commerce in the Survey of Current Business for December 1997.
1.3 "Breach" means the failure of either Party to meet any of its
obligations under this Agreement.
1.4 "Business Day" means 8:00am through 5:00pm, Monday through Friday
excluding holidays recognized by Virginia Power.
1.5 "Capacity" means the rate (measured in kilowatts) at which the Net
Electrical Output is made available for delivery at the Interconnection Point.
1.6 "Capacity Payment" means the daily amount that Virginia Power shall
pay Operator for the right to Dispatch the Capacity, computed as provided in
Section 5.5.
1.7 "Capacity Purchase Price" means the price per kilowatt per Day that
Virginia Power shall pay Operator for Capacity, as set forth in Section 5.5.
1.8 "Contract Year" means each of (i) the period that begins on the
Effective Date and ends on the following November 30, 1998; (ii) each one-year
period occurring
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<PAGE> 5
after the period in clause (i) above through November 30, 2007; and (iii) the
period that begins on December 1, 2007 and ends on June 7, 2008.
1.9 "Cogeneration" means the sequential production of electricity and
heat, steam or other useful work from the same fuel source.
1.10 "Cold Start" means the condition described in Section 7.2(b).
1.11 "Current Index" means the value of the Gross Domestic Product
Implicit Price Deflator published by the Bureau of Economic Analysis of the U.S.
Department of Commerce in the Survey of Current Business for December of the
current Contract Year as last published before April of such Contract Year.
1.12 "Day" means the 24-hour period beginning and ending at 12:00
midnight the prevailing Eastern Standard or Daylight Savings Time.
1.13 "Dependable Capacity" shall initially be set at 115,000 kW and
shall be reset from time to time (i) by the most recent Test conducted in
accordance with the provisions of Article VIII or (ii) as otherwise provided in
Section 5.6, if applicable.
1.14 "Designee" means the person or entity specified by Virginia Power
or empowered by applicable law, regulation or order to issue Dispatch
Instructions respecting the Facility.
1.15 "Design Limits" means the operating limitations on Operator's duty
to respond to Dispatch Instructions, as provided in Section 7.2.
1.16 "Dispatch" means the right of Virginia Power or its Designee to
commence, increase, decrease or cease the delivery of Net Electrical Output in
conjunction with the distribution of the total Virginia Power requirements of
electrical
4
<PAGE> 6
energy among available electric energy sources for optimum system economy, with
due consideration of the operating limitations of the Facility reflected by the
Design Limits, operating limits applicable to other generating units which
Virginia Power operates or from which Virginia Power receives energy and
capacity, incremental Virginia Power generating costs, incremental energy and
capacity purchase costs, incremental transmission losses, load flow
considerations, the availability of other sources of electrical energy and
capacity given scheduled or forced outages, off-system commitments and
opportunities for the sale of electrical energy and capacity and other
operational considerations as determined by Virginia Power.
1.17 "Dispatch Instructions" means the rate of Net Electrical Output
specified from time to time by Virginia Power or its Designee in accordance with
Article VII as communicated orally or in writing.
1.18 "Dispatch Variance" means a discrepancy between the Facility's Net
Electrical Output level and the level specified in the Dispatch Instructions as
defined in Section 5.6(b).
1.19 "Effective Date" means the Effective Date of this Agreement
determined as set forth in Section 2.3.
1.20 "Existing Agreement" means the Power Purchase and Operating
Agreement between the Parties, dated as of July 21, 1986, as amended prior to
the date of this Agreement.
1.21 "Electrical Requirements" means the Operator's requirements of
electricity for utilization in the Facility that are not self-generated by the
Facility.
5
<PAGE> 7
1.22 "Energy Purchase Price" means the price per kilowatt-hour Virginia
Power shall pay Operator for the Net Electrical Output, computed as set forth in
Section 5.3 of this Agreement.
1.23 "Facility" means Operator's Cogeneration facility located in
Portsmouth Virginia, including auxiliary equipment, the characteristics of which
are described herein.
1.24 "Force Majeure" means an event as defined in Section 10.4.
1.25 "Hazardous Condition" means a condition that presents a threat of
physical injury or death to persons or physical damage or destruction of
property.
1.26 "Hot stand-by" means the condition of the Facility as described in
Section 7.2(b)(ii).
1.27 "Incremental System Cost (ISC)" means the estimated hourly
incremental system cost that forms the basis for Virginia Power's real time
pricing that Virginia Power offers to certain of its customers on an
experimental basis under a SCC approved experimental tariff pursuant to SCC
Case No. PUE940080. Should Virginia Power's mechanism for determining such
costs as set forth in its current effective tariff be rescinded or amended so
as to alter the calculation of the ISC pursuant to this Agreement, Virginia
Power's Incremental System Cost shall be determined pursuant to a mechanism
that in Virginia Power's determination best replicates Virginia Power's
incremental energy cost for the next Day.
1.28 "Interconnection" means the construction, installation, and
maintenance of all Interconnection Facilities required for Virginia Power to
receive the Net Electrical Output.
6
<PAGE> 8
1.29 "Interconnection Costs" means the reasonable costs of connection,
switching, metering, transmission, distribution, safety equipment, and
administrative costs incurred by Virginia Power directly related to the
construction, installation and maintenance of Interconnection Facilities to the
extent that such costs exceed the costs Virginia Power would have incurred to
satisfy Operator's Electrical Requirements.
1.30 "Interconnection Facilities" means all the facilities installed
for the purpose of Interconnection of the Facility to Virginia Power's system,
including, but not limited to, all metering and telemetering equipment, wherever
located; transmission and distribution lines and equipment; transformers and
associated equipment; relay and switching equipment; and safety equipment.
1.31 "Interconnection Point" means the physical point as shown in
Exhibit A where the Facility and Virginia Power's system are connected.
1.32 "Interest" means the compensation to be paid and received for the
accrual of monetary obligations under this Agreement, computed monthly and
prorated daily from the time each such obligation to pay interest arises based
on an annual interest rate equal to the Prime Rate plus two percent. For
purposes hereof, the Prime Rate shall mean the rate of interest from time to
time publicly announced by The Chase Manhattan Bank, N.A., at its principal
office, presently located at 1 Chase Manhattan Plaza, New York, New York 10081,
as its prime commercial lending rate, determined for each obligation to pay
interest, at the time such obligation to pay interest arises.
1.33 "Month" means the period beginning at 12:00 midnight on the last
Day of a month and ending at 12:00 midnight on the last Day of the next month.
1.34 "Non-Peak Period" means the months of March, April, May, October
and November and the periods June 1 through June 14 and September 16 through
September 30, inclusive.
7
<PAGE> 9
1.35 "Net Electrical Output" means the electrical energy generated by
the Facility (in excess of the Facility's consumption of such electrical
generation) and delivered to Virginia Power at the Interconnection Point
pursuant to Virginia Power's Dispatch Instructions or during a Test conducted in
accordance with Article VIII.
1.36 "Notice of Available Capacity" means the notice provided each Day
prior to 9:00am by Operator to Virginia Power setting the Facility's maximum
available Capacity level subject to Dispatch for the next Day, as required and
further described in Sections 5.5 and 5.6; provided that for the Day on which
Operator provides Virginia Power the notice of closing and evidence required
pursuant to Section 2.3, such notice may be provided at any time prior to 5:00pm
on such Day.
1.37 "Notice Period" means (i) for Tests being conducted after the
Facility has been Dispatched off-line and not maintained in a Hot stand-by
condition, 14 hours and 15 minutes and (ii) for Tests being conducted from a Hot
stand-by condition, 2 hours and 45 minutes.
1.38 "On-Peak Hours" means the period between 7:00am and 10:00pm,
exclusive of any Day that is not a Business Day.
1.39 "Operator Requested Test" means a Test requested by Operator
pursuant to Section 8.3 for determining the Dependable Capacity of the Facility
in accordance with the provisions of Article VIII.
1.40 "Parties" means Operator and Virginia Power.
1.41 "Party" means Operator or Virginia Power.
8
<PAGE> 10
1.42 "Peak Period" means the months of December, January, February and
the period from June 15 through September 15, inclusive.
1.43 "Prudent Practices" means the practices generally followed by the
electric industry, as changed from time to time, which generally include, but
may not be limited to, engineering and operating considerations.
1.44 "Qualifying Facility" means a Cogeneration facility, which is a
qualifying facility under Subpart B of Subchapter K, Part 292 of Chapter I,
Title 18, Code of Federal Regulations.
1.45 "SCC" means the Commonwealth of Virginia State Corporation
Commission.
1.46 "Scheduled Outage" means a planned reduction of the Capacity of
the Facility that has been coordinated with Virginia Power and is required for
inspection, preventive maintenance, or corrective maintenance.
1.47 "Term" means the term of this Agreement as provided in Article
III.
1.48 "Test" means an Operator Requested Test or a Virginia Power
Requested Test.
1.49 "Test Period" means the six-hour period beginning with the
expiration of the Notice Period that precedes a Test.
1.50 "Termination" means the cessation by the mutual consent of the
Parties hereto, by termination as provided in Article X, by other operation of
this Agreement, or by law of this contractual relationship between Virginia
Power and Operator.
9
<PAGE> 11
1.51 "Virginia Power Requested Test" means a Test requested by Virginia
Power in accordance with Section 8.2 for determining the Dependable Capacity of
the Facility in accordance with the provisions of Article VIII.
ARTICLE II: REPRESENTATIONS AND EFFECTIVENESS
2.1 Each Party warrants and represents to the other that it has
obtained all necessary corporate and regulatory approvals for the execution,
delivery and performance of this Agreement and that the Agreement is binding on
that Party in accordance with its terms, subject to the laws and equitable
principles respecting bankruptcy.
2.2 Operator shall use its best efforts to arrange for and close upon
refinancing of the existing project debt for the Facility by December 31, 1997.
2.3 Within two business days of the closing of such refinancing,
Operator shall notify Virginia Power of such closing and provide evidence
satisfactory to Virginia Power that CIT Group/Equipment Financing, Inc. consents
to this Agreement or has waived Article 3 and Article 8 of the Consent to
Assignment of Power Purchase Agreement provided by Virginia Power dated January
14, 1987 with respect to the Existing Agreement. The Existing Agreement shall
remain in full force and effect until 12:01 am of the later to occur of (a) the
Day following the Day on which the Operator provides notice and evidence
required by the immediately preceding sentence or (b) December 23, 1997 (the
"Effective Date"), whereupon and at which time the Existing Agreement shall be
superseded and replaced by this Agreement. Thereafter, both Parties shall be
discharged of all further obligations under or arising out of the Existing
Agreement except for such obligations that shall exist as of the Effective Date;
provided, however, notwithstanding the foregoing, upon the Effective Date
Operator shall be released and forever discharged of all liability and
responsibility arising out of or accrued pursuant to Section 5.6 of the Existing
Agreement.
10
<PAGE> 12
2.4 The duties and obligations created by Articles IV through XI of
this Agreement shall not be effective until the Effective Date.
2.5 If the Effective Date does not occur on or before January 31, 1998,
either Party may terminate this Agreement without further obligation, such
termination to be effective immediately upon delivery of a notice of termination
to the other Party.
ARTICLE III: TERM OF AGREEMENT
Subject to Article II above, this Agreement shall continue in effect
through June 7, 2008.
ARTICLE IV: INTERCONNECTION
4.1 Interconnection shall be made as shown in Exhibit A.
4.2 Operator shall be responsible for the design, construction,
installation, maintenance, and ownership of Operator's Interconnection
Facilities on its side of the Interconnection Point.
4.3 Virginia Power shall be responsible for the design, construction,
installation, maintenance, and ownership of all Interconnection Facilities on
Virginia Power's side of the Interconnection Point, and Virginia Power-owned
metering and telemetering facilities (including CTs and PTs), wherever located.
4.4 (a) Operator shall pay for all Interconnection Costs as defined in
Section 1.29, by making a continuing monthly facilities charge payment at the
rate calculated for excess transmission facilities (69 kV and above). This
continuing monthly rate is presently calculated at 1.30 percent of the
Interconnection Cost of $5,353,828. Such monthly charge shall be subject to
change if Virginia Power's Interconnection Facilities
11
<PAGE> 13
change or if and when the SCC approves a different rate for excess transmission
facilities provided in accordance with Section IV or any successor section of
Virginia Power's Terms and Conditions on file with the SCC from time to time.
(b) In the event any excess Interconnection Facilities are required
which are rated below 69 kV, the charge for such facilities will be based on the
distribution facilities charge rate in effect with the SCC from time to time.
4.5 In addition to payments for excess Interconnection Facilities,
Operator shall pay for any necessary rearrangement or relocation of existing
Virginia Power-owned facilities by making a one-time payment equal to the actual
cost for the rearrangement or relocation of such facilities. Operator will pay
for such work in the same manner as Virginia Power charges its other customers
for similar work. No continuing monthly charge shall be assessed on these
payments.
4.6 In the event it becomes necessary for Virginia Power to alter, add
to, or rearrange the Virginia Power-owned Interconnection Facilities to continue
to conduct interconnected operations in accordance with Prudent Practices,
Operator shall be notified of the alterations, additions or rearrangements
required and of the costs of such work. Operator shall pay Virginia Power the
reasonable cost of such work as additional Interconnection Costs in the manner
prescribed in Sections 4.4 and 4.5 of this Agreement.
4.7 Operator shall provide, at its expense, all Interconnection and
protective devices reasonably required by Virginia Power. Virginia Power
reserves the right to modify or expand its requirements for Interconnection and
protective devices in conformance with Prudent Practices. Virginia Power shall
allow Operator a reasonable time for complying with any such modified or
expanded requirements.
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<PAGE> 14
4.8 Either Party shall notify the other in advance of any changes in
their respective systems that will affect the proper coordination of protective
devices on the two systems.
4.9 Operator shall provide for the purpose of telemetering, at its
expense, a telecommunication circuit to the Regional Operations Center serving
the operating division where the Facility is located.
ARTICLE V: SALE OF ENERGY AND CAPACITY TO VIRGINIA POWER
5.1 Subject to Operator's obligations to its steam host, Operator
agrees to utilize Prudent Practices to maintain the Facility in such a manner as
to have 115,000 kW of Capacity available for Dispatch by Virginia Power at all
times except during Scheduled Outages and Force Majeure events. During the Term
hereof, Operator shall not sell, contract to sell or otherwise provide the
electrical energy generated by the Facility (in excess of the Facility's
consumption of such electrical energy) or its Capacity to any person or entity
other than Virginia Power.
5.2 Operator agrees to sell and Virginia Power agrees to purchase the
Net Electrical Output.
5.3 For each kilowatt-hour of Net Electrical Output, Virginia Power
shall pay Operator an amount equal to the sum of (i) the Variable O&M Component
plus (ii) the Fuel Component, computed as set forth below in this Section 5.3
(the "Energy Purchase Price"):
(a) Initially, the Variable O&M Component shall be
$0.00353/kWh. Commencing April 1, 1999 and each April 1 thereafter, the
initial Variable O&M Component ($0.00353/kWh) shall be adjusted by the
percentage change (rounded to the nearest 0.01 percent) between the
Base Index and the Current Index. If
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<PAGE> 15
such index is materially changed or ceases to be published, a mutually
acceptable successor index shall be substituted.
(b) For any Month, the Fuel Component (expressed in $/kWh)
shall be equal to the product of (i) the Cost of Fuel and (ii) the Heat
Rate divided by 1,000,000. The Cost of Fuel shall be the delivered cost
to Operator of the coal purchased and delivered to the Facility for use
in the generation of electricity, accounted for on a "last in, first
out" basis, including commodity costs, normal transportation costs
(e.g., excluding demurrage payable or reimbursable by Operator), and
costs of freeze protection and other treatment of the coal during
transportation or storage, all reduced to an average charge stated in
$/MMBtu computed in the manner set forth on Exhibit C. Exhibit C
provides a Monthly projection of Operator's Cost of Fuel for the period
from January 1, 1997 to April 30, 2003. Operator shall compute and
provide Virginia Power with the actual Cost of Fuel within 15 days of
the end of each Month. For purposes of computing the Fuel Component,
however, the Cost of Fuel shall not exceed the applicable value set
forth on Exhibit C. In the event that Operator amends, modifies or
replaces its existing fuel or rail agreements or otherwise reasonably
believes that the actual Cost of Fuel will be less than the amounts set
forth on Exhibit C, Operator will forward to Virginia Power a revised
projection of such delivered Cost of Fuel. The Heat Rate used to
compute the Fuel Component shall be 11,100 Btu per kilowatt-hour.
(c) Operator may, with at least one-week prior written notice
to Virginia Power, specify a discount to the Energy Purchase Price,
provided that (i) Operator may not specify more than one discount
factor to be applied to the Energy Purchase Price, (ii) the discounted
Energy Purchase Price must go into effect at 12:01am on any Day and end
at 12:00pm on any Day, and (iii) the discount to the Energy Purchase
Price shall be effective for at least one week. Operator may revise, or
revoke a discount to the Energy Purchase Price with at least one week
written notice to Virginia Power.
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<PAGE> 16
(d) Operator's existing coal supply and transportation
arrangements expire April 11, 2003. Prior to such expiration, Operator
shall arrange for coal supply and transportation contracts for the
remainder of the Term hereof. At the time Operator solicits proposals
for a replacement coal supply, Operator shall invite Virginia Power to
submit a proposal for the supply of coal for use in the Facility during
the remainder of the Term hereof, such coal to be delivered F.O.B.
Lamberts Point, Norfolk, Virginia. If Virginia Power elects to submit a
proposal and such proposal conforms in all material respects to the
material provisions of Operator's general coal supply solicitation,
Operator shall consider Virginia Power's proposal along with other
proposals it may receive. All proposals will be evaluated on a
delivered cost basis.
(e) If Virginia Power's proposal is selected, the delivered
cost of the coal thereafter provided by Virginia Power shall be the
basis for determining the Cost of Fuel hereunder; provided, however,
Virginia Power shall have the option to deliver that portion of the
coal utilized by the Facility that is allocable (in a manner to be
mutually agreed) to the Net Electrical Output purchased and sold
hereunder at no charge to Operator, in which case such Cost of Fuel
shall be reduced to reflect the full amount of such reduction in
Operator's cost.
(f) If Virginia Power submits a proposal which conforms in all
material respects to the material provisions of Operator's general coal
supply solicitation, but Operator selects the proposal of another
supplier, the delivered coal cost derived from Virginia Power's
proposal thereafter shall become the basis for determining the Cost of
Fuel hereunder unless the actual delivered cost of coal results in a
lower Energy Purchase Price hereunder.
(g) If Virginia Power is selected as the coal supplier for the
Facility, Operator will thereafter be excused from any non-performance
under this Agreement and will be entitled to receive Capacity Payments
which would have been earned in the absence of such non-performance to
the extent such non-performance results from Virginia Power's failure
to deliver coal in accordance with its coal supply agreement with
Operator. In addition, such coal supply agreement shall provide
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<PAGE> 17
that to the extent of Virginia Power's non-performance thereof,
Operator shall have the right to purchase replacement coal. The
delivered cost of such replacement coal shall be used in determining
the Cost of Fuel hereunder during any such period of non-performance by
Virginia Power provided Operator uses reasonable efforts to secure the
most economic supply of replacement coal available at that time.
5.4 In addition to the Energy Purchase Price, the Operator shall be
paid the following cycling charge and stand-by charges:
(a) A cycling charge of $1,406 (per generating unit) for each
time the Facility is Dispatched off-line (hereinafter "off-line" is
considered to mean "to a Net Electrical Output level of zero") and (i)
is not directed to maintain a Hot stand-by condition or (ii) goes
off-line at the expiration or termination of a Hot stand-by condition.
This cycling charge shall not be payable if the Facility is taken
off-line by Operator other than in accordance with the Dispatch
Instructions.
(b) A Hot stand-by charge of $94.48/hour for each hour or part
thereof that the Facility is held in Hot stand-by per the Dispatch
Instructions.
Commencing April 1, 1999 and each April 1 thereafter, the cycling charge and Hot
stand-by charge each shall each be adjusted by the percentage change (rounded to
the nearest 0.01 percent) between the Base Index and the Current Index. If such
index is materially changed or ceases to be published, a mutually acceptable
successor index shall be substituted.
5.5 Subject to the exceptions and limitations provided in Section 5.6,
for each Day that the Operator provides Capacity from the Facility, Virginia
Power shall pay Operator an amount equal to the product of (a) the lesser of (i)
the Dependable Capacity for such Day and (ii) the Capacity for such Day
specified in Operator's Notice of Available Capacity and (b) the applicable
Capacity Purchase Price for such Day
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<PAGE> 18
("Capacity Payment"). The applicable Capacity Purchase Price shall vary each
calendar year and for the Peak Period and the Non-Peak Period of each calendar
year as follows:
<TABLE>
<CAPTION>
Capacity Purchase Price (per kW per Day)
Calendar Year Peak Period Non-Peak Period
<S> <C> <C>
1997 thru 1999 $1.40736 $1.00512
2000 thru 2002 $1.34448 $0.96048
2003 thru 2008 $0.40488 $0.2892
</TABLE>
5.6 The Capacity Payments shall be subject to the following conditions
and limitations:
(a) No Capacity Payment shall be payable for any Day in which
the Facility is not made available by Operator for Dispatch on-line for
any reason (including the occurrence of a Force Majeure event declared
by Operator).
(b) No Capacity Payment shall be payable for any Day on which
Virginia Power records a Dispatch Variance. As used herein, a
"Variance" shall mean a metered variation in the Net Electrical Output
of the Facility greater than plus or minus 5.0 percent of the level
then specified in the Dispatch Instructions (taking into account
applicable "ramp up" and "ramp down" rates set out in the Design
Limits). A "Dispatch Variance" shall occur any time that there are two
Variances during any Day but only if (i) Virginia Power notifies
Operator of each such Variance (by telephone or facsimile), (ii) the
second such Variance is recorded by Virginia Power at 30 minutes after
the time of the notice given to Operator respecting the first such
Variance and (iii) Virginia Power provides notice of the second
Variance within a reasonable time after it is recorded (but in no event
later than four hours after it is recorded).
(c) Following a Dispatch Variance as described in Section
5.6(b) above, the Dependable Capacity of the Facility for subsequent
Days shall be deemed to equal the highest two hour average Net
Electrical Output achieved during the remainder of the Day on which
such Dispatch Variance occurred (i.e., following Operator's receipt of
the second notice of Variance) and Capacity
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<PAGE> 19
Payments shall be made based on this level; provided that if during the
remainder of such Day the Facility operates at the level specified in
the then-current Dispatch Instructions for a period of at least two
consecutive hours without receiving notice of a Variance and continues
operating without notice of a Variance until the Facility is Dispatched
off-line, then subject to there being no subsequent Dispatch Variance
as described in Section 5.6(b), the Dependable Capacity of the Facility
shall be the level set in the last Test conducted in accordance with
Article VIII.
(i) If the Facility does not operate for two
consecutive hours following the occurrence of a Dispatch
Variance, then the Dependable Capacity shall be reset at zero.
(ii) A Dependable Capacity level set as a result of a
Dispatch Variance shall apply until reset in accordance with
this Section 5.6(c) or as the result of a Test in accordance
with Article VIII.
(iii) At any time that the Dependable Capacity for
the Facility is set at a level lower than 115,000 kW, Operator
shall continue to provide daily Notices of Available Capacity,
and if in accordance with any such notice the Facility is
Dispatched to a Net Electrical Output level greater than the
current Dependable Capacity level and as a result Operator
demonstrates that the Facility is able to operate continuously
at such Net Electrical Output level without receiving notice
of a Variance for a period of not less than two consecutive
clock hours (i.e., as measured by Virginia Power's meters used
to determine payment) and maintain such level until Dispatched
to a different Net Electrical Output level or off-line, then
the Dependable Capacity shall be reset at such Net Electrical
Output level in computing the Capacity Payments payable by
Virginia Power for future Days, again until the Dependable
Capacity of the Facility is reset as the result of a Test or
until there is a subsequent Dispatch Variance.
(iv) Nothing herein shall be deemed to obligate
Virginia Power or its Designee to Dispatch the Facility
on-line to any Net Electrical Output
18
<PAGE> 20
level or to increase the Net Electrical Output level specified
in the Dispatch Instructions for the purpose of allowing
Operator a "demonstration period" in which to increase the
level of Capacity Payments otherwise payable hereunder.
19
<PAGE> 21
(d) The aggregate of the Capacity Payments to be made in any
Contract Year shall not exceed the applicable Capacity Payment Cap set
forth below:
<TABLE>
<CAPTION>
Annual Capacity
Contract Year Ending Payment Cap
<S> <C>
November 30, 1998 $40,680,000*
November 30, 1999 $43,290,000
November 30, 2000 $41,525,000
November 30, 2001 $41,361,000
November 30, 2002 $41,361,000
November 30, 2003 $14,910,000
November 30, 2004 $12,455,000
November 30, 2005 $12,455,000
November 30, 2006 $12,455,000
November 30, 2007 $12,455,000
June 7, 2008 $6,483,000
</TABLE>
*The cap set forth above for the Contract Year ending November 30, 1998 shall be
reduced by the product of (i) 1.10 and (ii) the sum of the following amounts:
(a) 0.04327 $/kWh for each kilowatt-hour of Net Electrical Output
generated by the Facility from December 23, 1997 to December
31, 1997, inclusive, and purchased by Virginia Power under the
Existing Agreement at the on-peak energy price for 1997 set
forth in Section 5.2(b) of the Existing Agreement;
(b) 0.00277 $/kWh for each kilowatt-hour of Net Electrical Output
generated by the Facility from December 23, 1997 to December
31, 1997, inclusive, and purchased by Virginia Power under the
Existing Agreement at the off-peak energy price for 1997 set
forth in Section 5.2(b) of the Existing Agreement;
(c) 0.07528 $/kWh for each kilowatt-hour of Net Electrical Output
generated by the Facility on or after January 1, 1998 and
purchased by Virginia Power under the Existing Agreement at
the on-peak energy price for 1998 set forth in Section 5.2(b)
of the Existing Agreement;
20
<PAGE> 22
(d) 0.00355 $/kWh for each kilowatt-hour of Net Electrical Output
generated by the Facility on or after January 1, 1998 and
purchased by Virginia Power under the Existing Agreement at
the off-peak energy price for 1998 set forth in Section 5.2(b)
of the Existing Agreement;
ARTICLE VI: OPERATION AND MAINTENANCE
6.1 By September 1 of each Contract Year, Operator shall initiate
discussion with Virginia Power to establish Scheduled Outage periods for the
next Contract Year. The Scheduled Outage periods, which in the aggregate shall
not exceed 30 Days per generating unit in any Contract Year and shall be limited
to the Non-Peak Period, will be finalized to Virginia Power's reasonable
satisfaction by October 31 of each Contract Year; provided, however, if the
Parties cannot agree as to the Scheduled Outage periods for the next Contract
Year by October 31, Virginia Power shall establish the Scheduled Outage periods
for the next Contract Year during the Non-Peak Period closest to the period(s)
requested by Operator when the outages can be scheduled consistent with
maintaining Virginia Power's ability to meet its overall service obligations and
contractual commitments with other suppliers and purchasers of electrical energy
and capacity.
6.2 The Net Electrical Output shall be 60 hertz, three-phase
alternating current at a nominal voltage of 230,000 volts. The Net Electrical
Output shall be metered at the Interconnection Point. Each electrical generator
at the Facility has a nameplate rating of 67,500 kVA at .85 power factor and
shall be operated, within the design limits of the generating units, at the
voltage specified by Virginia Power.
(a) Operator shall not change, alter, modify or tamper with
Virginia Power-owned Interconnection Facilities. If Operator changes, alters,
modifies or tampers with Virginia Power-owned Interconnection Facilities without
the prior written consent of Virginia Power, Operator shall repay to Virginia
Power immediately upon demand all overpayments determined by Virginia Power to
have been paid to Operator for Net
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<PAGE> 23
Electrical Output or Capacity not actually delivered or available (as the case
may be), subject, however, to the provisions of Section 6.2(b).
(b) If Operator disputes any allegation by Virginia Power that
Operator has changed, altered, modified or tampered with Virginia Power-owned
Interconnection Facilities, such dispute shall be resolved in a proceeding in
the appropriate judicial or regulatory forum. During the pendency of any such
proceeding, Virginia Power shall continue to accept and pay for Net Electrical
Output from the Facility pursuant to the terms of this Agreement. If Operator is
found, by final adjudication of such judicial or regulatory forum, to have
changed, altered, modified or tampered with Virginia Power-owned Interconnection
Facilities, Operator shall immediately repay to Virginia Power the overpayments
referred to in Section 6.2(a) together with Interest from the date Virginia
Power first demanded repayment.
6.3 Operator's Interconnection Facilities shall be subject to
reasonable inspection by Virginia Power or by Virginia Power's authorized
representative during business hours after reasonable notice to Operator. Such
inspection shall not be construed as approval by Virginia Power of Operator's
method of operation and maintenance, and such inspection shall not impose on
Virginia Power any notice obligations or other responsibilities to Operator with
respect to the adequacy or appropriateness of Operator's operation and
maintenance practices.
6.4 Operator shall have its protective relays calibrated and the
protective circuits operationally checked in the presence of authorized Virginia
Power personnel at least once every two years by a person qualified to perform
such service. Virginia Power shall be notified in writing by Operator of the
results of these operational checks. Operator will give Virginia Power 15 days
advanced notice of relay calibrations and operational checks of the protective
circuits.
6.5 The Parties shall maintain communications which shall include, but
not be limited to, system paralleling or separation, scheduled or unscheduled
shutdowns,
22
<PAGE> 24
equipment clearances, periodic load reports, maintenance schedules, tagging of
Interconnection interrupting devices, meter tests, relay tests, billing, and
other routine communication. The Parties shall develop mutually acceptable
methods of notification and designate their respective personnel who are to
receive notices.
6.6 Virginia Power shall have the right to disconnect temporarily
without notice Operator's Interconnection Facilities if, in Virginia Power's
opinion, a Hazardous Condition exists and such disconnection appears reasonably
necessary to protect Virginia Power's customers, employees or agents, or the
property of any of them. Such temporary interruptions or reductions shall end as
soon as possible consistent with Prudent Practices.
6.7 Virginia Power, with reasonable notice to Operator, may construct,
install, open, maintain, repair, replace, investigate, inspect, or test any part
of Operator's Interconnection Facilities or any of Virginia Power's
Interconnection Facilities, equipment, or any other part of Virginia Power's
system that can affect the Facility's operation.
6.8 From time to time, unusual system conditions may exist during which
Operator can assist Virginia Power in maintaining the integrity of the Virginia
Power system. Operator shall cooperate with Virginia Power whenever Virginia
Power notifies Operator of such condition or problem.
6.9 The effectiveness of this Agreement is expressly conditioned and
contingent upon Operator's Facility being a Qualifying Facility pursuant to the
FERC regulations in effect as of the date of this Agreement.
6.10 The Parties agree to revise the operating procedures to reflect
this Agreement no later than 30 Days after the Effective Date hereof.
23
<PAGE> 25
6.11 Operator shall provide Virginia Power with Facility performance
and event data in a format consistent with the then NERC Generating Availability
Data Systems reporting standards. The frequency of such performance and event
data submittals shall be as specified by Virginia Power from time to time.
ARTICLE VII: DISPATCH
7.1 Subject to Section 7.2, Operator shall operate the Facility at the
Net Electrical Output levels specified from time to time in the Dispatch
Instructions.
7.2 Notwithstanding Section 7.1, Operator's duty to operate or alter
the operation of the Facility in accordance with the Dispatch Instructions shall
be subject to the following conditions and limitations (hereinafter the "Design
Limits"):
(a) When the Facility is Dispatched any Day, whether from an
off-line or on-line condition, the Dispatch Instructions shall specify
a Net Electrical Output level not lower than the lesser of (i) 82
megawatts or (ii) 90 percent of the Capacity level specified in the
Notice of Available Capacity for such Day.
(b) If the Facility has been off-line for any reason, it shall
not be required to be synchronized and achieve a Net Electrical Output
level of 82 megawatts sooner than the applicable "ramp up" periods
indicated below:
(i) Cold Starts. From a Cold Start condition i.e.,
any time the Facility has been Dispatched off-line and is not
being maintained in a Hot stand-by condition, the Facility can
be synchronized with Virginia Power's system within nine hours
of receipt of Dispatch Instructions requiring Net Electrical
Output and can achieve a Net Electrical Output level of 82
megawatts within 14 hours of receipt of such Dispatch
Instructions.
(ii) Hot Starts. From a "Hot stand-by" condition, the
Facility can achieve a Net Electrical Output level of 82
megawatts within 2.5 hours of receipt of Dispatch
Instructions.
24
<PAGE> 26
(c) Reduction from an on-line Net Electrical Output level to
an off-line condition can take place within 1.5 hours of receipt of
such Dispatch Instructions.
(d) The "ramp-up" of the Facility from 82 megawatts to a
higher Dispatch level can be accomplished at a rate of two
megawatts/minute. The "ramp down" from a previous Dispatch level to a
level of 82 megawatts or above can be accomplished at a rate of three
megawatts/minute.
(e) Operator shall not synchronize the Facility with the
Virginia Power system sooner than the time specified in Virginia
Power's then-current Dispatch Instructions. If no time is designated in
the Dispatch Instructions, then Operator shall synchronize the Facility
with Virginia Power's system no sooner than the applicable Design
Limits.
(f) Once the Facility has been Dispatched on-line, the
Facility shall not be required to be off-line sooner than 5.5 hours
after the Facility is required to achieve the lesser of 82 megawatts or
the Net Electrical Output level specified in the Dispatch Instructions.
(g) Virginia Power or its Designee shall have the right to
direct Operator to hold the Facility in a Hot stand-by condition for up
to 12 hours from the time in which the Facility goes off-line by so
notifying Operator as part of the Dispatch Instructions directing the
Facility off-line. Virginia Power or its Designee may direct that the
Facility be removed from a "Hot stand-by" condition at any time through
appropriate Dispatch Instructions. Notwithstanding the provisions of
Section 7.2(e), the Facility may be synchronized with Virginia Power's
system during Hot stand-by.
7.3 On Friday of each week Virginia Power or its Designee will provide
Operator a non-binding schedule of anticipated Dispatch Instructions for the
following Week.
25
<PAGE> 27
7.4 Operator shall provide the Notice of Available Capacity by
facsimile to Virginia Power's System Operations Center or to the operations
center of Virginia Power's Designee, as applicable, as well as Virginia Power's
Capacity Acquisition Department.
7.5 Operator may, from time to time, upon written notice request
Virginia Power to allow the Facility to generate electricity in order for
Operator to test and/or evaluate its equipment ("Operator Requested
Generation"). Such Operator Requested Generation shall be scheduled at least
three Business Days in advance with Virginia Power and shall be subject to the
approval of Virginia Power. Payments for the Net Electrical Output during an
Operator Requested Generation period shall equal (on a kWh basis) the lower of:
(i) the Energy Purchase Price; or (ii) the lowest fossil fuel-fired generating
cost (excluding variable operation and maintenance expenses) achieved at a
Virginia Power fossil-fueled power station at the time Virginia Power approves
Operator's request (hereinafter defined as the "Operator Requested Generation
Price"). If Virginia Power determines Dispatch is necessary, and this
determination is made before or during a Virginia Power approved Operator
Requested Generation period, then Virginia Power may cancel or interrupt, as the
case may be, the Operator Requested Generation period and subsequently Dispatch
the Facility as it deems appropriate, in which case the compensation for Net
Electrical Output shall be the Energy Purchase Price.
ARTICLE VIII: TESTING FOR DEPENDABLE CAPACITY
8.1 The Facility's Dependable Capacity shall be set initially at
115,000 kW and may change from time to time pursuant to the provisions of this
Article VIII.
8.2 Virginia Power shall have the right to request Virginia Power
Requested Tests to reset the Facility's Dependable Capacity from time to time as
set forth below:
26
<PAGE> 28
(a) Virginia Power Requested Tests shall be limited to six per
Contract Year, exclusive of any Virginia Power Requested Tests which
result in a Tested Capacity less than the Capacity level indicated in
the Notice of Available Capacity for the Day on which Virginia Power
requested the Test be performed. The maximum number of permitted
Virginia Power Requested Tests will be prorated for Contract Years
which are less than 365 Days based on the number of Days in the
Contract Year, with the prorated number to be rounded up to the next
whole number.
(b) If Virginia Power requests a Test, the Test Period shall
be deemed to begin immediately following expiration of the applicable
Notice Period.
(c) The Net Electrical Output level of the Facility shall not
be limited by Dispatch Instructions during a Virginia Power Requested
Test.
(d) The duration of each Virginia Power Requested Test will be
six hours unless the Test is terminated earlier by Virginia Power.
(e) Virginia Power shall not request a Test during (i) a
Scheduled Outage or (ii) on any Day after a Dispatch Variance has
occurred or (iii) on any Day that the Facility's maximum available
Capacity has been set at zero per Operator's Notice of Available
Capacity.
(f) During a Virginia Power Requested Test, Operator will be
paid for Net Electrical Output in accordance with Section 5.3 and will
be paid the cycling charge, if applicable, pursuant to Section 5.4.
8.3 Operator shall have the right to request Operator Requested Tests
to reset the Facility's Dependable Capacity from time to time. Operator
Requested Tests shall be initiated and conducted by Virginia Power in a manner
consistent with the following:
(a) Operator may request an Operator Requested Test by
providing an oral or written request to Virginia Power by 5:00pm on any
Day. The Test will be performed on a subsequent Day but not later than
the end of the fifth Day following the Day on which the Test was
requested. Virginia Power shall notify
27
<PAGE> 29
Operator prior to the start of any test, after which the Test Period
shall commence following the applicable Notice Period.
(b) The Net Electrical Output level of the Facility will not
be limited by Dispatch Instructions during an Operator Requested Test.
(c) The duration of each Operator Requested Test shall be six
hours unless terminated earlier by Virginia Power.
(d) During an Operator Requested Test, Operator will be paid
for Net Electrical Output delivered at a level equal to the lesser of
(i) $0.001/kWh lower than Virginia Power's ISC in effect during such
test or (ii) the applicable Energy Purchase Price. Operator will not be
entitled to receive a cycling charge following any Operator Requested
Test unless the Facility had been Dispatched on-line prior to the start
of the Test.
(e) Virginia Power will perform Operator Requested Tests
during On-Peak Hours.
8.4 Following any Test, the Dependable Capacity of the Facility shall
be reset at a level equal to the average hourly Net Electrical Output level of
the Facility recorded during the Test Period, except that for hours in which the
Capacity level so recorded exceeded 115,000 kW the Capacity level shall be
deemed to have equaled 115,000 kW. If the Test is terminated prior to the end of
the Test Period by Virginia Power, or if Virginia Power fails to perform an
Operator Requested Test within five Days from Operator's request for such Test,
the Dependable Capacity shall be reset to 115,000 kW. The Dependable Capacity
established by any Test shall be reset effective 12:01am on the Day following
the Day on which Virginia Power provided notice of the Test or on which Operator
requested such Test.
ARTICLE IX: METERING AND BILLING
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<PAGE> 30
9.1 Virginia Power shall own and maintain all meters and metering
devices used to measure the delivery and receipt of electrical energy and
Capacity for purposes of computing payments due hereunder.
9.2 Virginia Power shall install, own, and maintain telemetering
equipment at Operator's expense as an Interconnection Cost. Operator shall
reimburse Virginia Power for these costs as provided in Section 4.4. Operator
agrees to contract for separately and pay for all costs associated with the
lease of a dedicated telephone line for telemetering purposes from the telephone
company serving the Facility.
9.3 All meters and metering equipment used to determine the Net
Electrical Output and Capacity level of the Facility shall be sealed, and the
seals broken only by Virginia Power personnel when the meters are to be
inspected, tested, or adjusted; provided, however, that Operator shall receive
prior notice thereof and shall have the right to be present.
9.4 On a regular schedule and, in addition, upon reasonable request by
Operator, Virginia Power will test the meter(s) in accordance with the
provisions for meter testing in Virginia Power's approved Terms and Conditions
for Supplying Net Electrical Output as filed with the SCC. Operator shall have
the right to have a representative present during any metering inspection, test,
or adjustment. When, as a result of such a test, a meter is found to be no more
than two percent fast or slow, no adjustment will be made in the amount paid to
Operator for energy, or energy and Capacity, delivered to Virginia Power. If the
meter is found to be more than two percent fast or slow because of incorrect
calibration, Virginia Power will calculate the correct amount delivered to
Virginia Power for a period equal to one-half of the time elapsed since the most
recent test, but in no case for a period in excess of 12 months. The previous
payments by Virginia Power for this period shall be subtracted from the amount
of payments that are calculated to have been owed under this Agreement. If the
difference is a positive number, that difference shall be paid by Virginia Power
to
29
<PAGE> 31
Operator; if the difference is a negative number, that difference shall be paid
by Operator to Virginia Power. Unless better data are available from a
mutually-acceptable source, the percentage registration of a meter will be
calculated by the "weighted average" of light load and full load, which is
calculated by giving a value of 1 to the light load and a value of 4 to the full
load.
9.5 Whenever it is found that, for any reason other than incorrect
calibration or tampering, the metering apparatus has not registered the true
amount of Net Electrical Output which has been delivered by Operator to Virginia
Power, the Net Electrical Output delivered during the entire period of incorrect
registration shall be estimated, based upon all known pertinent facts, and the
amount of Net Electrical Output so estimated will be used in calculating the
corrected amounts to be paid to Operator. The adjusted amount will be for a
period equal to one-half of the time elapsed since the most recent test of the
metering apparatus, but in no case for a period in excess of 12 months. Any
overpayments or underpayments by Virginia Power for energy, or energy and
Capacity, delivered by Operator to Virginia Power shall be corrected in the
manner described in Section 9.4.
9.6 Meters shall be read, and bills rendered, according to the meter
reading and billing schedule established by Virginia Power but no less often
than every 40 days. Payment for Net Electrical Output, delivered to Virginia
Power and Capacity made available to Virginia Power during the billing period
shall be made on the third Business Day of the second Month after the Month such
Net Electrical Output and Capacity was provided to Virginia Power via wire
transfer to an account specified by notice from Operator and its lender. If the
third Business Day occurs on the lender's holiday, payment will be wired on the
next Business Day.
9.7 Operator agrees to pay an administrative charge to Virginia Power
to reflect all reasonable costs incurred by Virginia Power for meter reading and
billing. The monthly meter reading and billing charge will equal the basic
customer charge in
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<PAGE> 32
Schedule 6 - Large General Service. Such charge shall change from time to time
when the SCC approves a different rate in Schedule 6.
ARTICLE X: TERMINATION AND BREACH
10.1 Termination of this Agreement shall occur only upon the expiration
of the Term, or upon a material breach of this Agreement by either Party that is
not cured within 60 days (30 days in the case of a failure to make a required
payment hereunder) following receipt of written notice of such breach to the
breaching Party from the non-breaching Party, provided, however, that if any
such breach (other than a failure to make any required payment hereunder) cannot
by the exercise of due diligence be cured within such 60-day period, the
non-breaching Party shall not have the right to terminate this Agreement so long
as the breaching Party, within such 60-day period, has commenced and continues
to diligently proceed with the cure of such breach so as to effect such cure as
soon as possible but in no event later than 90 days following receipt of the
written notice of breach referred to in this Section 10.1.
10.2 Refusal by Virginia Power to purchase Net Electrical Output from
Operator's Facility in accordance with Sections 6.6 or 6.7 of this Agreement
shall not be a breach of this Agreement.
10.3 If this Agreement is terminated for any reason other than breach
by Virginia Power prior to the end of the Term, Operator shall, in addition to
any amounts then due and owing hereunder and any other liabilities, be liable to
Virginia Power for the total difference (including accrued Interest) between the
payments for Capacity already made, if any, by Virginia Power to Operator and
the payments for Capacity that should have been paid to Operator for short term
Capacity furnished at the rate set forth in Schedule 19 or any successor
schedule in effect at the time the contract is entered into. For the sole
purpose of the calculation set forth in the immediately preceding sentence, the
payments "already made" for Capacity by Virginia Power subsequent to the
Effective
31
<PAGE> 33
Date shall be deemed to equal the lesser of (i) $14 million per calendar year or
(ii) the actual Capacity Payments made by Virginia Power to Operator during such
calendar year pursuant to Section 5.5. Notwithstanding anything contained in
this Agreement to the contrary but without limiting the foregoing provisions of
this Section 10.3, neither Party shall be liable to the other for the other's
cost of replacement power, loss of profits, or other consequential or incidental
damages arising out of a termination or breach of this Agreement.
10.4 Either Party shall be excused from performance of this Agreement
or from a delay in performance if and to the extent that it shall be prevented
from performing or delayed by storm, flood, lightning, earthquake, explosion,
unavoidable shortages of material or supplies, civil disturbance, labor dispute,
act of God or the public enemy, action of a court, or any other cause beyond the
reasonable control of such Party (hereinafter considered events of "Force
Majeure"). If either Party asserts that a Force Majeure event affecting its
performance has occurred, that Party must notify the other Party as soon as
practicable by telephone and within 48 hours after telephone notification, in
writing of the cause of the event and the expected duration of the Force
Majeure. In the event the Facility is rendered unavailable for Dispatch due to a
Force Majeure event declared by Operator, Virginia Power's obligation to make
Capacity Payments shall cease during those hours.
10.5 Should Operator or any of its affiliates ever desire to dispose of
its right, title, or interest in the Facility (hereinafter called "Transfer
Interest") other than the sale and leaseback of the Facility to provide
financing for the Facility, it shall offer the Transfer Interest to the steam
buyer if the steam buyer has the right of first refusal, with the intent that
the steam buyer shall continue to operate the Facility in accordance with the
provisions of this Agreement pursuant to an assignment of this Agreement. If the
steam user shall decline to purchase the Transfer Interest, or the steam buyer
does not have a right of first refusal, Operator will offer to sell such
interest to Virginia Power at its fair market value, not to exceed the net
investment in the Facility, which shall be
32
<PAGE> 34
determined as the initial investment less any investment tax credits less
accumulated depreciation calculated on a straight line basis over the design
life of the Facility. If Virginia Power agrees to purchase the Transfer Interest
and there is disagreement as to the fair market value of the Transfer Interest,
then either Party shall be entitled to submit the dispute to a panel of three
arbitrators. If the Parties are unable to agree as to the terms and conditions
of such contract, then either Party would be entitled to submit the dispute to a
panel of three arbitrators. Each of the Parties would pick one arbitrator and
the two arbitrators would pick the third arbitrator. The decision of the
arbitrators would be binding upon the Parties. The expenses of such arbitration,
excluding attorneys' fees, shall be equally divided among the parties. The
arbitration shall be held in Richmond, Virginia or such other place as the
Parties may mutually agree. The arbitrators shall initiate the hearing as
promptly and expeditiously as possible after their selections (and both Parties
shall cooperate to this end) and shall conclude the hearings within thirty days
of their commencement unless the arbitrators expressly find that additional time
is necessary for completion of the hearings for reasons in the best interest of
the Parties. The award of the arbitrators shall be made no later than thirty
days from the date of the closing of the hearings.
Notwithstanding anything herein contained to the contrary, the
provisions of this Section 10.5 shall only be binding on the Operator (Cogentrix
Virginia Leasing Corporation) and its affiliates (it being understood and agreed
that the foregoing paragraph shall not apply to any transfer by Operator to any
affiliate of Operator so long as such affiliate agrees to be bound by the
foregoing paragraph) and not on any successor or assign, and, without limiting
the generality of the foregoing, the sale, lease or other transfer of the
Facility by one or more lenders holding a lien on the Facility or by a lessor of
the Facility, or by the Operator or an affiliate thereof upon request of such
lender or lenders or lessor, or by a court pursuant to foreclosure or other
proceedings, or by a trustee in bankruptcy or receiver of Operator or any
affiliate thereof, shall not be subject to the provisions of this Section 10.5
and upon any such sale, lease or transfer the provisions of this Section 10.5
shall terminate and be null and void.
33
<PAGE> 35
ARTICLE XI: MISCELLANEOUS
11.1 This Agreement shall be interpreted in accordance with the laws of
the Commonwealth of Virginia.
11.2 Operator shall not assign or transfer this Agreement or any claims
or interest therein without the prior written consent of Virginia Power, which
shall not be withheld unreasonably.
11.3 During the Term of this Agreement and for a period of five years
following the Termination or expiration hereof, Virginia Power or its designated
third-party auditors shall have access to all of Operator's books and records
relating to this Agreement (including but not limited to records related to
components of Operator's delivered cost of fuel to the Facility) during any
Business Day and shall be entitled to make any copies of these records as
necessary to conduct thorough and complete audits of the components of the
payment made by Virginia Power hereunder.
11.4 Each Party shall keep complete and accurate records and all other
data required by each of them for the purpose of proper administration of this
Agreement.
(a) All such records and data shall be maintained for a
minimum of five years after the creation of such records or data and
for any additional period required by regulatory agencies with
jurisdiction over the Parties; provided, however, that Operator shall
not dispose of or destroy any such records or data even after five
years without 30 Days prior notice to Virginia Power
(b) Operator shall maintain an accurate and up-to-date
operating log at the Facility with records of: (i) real and reactive
power production for each clock hour; (ii) changes in operating status,
including outages and Scheduled Outages; and (iii) any unusual
conditions found during inspections.
34
<PAGE> 36
(c) Either Party shall have the right from time to time upon
14 Days written notice to the other Party, to examine the records and
data of the other Party relating to this Agreement any time during the
period the records or data are required to be maintained.
11.5 The failure of either Party to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by the other
Party of any provisions hereof, shall not be construed to be a waiver of such
provisions nor to affect the validity of this Agreement or any part hereof or
the right of such Party thereafter to enforce each and every such provision.
11.6 The termination or expiration of this Agreement shall not
discharge either Party hereto from any obligation it owes to the other Party
under this Agreement by reason of any transactions, loss, cost, damage, expense
or liability which shall occur or arise (or the circumstances, events, or basis
of which shall occur or arise) prior to such termination or expiration. The
Parties intend that any such obligation owed (whether the same shall be known or
unknown at the termination or expiration of this Agreement or whether the
circumstances, events, or basis of the same shall be known or unknown at the
termination or expiration of this Agreement) shall survive the termination or
expiration of this Agreement.
11.7 The Parties understand and agree that this Agreement and any
amendments thereto may be filed in accordance with applicable law and may be a
matter of public record. Operator and Virginia Power shall use all reasonable
efforts to maintain the confidentiality of the negotiations relating to the
preparation and execution of this Agreement; provided, however, that nothing
herein shall prohibit the disclosure of any such information (a) to the extent
required by statute, rule, regulation or judicial process and (b) to counsel and
auditors of Operator or Virginia Power, to any party in connection with the
financing of Operator's Facility and to their respective counsel, accountants or
to independent engineers or experts with whom any of the foregoing parties may
consult
35
<PAGE> 37
and who have agreed to maintain the confidentiality of this Agreement and the
terms hereof.
11.8 Subject to the provisions of Section 11.11, each Party agrees to
defend, indemnify and hold harmless the other Party against any and all claims,
liability, loss, damage, or expense to the extent caused by or resulting from
the negligent acts or omissions of that Party, its employees, or its agents,
with respect to claims asserted by persons or entities that are not Parties.
11.9 This Agreement is not binding until executed by a duly authorized
representative of each Party.
11.10 Operator shall keep current during the Term of this Agreement
adequate liability insurance coverage, all necessary licenses, permits, and
approvals for the ownership, construction, operation, and maintenance of its
Facility and Interconnection Facilities from the FERC and from any and all other
federal, state, and local agencies, commissions, and authorities with
jurisdiction over Operator and/or Operator's Facility and Interconnection
Facilities.
11.11 Operator shall maintain during the Term of this Agreement, (a)
such liability insurance coverage as shown in Exhibit B (such insurance to be
evidenced by an insurance certificate providing that such insurance shall not be
canceled or terminated without 30 days written notice to Virginia Power), and
(b) all licenses, permits and approvals for the ownership, operation and
maintenance of its Facility and Interconnection Facilities from the FERC and
from any and all other federal, state and local agencies, commissions and
authorities with jurisdiction over Operator and/or Operator's Facility and
Operator's Interconnection Facilities; provided however, that the failure of the
Operator to comply with the provisions of the foregoing clause (b) shall not
constitute a default by Operator under this Agreement if either (x) such failure
does not affect the ability of Operator to operate or maintain the Facility and
provide Net Electrical
36
<PAGE> 38
Output in accordance with the Dispatch Instructions or (y) if requested by
Virginia Power, Operator suspends operation of the Facility until such failure
is cured and agrees that it shall receive no Capacity Payments hereunder during
such period of suspension.
11.12 Whenever under this Agreement, future agreement of the Parties is
required, but such agreement cannot be reached, either Party may petition the
SCC for arbitration of the issue and the SCC's decision shall be final and
binding on the Parties.
11.13 During the Term hereof, Operator shall purchase its Electrical
Requirements from Virginia Power at the applicable tariff rate selected by
Operator or such other rate as the Parties may agree.
11.14 This Agreement constitutes the entire agreement between Operator
and Virginia Power with respect to the subject matter herein and supersedes any
prior or contemporaneous agreements or understandings between the Parties.
37
<PAGE> 39
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized officers this 5th day of December 1997.
VIRGINIA ELECTRIC AND POWER COMPANY
By: /s/ E. Paul Hilton
---------------------------
Name: E. Paul Hilton
Title: VP - Regulation
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ Thomas J. Bonner
---------------------------
Name: Thomas J. Bonner
Title: Assistant VP - Results
38
<PAGE> 40
EXHIBIT B
Operator shall keep current during the term of this Agreement the
following insurance coverage:
a) Workers' compensation insurance which complies with the laws of the
Commonwealth of Virginia and employers' liability insurance with limits of
$100,000 for each accident, and $500,000 in the aggregate for each
employee-disease.
b) Comprehensive general liability insurance including but not limited to
coverage for premises, operations and independent contractors with a limit of
$1,000,000 each occurrence.
c) Excess umbrella liability insurance with a limit of $1,000,000 per occurrence
and in aggregate.
Virginia Power shall be named as an additional insured on the policies required
in b) and c) above, and the policies shall provide that the coverage thus
afforded Virginia Power shall be deemed primary and not supplementary to any
other coverage Virginia Power may obtain or maintain.
39
<PAGE> 41
EXHIBIT C
Cogentrix Virginia Leasing Corporation
Projected Cost of Fuel
<TABLE>
<CAPTION>
Jan,1998- May,1998- Jan,2003-
1997 Apr,1998 Dec,1998 1999 2000 2001 2002 Apr,2003
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coal & Rail Cost ($/ton) 69.71 73.13 70.60 74.07 77.71 81.53 85.55 89.76
Dumping Charge ($/ton) 0.53 0.56 0.56 0.59 0.62 0.65 0.68 0.67
Docking Charge ($/ton) 0.11 0.11 0.11 0.12 0.13 0.13 0.14 0.16
Barge Freight ($/ton) 0.89 0.92 0.92 0.96 1.00 1.04 1.08 1.08
Ship's Agent ($/ton) 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.03
Freezing Proofing & Testing ($/ton) 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
---------------------------------------------------------------------------------
Cost of Fuel ($/ton) 71.28 74.77 72.24 75.78 79.49 83.39 87.49 91.72
Fuel Heating Value (Btu/lb of coal) 12,649 12,649 12,649 12,649 12,649 12,649 12,649 12,649
---------------------------------------------------------------------------------
Cost of Fuel ($/MMBtu) 2.8176 2.9556 2.8555 2.9954 3.1423 3.2965 3.4584 3.6258
=================================================================================
</TABLE>
<PAGE> 1
FIRST AMENDMENT TO AMENDED AND
RESTATED SENIOR TERM LOAN AGREEMENT
FIRST AMENDMENT, dated as of December 1, 1997 (this "First Amendment"),
to the AMENDED AND RESTATED SENIOR TERM LOAN AGREEMENT, dated as of September
24, 1996 (the "Loan Agreement"), among (i) Cogentrix Eastern Carolina
Corporation (the "Borrower"), (ii) Credit Lyonnais New York Branch and each
other financial institution party thereto as Lenders (individually a "Lender"
and collectively, the "Lenders"), (iii) Credit Lyonnais New York Branch, as
issuer of the Senior Debt Service Letter of Credit (the "Issuing Bank") and (iv)
Credit Lyonnais New York Branch, as agent for the Lenders (the "Agent").
The Borrower has requested that the Lender amend Section 5.17 of the
Loan Agreement to permit the Borrower to change its fiscal year end from June 30
to December 31 of each year, and the Lender is willing to agree to such request
upon the terms and conditions set forth herein.
Accordingly, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Loan Agreement.
2. Amendment of Loan Agreement. Section 5.17 of the Loan Agreement is
hereby amended by deleting each reference therein to "June 30" and substituting
in lieu thereof "December 31".
3. Wavier. The provisions of Section 6.10 of the Loan Agreement that
require at least 60 days' prior written notice to the Agent of a change in the
Borrower's fiscal year are hereby waived to the extent necessary to permit the
transactions contemplated by this First Amendment.
4. Financial Statements. For purposes of Section 5.7(a) of the Loan
Agreement, for the six-month period beginning July 1, 1997 and ending December
31, 1997, the Borrower hereby agrees to furnish or cause to be furnished to the
Agent and each Lender as soon as available, but in any event within 120 days
after December 31, 1997, a copy of the balance sheet of each Reporting
Participant as of December 31, 1997 and the related statements of income,
retained earnings and changes in cash flow of such Reporting Participant for the
six-months ended December 31, 1997, setting forth in each
<PAGE> 2
case in comparative form the figures for the corresponding period in the
previous fiscal year, certified without qualification or exception as to the
scope of its audit by independent public accountants of national standing
reasonably acceptable to the Agent.
5. No Other Amendments or Waivers. Except as expressly amended or
waived hereby, the provisions of the Loan Agreement are, and shall remain, in
full force and effect. The waiver contained herein shall not constitute a waiver
of any other provisions of the Loan Agreement or for any purpose except as
expressly set forth herein.
6. Counterparts. This First Amendment may be executed by one or more of
the parties hereto on any number of separate counterparts, all of which
counterparts, taken together, shall constitute one and the same instrument.
7. Effective Date. This First Amendment shall become effective on the
date on which the Agent shall have received counterparts hereof executed by the
Borrower, the Issuing Bank and the Required Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered by their duly authorized officers as of the
day and year first above written.
COGENTRIX EASTERN CAROLINA
CORPORATION
By: /s/ Elizabeth L. Rippetoe
-------------------------------------
Title: Vice President and
Assistant General Counsel
CREDIT LYONNAIS, NEW YORK BRANCH
in its capacity as Agent, Issuing Bank,
and as a Lender
By: /s/ Robert G. Colvin
-------------------------------------
Title: Vice President
<PAGE> 1
FIRST AMENDMENT
TO
AMENDED AND RESTATED
LOAN AGREEMENT AND GUARANTEE
FIRST AMENDMENT, dated as of December 1, 1997 (this "First Amendment"),
to the AMENDED AND RESTATED LOAN AGREEMENT AND GUARANTEE, dated as of September
24, 1996 (the "Loan Agreement"), among (i) United States Trust Company of New
York, as Roxboro Owner Trustee, a Borrower, (ii) United States Trust Company of
New York, as Southport Owner Trustee, a Borrower, (iii) United States Trust
Company of New York, in its individual capacity only to the extent expressly
provided therein, (iv) Cogentrix of North Carolina, Inc., (v) Roxboro/Southport
General Partnership, (vi) Credit Lyonnais New York Branch and each other
financial institution party thereto as Lenders, and (vii) Credit Lyonnais New
York Branch, as Administrative Agent.
The Cogentrix Parties have requested that the Lenders amend certain
provisions of the Loan Agreement to permit the Cogentrix Parties and the
Borrowers to change their fiscal year end and tax year end from June 30 to
December 31 of each year, and the Lenders party hereto are willing to agree to
such request upon the terms and conditions set forth herein.
Accordingly, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein
(including such terms appearing in the recitals hereto) shall have the
respective meanings assigned to such terms in the Loan Agreement.
2. Amendment of Loan Agreement.
A. Section 5.1 (f) of the Loan Agreement is hereby
amended by deleting each reference therein to "June
30" and substituting in lieu thereof "December 31".
B. Section 5.2(r) of the Loan Agreement is hereby
amended by deleting each reference therein to "June
30" and substituting in lieu thereof "December 31".
3. Waiver. The provisions of Section 6.2(j) of the Loan Agreement that
require at least 60 days' prior written notice to the Administrative Agent of
a change in the Cogentrix Parties' fiscal year and tax year are hereby waived
to the extent necessary to permit the transactions contemplated by this First
Amendment.
<PAGE> 2
4. Financial Statements. For purposes of Section 5.2(g)(i)(A) of the
Loan Agreement, for the six-month period beginning July 1, 1997 and ending
December 31, 1997, the Cogentrix Parties hereby agree to furnish or cause to
be furnished to the Administrative Agent, the Issuing Bank and each Lender as
soon as available, but in any event within 120 days after December 31, 1997
for each of Cogentrix Energy and Holdings (i) a copy of the consolidating
balance sheet of Holdings as of December 31, 1997 and the related statements
of income and of cash flows of Holdings for the six-months ended December 31,
1997 and (ii) a copy of the consolidated balance sheet of Cogentrix Energy as
of December 31, 1997 and the related consolidated statements of income and of
cash flows of Cogentrix Energy for the six-months ended December 31, 1997,
setting forth in each case in comparative form the figures for the
corresponding period in the previous fiscal year, certified without
qualification or exception as to the scope of its audit by independent public
accountants of national standing reasonably acceptable to the Administrative
Agent.
5. No Other Amendments or Waivers. Except as expressly amended or
waived hereby, the provisions of the Loan Agreement are, and shall remain, in
full force and effect. The waiver contained herein shall not constitute a
waiver of any other provisions of the Loan Agreement or for any purpose except
as expressly set forth herein.
6. Counterparts. This First Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts, all of which
counterparts, taken together, shall constitute one and the same instrument.
7. Effective Date. This First Amendment shall become effective on the
date on which the Administrative Agent shall have received counterparts hereof
executed by the Borrowers, the Cogentrix Parties and the Required Lenders.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered by their duly authorized officers as of the
day and year first above written.
COGENTRIX OF NORTH CAROLINA, INC.
By: /s/ Elizabeth L. Rippetoe
-----------------------------------
Title: Vice President and
Assistant General Counsel
ROXBORO/SOUTHPORT GENERAL
PARTNERSHIP
By: Roxboro/Southport II, Inc., its
managing general partner
By: /s/ Elizabeth L. Rippetoe
-----------------------------------
Title: Vice President and
Assistant General Counsel
CREDIT LYONNAIS NEW YORK BRANCH,
as Administrative Agent and a Lender
By: /s/ Robert G. Colvin
-----------------------------------
Title: Vice President
BANK OF IRELAND, GRAND CAYMAN
BRANCH, as a Lender
By: /s/ Michael G. Doyle
-----------------------------------
Title: AVP - Corporate Banking
THE BANK OF NOVA SCOTIA, as a Lender
By:
-----------------------------------
Title:
3
<PAGE> 4
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE, as a Lender
By:
-----------------------------------
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH, as a Lender
By: /s/ Karen A. Brinkman
-----------------------------------
Title: Vice President
By: /s/ Leo Von Reissig
-----------------------------------
Title: Vice President
LANDESBANK HESSEN- THURINGEN
GIREZENTRALE, NEW YORK BRANCH,
as a Lender
By: /s/ John Gregory
-----------------------------------
Title: VP
By: /s/ Michael Novack
-----------------------------------
Title: Asst VP
THE SAKURA BANK, LIMITED, NEW
YORK BRANCH, as a Lender
By: /s/ Tamihiro Kawauchi
-----------------------------------
Title: Senior Vice President
4
<PAGE> 1
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED APPLICATION FOR
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
Dated as of February 11, 1998
among
JAMES RIVER COGENERATION COMPANY
and
THE BANKS NAMED HEREIN,
and
CREDIT LYONNAIS,
as Issuing Bank and Agent
- --------------------------------------------------------------------------------
<PAGE> 2
THIRD AMENDED AND RESTATED APPLICATION FOR LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT, dated as of February 11, 1998, entered into by and
among JAMES RIVER COGENERATION COMPANY, a North Carolina general partnership
(the "Applicant" or the "Partnership"), each of the banks that is or may from
time to time be identified as a "Bank" on the signature pages hereof or is a
"Purchasing Bank" pursuant to Section 14.3(b) hereof (individually, a "Bank,"
and collectively, the "Banks"), CREDIT LYONNAIS, as the issuer of the Debt
Service Letter of Credit referred to below (in such capacity, the "Issuing
Bank") and CREDIT LYONNAIS, as agent for the Banks and the Issuing Bank (in such
capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, Cogentrix of Virginia, Inc., a Virginia corporation
("Cogentrix Virginia"), entered into an Application for Letter of Credit and
Reimbursement Agreement dated as of December 1, 1986, as amended by a First
Amendment dated as of February 20, 1987 (the "Original Reimbursement
Agreement"), with Banque Paribas, New York Branch, Kansallis-Osake-Pankki, New
York Branch, DnC America Banking Corporation and Credit Suisse (the "Original
Banks"), Banque Paribas, New York Branch as the "Issuing Bank" thereunder (in
such capacity, the "Original Issuing Bank") and Banque Paribas, New York Branch
as the agent for the Original Banks (in such capacity, the "Original Agent"),
pursuant to which, among other things, the Original Issuing Bank issued its
irrevocable letter of credit No. 718683 dated February 20, 1987 in the amount of
$86,631,250 as security for commercial paper notes issued from time to time by
Cogentrix Virginia, and the Original Banks agreed to make loans to Cogentrix
Virginia, all in order to finance the construction by Cogentrix Virginia of the
Facility; and
WHEREAS, on October 12, 1987 Cogentrix Virginia transferred
and assigned all of its properties and assets, including its interest in the
Facility, to the Partnership, and in connection therewith the Partnership and
Cogentrix Virginia entered into an Assumption and Modification Agreement dated
as of October 1, 1987 with the Issuer, the Original Banks and the Original Agent
(the "Assumption and Modification Agreement"), pursuant to which, among other
things, (i) Cogentrix Virginia transferred and assigned to the Partnership, and
the Partnership assumed, all of Cogentrix Virginia's rights and interests and
all of its duties, obligations, indebtedness, liabilities and agreements in, to
and under or arising out of or in connection with the Original Reimbursement
Agreement and the other "Financing Documents" (as defined in the Assumption and
Modification Agreement), and (ii) the Original Reimbursement Agreement and the
other Financing Documents were amended in various respects in order to give
effect to such transfer and
<PAGE> 3
2
assumption and to substitute the Partnership for Cogentrix Virginia as the
"Applicant" under the Original Reimbursement Agreement and as a party to the
other Financing Documents; and
WHEREAS, the parties to the Original Reimbursement Agreement
(as modified by the Assumption and Modification Agreement) amended and restated
such agreement (as so modified) pursuant to the Amended and Restated Application
for Letter of Credit and Reimbursement Agreement, dated as of September 1, 1988,
among the Partnership, the Original Issuing Bank, the banks parties thereto and
the Original Agent, and such parties subsequently amended such Amended and
Restated Application for Letter of Credit and Reimbursement Agreement pursuant
to Amendment No. 1 dated as of December 1, 1993, Amendment No. 2 dated as of
February 15, 1995, and Amendment No. 3 dated as of March 15, 1996, each among
the Partnership, the Original Issuing Bank, said banks and the Original Agent
(such Amended and Restated Application for Letter of Credit and Reimbursement
Agreement, as so amended, the "First Amended and Restated Reimbursement
Agreement"); and
WHEREAS, the parties to the First Amended and Restated
Reimbursement Agreement amended and restated such agreement pursuant to the
Second Amended and Restated Application for Letter of Credit and Reimbursement
Agreement, dated as of July 1, 1996 (the "Existing Reimbursement Agreement"),
among the Partnership, the banks parties thereto and the Original Agent in
order, among other things, to convert the letter of credit enhanced commercial
paper facility provided for in the First Amended and Restated Reimbursement
Agreement to a term loan facility on the terms set forth in the Existing
Reimbursement Agreement and to remove the Original Issuing Bank in its capacity
as such as a party;
WHEREAS, Credit Lyonnais, immediately prior to this
Agreement's becoming effective pursuant hereto on the Effective Date (as
hereinafter defined), will purchase the outstanding loans (the "Existing Term
Loans") made under the Existing Reimbursement Agreement by each of Banque
Paribas, New York Branch ("Paribas"), ABN AMRO Bank, N.V., New York Branch
("ABM"), Compagnie Financiere de CIC et de L'Union Europeenne ("CIC"), Credit
Suisse First Boston (formerly Credit Suisse) ("CSFB"), Landesbank
Hessen-Thuringen Girozentrale ("Helaba") and National Australia Bank Ltd.
("NAB") as the banks parties thereto (Paribas, ABN, CIC, CSFB, Helaba and NAB,
collectively, the "Transferor Banks") and will assume all of the rights and
obligations of the Transferor Banks under the Existing Reimbursement Agreement;
WHEREAS, pursuant to subsection 12.8 of the Existing
Reimbursement Agreement, Paribas will resign as the Original Agent thereunder
immediately prior to this Agreement's becoming effective on the Effective Date
(as hereinafter defined); and
<PAGE> 4
3
WHEREAS, the Agent is willing to assume the obligations and
responsibilities of the Original Agent under the Existing Reimbursement
Agreement; and
WHEREAS, the parties hereto mutually desire to amend the
Existing Reimbursement Agreement to provide for, among other things, the making
by the Banks of the Additional Term Loans on the Effective Date (as such terms
are hereinafter defined), and the issuance by the Issuing Bank of the Debt
Service Letter of Credit (as hereinafter defined) in favor of the Agent, and for
convenience to restate the Existing Reimbursement Agreement, as so amended, in
its entirety as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto agree that on the
Effective Date (as hereinafter defined) the Existing Reimbursement Agreement
shall be amended and restated in its entirety to read as follows:
SECTION 1
CERTAIN DEFINITIONS, CERTAIN DOCUMENTS
AND ACCOUNTING PRINCIPLES
SECTION 1.1. Certain Definitions. The following terms shall
have the following respective meanings (all terms defined in this Section 1.1
and in other provisions of this Agreement used in the singular to have the same
meanings when used in the plural and vice versa):
"Acceleration Event" shall have the meaning assigned thereto
in Section 3A.1 hereof.
"Additional Contract" shall mean any contract of the
Partnership, other than those specifically described in the definition
of "Assigned Agreements", providing for (i) the sale or exchange by the
Partnership of any of the Facility's electrical or steam output or (ii)
the supply or transportation of fuel, goods or services essential to
the operation of the Facility other than employment contracts and
contracts involving less than $50,000 or (iii) the removal of ash from
the Facility or (iv) the acquisition of real or personal property
related to any construction relating to, or the maintenance or
operation of, the Project.
"Additional Term Loans" shall have the meaning assigned
thereto in Section 3.1(b) hereof.
"Administration Fee" shall have the meaning assigned thereto
in Section 3.8(a) hereof.
<PAGE> 5
4
"Affiliated Obligors" shall mean the Partnership, Cogentrix
Virginia and Capistrano.
"Agreement" shall mean this Third Amended and Restated
Application for Letter of Credit and Reimbursement Agreement.
"Allied" shall mean AlliedSignal Inc., a Delaware corporation.
"Applicable Lending Office" shall mean, for each Bank and for
each Type of Term Loan, the Lending Office of such Bank (or of an
affiliate of such Bank) designated for such Type of Term Loan on the
signature pages hereof or such other office of such Bank (or of an
affiliate of such Bank) as such Bank may from time to time specify to
the Agent and the Partnership as the office at which its Term Loans of
such Type are to be made and maintained.
"Applicable Margin" shall mean (a) with respect to each Prime
Rate Loan, from the Effective Date to but not including the first
anniversary of the Effective Date, 0.250%, and thereafter, 0.375%; (b)
with respect to each CD Rate Loan, from the Effective Date to but not
including the first anniversary of the Effective Date, 1.0%, and
thereafter, 1.125% and (c) with respect to each Eurodollar Rate Loan,
from the Effective Date to but not including the first anniversary of
the Effective Date, 0.875%, and thereafter, 1.0%.
"Ash Disposal Contract" shall mean the Agreement for Ash
Removal Services dated as of January 27, 1990 between RTI and the
Partnership.
"Assigned Agreements" shall mean, collectively, the
Construction Contract, the Power Purchase Agreement, the Steam Purchase
Agreement, the Coal Sales Agreement, the Transportation Contract, the
Ash Disposal Contract, the Technical Services Agreement, the Operation
and Maintenance Agreement and, from and after the date any Additional
Contract is entered into by the Partnership, such Additional Contract.
"Assignments" shall mean the Assignments listed on Schedule 3
entered into by Cogentrix Virginia in favor of the Grantee, and assumed
by the Partnership pursuant to the Assumption and Modification
Agreement, and from and after the date any Additional Contract is
entered into by the Partnership, the Assignment with respect to such
Additional Contract
"Assumption and Modification Agreement" shall mean the
Assumption and Modification Agreement dated as of October 1,
<PAGE> 6
5
1987 among Cogentrix Virginia, the Partnership, the Issuer, the
Original Agent and the Transferor Banks.
"Available Amount" shall have the meaning assigned thereto in
Section 3A.2 hereof.
"Available Project Cash Flow" shall mean, for any period, the
amount, if any, by which Project Cash Flow for such period exceeds Debt
Service for such period.
"Bank Assignment" shall mean the Loan Transfer Supplement,
dated as of February 11, 1998, among the Transferor Banks and Credit
Lyonnais, substantially in the form of Exhibit K hereto.
"Borrowing Request" shall mean a request and certificate of
the Partnership substantially in the form of Exhibit A hereto.
"Business Day" shall mean any day on which commercial banks
are not authorized or required to close in New York City and, if such
day relates to a payment or prepayment of principal of or interest on,
or a Conversion of or into, or an Interest Period for, a Eurodollar
Rate Loan or a notice by the Partnership with respect to any such
payment, prepayment, Conversion or Interest Period, which day is also a
Working Day.
"Capistrano" shall mean Capistrano Cogeneration Company, a
California corporation.
"Capital Lease" shall mean 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 or, if not so capitalized,
for which the amounts of the asset and liability (had such lease been
capitalized) would at such time be so required to be disclosed in a
note to such a balance sheet.
"Cash Operating Costs" of the Partnership shall mean, for any
period, the sum of the following for the Partnership (without
duplication): (a) the sum of all salaries, bonuses, employee benefits
and other compensation paid plus (b) Fuel costs and the cost of other
materials and utilities paid, including the transportation costs for
Fuel and such other materials, plus (c) insurance premiums paid plus
(d) costs of operating and maintaining the Project paid, including,
without limitation, amounts paid pursuant to the Operation and
Maintenance Agreement, plus (e) property taxes and other taxes (except
income taxes) paid plus (f) fees paid for accounting, legal and other
professional services plus (g) general and administrative expenses paid
(including, without limitation, lease payments in respect of
<PAGE> 7
6
office space) plus (h) capital expenditures (except to the extent that
such capital expenditures are paid with the proceeds of capital
contributions of the Partners or Junior Working Capital Loans) plus (i)
all other cash expenditures relating to operating costs and maintenance
costs of the Project, plus (j) Specified Costs paid, excluding,
however, from items (a) through (j) above, payments with respect to
federal, state and local income taxes, payments of the Overhead Fee,
payments of the Incentive Compensation Fee, payments in respect of any
allocation of regional or central support costs and payments of
principal, interest or fees with respect to Debt of the Partnership;
provided, that (i) in the event that Specified Costs are incurred
during any period in which Cogentrix Energy is required to provide
funds on behalf of the Partnership pursuant to Section 2.02 of the
Cogentrix Energy Indemnity Agreement, such Specified Costs shall be
included as Cash Operating Costs only to the extent Cogentrix Energy
shall have actually provided such funds in accordance with such section
on or before the date such Specified Costs become due and payable and
(ii) in the event that during any period Cogentrix Energy and EME shall
have paid under the Indemnity Agreements an amount or amounts which,
when added to all other amounts which Cogentrix Energy and EME shall
have paid under such agreements, equals or exceeds $21,200,000,
Specified Costs paid during such period or any period thereafter shall
be included as Cash Operating Costs in any period only to the extent
that the amount of such Specified Costs, when added to the amount of
all Specified Costs previously paid, do not exceed $21,200,000.
"CD Assessment Rate" shall mean, for any day as applied to any
CD Rate Loan, the net annual assessment rate (rounded upward to the
nearest 1/100th of 1%) determined by Credit Lyonnais to be payable by
prime banks to the Federal Deposit Insurance Corporation or any
successor ("FDIC") for FDIC's insuring time deposits made in dollars at
offices of such banks in the United States.
"CD Base Rate" shall mean, with respect to each day during
each Interest Period pertaining to a CD Rate Loan, the rate of interest
per annum equal to the rate notified to the Partnership by the Agent as
the average rate per annum bid at 11:00 A.M. (New York City time) (or
as soon thereafter as practicable) on the first day of such Interest
Period by a total of three certificates of deposit dealers of
recognized standing selected by Credit Lyonnais for the purchase at
face value from Credit Lyonnais of its certificates of deposit in an
amount comparable to the CD Rate Loan of Credit Lyonnais to which such
Interest Period applies and having a maturity comparable to such
Interest Period.
<PAGE> 8
7
"CD Rate" shall mean, with respect to each day during each
Interest Period pertaining to a CD Rate Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
CD Base Rate
---------------------------- + CD Assessment Rate
1.00 - CD Reserve Percentage
"CD Rate Loan" shall mean a Term Loan which bears interest as
provided in Section 3.4(b).
"CD Reserve Percentage" shall mean, for any day as applied to
any CD Rate Loan, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the maximum
reserve requirement for a member bank of the Federal Reserve System in
New York City with deposits exceeding one billion Dollars in respect of
new non-personal time deposits in Dollars in New York City having a
maturity comparable to the Interest Period for such CD Rate Loan and in
an amount of $100,000 or more.
"CHC" shall mean Cogentrix Holdings Corporation, a North
Carolina corporation and a wholly-owned subsidiary of Delaware
Holdings.
"Coal Sales Agreement" shall mean the Coal Sales Agreement
dated as of December 1, 1986 between Pontiki and Cogentrix Virginia,
together with the Guarantee Agreement dated as of December 1, 1986 by
MAPCO Coal, Inc. in favor of Cogentrix Virginia, as assigned by
Cogentrix Virginia to the Partnership with the consent of Pontiki and
MAPCO Coal, Inc. on October 12, 1987 pursuant to the Transfer Document.
"Cogentrix Energy" shall mean Cogentrix Energy, Inc., a North
Carolina corporation.
"Cogentrix Energy Indemnity Agreement" shall mean the
Indemnity Agreement, dated as of February 11, 1998, between Cogentrix
Energy and the Agent, substantially in the form of Exhibit M-1 hereto.
"Cogentrix Virginia" shall mean Cogentrix of Virginia, Inc., a
Virginia corporation.
"Collateral" shall mean, collectively, the "Collateral" as
defined in the Security Agreement and the Partner Assignments, the
"Property" as defined in the Mortgage, the "Collateral" as defined in
the Parent Pledge Agreement and the "Accounts" (and all cash and
securities on deposit therein) as defined in the Security Deposit
Agreement.
<PAGE> 9
8
"Commonly Controlled Entity" shall mean an entity, whether or
not incorporated, which is under common control with the Partnership
within the meaning of Section 4001 of ERISA.
"Consent and Agreement" shall mean the collective reference to
each Consent and Agreement listed on Schedule 4 and each of the other
consents and agreements executed and delivered by the parties (other
than the Partnership) to each Assigned Agreement, consenting to the
assignment by the Partnership to the Grantee on behalf of the Secured
Parties of such Assigned Agreement.
"Construction Contract" shall mean the Amended and Restated
Turnkey Construction Agreement, dated as of December 1, 1986, by and
between Cogentrix Virginia and the Contractor, as assigned by Cogentrix
Virginia to the Partnership with the consent of the Contractor on
October 12, 1987 pursuant to the Transfer Document.
"Consulting Professional" shall mean the Harris Group or
(subject to the prior written consent of the Partnership, which consent
shall not be unreasonably withheld) any other independent engineering
firm approved in writing by the Agent.
"Contractor" shall mean Combustion Engineering, Inc., a
Delaware corporation.
"Convert," "Conversion" and "Converted" each shall refer to a
conversion of Loans of one Type into Loans of another Type.
"Credit Office" shall mean, with respect to any Bank, (a) the
office of such Bank located at its address specified under the heading
"Address for Notices" on the signature pages hereof or (b) any other
office of such Bank in the United States hereafter selected by such
Bank as provided in Section 14.2 hereof.
"Debt" shall mean, as to any Person, without duplication, (a)
all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind (including repurchase obligations);
(b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments; (c) (i) all obligations of such Person
upon which interest charges are customarily paid, (ii) all obligations
of such Person under any conditional sale or other title retention
agreement relating to property purchased by such Person and (iii) all
obligations of such Person issued or assumed as the deferred purchase
price of property or services (in each case other than obligations
under agreements for the purchase of goods (including fuel)
<PAGE> 10
9
and services in the normal course of business which are not more than
90 days past due); (d) all obligations of such Person associated with
Capital Leases; (e) all obligations of such Person associated with
interest rate protection agreements, foreign currency exchange
agreements or other interest or exchange rate hedging arrangements; (f)
all obligations of such Person associated with direct or indirect
guarantees of, and all obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, any Debt of any other Person (other than
endorsements of negotiable instruments in the ordinary course of
business); (g) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances and (h) all
obligations of such Person or a Commonly Controlled Entity to a
Multiemployer Plan.
"Debt Coverage Ratio" shall mean, for the Partnership for any
period, the ratio of (a) Project Cash Flow for such period to (b) Debt
Service.
"Debt Service" shall mean, for any period, the sum, without
duplication, of (a) all amounts payable by the Partnership during such
period pursuant to this Agreement in respect of principal of, and
interest on, the Loans, (b) all amounts, if any, payable by the
Partnership (minus the amounts, if any, receivable by the Partnership
to the extent such amounts have actually been received by the
Partnership, or may be set off or applied by the Partnership against
amounts payable by the Partnership) during such period under any Swap
or any other interest rate hedging arrangement, (c) fees payable under
or in connection with this Agreement (including without limitation all
Administration Fees and Debt Service Letter of Credit Fees) and (d) all
other amounts in respect of principal, interest, cash collateral and
other fees and expenses payable by the Partnership during such period
to any of the Financing Parties pursuant to any of the Project
Documents (whether upon the payment date thereof, by acceleration or
otherwise).
"Debt Service Letter of Credit" shall mean the irrevocable
letter of credit, substantially in the form of Exhibit C hereto to be
issued pursuant thereto by the Issuing Bank in favor of the Agent, on
behalf of the Banks and the Issuing Bank, for the account of the
Partnership and in the amount of the Required Stated Amount.
"Debt Service Letter of Credit Fee" shall have the meaning
assigned thereto in Section 3A.6 hereof.
"Debt Service Letter of Credit Loans" shall have the meaning
assigned thereto in Section 3A.4(a) hereof.
<PAGE> 11
10
"Debt Service Letter of Credit Note" shall have the meaning
assigned thereto in Section 3A.4(e) hereof.
"Default" shall mean the occurrence of an Event of Default or
an event which with the giving of notice or lapse of time or both as
specified in Section 9 hereof would become an Event of Default.
"Default Rate" shall mean, for any day, the Prime Rate for
such day plus a margin of 2%.
"Delaware Holdings" shall mean Cogentrix Delaware Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of Cogentrix
Energy.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Easement Agreements" shall mean the Easement Agreements
described in Section 2 of the Transfer Document.
"Effective Date" shall have the meaning assigned thereto in
Section 6.1 hereof.
"EME" shall mean Edison Mission Energy, a California
corporation.
"EME Indemnity Agreement" shall mean the Indemnity Agreement,
dated as of February 11, 1998, between EME and the Agent, substantially
in the form of Exhibit M-2 hereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Eurocurrency Liabilities" shall have the meaning ascribed
thereto in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Eurodollar Rate" shall mean, for any Interest Period for any
Eurodollar Rate Loan, an interest rate per annum equal to the rate per
annum at which deposits in Dollars are offered by Credit Lyonnais to
prime banks in the London interbank market at 11:00 A.M. (London time)
two Business Days before the first day of such Interest Period (subject
to the provisions of Section 3.6 hereof) for a period equal to such
Interest Period and in an amount substantially equal to the amount of
such Eurodollar Rate Loan to be outstanding during such Interest Period
from Credit Lyonnais.
"Eurodollar Rate Loan" shall mean a Loan which bears interest
as provided in Section 3.4(c) hereof.
<PAGE> 12
11
"Event of Default" shall have the meaning assigned thereto in
Section 9 hereof.
"Event of Loss" shall mean (i) the actual or constructive
total loss of all or substantially all of the Facility, or the
condemnation, confiscation or seizure of, or requisition of title to,
or requisition by any governmental authority of the use of, all or
substantially all of the Facility; or (ii) the loss, destruction or
damage of, or condemnation, confiscation or seizure of, or requisition
of title to, or requisition by any governmental authority of the use
of, such material portion of the Project as shall render the Facility
unable to operate at substantially the same level of operation as prior
to the occurrence of such event or as a Qualifying Facility, unless (in
the case of this clause (ii)) (x) no Event of Default shall have
occurred and be continuing at the time of occurrence of or immediately
after giving effect to any of the events specified in this clause (ii),
(y) it is feasible to restore, rebuild or replace the affected portion
of such Project and (z) in the opinion of the Consulting Professional,
sufficient funds are or will be available to the Partnership (1) to
restore, rebuild or replace the affected portion of the Project so that
the Facility will be able to operate as a Qualifying Facility at
substantially the same level of operation as prior to the occurrence of
such event within twenty-four months after the occurrence of such event
and (2) to pay all Debt Service until such restoration, rebuilding or
replacement is completed.
"Existing Reimbursement Agreement" shall have the meaning
specified in the recitals hereto.
"Existing Swap" shall mean the Interest Rate and Currency
Exchange Agreement dated as of July 13, 1990 between the Partnership
and Paribas providing for an interest rate swap transaction the
Confirmation for which is dated as of March 1, 1994.
"Expiration Date" shall have the meaning specified in Section
3A.1 hereof.
"Facility" shall mean the cogeneration facility having a gross
nameplate rating of 110 megawatts constructed on the Site pursuant to
the Construction Contract, consisting of two 55 megawatt
turbine/generators, six 157,500 lb/hr boilers, six baghouses, coal
handling system, ash handling system, cooling water system and other
equipment and systems meeting the design specifications set forth in
the Construction Contract.
"Federal Funds Rate" shall mean the rate per annum (rounded
upwards to the nearest 1/100th of one percent)
<PAGE> 13
12
equal to the weighted average of the rates on overnight Federal funds
transactions with member banks of the Federal Reserve System arranged
by Federal Funds brokers on such day as published by the Federal
Reserve Bank of New York; provided, that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on
the next succeeding Business Day and (b) if no such rate is so
published on the next succeeding Business Day, the Federal Funds Rate
for such day shall be the average rate quoted by Credit Lyonnais on
such day on such transactions as determined by the Agent.
"FERC" shall mean the Federal Energy Regulatory Commission.
"Final Payment Date" shall mean December 31, 2002.
"Financing Parties" shall mean the Secured Parties.
"Fuel" shall mean the bituminous coal used or intended to be
used as fuel for the Facility.
"GAAP" shall mean generally accepted accounting principles, as
in effect from time to time.
"Government Approvals" shall mean any authorization, consent,
approval, license, lease, ruling, permit, tariff, rate, certification,
exemption, filing or registration by or with any governmental authority
or legal or administrative body, federal, state or local, relating to
the construction, operation or maintenance of the Project or to the
execution, delivery or performance of any Project Document.
"Grantee" shall mean Credit Lyonnais, as grantee for the
benefit of the Secured Parties under the Parent Pledge Agreement, the
Security Agreement, the Assignments, the Partner Assignments and the
Security Deposit Agreement.
"Ground Lease" shall mean the Ground Lease dated January 31,
1986, as amended by First Amendment to Ground Lease dated as of
December 15, 1986 and by Second Amendment to Ground Lease dated as of
June 10, 1988, between Allied, as lessor, and Cogentrix Virginia, as
lessee, with respect to the Site, as assigned by Cogentrix Virginia to
the Partnership with the consent of Allied on October 12, 1987 pursuant
to the Transfer Document.
"Incentive Compensation Fee" shall mean the "Incentive
Compensation" payable by the Partnership to Cogentrix Virginia pursuant
to Section 7.02 of the Operation and Maintenance Agreement.
<PAGE> 14
13
"Indemnity Agreements" shall mean the collective reference to
the Cogentrix Energy Indemnity Agreement and the EME Indemnity
Agreement.
"Insolvency" shall mean, with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within the meaning of
such term as used in Section 4245 of ERISA.
"Insolvent" shall mean pertaining to a condition of
Insolvency.
"Installment Payment Date" shall have the meaning assigned
thereto in Section 3.2 hereof.
"Insurance Advisor" shall mean Sedgewick Power and Nuclear
Services or (subject to the prior written consent of the Partnership,
which consent shall not be unreasonably withheld) such other insurance
advisor as the Banks may engage to examine and advise the Banks with
respect to the insurance relating to the Project.
"Interest Period" shall mean (a) with respect to each
Eurodollar Rate Loan, the period beginning on, as the case may be, the
date of Conversion of a Prime Rate Loan or a CD Rate Loan into such
Eurodollar Loan or the date of expiration of the then current Interest
Period for such Eurodollar Loan, and ending one, three, six or twelve
months thereafter (to the extent available), as selected by the
Partnership in its notice of Conversion or continuation as provided in
Section 3.7 hereof and (b) with respect to any CD Rate Loan, a period
beginning on, as the case may be, the date of Conversion of a Prime
Rate Loan or a Eurodollar Loan into such CD Rate Loan or the date of
expiration of the then current Interest Period for such CD Rate Loan,
and ending 30, 90, 180 or 360 days thereafter (to the extent
available), as selected by the Partnership in its notice of Conversion
or continuation as provided in Section 3.7 hereof; provided, however,
that:
(i) each Interest Period pertaining to a
Eurodollar Loan which would otherwise end on a day which is
not a Working Day shall end on the next succeeding Working Day
(or, if such next succeeding Working Day falls in the next
succeeding calendar month, on the next preceding Working Day);
(ii) each Interest Period pertaining to a CD Rate
Loan which would otherwise end on a day that is not a Business
Day shall end on the next succeeding Business Day;
<PAGE> 15
14
(iii) the Partnership may not select an Interest
Period with respect to any Loans which ends after an
Installment Payment Date unless, after giving effect to such
selection, the outstanding aggregate principal amount of all
Loans which have Interest Periods which end after such
Installment Payment Date shall be equal to or less than the
aggregate principal amount of all such Loans which will be
outstanding after giving effect to the payment of principal
thereof required to be made on such Installment Payment Date
pursuant to Section 3.2 hereof;
(iv) Interest Periods commencing on the same date
for Eurodollar Rate Loans shall be of the same duration;
(v) if the Partnership shall fail to give notice
as provided in Section 3.7 hereof, the Partnership shall be
deemed to have selected a Loan of the same Type as the Loan
with respect to which the Interest Period is expiring and
having an Interest Period of the same duration as the expiring
Interest Period;
(vi) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Working 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 Working Day of a
calendar month;
(vii) the Partnership shall select Interest Periods
so as not to require a payment or optional prepayment of any
Eurodollar Loan or CD Rate Loan during an Interest Period for
such Loan; and
(viii) the Partnership shall not select any Interest
Period in respect of any Eurodollar Loan which is a Debt
Service Letter of Credit Loan that will end after the next
succeeding Quarterly Distribution Date.
"Issuing Bank" shall mean Credit Lyonnais, in its capacity as
the issuer of the Debt Service Letter of Credit.
"Junior Debt" shall mean any unsecured Debt and other
unsecured obligations of the Partnership evidenced by an instrument or
instruments subordinated to the rights of the holders of the Notes
hereunder by provisions substantially in the form of Exhibit G hereto
or incorporating such provisions by reference.
"Junior Working Capital Loans" shall mean any unsecured Debt
which (a) constitutes Junior Debt, (b) is for money borrowed by the
Partnership (or deemed to be borrowed by the
<PAGE> 16
15
Partnership pursuant to Section 3.05 of either Indemnity Agreement)
from and owed to Cogentrix Energy, Delaware Holdings, EME or either of
the Partners, and (c) the proceeds of which are used entirely to pay
Cash Operating Costs, Debt Service or a "Shortfall Amount" (as defined
in the Indemnity Agreements).
"Lien" shall mean any mortgage, pledge, lien, security
interest, deed of trust or other charge or encumbrance of any kind, or
any other type of preferential arrangement (including any agreement to
give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of
or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction).
"Loan Transfer Supplement" shall mean a loan transfer
supplement substantially in the form of Exhibit L hereto.
"Loans" shall mean the collective reference to the Term Loans
and the Debt Service Letter of Credit Loans; individually, a "Loan."
"Majority Banks" shall mean, at any time, Banks who at such
time hold at least 60% of the aggregate unpaid principal amount of the
Term Loans.
"Monthly Distribution Date" shall have the meaning assigned
thereto in the Security Deposit Agreement.
"Mortgage" shall mean the Deed of Trust and Security Agreement
dated as of December 23, 1986, as amended by Deed of Substitution of
Trustees dated October 9, 1987 and by Amendment of Deed of Trust and
Assumption Agreement dated as of October 12, 1987, among Cogentrix
Virginia, the Partnership, the Trustee and the Original Agent, and as
further amended by the Amendment of Deed of Trust dated as of September
1, 1988, by and between the Partnership, the Trustee and the Original
Agent, and by the Amendment of Credit Line Deed of Trust, dated as of
July 1, 1996, by and between the Partnership, the Trustee and the
Original Agent, and as to be further amended on or before the Effective
Date by the Mortgage Amendment.
"Mortgage Amendment" shall mean the Amendment of Credit Line
Deed of Trust substantially in the form of Exhibit E hereto, to be
entered into by the Partnership, the Trustee and the Agent on or before
the Effective Date.
"Mortgagee" shall mean, collectively, the substitute trustees
and the beneficiaries' agent under the Mortgage.
<PAGE> 17
16
"Multiemployer Plan" shall mean a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Notes" shall mean the collective reference to the Term Notes
and the Debt Service Letter of Credit Note; individually, a "Note."
"Obligations" shall mean all of the obligations and
liabilities of the Partnership to the Secured Parties or any of them
now or in the future existing under or in connection with this
Agreement, the Notes, the Swaps or any of the other Project Documents
(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.
"Obligors" shall mean the Partnership, Cogentrix Virginia,
Capistrano, EME, Cogentrix Energy, Delaware Holdings, CHC, the Parent,
VEPCO, Pontiki, MAPCO Coal, Inc., Allied, the Railroad Carrier, RTI and
each other party to any of the Project Documents (other than any
Financing Party).
"Officer's Certificate" shall mean, in respect of any
corporation, a certificate of the President, any Vice President, the
Chief Financial Officer or the Treasurer of such corporation and, in
respect of the Partnership, a certificate of its Executive Director or
its Treasurer.
"Operation and Maintenance Agreement" shall mean the
Operations, Maintenance and Management Agreement dated as of October 1,
1987, as amended by Amendment No. 1 thereto dated as of May 1, 1990,
and Amendment No. 2 thereto dated as of July 1, 1996, between the
Partnership and Cogentrix Virginia.
"Overhead Fee" shall mean the portion of "Basic Compensation"
payable to Cogentrix Virginia pursuant to Section 7.01 of the Operation
and Maintenance Agreement for "other personnel provided and services
rendered."
"Parent" shall mean Cogentrix, Inc., a North Carolina
corporation which is a wholly-owned Subsidiary of CHC and the owner of
all of the outstanding capital stock of Cogentrix Virginia.
"Parent Pledge Agreement" shall mean the Pledge and Security
Agreement dated as of December 1, 1986, as amended by Amendment No. 1
thereto dated as of September 1, 1988, between the Parent and Paribas
as the Grantee and as supplemented by the Supplement to Pledge
Agreement dated December 15, 1993 made by the Parent and Cogentrix
Energy to
<PAGE> 18
17
the Original Agent, and as further amended by Amendment No. 2 thereto
dated as of July 1, 1996, between the Parent and Paribas as the Grantee
and as to be amended on or before the Effective Date by Amendment No. 3
to the Pledge and Security Agreement between the Parent and the
Grantee, substantially in the form of Exhibit F hereto.
"Paribas" shall mean Banque Paribas, New York Branch.
"Partner Assignments" shall mean (a) the Assignment and
Security Agreement dated as of October 1, 1987, as amended by the
Amendment No. 1 thereto dated as of September 1, 1988 and the Amendment
No. 2 thereto dated as of July 1, 1996, between Capistrano and Paribas
as the Grantee, as to be amended on or before the Effective Date by an
Amendment substantially in the form of Exhibit H-2 hereto, and (b) the
Assignment and Security Agreement dated as of October 1, 1987, as
amended by Amendment No. 1 dated as of September 1, 1988 and the
Amendment No. 2 thereto dated as of July 1, 1996, between Cogentrix
Virginia and Paribas as the Grantee, as to be amended on or before the
Effective Date by an Amendment substantially in the form of Exhibit H-1
hereto.
"Partners" shall mean Cogentrix Virginia and Capistrano, the
sole general partners of the Partnership.
"Partnership Agreement" shall mean the General Partnership
Agreement dated as of September 30, 1987 between Cogentrix Virginia and
Capistrano.
"Partnership Distribution Date" shall have the meaning
assigned to that term in the Security Deposit Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Investments" shall have the meaning assigned to
that term in the Security Deposit Agreement.
"Permitted Liens" shall mean (a) the Liens of the Security
Documents; (b) purchase money security interests in respect of Debt in
the aggregate not exceeding $500,000 at any time arising out of
equipment purchases; (c) Liens in favor of any Person other than in
favor of any affiliate of the Partnership (including without limitation
any Affiliated Obligor) which arise in the ordinary course of business
of the Partnership but not in connection with any Debt and which do not
in the aggregate materially impair the use and value of the
Partnership's property or assets in the conduct of its business or
impair the rights or interests of the Banks or the Agent with respect
to the collateral; provided that if any such Lien arose in connection
with any tax
<PAGE> 19
18
assessment, governmental charge or levy or claim referred to in Section
7.5 hereof the Partnership or any Partner, as the case may be, shall be
diligently contesting the same and shall have set aside adequate
reserves with respect thereto in accordance with the provisions of the
second sentence of said Section 7.5; (d) any exceptions to title,
acceptable to the Banks, which are contained in the title insurance
policy delivered to the Agent pursuant to Section 6 hereof; and (e)
Liens in favor of any Swap Counterparty in respect of any Swap.
"Person" shall mean an individual, corporation, partnership,
joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Plan" shall mean at any particular time, any employee benefit
plan which is covered by ERISA and in respect of which the Partnership
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.
"Pontiki" shall mean Pontiki Coal Corporation, a Delaware
corporation.
"Power Purchase Agreement" shall mean the Power Purchase and
Operating Agreement dated as of December 31, 1985, as amended by
Amendment No. 1 dated as of December 15, 1986, by Amendment No. 2 dated
March 18, 1987, by Amendment No. 3 dated as of July 1, 1989 and by
Amendment No. 4 dated as of January 1, 1996, between VEPCO and
Cogentrix Virginia, providing for the purchase by VEPCO of the net
electricity produced by the Facility, as assigned by Cogentrix Virginia
to the Partnership with the consent of VEPCO on October 12, 1987
pursuant to the Transfer Document and as amended and restated by the
Power Purchase Agreement Amendment.
"Power Purchase Agreement Amendment" shall mean the Fifth
Amendment and Restatement of the Power Purchase and Operating
Agreement, dated January 28, 1998, between the Partnership and VEPCO.
"Prime Rate" shall mean the greater of (i) 3/4 of 1% above the
Federal Funds Rate and (ii) the prime commercial lending rate publicly
announced by Credit Lyonnais in New York, New York from time to time
for extensions of credit in the United States. The Prime Rate is not
intended to be the lowest rate of interest charged by Credit Lyonnais
in connection with extensions of credit to debtors. Each change in any
interest rate provided for herein based upon the Prime Rate resulting
from a change in the Prime Rate
<PAGE> 20
19
shall take effect at the time of such change in the Prime Rate.
"Prime Rate Loan" shall mean a Loan which bears interest as
provided in Section 3.4(a) hereof.
"Principal Office" shall mean the principal office of the
Agent, presently located at 1301 Avenue of the Americas, New York, New
York 10019.
"Project" shall mean the Facility, the Site, the easements
granted to Cogentrix Virginia pursuant to the Easement Agreements and
assigned by Cogentrix Virginia to the Partnership on October 12, 1987
pursuant to the Transfer Document, and all other real property
interests granted or assigned in the Ground Lease or in the Mortgage.
"Project Cash Flow" shall mean, for any period, the amount (if
any) by which Project Revenues of the Partnership for such period
exceed the Cash Operating Costs of the Partnership for such period.
"Project Documents" shall mean, collectively, this Agreement,
the Power Purchase Agreement, the Steam Purchase Agreement, the Coal
Sales Agreement, the Transportation Contract, the Construction
Contract, the Security Documents, the Ground Lease, the Easement
Agreements, each Consent and Agreement, the Technical Services
Agreement, the Operation and Maintenance Agreement, the Partnership
Agreement, the Ash Disposal Contract, the Notes, the Indemnity
Agreements, each Swap, each Additional Contract and any contract or
agreement entered into in substitution for or replacement of any of the
foregoing documents with the written consent of the Banks.
"Project Revenues" of the Partnership shall mean, for any
period, the sum of the following (without duplication): (a) all
revenues received by the Partnership under the Power Purchase Agreement
and the Steam Purchase Agreement, plus (b) all other revenues received
by the Partnership from the sale of electricity, steam or any other
by-products plus (c) interest income received by the Partnership plus
(d) all payments made by Cogentrix Energy or EME pursuant to either of
the Indemnity Agreements during such period .
"Proportionate Share" shall mean, with respect to each Bank,
the percentage set below such Bank's name on the signature pages
hereof.
"Property Tax Account" shall mean the Property Tax Account
established pursuant to the Security Deposit Agreement.
<PAGE> 21
20
"PURPA" shall mean the Public Utility Regulatory Policies Act
of 1978, as amended from time to time.
"Qualifying Facility" shall mean a cogeneration facility
meeting all of the requirements for a "qualifying cogeneration
facility" set forth in PURPA and in Part 292 of the rules and
regulations of FERC under PURPA.
"Quarterly Distribution Date" shall have the meaning assigned
thereto in the Security Deposit Agreement.
"Railroad Carrier" shall mean Norfolk Southern Corporation.
"Reorganization" shall mean, with respect to any Multiemployer
Plan, the condition that such Plan is in reorganization within the
meaning of such term as used in Section 4241 of ERISA.
"Reportable Event" shall mean 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 subsection .13, .14, .16, .18,
.19 or .20 of PBGC Reg. 2615.
"Required Stated Amount" shall mean an amount equal to
$5,000,000.
"Required Projections" shall mean the projections of revenues,
expenses, cash flow, debt service and other related items for the
Project (including Debt Coverage Ratios) for the period from the
Effective Date to the Final Payment Date, as set forth in Schedule 6
hereto, which projections shall (A) be satisfactory in form and
substance to each Financing Party, (B) be consistent with the report of
the Consulting Professional received by the Agent in satisfaction of
Section 6.1(v) hereto and (C) show, among other things, a Debt Coverage
Ratio of no less than 1.4 to 1.0 for the period from the Effective Date
to the Final Payment Date and of no less than 1.25 to 1.0 for each
calendar year or portion thereof during such period.
"Reserve Percentage" of any Bank for any Interest Period shall
mean the reserve percentage actually maintained by such Bank during
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or if more than one
such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) for determining the maximum
reserve requirement (including, without limitation, any marginal
reserve requirement) for such Bank with respect to liabilities or
assets consisting
<PAGE> 22
21
of or including Eurocurrency Liabilities having a term equal to such
Interest Period.
"Revenue Account" shall have the meaning set forth in the
Security Deposit Agreement.
"Restricted Payments" shall have the meaning assigned thereto
in Section 8.3 hereof.
"RTI" shall mean Reuse Technology, Inc., a North Carolina
corporation.
"Secured Parties" shall mean the collective reference to the
Agent, the Issuing Bank, the Banks and each Swap Counterparty.
"Security Agent" shall mean, initially, First Union National
Bank or, subsequently, any bank approved by the Banks acting as
successor security agent under the Security Deposit Agreement.
"Security Agreement" shall mean the Security Agreement and
Assignment dated as of October 1, 1987, as amended by Amendment No. 1
thereto dated as of September 1, 1988 and Amendment No. 2 thereto dated
as of July 1, 1996, between the Partnership and Paribas as the Grantee,
and as to be amended on or before the Effective Date by Amendment No. 3
to Security Agreement between the Partnership and the Grantee,
substantially in the form of Exhibit D hereto.
"Security Deposit Agreement" shall mean the Third Amended and
Restated Security Deposit Agreement to be entered into on or before the
Effective Date among the Partnership, Cogentrix Virginia, the Grantee
and the Security Agent, substantially in the form of Exhibit I hereto.
"Security Documents" shall mean, collectively, the Mortgage,
the Security Agreement, the Partner Assignments, the Assignments, the
Parent Pledge Agreement and the Security Deposit Agreement.
"Significant Default" shall mean (i) any Default or Event of
Default referred to in Section 9(a), 9(b), 9(e), 9(f), 9(g), 9(k),
9(l), 9(m), 9(n), 9(o), 9(p) or 9(q) hereof, (ii) any Event of Default
referred to in Section 9(c) hereof unless such Event of Default results
from a failure to comply with the provisions of Section 7.4 or 7.13
hereof, (iii) any Event of Default referred to in Section 9(d), 9(h),
9(i) or 9(j) hereof and (iv) any Event of Default not specified in the
foregoing clauses (i) through (iii) which has been in existence for a
period of more than
<PAGE> 23
22
180 days or with respect to which judicial proceedings are pending.
"Single Employer Plan" shall mean any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Site" shall mean the parcel of land described in Schedule 2.
"Specified Costs" shall have the meaning assigned thereto in
the Indemnity Agreements.
"Steam Purchase Agreement" shall mean the Steam Purchase
Contract dated as of January 31, 1986, as amended by First Amendment to
Steam Purchase Contract dated as of August 29, 1986, between Allied and
Cogentrix Virginia, providing for the purchase by Allied of steam
produced by the Facility, as assigned by Cogentrix Virginia to the
Partnership with the consent of Allied on October 12, 1987 pursuant to
the Transfer Document.
"Subsidiary" shall mean, with respect to any Person, any
corporation (whether now existing or hereafter organized) at least a
majority of the securities of which having ordinary voting power for
the election of directors (other than securities having such power only
by reason of the happening of a contingency) are at the time owned by
such Person or one or more Subsidiaries of such Person or any
combination thereof.
"Swap" shall mean any contract entered into by the Partnership
with a Swap Counterparty in respect of an interest rate swap
transaction, interest "cap" or "collar" transaction and/or any other
interest rate hedging transaction or interest rate protection
transaction and, solely for the purposes of Section 7.16(c) hereof, any
unsecured contract entered into by the Partnership with any financial
institution in respect of an interest rate "cap" transaction provided
that such financial institution has a credit rating for its long-term
unsecured debt of "A" or better by Standard & Poor's Corporation and
"A2" or better by Moody's Investors Service, Inc., and is otherwise
reasonably satisfactory to the Agent.
"Swap Counterparty" shall mean any Bank which is a
counterparty to any Swap.
"Technical Services Agreement" shall mean the Technical
Services Agreement, dated April 26, 1983, between the Parent (then
known as Cogentrix of North Carolina, Inc.) and Duke Power Company, as
amended by the Request for Services issued thereunder with respect to
the Facility and accepted by Duke
<PAGE> 24
23
Power Company on October 18, 1985 and by the Assignment dated as of
October 13, 1986 by the Parent to Cogentrix Virginia of the Parent's
right, title and interest in, to and under said Technical Services
Agreement as so amended insofar as it relates to the Facility, and as
such Technical Services Agreement has been assigned by Duke Power
Company to Duke Engineering and Services, Inc., and assigned by
Cogentrix Virginia to the Partnership with the consent of Duke
Engineering and Services, Inc. on October 12, 1987 pursuant to the
Transfer Document.
"Term Loans" shall have the meaning assigned thereto in
Section 3.1 hereof.
"Term Note" shall have the meaning assigned thereto in Section
4.4 hereof.
"Tranche" shall mean the collective reference to Eurodollar
Loans or CD Rate Loans having the same Interest Period (whether or not
originally made on the same day); Tranches may be identified as
"Eurodollar Tranches" or "CD Rate Tranches", as the case may be.
"Transfer Document" shall mean the Bill of Sale, Assignment of
Interest in Ground Lease and Easement Agreements and General
Assignment, dated October 12, 1987, given by Cogentrix Virginia to the
Partnership.
"Transferee" shall have the meaning assigned thereto in
Section 14.3(d) hereof.
"Transferor Banks" shall have the meaning assigned thereto in
the recitals hereof.
"Transportation Contract" shall mean the Railroad
Transportation Contract dated December 15, 1986, as amended by
Amendment No. 1 dated as of October 6, 1987 and by Amendment No. 2
dated as of August 3, 1990, between Cogentrix Virginia and the Railroad
Carrier, as assigned by Cogentrix Virginia to the Partnership with the
consent of the Railroad Carrier on October 12, 1987 pursuant to the
Transfer Document.
"Trustee" shall mean Courtland L. Traver, as trustee under the
Mortgage, and any successor or replacement thereto.
"Twelve-Month Project Cash Flow" shall mean, as of any
Installment Payment Date, the sum of Project Cash Flow for the
twelve-month period ending on such date (or, in the case of the
Installment Payment Dates occurring in March, June, September and
December of 1998, for the period from the Effective Date to such
Installment Payment Date).
<PAGE> 25
24
"Twelve-Month Debt Coverage Ratio" shall mean, as of any
Installment Payment Date, the ratio of (a) Twelve-Month Project Cash
Flow as of such date to (b) Twelve-Month Debt Service as of such date
(not counting, for purposes of calculating this ratio, any prepayments
of principal of the Term Loans pursuant to Section 3.3(a) or 3.3(b)
hereof).
"Twelve-Month Debt Service" shall mean, as of any Installment
Payment Date, Debt Service for the twelve-month period ending on such
date (or, in the case of the Installment Payment Dates occurring in
March, June, September and December of 1998, for the period from the
Effective Date to such Installment Payment Date).
"Type" shall mean, as to any Term Loan, its nature as a Prime
Rate Loan, CD Rate Loan or Eurodollar Loan and, as to any Debt Service
Letter of Credit Loan, its nature as a Prime Rate Loan or Eurodollar
Loan.
"VEPCO" shall mean Virginia Electric and Power Company, a
Virginia corporation.
"VEPCO Consent" shall mean the Consent and Agreement dated as
of January 28, 1998 by VEPCO consenting to the assignment by the
Partnership to the Grantee on behalf of the Secured Parties of the
Power Purchase Agreement.
"Working Day" shall mean any Business Day on which dealings
between banks may be carried on in the London, England interbank
market.
SECTION 1.2. Certain Documents. Unless the context
requires otherwise, any reference in this Agreement to any of the Project
Documents shall mean any of such documents as amended, supplemented or modified
and in effect from time to time.
SECTION 1.3. Accounting Principles and Terms. Except as
otherwise provided in this Agreement, (a) all computations and determinations as
to financial matters, and all financial statements to be delivered under this
Agreement, shall be made or prepared in accordance with GAAP (including
principles of consolidation where appropriate) and on a consistent basis, and
(b) all accounting terms used in this Agreement shall have the meaning
respectively ascribed to such terms by GAAP.
SECTION 2
REPRESENTATIONS AND WARRANTIES
The Partnership represents and warrants to each Financing
Party as follows:
<PAGE> 26
25
SECTION 2.1. Existence and Authority, Etc. (a) The Partnership
is a general partnership duly organized, validly existing and in good standing
under the laws of the State of North Carolina and is duly qualified to do
business and is in good standing in the Commonwealth of Virginia and in all
other places where necessary in light of the business and properties it conducts
and owns and intends to conduct and own. The Partnership has full power,
authority and legal right to incur the obligations provided for in the Project
Documents to which the Partnership is a party (either directly or by assignment
from Cogentrix Virginia) and to perform the terms thereof. The Project Documents
to which the Partnership is a party (either directly or by assignment from
Cogentrix Virginia) have been duly authorized, executed and delivered by the
Partnership and constitute the legal, valid and binding obligations of the
Partnership, and each of them is enforceable in accordance with its respective
terms against the Partnership, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
(b) Cogentrix Virginia and Capistrano are the sole partners of
the Partnership. Each Partner is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and is
duly qualified to do business and is in good standing in the Commonwealth of
Virginia. Each Partner has the corporate power and authority to act as a general
partner of the Partnership, to own its property and to carry on its business as
now conducted. Each Partner has taken all action, if any, that may be necessary
under the laws of the Commonwealth of Virginia or its state of incorporation to
enter into the Partnership Agreement and to act as a partner thereunder.
SECTION 2.2. No Breach. The making and performance by the
Partnership of each of the Project Documents to which it is a party (either
directly or by assignment from Cogentrix Virginia) have been duly authorized by
all necessary partnership action on the part of the Partnership and do not and
will not (a) violate the provisions of the Partnership Agreement; (b) violate
the provisions of any law, regulation or order of any governmental or regulatory
authority applicable to the Partnership or the Project, the noncompliance with
which could reasonably be expected to have a materially adverse effect on the
Partnership or the Project or on the Partnership's ability to perform its
obligations under the Project Documents; (c) result in a breach of or constitute
a default under any agreement relating to the management or affairs of the
Partnership or any Partner or any Project Document, or under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
the Partnership or any Partner is a party or by which the Partnership or any
Partner or any of their respective properties
<PAGE> 27
26
may be bound; or (d) result in or create any Lien (other than the Liens created
by the Security Documents) under, or require any consent (other than consents
which have been duly obtained and are in full force and effect) under, any
Project Document, indenture or loan or credit agreement or any other agreement,
instrument or document, or the provisions of any order, writ, judgment,
injunction, decree, determination or award of any court, governmental or
regulatory authority affecting the Partnership or any Partner or any of their
respective assets.
SECTION 2.3. Government Approvals. All Government Approvals
necessary under applicable laws and regulations in connection with (a) the due
execution and delivery of, and performance by the Partnership of its obligations
and the exercise of its rights under, the Project Documents, (b) the
construction, completion and operation of the Project as contemplated by the
Project Documents, and (c) the grant by the Partnership of the Liens created
pursuant to the Security Documents and the validity and enforceability thereof
and the perfection of and the exercise by the Agent of its rights and remedies
thereunder, which are required to be obtained by the Partnership or any Partner,
have been duly obtained or made and are in full force and effect, except for
Government Approvals of a routine nature which are not necessary for the
ownership or for the normal operation of the Facility, none of which are
obtainable on or before the Effective Date and all of which will be duly
obtained or made when required. The failure to obtain or make any such
Government Approval on or before the Effective Date (i) will not cause the
ownership or operation of the Facility by the Partnership to be in violation of
any law or governmental rule or regulation, (ii) will not have any adverse
effect on the Partnership's title to or operation of the Facility or on the
exercise of its rights or the performance of its obligations under the Project
Documents, and (iii) will not have any adverse effect on the rights, interests
and Liens of any of the Secured Parties under the Security Documents. There is
no proceeding pending, or to the best knowledge of the Partnership, threatened
against the Partnership or any Partner which seeks, or may reasonably be
expected, to rescind, terminate, modify or suspend any Government Approval
heretofore obtained or made. The Partnership has no reason to believe that any
Government Approval which has not been obtained by the Partnership as of the
date of this Agreement but which will be required by the Partnership in the
future will not be granted to it in due course.
SECTION 2.4. Financial Condition. The balance sheets of the
Partnership as of December 31, 1996 and December 31, 1997 and the related
statements of income, partners' capital and changes in financial position of the
Partnership for the fiscal years then ended (audited by Arthur Andersen & Co.,
in the case of the balance sheet and statement in respect of fiscal year
December 31, 1996, and unaudited and certified by the Treasurer of the
Partnership, in the case of the balance sheet and
<PAGE> 28
27
statements in respect of fiscal year 1997), copies of which have heretofore been
furnished to each Bank, are complete and correct in all material respects and
fairly present the financial condition of the Partnership as at said date and
the results of its operations and changes in its financial condition for the
fiscal year then ended, in conformity with GAAP on a consistent basis. Since
December 31, 1996 there has been no material adverse change in the financial
condition, business, operations or properties of the Partnership.
SECTION 2.5. Title; Liens. The Partnership owns and has good
title to the Facility, the Assigned Agreements and all other Collateral (other
than the "Collateral" as such term is defined in the Parent Pledge Agreement and
the Partner Assignments) free and clear of all Liens other than Permitted Liens.
No mortgage or financing statement or other instrument or recordation covering
all or any part of the Collateral is on file in any recording office, except
such as may have been filed in favor of the Grantee or the Mortgagee or the
Security Agent. The Partnership has been granted all easements required for
access to, and construction and operation of, the Facility, including (without
limitation) all necessary permanent easements to run and use railroad lines and
tracks to the Facility and to permit the discharge of water from the Facility.
SECTION 2.6. Proceedings. There is no action, suit or
proceeding at law or in equity or by or before any governmental or regulatory
authority, court, arbitral tribunal or other body now pending (or, to the best
knowledge of the Partnership, threatened) against or affecting the Partnership
or any Partner or any of their respective properties, rights or assets, or the
Project, which could reasonably be expected to materially adversely affect the
financial condition, business, assets or operations of the Partnership or any
Partner or the ability of the Partnership or any Partner to carry out the
transactions contemplated by the Project Documents or to operate the Facility as
contemplated by the Project Documents, or reduce in any material respect the
value of the security granted to the Secured Parties pursuant to the Security
Documents.
SECTION 2.7. Material Agreements and Licenses. No licenses,
trademarks, patents or agreements with respect to the usage of technology or
other permits (other than those constituting Government Approvals referred to in
Section 2.3 hereof) are necessary for the construction, ownership, operation and
maintenance of the Project.
SECTION 2.8. No Default. The Partnership is not in default
under or with respect to any Project Document or other agreement, lease or
instrument to which it is a party or by which it or its properties may be bound.
To the best knowledge of the Partnership, no other party to any Project Document
is in default thereunder. No Default (with respect to Defaults caused solely
<PAGE> 29
28
by acts of Persons other than the Partnership or any Affiliated Obligor, to the
best knowledge of the Partnership) or Event of Default has occurred and is
continuing.
SECTION 2.9. Taxes. The Partnership has filed or caused to be
filed all tax returns which are required to be filed by it, 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 assets and all other taxes, fees or other charges
imposed on it by any governmental authority (except taxes, fees and charges
which are being contested by the Partnership in accordance with the provisions
of Section 7.5 hereof).
SECTION 2.10. Security Documents. The Security Documents are
effective to create, in favor of the Secured Parties, a legal, valid and
enforceable lien on or security interest in all of the Collateral covered
thereby, and all necessary and appropriate recordings and filings have been
effected in all necessary and appropriate public offices so that each Security
Document constitutes a perfected lien on or security interest in all right,
title, estate and interest of the Partnership, any Partner or the Parent, as the
case may be, in the Collateral covered thereby prior and superior to all other
Liens other than Permitted Liens.
SECTION 2.11. Delivery of Project Documents. Each Bank has
received a complete copy of each Project Document (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any, and all amendments thereto). Except for the assignment of the
Project Documents to the Partnership and the amendments thereof pursuant to the
Assumption and Modification Agreement and the agreements attached as exhibits
thereto, and except for amendments consented to in writing by the Banks, as of
the Effective Date none of the Project Documents has been amended, modified or
terminated. All of the Project Documents are in full force and effect.
SECTION 2.12. Disclosure. No representation, warranty or other
statement made by the Partnership or any Partner or the Parent in this Agreement
or in any other Project Document or in any other document furnished from time to
time by the Partnership or any Partner or the Parent in connection herewith or
therewith contains or will contain any untrue statement of a material fact or
omits or will omit to state (as of the date made or furnished) any material fact
necessary to make the statements herein or therein not misleading in light of
the circumstances under which they were made. There is no fact known to the
Partnership or any Partner which has not been disclosed in writing to the Banks
and which materially adversely affects, or which could reasonably be expected in
the future to materially adversely affect, the Partnership or the Project.
<PAGE> 30
29
SECTION 2.13. ERISA. The Partnership does not maintain any
plan to which subsection 4021 of ERISA is applicable. As used in this Section
2.13, "plan" means any pension plan which is covered by Title IV of ERISA.
SECTION 2.14. Representations and Warranties in Project
Documents. The representations and warranties of the Partnership contained in
the Project Documents other than this Agreement were true and correct on and as
of the dates when made; and, except to the extent such representations and
warranties relate solely to an earlier date, the Partnership hereby confirms as
of the date hereof each such representation and warranty with the same effect as
if set forth in full herein.
SECTION 2.15. Location of Site. The Site does not lie within
an area identified by the Secretary of Housing and Urban Development as an area
having special flood hazards.
SECTION 2.16. Use of Proceeds. (a) The proceeds of the
Additional Term Loans shall be applied by the Partnership to pay (i) the
interest on the Existing Term Loans, if any, which is accrued and unpaid to and
including the Effective Date, and the commissions, fees and other amounts
payable by the Partnership which have accrued under the Existing Reimbursement
Agreement as of the Effective Date (whether or not then due and payable and
including any amounts payable to any of the Transferor Banks pursuant to Section
5.4 of the Existing Reimbursement Agreement as a result of the transactions
contemplated under the Bank Assignment), (ii) the fees and expenses payable to
the Banks and the Agent on the Effective Date pursuant to Sections 3.8 and 11
hereof, (iii) any amounts owing by it to Paribas in connection with the
termination of the Existing Swap pursuant to Section 6.1(1) hereof and (iv) any
other fees, expenses and other costs incurred by the Partnership in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the other Project Documents and the transactions contemplated hereby. The
proceeds of the Additional Term Loans remaining after payment of the foregoing
amounts may be distributed by the Partnership on or after the Effective Date to
the Partners.
(b) No part of the proceeds of any Loans will be used for any
purpose which would result in a violation of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System or to extend credit to others
for any such purpose. The Partnership is not engaged in, nor will it engage in,
the business of extending credit for the purpose of purchasing or carrying any
"margin stock" (as defined in said Regulations).
SECTION 2.17. Qualifying Facility. The Facility is certified
by FERC as a Qualifying Facility as owned by the Partnership.
<PAGE> 31
30
SECTION 2.18. Investment Company Act. Neither the Partnership
nor any Partner is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 2.19. Principal Place of Business, Etc. the principal
place of business and chief executive office of the Partnership, and the office
where the Partnership keeps its records concerning the Project, the Project
Documents and all contracts relating thereto, is located at 9405 Arrowpoint
Boulevard, Charlotte, North Carolina 28273.
SECTION 2.20. Environmental Matters. The Partnership has
operated the Facility in compliance, in all material respects, with all
applicable federal, state and local environmental standards and requirements
affecting the Site or the Facility (it being understood that no representation
or warranty is being made hereby concerning any conditions existing at the Site,
or any operations or other activity taking place at the Site, prior to the date
that the Partnership took possession of the Site pursuant to the Ground Lease).
Except as otherwise disclosed as Schedule 7 hereto, neither the Partnership nor
any of its Affiliates has received any notice of violation or advisory action by
any regulatory agency or other governmental authority regarding environmental
control matters or permit compliance in respect of the Site or the Facility.
With respect to the Site and the Facility, there are no proceedings,
governmental administrative actions or judicial proceedings pending under any
federal, state or local law regulating the discharge of hazardous or toxic
materials or substances into the environment, to which the Partnership or any of
its Partners is named as a party.
SECTION 3
LOANS
SECTION 3.1. Term Loans. (a) Immediately prior to this
Agreement's becoming effective on the Effective Date, the Banks shall purchase
all of the outstanding "Loans" (as defined in the Existing Loan Agreement) from
the Transferor Banks pursuant to the Bank Assignment, so that the outstanding
Term Loan held immediately thereafter by each Bank (collectively, the "Existing
Term Loans") shall be in the amount set forth under such Bank's name on the
signature pages hereof under the caption "Existing Term Loan Amount".
(b) Subject to the terms and conditions of this Agreement,
each Bank agrees to make an additional term loan to the Partnership on the
Effective Date in a principal amount equal to the amount set forth under such
Bank's name on the signature pages hereof under the caption "Additional Term
Loan Amount"
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(collectively, the "Additional Term Loans"; the Existing Term Loans and the
Additional Term Loans being hereinafter collectively referred to as the "Term
Loans").
(c) The Term Loans shall on the Effective Date all be Prime
Rate Loans. Thereafter, subject to and upon the terms and conditions of this
Agreement, the Term Loans may from time to time be Eurodollar Loans, CD Rate
Loans or Prime Rate Loans or a combination thereof, as determined by the
Partnership and notified to the Agent in accordance with Section 3.7 hereof.
SECTION 3.2. Repayment of the Term Loans. The Partnership
shall repay the Term Loans of each Bank in (a) 19 consecutive quarterly
installments on the seventh day of each March, June, September and December
commencing on March 7, 1998 and (b) one installment on the Final Payment Date
(each such day described in (a) and (b) above, an "Installment Payment Date"),
each such installment to be in an aggregate principal amount equal to the amount
specified on Schedule 5 hereto for the Installment Payment Date on which such
installment is payable.
SECTION 3.3. Prepayments. (a) The Partnership may, without
penalty, upon at least five day's prior written notice to the Agent, prepay the
outstanding principal amount of the Term Loans, in whole or ratably in part,
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that each partial prepayment shall be in an
aggregate principal amount not less than $1,000,000 or an integral multiple
thereof. Any prepayments pursuant to this Section 3.3(a) may not be reborrowed.
(b) (i) If an Event of Loss shall occur, on the earlier of (A)
the date occurring 90 days after the date of such Event of Loss and (B) the date
on which the insurance proceeds are received with respect to such Event of Loss,
the Partnership shall prepay in full the principal amount of the then
outstanding Loans, together with accrued interest thereon to the date of
prepayment, and all of the other Obligations.(b) (i) If an Event of Loss shall
occur, on the earlier of (A) the date occurring 90 days after the date of such
Event of Loss and (B) the date on which the insurance proceeds are received with
respect to such Event of Loss, the Partnership shall prepay in full the
principal amount of the then outstanding Loans, together with accrued interest
thereon to the date of prepayment, and all of the other Obligations.
(ii) If any of the conditions to the payment by the
Partnership of Restricted Payments set forth in Section 8.3(a) hereof are
unsatisfied on six consecutive Quarterly Distribution Dates, the Partnership
shall, on the Partnership Distribution Date immediately succeeding the last such
Quarterly Distribution Date, prepay the Term Loans in an amount equal to the
aggregate amount then on deposit in the Debt Protection Account.
(iii) All Special Payments deposited in the Special Payment
Account (as such terms are defined in the Security Deposit Agreement) shall be
applied to prepay the outstanding principal amount of the Term Loans, together
with accrued interest to the date of such prepayment on the principal amount
prepaid.
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(c) Amounts prepaid pursuant to Section 3.3(b) hereof may not
be reborrowed.
(d) Any prepayment of the Term Loans pursuant to Section
3.3(a) or 3.3(b)(iii) hereof shall be applied to the remaining installments of
principal thereof in the inverse order of maturity. Any prepayment of the Term
Loans pursuant to Section 3.3(b)(ii) shall be applied pro rata to the remaining
installments of principal thereof.
(e) Partial prepayments of the Loans shall be applied first to
any Prime Rate Loans then outstanding and secondly, to the extent of any excess,
to the Eurodollar Loans then outstanding, pro rata according to the respective
outstanding aggregate principal amounts of each such Type of Loan; provided that
prepayments of Eurodollar Loans, if not on the last day of the Interest Period
with respect thereto, shall, at the Partnership's option, be either (x) prepaid
subject to the provisions of Section 5.4 hereof or (y) an amount equal to the
amount of such prepayment shall be deposited with the Agent as cash collateral
for the Loans on terms reasonably satisfactory to the Majority Banks and
thereafter shall be applied to the prepayment of the Loans in the order of the
Interest Periods next ending most closely to the date of deposit of such amount
and on the last day of each such Interest Period.
SECTION 3.4. Interest. The Partnership shall pay interest on
the unpaid principal amount of each Loan until such principal amount shall be
paid in full, at one of the following rates per annum:
(a) Prime Rate Loans. If such Loan is a Prime Rate Loan, a
rate per annum equal at all times to the sum of the Prime Rate in effect from
time to time plus the Applicable Margin, payable on each Installment Payment
Date during such period and on the date that such Prime Rate Loan shall be
Converted or paid in full.
(b) CD Rate Loans. If such Loan is a CD Rate Loan, a rate per
annum equal at all times during each Interest Period for such Loan to the sum of
the CD Rate for such Interest Period plus the Applicable Margin, payable on the
last day of such Interest Period or, if the duration of such Interest Period is
180 or 360 days, payable on the date which is 90 days after the first day of
such Interest Period and on the last day of each successive 90-day period
thereafter, to and including the last day of such Interest Period.
(c) Eurodollar Rate Loans. If such Loan is a Eurodollar Rate
Loan, a rate per annum equal at all times during each Interest Period for such
Loan to the sum of the Eurodollar Rate for such Interest Period plus the
Applicable Margin, payable on the last day of such Interest Period or, if the
duration of
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such Interest Period is six or twelve months, payable on the date which is three
months after the first day of such Interest Period and on the last day of each
successive three-month period thereafter, to and including the last day of such
Interest Period.
Without prejudice to the rights of any Financing Party under
the foregoing provisions of this Section 3.4, the Partnership shall indemnify
each Financing Party against any loss or expense which it may reasonably sustain
or incur as a result of the failure by the Partnership to pay when due any
principal of any Loan to the extent that any such loss or expense is not
recovered pursuant to such foregoing provisions. A certificate of any such
Financing Party setting forth the basis for the determination of the interest
due on overdue principal and of the amounts necessary to indemnify such
Financing Party in respect of such loss or expense, submitted to the Partnership
and the Agent by such Financing Party, shall be conclusive and binding for all
purposes, absent manifest error.
SECTION 3.5. Additional Interest on Eurodollar Rate Loans. The
Partnership shall pay to each Financing Party, so long as such Financing Party
shall be required under regulations of the Board of Governors of the Federal
Reserve System to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities, additional interest on the
unpaid principal amount of each Loan of such Financing Party during such periods
as such Loan is a Eurodollar Rate Loan, from the date of such Loan until such
Loan is repaid or Converted, at an interest rate per annum equal at all times
during each Interest Period for such Eurodollar Rate Loan to the difference
obtained by subtracting (a) the Eurodollar Rate for such Interest Period for
such Eurodollar Rate Loan from (b) the rate obtained by dividing such Eurodollar
Rate referred to in clause (a) above by that percentage equal to 100% minus the
Reserve Percentage of such Financing Party for such Interest Period for such
Eurodollar Rate Loan, payable on each date on which interest is payable on such
Eurodollar Rate Loan. Such additional interest shall be determined by such
Financing Party and notified to the Partnership through the Agent.
SECTION 3.6. Interest Rate Determination and Protection. (a)
The Agent shall give prompt notice to the Partnership and the Financing Parties
of the applicable interest rate determined by the Agent for purposes of
paragraphs (a), (b) or (c) of Section 3.4 hereof.
(b) If the Agent shall be unable to determine the Eurodollar
Rate for any Eurodollar Rate Loans or the CD Rate for any CD Rate Loans,
(i) the Agent shall forthwith notify the
Partnership and the Financing Parties that the interest
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rate cannot be determined for such Eurodollar Rate Loans or CD
Rate Loans as the case may be,
(ii) each such Eurodollar Rate Loan or CD Rate
Loan, as the case may be, will automatically, on the last day
of the then existing Interest Period therefor, Convert into a
Prime Rate Loan (or, if such Loan is then a Prime Rate Loan,
will continue as a Prime Rate Loan), and
(iii) the obligations of the Financing Parties to
make, or to Convert Loans into, Eurodollar Rate Loans or CD
Rate Loans, as the case may be, shall be suspended until the
Agent shall notify the Partnership and the Financing Parties
that the circumstances causing such suspension no longer
exist.
(c) If, with respect to any Eurodollar Rate Loans or CD Rate
Loans, the Majority Banks notify the Agent that the Eurodollar Rate or the CD
Rate for any Interest Period for such Loans will not adequately reflect the cost
to such Majority Banks of making, funding or maintaining their respective
Eurodollar Rate Loans or CD Rate Loans, as the case may be, for such Interest
Period, the Agent shall forthwith so notify the Partnership and the Financing
Parties, whereupon
(i) each such Eurodollar Rate Loan or CD Rate
Loan, as the case may be, will automatically, on the last day
of the then existing Interest Period therefor, Convert into a
Prime Rate Loan (or, if such Loan is then a Prime Rate Loan,
will continue as a Prime Rate Loan), and
(ii) the obligations of the Financing Parties to
make, or to convert Loans into, Eurodollar Rate Loans or CD
Rate Loans, as the case may be, shall be suspended until the
Agent shall notify the Partnership and the Financing Parties
that the circumstances causing such suspension no longer
exist.
(d) If all or a portion of the principal amount of any Loan
made hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such Loan, if a Eurodollar Rate Loan or a CD Rate
Loan, shall be Converted to a Prime Rate Loan at the end of the last Interest
Period for which the Agent shall have determined a Eurodollar Rate or a CD Rate.
Any such overdue principal shall bear interest at a rate per annum which is 2%
above the rate which would otherwise be applicable pursuant to Section 3.4
hereof from the date such payment was due until payment in full (as well after
as before judgment).
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SECTION 3.7. Conversion and Continuation of Loans; Minimum
Amounts of Tranches. (a) The Partnership may on any Business Day, upon notice
given to the Agent no later than 11:00 A.M. (New York City time) on the third
Business Day prior to the date of the proposed Conversion and subject to the
provisions of Sections 3.6 and 5.2 hereof, Convert Loans which are Eurodollar
Loans or CD Rate Loans to Prime Rate Loans, provided that any such Conversion of
Eurodollar Loans or CD Rate Loans to Prime Rate Loans shall only be made on the
last day of an Interest Period with respect thereto. The Partnership may on any
Business Day, upon notice given to the Agent no later than 11:00 A.M. (New York
City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 3.6 and 5.2 hereof, Convert
Loans which are Prime Rate Loans or CD Rate Loans to Eurodollar Loans and
specify the Interest Period selected with respect thereto; provided, that any
such Conversion of CD Rate Loans shall only be made on the last day of an
Interest Period with respect thereto. The Partnership may on any Business Day,
upon notice given to the Agent no later than 11:00 A.M. (New York City time) on
the third Business Day prior to the date of the proposed Conversion and subject
to the provisions of Sections 3.6 and 5.2 hereof, Convert Loans (other than any
Debt Service Letter of Credit Loan) which are Prime Rate Loans or Eurodollar
Loans to CD Rate Loans and specify the Interest Period selected with respect
thereto; provided, that any such Conversion of Eurodollar Loans shall only be
made on the last day of an Interest Period with respect thereto. Each Conversion
shall be in an aggregate principal amount not less than $1,000,000 or any
integral multiple thereof (or such lesser amount as shall equal the then
aggregate outstanding amount of the Prime Rate Loans, the CD Rate Loans or the
Eurodollar Rate Loans, as the case may be). Each such notice of a Conversion
shall, within the restrictions specified above, specify (a) the date of such
Conversion and (b) the Loans to be Converted. All or any part of outstanding
Loans which are Eurodollar Loans, CD Rate Loans or Prime Rate Loans may be
Converted as provided herein, provided that no Loan may be Converted into a
Eurodollar Loan or CD Rate Loan when any Default or Event of Default has
occurred and is continuing.
(b) Unless the Partnership otherwise elects pursuant to the
proviso of this sentence or pursuant to Section 3.7(a) hereof, the Partnership
shall be deemed to have elected to continue the then outstanding principal
amount of any Eurodollar Loans or CD Rate Loans at the expiration of the
Interest Period with respect thereto as Loans of the same Type having an
Interest Period of the same duration as such expiring Interest Period; provided,
that the Partnership may elect to Convert any Eurodollar Loans or CD Rate Loans,
on the last day of the then current
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Interest Period with respect thereto, to Loans of the same Type having an
Interest Period of any other authorized duration by providing irrevocable notice
to the Agent not less than three Working Days prior to the last day of the then
current Interest Period with respect to such Eurodollar Loans or CD Rate Loans.
Notwithstanding anything to the contrary contained in this Section 3.7, no
Eurodollar Loan or CD Rate Loan shall be continued as such when any Default or
Event of Default has occurred and is continuing, but shall be automatically
Converted to a Prime Rate Loan on the last day of the then current Interest
Period with respect thereto. The Agent shall promptly notify the Partnership and
each of the Banks that such automatic Conversion contemplated by the Section
3.7(b) will occur.
(c) All borrowings, payments, prepayments and 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 any Eurodollar Tranche or CD Rate Tranche shall not be less than $1,000,000
(or the then remaining aggregate outstanding principal amount of the Loans, if
less than $1,000,000).
SECTION 3.8. Fees and Expenses. (a) The Partnership agrees to
pay to the Agent an administration fee of $40,000 per annum for the period from
the Effective Date to the date that this Agreement shall be terminated and all
of the Obligations paid in full (the "Administration Fee"). The Administration
Fee shall be payable on the Effective Date and on each anniversary of such date
thereafter until this Agreement shall have been terminated and all of the
Obligations paid in full.
(b) The Partnership agrees to pay, on the Effective Date, to
Credit Lyonnais for its own account an up-front fee in the amount heretofore
agreed between the Partnership and Credit Lyonnais.
SECTION 3.9. Maximum Interest. Anything in this Agreement or
the Notes to the contrary notwithstanding, the interest rate on any Loan or any
other amount payable under this Agreement or any Security Document shall in no
event be in excess of the maximum permitted by applicable law; provided that, to
the extent permitted by applicable law, in the event that interest is not
collected as a result of the operation of this Section 3.9 and interest
thereafter payable pursuant to this Agreement or the Notes shall be less than
such maximum amount, then such interest thereafter payable shall be increased up
to such maximum amount to the extent necessary to recover the amount of
interest, if any, theretofore uncollected as a result of the operation of this
Section 3.9. In determining whether or not any interest payable under this
Agreement or the Notes exceeds the maximum rate permitted by applicable law, any
non-principal payment, except payments specifically stated to be "interest,"
shall be deemed, to the extent permitted by applicable law, to be a fee, expense
reimbursement or premium rather than interest.
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SECTION 3A. DEBT SERVICE LETTER OF CREDIT
SECTION 3A.1 Issuance of Debt Service Letter of Credit. The
Issuing Bank shall issue on the Effective Date, upon the terms and subject to
the conditions hereunder, the Debt Service Letter of Credit in favor of the
Agent for the benefit of the Banks and the Issuing Bank. The Debt Service Letter
of Credit shall expire upon the first to occur of (a) the close of business on
the Final Payment Date, (b) the payment in full of the Term Loans and all
accrued and unpaid interest thereon, (c) the Issuing Bank's receipt of written
notice from the Agent to the effect that the Agent has accepted a letter of
credit or an alternate form of security provided by the Partnership and
acceptable to the Agent as a substitute for the Debt Service Letter of Credit,
(d) any drawing of the Debt Service Letter of Credit subsequent to the
occurrence of an Acceleration Event, as defined below, and (e) such earlier time
and date as the Agent, the Issuing Bank and the Partnership shall otherwise
agree. The date on which the Debt Service Letter of Credit shall expire is
herein referred to as the "Expiration Date." "Acceleration Event" shall mean any
event resulting in the acceleration of the maturity of the entire unpaid
principal amount of the Loans, causing all such principal and all accrued and
unpaid interest thereon to become immediately due and payable, pursuant to the
provisions of Section 9 of this Agreement.
SECTION 3A.2 Available Amount. It is understood and agreed
that the Issuing Bank shall not have any obligation to pay any draft presented
by the Agent under the Debt Service Letter of Credit if the amount of such draft
shall exceed the Available Amount (as defined below) as of the date of payment
of such draft. "Available Amount" shall mean, as of any date, the amount by
which the Required Stated Amount exceeds the aggregate outstanding principal
amount of all Debt Service Letter of Credit Loans as of such date.
SECTION 3A.3 Debt Service Letter of Credit Operations. The
Issuing Bank shall, as soon as practicable following its receipt of any draft
and accompanying documents purporting to represent a demand for payment under
the Debt Service Letter of Credit, (a) examine such draft and accompanying
documents to confirm that the same appear on their face to comply with the terms
and conditions of the Debt Service Letter of Credit and (b) give written or
telecopy notice to the Partnership (i) of such demand for payment and the
determination by the Issuing Bank as to whether such demand for payment was in
accordance with the terms and conditions of the Debt Service Letter of Credit
and (ii) if such demand was so in accordance, that the Issuing Bank will make a
disbursement under the Debt Service Letter of Credit on the date of such receipt
or, if permitted by the Debt Service Letter of Credit, the next Business Day
thereafter; provided, however, that the failure to give such notice shall not
relieve
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the Partnership of its obligation to reimburse the Issuing Bank for such
disbursement.
SECTION 3A.4 Agreement To Repay Debt Service Letter of Credit
Disbursements. (a) Each payment by the Issuing Bank of any drawing under the
Debt Service Letter of Credit shall constitute a term loan (a "Debt Service
Letter of Credit Loan") made by the Issuing Bank to the Partnership on the date
of such payment in a principal amount equal to the amount of such drawing. Each
Debt Service Letter of Credit Loan shall be a Prime Rate Loan on the date made.
Thereafter, subject to and upon the terms of this Agreement, the Debt Service
Letter of Credit Loans may from time to time be Eurodollar Loans, Prime Rate
Loans or any combination thereof, as determined by the Partnership and notified
to the Agent in accordance with Section 3.7 hereof.
(b) Interest shall accrue on the outstanding Debt Service
Letter of Credit Loans as provided for and at the rates specified in Section 3.4
hereof and in addition to being payable on each date as specified in Section 3.4
hereof shall be payable on (i) each date on which a transfer is required to be
made pursuant to clause "first" of Section 4.3 of the Security Deposit Agreement
commencing on the first such date to occur after the Effective Date and (ii) the
Expiration Date.
(c) Each payment of interest hereunder shall be paid in
Dollars and in immediately available funds in accordance with Section 3A.4(i)
hereof.
(d) If the Partnership shall fail to make any payment due
hereunder to the Issuing Bank or under the Debt Service Letter of Credit Note
when due, it shall, on demand from time to time, pay interest on such defaulted
amount (to the extent permitted by law) to the date of actual payment (after as
well as before judgment) at the Default Rate.
(e) The Debt Service Letter of Credit Loans shall be evidenced
by a single note, substantially in the form of Exhibit B-2 hereto with the
blanks appropriately filled (the "Debt Service Letter of Credit Note"), dated
the Effective Date, in the principal amount of the Required Stated Amount. The
Debt Service Letter of Credit Note shall be duly executed and delivered by the
Partnership on or prior to the Effective Date and payable to the order of the
Issuing Bank. The Issuing Bank shall, and is hereby irrevocably authorized by
the Partnership to, endorse Schedule A (or any continuation thereof) to the Debt
Service Letter of Credit Note to evidence the related Debt Service Letter of
Credit Loan or Loans and each payment of principal of and interest on such Debt
Service Letter of Credit Loan or Loans. The endorsements made by the Issuing
Bank to Schedule A (or any continuation thereof) to any Debt Service Letter of
Credit Note shall be conclusive evidence of the
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outstanding aggregate principal amount owing to the Issuing Bank with respect to
such Debt Service Letter of Credit Note and the related Debt Service Letter of
Credit Loan or Loans in the absence of manifest error; provided, however, that
the Partnership's obligations to make payments of principal and interest in
respect of Debt Service Letter of Credit Loans in accordance with the terms of
this Agreement and the Debt Service Letter of Credit Note shall not be affected
by any failure to endorse Schedule A to any Debt Service Letter of Credit Note
correctly or at all.
(f) All Debt Service Letter of Credit Loans shall be due and
payable on the Expiration Date, and the Partnership shall pay the entire
outstanding principal amount of the Debt Service Letter of Credit Loans,
together with all accrued and unpaid interest thereon, on such date.
(g) The Partnership shall cause any amount to be distributed
to the Issuing Bank on any date pursuant to clause "first" of Section 4.3 of the
Security Deposit Agreement to be applied forthwith to prepay the Debt Service
Letter of Credit Loans. Any such prepayment shall be without premium or penalty.
(h) The Partnership shall have the right at any time and from
time to time to prepay the Debt Service Letter of Credit Loans, in whole or in
part, upon at least five Business Days' prior written notice to the Issuing
Bank. Any partial prepayment of Debt Service Letter of Credit Loans shall be in
an amount that is an integral multiple of $10,000 and not less than $50,000.
Each notice of prepayment shall specify the prepayment date and the principal
amount of the Debt Service Letter of Credit Loan (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Partnership to prepay such
amount on such prepayment date. All prepayments under this paragraph (h) shall
be accompanied by all accrued and unpaid interest on the principal amount being
prepaid to the date of prepayment. Any such prepayment shall be without premium
or penalty.
(i) The Partnership shall make or cause the Security Agent to
make each payment or prepayment due hereunder to the Issuing Bank (including
principal of or interest on the Debt Service Letter of Credit Note or any fees
or other amounts) not later than 12:00 Noon, New York City time, on the date
when due, to the Issuing Bank at its address referred to in Section 14.2 hereof
in Dollars and in immediately available funds. Any such payment or prepayment
shall be made without set-off or counterclaim.
(j) If any payment to be made hereunder to the Issuing Bank or
under the Debt Service Letter of Credit Note shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall
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be included in computing interest in connection with such payment.
(k) The Partnership's obligation to repay the Issuing Bank for
all payments and disbursements made by the Issuing Bank under the Debt Service
Letter of Credit and to pay all interest, fees and other amounts payable
hereunder shall be absolute, unconditional and irrevocable under any and all
circumstances and irrespective of: (i) any lack of validity or enforceability of
this Agreement or the Debt Service Letter of Credit; (ii) any amendment or
waiver of, or consent to departure from, this Agreement or the Debt Service
Letter of Credit; (iii) the existence of any claim, setoff, defense or other
right which the Partnership or any other Person may at any time have against any
Financing Party (other than a defense based on the gross negligence or wilful
misconduct of the Issuing Bank) or any other Person in connection with this
Agreement, the Debt Service Letter of Credit or any other agreement or
transaction; (iv) any draft or other document presented under the Debt Service
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
or (v) payment by the Issuing Bank under the Debt Service Letter of Credit
against presentation of a draft or other document which does not comply with the
terms of the Debt Service Letter of Credit, provided that such payment shall not
have constituted gross negligence or wilful misconduct of the Issuing Bank.
(l) It is understood that in making any payment or
disbursement under the Debt Service Letter of Credit, the following shall not be
deemed to constitute gross negligence or wilful misconduct of the Issuing Bank:
(x) the Issuing Bank's exclusive reliance on the documents presented to it by
the Agent under the Debt Service Letter of Credit as to any and all matters set
forth therein, including, without limitation, reliance on the amount of the
draft presented under the Debt Service Letter of Credit, whether or not any
document presented pursuant to the Debt Service Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
order, and whether or not any draft or other document presented pursuant to the
Debt Service Letter of Credit proves to be forged or invalid or any statement
therein proves to be inaccurate or untrue in any respect whatsoever and (y) any
noncompliance in any immaterial respect of the documents presented under the
Debt Service Letter of Credit with the terms thereof.
SECTION 3A.5 Application of Payments. Each cash payment
received hereunder by the Issuing Bank shall be applied in the following order
of priority:
(a) first, to the payment of (i) any fee (including the Debt
Service Letter of Credit Fee) or expense of the Issuing Bank required
to be paid or reimbursed by the terms
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hereof or of any other Project Document, (ii) accrued and unpaid
interest on the Debt Service Letter of Credit Loans and (iii) any
amount (other than amounts referred to in clause (b) below) required to
be paid or reimbursed by the terms hereof; and
(b) second, to the payment of the principal of the Debt
Service Letter of Credit Loans.
SECTION 3A.6 Debt Service Letter of Credit Fee. The
Partnership agrees to pay the Issuing Bank, on each Installment Payment Date, a
fee (a "Debt Service Letter of Credit Fee") of 1.0% per annum on the average
daily Available Amount during the preceding three-month period (or shorter
period commencing with the Effective Date or ending with the Expiration Date).
The Debt Service Letter of Credit Fee shall commence to accrue on the Effective
Date and shall cease to accrue on the Expiration Date and shall be computed on
the basis of the actual number of days elapsed over a year of 365 or 366 (as the
case may be) days. Once paid, the Debt Service Letter of Credit Fee shall not be
refundable under any circumstances whatsoever.
SECTION 3A.7 Effect of Event of Default. The Debt Service
Letter of Credit shall not be terminated or accelerated as a result of an Event
of Default, and the Issuing Bank shall continue to honor demands for payment
made by the Agent under the Debt Service Letter of Credit in accordance with its
terms. The exercise of remedies by the Issuing Bank pursuant to this Agreement
or any other Project Document shall not affect the Agent's ability to demand
payments under the Debt Service Letter of Credit or the Issuing Bank's
obligations thereunder in respect of such demands.
SECTION 3A.8 Obligations Absolute. All sums payable by the
Partnership to the Issuing Bank hereunder shall be paid without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Debt Service Letter of Credit Note
or in any of the other Project Documents to the contrary notwithstanding. The
obligations and liabilities of the Partnership to the Issuing Bank hereunder
shall in no way be released, discharged or otherwise affected (except as may be
expressly provided herein) for any reason, including without limitation: (a) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Issuing Bank, the
Partnership, the Agent or any other Person, or any action taken with respect to
any Project Document by any trustee or receiver of the Issuing Bank, the
Partnership, the Agent or any other Person, or by any court; (b) any default or
failure on the part of the Issuing Bank to perform or comply with any of the
terms hereof or of any other agreement; or (c) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not the Partnership
shall have notice or
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knowledge of any of the foregoing. Except as expressly provided herein, the
Partnership, to the extent permitted by law, waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution or reduction of any sum payable by the Partnership hereunder.
SECTION 3A.9 Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by the
Partnership in this Agreement or in any certificate or other instrument
delivered by the Partnership or on its behalf in connection with this Agreement
shall be considered to have been relied upon by the Issuing Bank and shall
survive the issuance of the Debt Service Letter of Credit, the making of the
Debt Service Letter of Credit Loans herein contemplated and the issuance and
delivery to the Issuing Bank of the Debt Service Letter of Credit Note,
regardless of any investigation made by the Issuing Bank or on its behalf, and
shall continue in full force and effect until all amounts due or to become due
hereunder and on the Debt Service Letter of Credit Note shall have been paid in
full.
SECTION 3A.10 Increased Costs. (a) If after the date of this
Agreement any change in law, rule or regulation or the enforcement,
interpretation or administration thereof (whether or not having force of law) by
any governmental authority, central bank or comparable agency charged with the
enforcement or interpretation or administration thereof shall (i) impose, modify
or deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, credit extended by, or letters
of credit issued by the Issuing Bank, (ii) subject extensions of credit or
letters of credit issued by the Issuing Bank to any assessment or other cost
imposed by the Federal Deposit Insurance Corporation or any successor thereto or
(iii) impose on the Issuing Bank any other or similar condition regarding this
Agreement, the Debt Service Letter of Credit Loans or the Debt Service Letter of
Credit, and the result of any event referred to in clause (i), (ii) or (iii)
above shall be (A) to increase the cost to the Issuing Bank of agreeing to
issue, issuing or maintaining the Debt Service Letter of Credit or funding (or
agreeing to fund) drawings under the Debt Service Letter of Credit or of making
or maintaining any Debt Service Letter of Credit Loan or (B) to reduce the
amount of any sum received or receivable by the Issuing Bank hereunder or under
the Debt Service Letter of Credit Note, then the Issuing Bank shall promptly
notify the Partnership in writing of such increase or reduction in a certificate
certified by an officer of the Issuing Bank, setting forth in reasonable detail
such increased cost incurred or reduction suffered by the Issuing Bank, and
shall demand payment of such additional amounts as will compensate the Issuing
Bank for such increased cost incurred or reduction suffered. On the first Weekly
Distribution Date to occur after receipt of demand from the Issuing Bank, the
Partnership shall pay to the Issuing Bank the additional amounts
<PAGE> 44
43
specified in the notice to compensate the Issuing Bank for such increased cost
or reduction from the date of such change. The notification from the Issuing
Bank to the Partnership described above shall, absent manifest error, be
conclusive and binding as to the amounts to be paid by the Partnership pursuant
to this paragraph (a) and for all other purposes.
(b) If the costs specified in paragraph (a) of this subsection
3A.10 are to be incurred on a continuing basis and the Partnership shall have
been so notified by the Issuing Bank in writing as to the amount thereof, such
costs shall be paid to the Issuing Bank by the Partnership in arrears on each
Weekly Distribution Date. The Issuing Bank shall notify the Partnership of any
subsequent change in the amount of such costs.
(c) The agreements set forth in this subsection 3A.10 shall
survive the termination of this Agreement and the payment in full of the
Obligations.
(d) In the event that the Issuing Bank shall have submitted a
demand for payment pursuant to this Section 3A.10 or pursuant to Section 4.5
hereof, the Partnership may, upon not less than 15 days' notice to the Agent,
the Issuing Bank and the Banks (unless the Issuing Bank has rescinded such
demand for payment in writing within such 15 day period), require the Issuing
Bank to be replaced by a replacement issuing bank, reasonably acceptable to the
Majority Banks, which replacement issuing bank shall issue a letter of credit
(in the form of Exhibit C hereto) in replacement of the Debt Service Letter of
Credit and shall acquire, on terms reasonably satisfactory to the Issuing Bank,
all of the Issuing Bank's rights and obligations with respect to the Debt
Service Letter of Credit Note.
<PAGE> 45
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SECTION 4
MANNER OF BORROWING; PAYMENTS, COMPUTATIONS, ETC.; TAXES
SECTION 4.1. Making the Loans. The Partnership shall give the
Agent irrevocable notice (which notice must be received by the Agent prior to
11:00 A.M., New York City time, on the Effective Date) requesting that the Banks
make the Additional Term Loans on the Effective Date. Upon receipt of such
notice the Agent shall promptly notify each Bank thereof and on the Effective
Date each Bank shall make available to the Agent for the account of the
Partnership at the Principal Office of the Agent an amount in Dollars and in
immediately available funds equal to the amount of the Additional Term Loan to
be made by such Bank.
SECTION 4.2. Payments and Computations. (a) The Partnership
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in Dollars to the Agent at its address
referred to in Section 14.2 hereof in same day funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest in respect of the Term Loans (other than pursuant to
Section 3.5, 5.1, 5.2, 5.3 or 5.4 hereof) pro rata in accordance with each
Bank's Proportionate Share for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Bank to such Bank for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement.
(b) The Partnership hereby authorizes each Financing Party, if
and to the extent payment owed to such Financing Party is not made when due
hereunder or under any Note held by such Bank, to charge from time to time
against any or all of the Partnership's accounts with such Financing Party any
amount so due.
(c) All computations of interest based on the Prime Rate shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the CD Rate or on the Eurodollar
Rate shall be made by the Agent on the basis of a year of 360 days, in each case
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest is payable. Each
computation by the Agent (or, in the case of Section 3.5 hereof, by any
Financing Party) of interest owing hereunder shall be conclusive and binding for
all purposes absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day,
<PAGE> 46
45
and such extension of time shall in such case be included in the computation of
payment of interest; provided, however, if such extension would cause payment of
interest on or principal of Eurodollar Rate Loans to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Agent shall have received notice from the
Partnership at least two Business Days prior to the date on which any payment is
due to any Financing Party hereunder that the Partnership will not make such
payment in full, the Agent may assume that the Partnership has made such payment
in full to the Agent on such date and the Agent may, in reliance upon such
assumption, cause to be distributed to each Financing Party on such due date an
amount equal to the amount then due such Financing Party. If and to the extent
the Partnership shall not have so made such payment in full to the Agent, each
Financing Party shall repay to the Agent forthwith on demand such amount
distributed to such Financing Party together with interest thereon, for each day
from the date such amount is distributed to such Financing Party until the date
such Financing Party repays such amount to the Agent, at the daily Federal Funds
Rate as quoted by the Agent. A certificate of the Agent submitted to any
Financing Party with respect to any amounts owing by such Financing Party under
this Section 4.2(e) shall be conclusive absent manifest error.
(f) All payments made by any Financing Party under this
Agreement shall be made in accordance with the Interbank Compensation Rules of
the Council on International Banking.
SECTION 4.3. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Term Loans made by it (other
than pursuant to Section 3.5, 5.1, 5.2, 5.3 or 5.4 hereof) in excess of its
Proportionate Share of payments on account of the Term Loans obtained by all the
Banks, such Bank shall forthwith purchase from each of the other Banks such
participation in the Term Loans made by them as shall be necessary to cause such
purchasing Bank to share the excess payment with the Banks pro rata in
accordance with their respective Proportionate Shares; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each other Bank shall be rescinded and each
such Bank shall repay to the purchasing Bank the purchase price to the extent of
its Proportionate Share of such recovery together with an amount equal to such
Bank's Proportionate Share of any interest or other amount paid or payable by
the purchasing Bank in respect of the total amount so recovered. The Partnership
agrees that any Bank so purchasing a participation from another Bank pursuant to
this Section 4.3 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with
<PAGE> 47
46
respect to such participation as fully as if such Bank were the direct creditor
of the Partnership in the amount of such participation.
SECTION 4.4. Notes. The Partnership shall issue to each Bank
on the Effective Date a promissory note substantially in the form of Exhibit B-1
hereto with appropriate insertions (collectively, the "Term Notes"), to evidence
the Partnership's obligation to pay the principal of, and interest on, the Term
Loans made by such Bank. Each Term Note shall (a) be dated the Effective Date,
(b) be in a principal amount equal to the aggregate principal amount of all Term
Loans made by such Bank, (c) bear interest on the unpaid principal amount
thereof as provided in Section 3.4 hereof and (d) be entitled to the benefits of
this Agreement and the Security Documents and (e) be subject to required
prepayments as provided in Section 3.3 hereof. The Term Loans made by each Bank
and all payments and prepayments made on account of the principal thereof, and
all Conversions of such Term Loan, shall be recorded by such Bank on the
schedule (or a continuation thereof) attached to the Note held by it evidencing
such Term Loan, it being however understood that failure by such Bank to make
any such endorsement shall not affect the obligations of the Partnership
hereunder or under such Note in respect of such Term Loan evidenced thereby.
SECTION 4.5. Taxes. (a) Any and all payments by the
Partnership hereunder or under the Notes shall be made, in accordance with
Section 4.2 hereof, free and clear of and without deduction for any and all
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Bank, the Issuing Bank and
the Agent, taxes imposed on the income of any thereof, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank, the
Issuing Bank or the Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Partnership shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Bank, the Issuing Bank or the Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
4.5) such Bank or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Partnership shall make such deductions and (iii) the Partnership shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
<PAGE> 48
47
(b) In addition, the Partnership agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made hereunder or under the Notes
or from the execution or delivery or otherwise with respect to this Agreement or
the Notes (hereinafter referred to as "Other Taxes").
(c) The Partnership will indemnify each Financing Party for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 4.5) paid by such Financing Party (as the case may be) or any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within 30 days from the date such
Financing Party makes written demand therefor unless the Partnership is
contesting such Tax or Other Tax in accordance with Section 7.5 hereof.
(d) Within 30 days after the date of any payment of Taxes by
the Partnership, the Partnership will furnish to the Agent, at its address
referred to in Section 14.2 hereof, the original or a certified copy of a
receipt evidencing payment thereof. The Partnership shall compensate each
Financing Party for all reasonable losses and expenses sustained by such
Financing Party as a result of any failure by the Partnership to so furnish such
copy of such receipt.
(e) Without prejudice to the survival of any other agreement
of the Partnership hereunder, the agreements and obligations of the Partnership
contained in this Section 4.5 shall survive the payment in full of principal and
interest hereunder and under the Notes.
(f) Each Bank hereby agrees that it will designate a different
Applicable Lending Office if such designation will avoid the need for, or reduce
the amount of, such Taxes or Other Taxes and will not, in the sole opinion of
such Bank, be disadvantageous to such Bank.
SECTION 5
YIELD PROTECTION AND ILLEGALITY
SECTION 5.1. Increased Costs. If, due to either (a) the
enactment of or any change (other than any change by way of imposition or
increase of reserve requirements referred to in Section 3.5 hereof) in or in the
interpretation of any law or regulation or (b) the compliance with any guideline
or request from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to any Bank of
making, funding or maintaining Eurodollar
<PAGE> 49
48
Rate Loans or CD Rate Loans, then the Partnership shall from time to time, upon
demand by such Bank (with a copy of such demand to the Agent), pay to the Agent
for the account of such Bank additional amounts sufficient to reimburse such
Bank for such increased cost. A certificate as to any such increased cost
submitted to the Partnership and the Agent by such Bank, accompanied by an
explanation of the basis therefor, shall be conclusive and binding for all
purposes absent manifest error. If the Partnership so notifies the Agent within
five Business Days after any Bank notifies the Partnership of any increased cost
pursuant to the foregoing provisions of this Section 5.1, the Partnership may
either (i) if the Majority Banks shall consent thereto, prepay in full all
Eurodollar Rate Loans or CD Rate Loans, as the case may be, of such Bank then
outstanding, together with interest accrued thereon, in accordance with Section
3.4 hereof and also together with the reimbursement for such cost in accordance
with this Section 5.1 or (ii) Convert all Eurodollar Rate Loans or CD Rate
Loans, as the case may be, of all Banks then outstanding into Prime Rate Loans
in accordance with Section 3.7 hereof and, additionally, reimburse such Bank for
such increased cost in accordance with this Section 5.1. Each Bank hereby agrees
that it will designate a different Applicable Lending Office if such designation
will avoid the need for, or reduce the amount of, such increased costs and will
not, in the sole opinion of such Bank, be disadvantageous to such Bank. In the
event that any Bank shall have submitted a demand for payment pursuant to this
Section 5.1 or pursuant to Section 5.3 or 4.5 hereof, the Partnership may, upon
not less than 15 days' notice to the Agent and such Bank (unless such Bank shall
have rescinded such demand for payment in writing within such 15 day period),
either (a) prepay all of the Term Loans of such Bank, together with accrued
interest thereon until the date of such prepayment and all other amounts then
payable to such Bank hereunder and under the Term Notes, or (b) require such
Bank to sell, pursuant to and in accordance with Section 14.3(b) hereof, all of
its rights and obligations under this Agreement and the Term Note held by it to
another bank or financial institution; provided, that any such sale shall be on
terms reasonably acceptable to such Bank and any such bank or other financial
institution shall be a Bank or, if not a Bank, a bank or other financial
institution reasonably acceptable to the Agent.
SECTION 5.2. Illegality. Notwithstanding any other provision
of this Agreement, if the enactment of or any change in or in the interpretation
of any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for any Financing Party
or its Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans
hereunder, then, on notice thereof and demand therefor by such Financing Party
to the Partnership through the Agent, (a) the obligation of such Financing Party
to make Eurodollar Rate Loans and to Convert Loans into Eurodollar
<PAGE> 50
49
Rate Loans shall terminate and (b) the Partnership shall forthwith Convert all
Eurodollar Rate Loans of such Financing Party then outstanding into Prime Rate
Loans in accordance with Section 3.7 hereof.
SECTION 5.3. Requirements of Law. In the event that any Bank
shall have determined that the adoption of any law, rule or regulation regarding
capital adequacy, or any change therein or in the interpretation or application
thereof or compliance by any Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or governmental authority, does or shall have the effect of reducing the rate of
return on such Bank's capital as a consequence of its obligations under this
Agreement to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, within 15 days after demand by such Bank, the
Partnership shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such reduction. A certificate as to any such increased
cost submitted to the Partnership and the Agent by such Bank, accompanied by an
explanation of the basis therefor, shall be conclusive and binding for all
purposes absent manifest error.
SECTION 5.4. Compensation. The Partnership shall compensate
each Financing Party, upon written request by such Financing Party (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses and expenses, including, without limitation, any interest,
premium or penalty paid by such Financing Party (or its lending branch or
affiliate) to lenders of funds borrowed by it or deposited with it for the
purpose of making or maintaining each of its Eurodollar Rate Loans and CD Rate
Loans, which such Financing Party (or its lending branch or affiliate) may
sustain, to the extent not otherwise compensated for hereunder and not mitigated
by the reemployment of such funds: (a) if for any reason (other than a default
by such Financing Party) a Conversion of any Loan does not occur on a date
specified therefor in a notice given pursuant to Section 3.7 hereof, (b) if any
prepayment or repayment of its Eurodollar Rate Loans or CD Rate Loans, as the
case may be, occurs on a date which is not the expiration date of the relevant
Interest Period, whether or not such prepayment or repayment is required by the
terms of this Agreement, or (c) if any prepayment of its Eurodollar Rate Loans
or CD Rate Loans, as the case may be, is not made on any date specified in a
notice of prepayment given by the Partnership. Without prejudice to the
foregoing, the Partnership shall indemnify each Financing Party against any loss
or expense which such Financing Party (or its lending branch or affiliate) may
sustain or incur as a consequence of the default by the Partnership in payment
of principal of or interest on any Eurodollar Rate Loan or CD Rate Loan, as the
case may be, or any part thereof, or of any amount due under this Agreement,
<PAGE> 51
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including, but not limited to, any interest, premium or penalty paid by such
Financing Party (or its lending branch or affiliate) to lenders of funds
borrowed by it or deposited with it for the purpose of making or maintaining
such Eurodollar Rate Loan or CD Rate Loan, as the case may be, as determined by
such Financing Party in the exercise of its sole discretion. A certificate as to
any such loss or expense (specifying the basis of such loss or expense) shall be
promptly submitted by such Financing Party to the Partnership (with a copy to
the Agent) and shall, in the absence of manifest error, be conclusive and
binding as to the amount thereof.
SECTION 6
CONDITIONS TO EFFECTIVE DATE
SECTION 6.1. Occurrence of Effective Date. This Agreement
shall become effective on the date on which each of the following conditions
shall have been fulfilled to the satisfaction of the Financing Parties, as such
date is specified in a notice given by the Agent to the other parties hereto
(such date being herein called the "Effective Date"):
(a) Agreement. The Agent shall have received counterparts of
this Agreement, duly executed by the Partnership and each Financing
Party.
(b) Proceedings and Documents. All proceedings taken by the
Partnership, Cogentrix Virginia, Capistrano, the Parent, Cogentrix
Energy and EME in connection with the execution and delivery of this
Agreement and the other agreements, amendments and documents referred
to in this Section 6.1, and the consummation of the transactions
contemplated hereby and thereby, shall be satisfactory in form and
substance to the Financing Parties and their special counsel; and each
Financing Party shall have received copies of all partnership and
corporate proceedings, incumbency and signature certificates,
certificates of public officials and other documents with respect to
this Agreement, such other agreements, amendments and documents and the
consummation of the transactions contemplated hereby and thereby as it
or its special counsel may reasonably request.
(c) Notes. There shall have been delivered to each of the
Banks its respective Term Note and to the Issuing Bank the Debt Service
Letter of Credit Note, each such Note to be duly authorized and
executed by the Partnership.
(d) Security Deposit Agreement. The Third Amended and Restated
Security Deposit Agreement, substantially in the
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form of Exhibit I hereto, shall have been executed and delivered by the
parties thereto.
(e) Debt Service Letter of Credit. The Agent shall have
received the Debt Service Letter of Credit, dated the Effective Date.
(f) Mortgage Amendment. The Mortgage Amendment shall have been
executed and delivered by the Partnership, shall have been recorded in
all public offices wherein such recording is necessary to perfect the
interests of the Mortgagee in and to the Collateral covered thereby,
and all taxes and fees payable with respect to such recording shall
have been paid in full.
(g) Amendment of Parent Pledge Agreement. The Parent shall
have executed and delivered to the Agent, and Cogentrix Energy shall
have acknowledged and accepted, the Amendment No. 3 to Pledge and
Security Agreement substantially in the form of Exhibit F hereto.
(h) Amendments of Partner Assignments. Cogentrix Virginia
shall have executed and delivered to the Agent an Amendment,
substantially in the form of Exhibit H-1 hereto, to its Assignment and
Security Agreement with the Agent; and Capistrano shall have executed
and delivered to the Agent an Amendment, substantially in the form of
Exhibit H-2 hereto, to its Assignment and Security Agreement with the
Agent.
(i) Amendment of Security Agreement. The Partnership shall
have executed and delivered to the Agent the Amendment No. 3 to
Security Agreement substantially in the form of Exhibit D hereto.
(j) Title Insurance Policy Endorsement; Survey. An endorsement
to the existing mortgagees' title insurance policy shall have been
issued, in form and substance satisfactory to the Financing Parties,
confirming the priority of the lien of the Mortgage evidenced by such
existing title insurance policy on the Partnership's leasehold interest
in the Site and on its interest in the easements granted pursuant to
the Easement Agreements. The Agent shall have received an "as built"
survey of the site (or "bring down" thereof) by a licensed surveyor
satisfactory to the Agent and the title insurance company issuing such
endorsement, showing no state of facts unsatisfactory to the Agent. The
Agent shall have received evidence that the premium in respect of such
endorsement shall have been paid.
(k) Insurance. The Financing Parties shall have received
certificates of insurance evidencing the existence of all insurance
required to be maintained pursuant to
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52
Section 7.3 hereof, accompanied by a certificate of the insurance
broker arranging such insurance that all insurance required hereunder
has been obtained and that such insurance is of the type usual and
customary for transactions similar to the transactions contemplated by
this Agreement.
(l) Termination of Existing Swap. The Agent shall have
received evidence satisfactory to it that the Partnership shall have
terminated, or otherwise has been relieved of all of its obligations
under, the Existing Swap and shall have paid in full all amounts owing
by it thereunder.
(m) Payment of Interest and Fees. All interest, if any, on the
Existing Loans which is accrued and unpaid to and including the
Effective Date, and all commissions, fees and other amounts payable by
the Partnership under the Existing Reimbursement Agreement which are
accrued and unpaid to and including the Effective Date (whether or not
then due and payable and including any amounts payable to any of the
Transferor Banks pursuant to Section 5.4 of the Existing Reimbursement
Agreement as a result of the transactions contemplated under the Bank
Assignment), shall have been paid in full.
(n) Indemnity Agreements. The Agent shall have received each
of the Indemnity Agreements, duly executed and delivered by the parties
thereto.
(o) Power Purchase Agreement Amendment. The Agent shall have
received, with a copy for each other Financing Party, a true and
complete copy of the Power Purchase Agreement Amendment, certified as
such on the Effective Date by an Officer's Certificate of the
Partnership.
(p) VEPCO Notice. The Agent shall have received evidence
satisfactory to it that the Partnership shall have delivered to VEPCO
the notice specified in Section 2.3 of the Power Purchase Agreement
Amendment in order for the Power Purchase Agreement Amendment to become
effective.
(q) VEPCO Consent. The Agent shall have received the VEPCO
Consent, duly executed and delivered by VEPCO.
(r) Consulting Professional's Report. The Banks shall have
received a report of the Consulting Professional with respect to the
operation of the Facility, covering such matters with respect to the
Project as the performance of the Facility (including without
limitation operating and maintenance costs, capacity, downtime, and
generating efficiencies of the Facility, both for the period prior to
the Effective Date and projections for the period commencing on the
Effective Date and ending on the Final Payment Date
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(taking into account the projected effect of the Power Purchase
Agreement Amendment)), the major maintenance and overhaul plan for the
Facility, the current equipment condition, and each other item as shall
be reasonably requested by the Financing Parties, which report shall be
satisfactory in form and substance to the Financing Parties.
(s) Opinions of Counsel. The Financing Parties shall have
received opinions of counsel to the Partnership, Cogentrix Virginia,
the Parent and Cogentrix Energy, of special New York counsel to the
Partnership, Cogentrix Virginia, the Parent and Cogentrix Energy, of
special Virginia counsel to the Partnership and Cogentrix Virginia and
of counsel to Capistrano and EME, each of which opinions shall cover
such matters as the Financing Parties shall reasonably request and
shall be in form and substance satisfactory to the Financing Parties
and their special counsel.
(t) Representations True; No Default; Certificate. The
representations and warranties of the Partnership contained in Section
2 hereof shall be true and correct on and as of the Effective Date as
if made on and as of such date; no Default or Event of Default shall
exist on the Effective Date; and the Financing Parties shall have
received a certificate to such effect, dated the Effective Date and
executed by an authorized officer of the Partnership.
(u) [intentionally omitted]
(v) Financial Projections. The Banks shall have received from
the Partnership the Required Projections, which projections shall be
certified by the Treasurer of the Partnership or the Group Senior Vice
President and Chief Financial Officer of Cogentrix Virginia as being
prepared in good faith in full consideration of all information known
to such officer, after due inquiry, as of the Effective Date. The
Required Projections shall be prepared in such detail and based upon
such assumptions as shall be satisfactory to the Banks (after
consultation with the Consulting Professional).
(w) Fees and Expenses. The Agent and each of the other
Financing Parties shall have received the fees and expenses payable to
each of them pursuant to Sections 3.8 and 11 hereof.
(x) Bank Assignment. The Bank Assignment shall have been duly
executed and delivered by the parties thereto effecting the transfers
of the Existing Term Loans contemplated thereby.
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(y) Assigned Contracts; Consents. The Agent shall have
received, with a copy for each other Financing Party, a true and
complete copy of each Assigned Contract and each Consent, certified as
such on the Effective Date by an Officer's Certificate of the
Partnership.
(z) Insurance Advisor's Report. The Financing Parties shall
have received the report of the Insurance Advisor, which report shall
be in form and substance satisfactory to the Financing Parties.
(aa) Borrowing Request. The Agent shall have received a
Borrowing Request from the Partnership requesting a borrowing of the
Additional Term Loans.
(bb) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Agent and its
counsel.
SECTION 7
AFFIRMATIVE COVENANTS
The Partnership covenants and agrees that, from the Effective
Date and until payment in full of the Loans, the Notes and all other
Obligations:
SECTION 7.1. Maintenance of Existence, Properties, Etc. The
Partnership shall preserve and maintain its legal existence and all of its
rights, privileges and franchises necessary for the proper operation of the
Project and the maintenance of its existence.
SECTION 7.2. Compliance with Laws. The Partnership shall
comply with all laws, rules, regulations and orders, and shall from time to time
obtain and comply with all Government Approvals as shall now or hereafter be
necessary under applicable law or regulation, in connection with the completion
of construction, ownership, operation or maintenance of the Project (except any
thereof the non-compliance with which could not reasonably be expected to have a
materially adverse affect on the Partnership, any Partner, the Project, the
Partnership's or any Partner's ability to perform its obligations under the
Project Documents or the rights or interests of the Banks or the Agent) or the
making and performance by the Partnership or any Partner of any of the Project
Documents to which it is a party, and the Partnership shall promptly furnish
copies of each such Government Approval to the Agent.
SECTION 7.3. Insurance. (a) Insurance Against Loss or Damage.
Without cost to the Secured Parties, the Partnership
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shall maintain or cause to be maintained in effect at all times with responsible
insurers authorized to do business in the State of Virginia with a Best's rating
of "A-" or better (except for policies underwritten by Lloyds of London and
other approved companies acceptable to the Agent) insurance with respect to the
Project (including boiler, turbine and machinery insurance) against all risks of
physical loss in such amount as the Partnership would, in the prudent management
of its property, maintain, or as would be maintained by others similarly
situated in respect of property similar to the Project, provided that the amount
of such insurance with respect to the Project shall not at any time be less than
an amount equal to the full insurable value of the Facility. For purposes of
this Section 7.3(a), the "full insurable value" of the Facility shall mean the
full replacement value of the Facility, including without limitation all fuel,
improvements, equipment and supplies, without deduction for physical
depreciation and/or obsolescence. All insurance policies shall be on a "no
co-insurance/replacement cost" basis and in such form (including the form of the
loss payable clauses) and with such insurers as shall at all times be reasonably
satisfactory to the Agent. If boiler and machinery insurance is written on a
policy separate from the policy under which other insurance provided pursuant to
this Section 7.3(a) is written, each such policy shall contain a joint loss
agreement endorsement. No such policy shall have a deductible of greater than
$250,000 or such lesser or greater amount acceptable to the Agent as shall (in
the good faith judgement of the Agent) be available on commercially reasonable
terms.
All insurance policies required hereby covering loss or damage
to the Project shall name the Secured Parties as additional insureds and shall
name the Agent as first loss payee and shall provide that any payment thereunder
for any loss or damage shall be made to the Agent, except that such policies may
provide that any payment of less than $100,000 made in respect of any single
casualty or other occurrence may be paid solely to the Partnership, unless the
Agent shall have notified the insurer that an Event of Default has occurred
hereunder and is continuing. Proceeds of such insurance paid to the Agent shall
be disbursed or applied by the Agent in the manner contemplated by the Security
Deposit Agreement.
(b) Insurance Against Public Liability and Property Damage.
Without cost to any Secured Party, the Partnership shall maintain or cause to be
maintained in effect at all times with responsible insurers authorized to do
business in the State of Virginia with a Best's rating of "A-" or better (except
for policies underwritten by Lloyds of London and other approved companies
acceptable to the Agent) insurance policies with respect to the Project insuring
against liability for death of, or loss, injury or damage to, the person or
property of others from such risks, in such form as shall at all times be
satisfactory to the Agent and in such amounts as the Partnership
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would in the prudent management of its property maintain, or would be maintained
by others similarly situated in respect of property similar to the Project;
provided that in no event shall the insurance required to be maintained in
accordance with this paragraph (b) be in an amount less than $10,000,000
combined single limit or such higher amount (not exceeding $25,000,000) as shall
be obtainable at commercially reasonable premiums. Each of the insurance
policies maintained in accordance with this paragraph (b) shall be written on an
occurrence basis, shall name the Secured Parties as additional insureds
thereunder and shall insure the interests of the Secured Parties regardless of
any breach of, or violation by the Partnership of, any declarations or
conditions contained in such policies.
(c) Business Interruption Insurance. The Partnership shall at
all times maintain business interruption insurance with respect to the Project,
in such form and with such insurance company as shall be satisfactory to the
Agent and in an amount sufficient to cover the payment of all ongoing expenses
related to the Project and payment of debt service on the Obligations during a
period of twelve months; provided, however, that such insurance policy may
provide that insurance proceeds will not be payable with respect to the first 30
days of each business interruption. The Partnership shall also maintain
contingent business interruption insurance covering the loss of net profits and
the payment of all fixed expenses of the Partnership (including, without
limitation, all payments of principal and interest due hereunder) payable for a
minimum period of 6 months in the event that the Facility's operation is
impaired as a result of physical loss or damage to facilities owned by others;
provided, however, that such insurance policy may provide that insurance
proceeds will not be payable with respect to the first 30 days of such
impairment of operation.
(d) Worker's Compensation Insurance, etc. During the term of
this Agreement, the Partnership shall also carry workers' compensation insurance
or occupational disability benefits insurance and such other forms of insurance
which the Partnership is required by law to provide (including, without
limitation, United States Longshoremen's and Harborworkers' insurance coverage,
if applicable), covering loss resulting from injury, sickness, disability or
death of the employees of the Partnership.
(e) All Policies. All policies (other than policies with
respect to workers' compensation, occupational disability benefits or similar
insurance) shall insure the interests of the Secured Parties regardless of any
breach or violation by the Partnership or any Partner of warranties,
declarations or conditions contained in such policies or any action or inaction
of the Partnership or any Partner or any other Person; each such policy shall
expressly provide that all provisions thereof, except the limits of liability
(which shall be applicable to all
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insureds as a group) and liability for premiums (which shall be solely a
liability of the Partnership) shall operate in the same manner as if there were
a separate policy covering each such insured; each such policy shall waive any
right of subrogation of the insurers to any rights of the Secured Parties and
shall waive any right of the insurers to any set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any liability
of the Partnership or any Partner or any Secured Party; and each such policy
shall provide that, if such insurance is to be cancelled, terminated or
materially changed for any reason whatsoever, the insurers will promptly notify
the Partnership and the Agent, and any such cancellation, termination or change
shall not be effective as to any Secured Party for 30 days (or 10 days in the
event of a failure to pay a premium) after receipt of such notice by the Agent,
and that appropriate certification shall be made to the Partnership by each
insurer with respect thereto.
(f) Additional Requirements. In addition to the other
requirements of this Section 7.3, the Partnership shall comply in all respects
(x) with the insurance requirements of VEPCO contained in the Power Purchase
Agreement and (y) with the insurance requirements of Allied contained in the
Ground Lease. In the case of any conflict between the provisions of this Section
7.3 and the provisions of the Ground Lease regarding the manner of applying
insurance proceeds, the provisions of the Ground Lease shall control.
(g) Certificates of Insurance. The Partnership will deliver to
each Financing Party, VEPCO and Allied, on or prior to the expiration date of
each insurance policy required to be maintained by it pursuant to this Section
7.3, a certificate executed by the insurer or its duly authorized agent
evidencing the continuance of such insurance policy (or, upon request, a
certified copy of such insurance policy). The Partnership shall deliver to the
Agent, within 30 days of the end of each fiscal year of the Partnership, a
certificate from a recognized independent insurance broker confirming that (i)
all insurance policies required by this Section 7.3 are in full force and effect
as of the date of such certificate and (ii) all premiums due on such policies
have been paid in full.
(h) Substitute Insurance Coverage. Notwithstanding the
foregoing provisions of this Section 7.3, subject to the approval of the
Majority Banks, which approval shall not be unreasonably withheld, any insurance
coverage required to be maintained by the Partnership pursuant to the provisions
of this Section 7.3 need not be so maintained if the Partnership shall have been
provided the benefit of the same coverage by direct and/or indirect parents of
the Partners or their affiliates under their self-insurance programs (but only
if such parent's or affiliate's financial condition is satisfactory to the
Majority Banks in their sole discretion) and/or their policies of
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insurance and the Agent and the Banks shall have been provided evidence
satisfactory to the Majority Banks of such coverage and the status of the
Secured Parties as beneficiaries thereof, together with evidence satisfactory to
them that such substitute coverage does not violate the insurance requirements
of any of the other Project Documents to which the Partnership is a party.
SECTION 7.4. Litigation. The Partnership shall promptly
furnish to the Agent notice in writing of any suit, arbitration or proceeding
affecting the Partnership or the Project (a) before any governmental or
regulatory authority (other than regular compliance proceedings), (b) in which
the amount involved is $100,000 or more and is not covered by insurance or (c)
in which injunctive or similar relief is sought.
SECTION 7.5. Taxes. The Partnership shall pay and discharge
all taxes, assessments and governmental charges or levies imposed on it or on
its income or profits or on any of its property prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien upon the property of the Partnership. The Partnership shall have the right,
however, to contest in good faith the validity or amount of any such tax,
assessment, charge, levy or claim by proper proceedings timely instituted, and
may permit the taxes, assessments, charges, levies or claims so contested to
remain unpaid during the period of such contest if: (a) the Partnership
diligently prosecutes such contest, (b) the Partnership sets aside on its books
adequate reserves with respect to the contested items and (c) during the period
of such contest the enforcement of any contested item is effectively stayed. The
Partnership will promptly pay or cause to be paid any valid, final judgment
enforcing any such tax, assessment, charge, levy or claim and cause the same to
be satisfied of record.
SECTION 7.6. Reporting Requirements. The Partnership shall
furnish to the Agent and each other Financing Party:
(a) as soon as available and in any event within 60 days after
the end of each fiscal quarter of the Partnership, a balance sheet of the
Partnership as at the end of such quarter and the related statements of income,
partners' capital and changes in financial position as at the end of and for
such quarter, certified in a manner acceptable to the Financing Parties by the
Treasurer of the Partnership;
(b) As soon as available and in any event within 90 days after
the end of each fiscal year of the Partnership, a balance sheet of the
Partnership as at the end of such fiscal year and the related statements of
income, partners' capital and changes in financial position as at the end of
such fiscal year, with an opinion thereon of Arthur Andersen & Co. or other
independent certified public accountants of national standing acceptable to the
Financing Parties to the effect that said
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financial statements fairly present the financial condition and results of
operations of the Partnership as at the end of and for such fiscal year;
(c) Promptly after the occurrence of any Default hereunder, a
notice setting forth the nature of such Default, and the steps being taken by
the Partnership to remedy such Default;
(d) As soon as available and in any event within 30 days after
the end of each fiscal quarter of each fiscal year of the Partnership, a report
in such form and detail as shall be acceptable to the Financing Parties,
certified by the Treasurer of the Partnership, setting forth an accounting of
power purchase revenues received under the Power Purchase Agreement and steam
purchase revenues received under the Steam Purchase Agreement;
(e) Promptly after receipt thereof, a copy of each material
notice, demand or other communication delivered to the Partnership or any
Partner pursuant to any Project Document;
(f) Copies of each permit, approval or license obtained by the
Partnership or any Partner;
(g) Within 30 days after each Installment Payment Date, a
certificate of the Treasurer of the Partnership, setting forth the information
necessary to determine the Partnership's Twelve-Month Debt Coverage Ratio as at
such Installment Payment Date and its Available Project Cash Flow for the
three-month period then ended;
(h) A copy of each certificate, request or notice delivered by
the Partnership to the Security Agent pursuant to the Security Deposit
Agreement, concurrently with the delivery thereof to the Security Agent;
(i) Not less than 30 nor more than 60 days prior to the end of
each fiscal year of the Partnership, an operating budget for the next succeeding
fiscal year of the Partnership;
(j) Promptly after its receipt thereof by the Partnership or
the Partners, copies of all material correspondence and notices to or from any
agency, official or other third party regarding hazardous materials and/or
environmental laws and regulations with respect to the Site or Facility; and
(k) From time to time, such further information (whether or
not of the kind mentioned above) regarding the business, operations and
financial condition of the Partnership as any Financing Party may reasonably
request.
Each set of financial statements delivered pursuant to clauses
(a) and (b) of this Section 7.6 shall be accompanied by a
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60
certificate of the Treasurer of the Partnership (i) stating that no Default
hereunder, and no default of which the Partnership has knowledge under any other
Project Document, has occurred and is continuing (or, in the event any such
Default or default shall have occurred and be continuing, a statement setting
forth the nature of such Default or default and the steps being taken by the
Partnership to remedy such Default or default) and (ii) demonstrating whether or
not the Partnership is in compliance with the provisions of this Section 7 and
Section 8 hereof. Each set of financial statements of the Partnership delivered
pursuant to paragraph (b) of this Section 7.6 shall be accompanied by a
certificate of the independent public accountants which certified such financial
statements stating that in making the examination necessary for the audit
thereof no knowledge was obtained of any Default hereunder, except as specified
in such certificate. Each Financing Party will keep confidential any information
furnished to it by the Partnership, subject to the exceptions set forth in the
proviso to the last sentence of Section 7.7 hereof.
SECTION 7.7. Books and Records. The Partnership shall keep
proper books of record in accordance with generally accepted accounting
principles and permit representatives of any Financing Party and the Consulting
Professional to visit and inspect its properties, to examine its books of record
and account and to discuss its affairs, finance, and accounts with its principal
officers, engineers and independent accountants, all at such reasonable times
during business hours and at such intervals as such Financing Party or the
Consulting Professional may desire. The Consulting Professional and
representatives of any Financing Party shall have the right to inspect the
Project from time to time. The Partnership shall at all times cause a complete
set of the original plans (and all supplements thereto) relating to the Project
to be maintained at the Facility and available for inspection by the Consulting
Professional and any Financing Party. Each Financing Party agrees that it will
use such plans and supplements only in connection with monitoring the operation
of the Project and the financial condition, business and prospects of the
Partnership or in connection with the exercise or prospective exercise of
remedies hereunder and under the Security Documents and that such Financing
Party will use reasonable efforts to keep confidential any such plans and
supplements from time to time supplied to it by the Partnership which the
Partnership indicates at the time are to be treated confidentially, provided
that nothing herein shall affect the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, in which
case the Financing Party will give notice of such requirement to the
Partnership, (b) to counsel for any Financing Party or the Agent, to their
respective accountants or to independent engineers or experts with whom a
Financing Party or the Agent may consult and who are under an obligation of
confidentiality to such Financing Party or the Agent, (c) to bank examiners and
auditors, (d) to
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the Agent, any other Financing Party, or any Transferee or prospective
Transferee, or (e) to prospective purchasers of the Project to whom the
Financing Parties may furnish such plans and supplements in anticipation of a
foreclosure sale or other exercise of remedies under the Security Documents.
SECTION 7.8. [intentionally omitted]
SECTION 7.9. Maintenance. The Partnership, at its expense,
shall keep the Facility in good working order and condition (ordinary wear and
tear excepted) and make all repairs, replacements and renewals with respect
thereto and all additions and betterments thereto, in each case (i) in
compliance with the terms of the Power Purchase Agreement and the Steam Purchase
Agreement, (ii) in compliance with the maintenance procedures prescribed or
recommended by, and sufficient to keep in effect the warranties of,
manufacturers and/or vendors of the various components of the Facility, and
(iii) in accordance with the practices, standards and procedures customary in
the cogeneration industry with respect to coal-fired cogeneration facilities.
SECTION 7.10. Maintenance of Lien. The Partnership shall take
or cause to be taken all action required or desirable to maintain and preserve
the Liens of the Security Documents. The Partnership shall from time to time
execute or cause to be executed any and all further instruments (including
financing statements, continuation statements and similar statements with
respect to any of the Security Documents) reasonably requested by the Agent for
such purposes.
SECTION 7.11. Performance of Project Documents. The
Partnership shall (a) perform and observe in all material respects all of its
covenants and agreements contained in any of the Project Documents to which it
is a party and (b) maintain in full force and effect each of the Project
Documents and all contracts, permits and approvals relating thereto.
SECTION 7.12. Revenue Account; Special Payment Account. The
Partnership shall cause all revenues payable to it, including (without
limitation) all Project Revenues, and all insurance proceeds received by it and
not required to be paid to the Mortgagee or any other Person pursuant to the
provisions of this Agreement or the Mortgage or required to be deposited into
the Insurance Proceeds Account (as defined in the Security Deposit Agreement)
pursuant to the provisions of the Security Deposit Agreement, to be deposited
directly into the Revenue Account established by the Security Agent under the
Security Deposit Agreement. The Partnership shall cause the proceeds of all
payments of damages made by Pontiki or MAPCO Coal, Inc. to the Partnership or
Cogentrix Virginia pursuant to Section 9.06 of the Coal Sales Agreement to be
deposited directly into the Special Payment Account established by the Security
Agent under the Security Deposit Agreement.
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SECTION 7.13. Collections. The Partnership shall promptly bill
and collect for services performed by it in connection with any of the Project
Documents.
SECTION 7.14. [intentionally omitted]
SECTION 7.15. Quarterly Certificate of Available Project Cash
Flow. Within thirty days after each Installment Payment Date, commencing with
the first Installment Payment Date to occur after the Effective Date, the
Partnership shall furnish to the Agent and the Security Agent a certificate
signed by the Treasurer of the Partnership setting forth the Available Project
Cash Flow for the three-month period ended on such Installment Payment Date and
the calculations involved in determining such amount.
SECTION 7.16. Interest Rate Hedging. (a) The Partnership shall
enter into no interest rate swap, cap or other hedging device without the
consent of the Agent except in accordance with Section 7.16(c) hereof.
(b) Obligations of the Partnership to any Swap Counterparty in
connection with a Swap shall be secured as provided in the Mortgage.
(c) If on any date the implied yield on U.S. Treasury bonds
having a maturity most nearly equal to the then remaining period from such date
to the Final Payment Date exceeds 8% per annum, then, within 10 days of such
date, the Partnership shall enter into one or more Swaps reasonably satisfactory
to the Agent which fix or "cap" the interest rates payable by the Partnership
with respect to 50% of the then outstanding unpaid principal amount of the Loans
in a manner reasonably satisfactory to the Agent, taking into account the
amortization of principal provided for under Section 3.2, for the period of time
from such date to the Final Payment Date.
SECTION 7.17. Assignments of Additional Contracts; Maintenance
of Liens of the Security Documents; Future Mortgages.
(a) Concurrently with the execution of any Additional
Contract, the Partnership shall execute and deliver to the Grantee an Assignment
with respect to such Additional Contract and cause the other party or parties to
such Additional Contract to execute and deliver to the Grantee a Consent with
respect to such Assignment.
(b) Promptly upon the request of the Agent, and at the
Partnership's expense, the Partnership shall execute and deliver, or cause the
execution and delivery of, and thereafter register, file or record in each
appropriate governmental office, any document or instrument supplemental to or
confirmatory of the Security Documents, and take such other action deemed by the
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Majority Banks to be necessary or desirable for the creation or perfection of
the liens and security interests purported to be created by the Security
Documents.
(c) If the Partnership shall at any time acquire any real
property or leasehold or other interests therein not covered by the Mortgage,
the Partnership shall promptly upon such acquisition execute, deliver and record
a first deed of trust in favor of the Grantee covering such real property or
leasehold or other interests (which deed of trust shall be satisfactory in form
and substance to the Grantee), provide a mortgagee's policy of title insurance
in an amount equal to the purchase price of such property, and in connection
therewith deliver to the Grantee such opinions of counsel and certificates as
shall be reasonably requested by the Grantee.
SECTION 7.18. Notice under Consents. Within 60 days after the
Effective Date, the Partnership shall deliver or cause to be delivered a notice
to each party to a Consent (other than the Power Purchaser or the Partnership)
that Credit Lyonnais is the Agent and the Grantee and of Credit Lyonnais'
address and of the other transactions contemplated hereunder, each such notice
to be in a form satisfactory to the Agent, and to be delivered by a method in
accordance with the notice provisions of such Consent and by which evidence of
receipt is obtained.
SECTION 8
NEGATIVE COVENANTS
The Partnership covenants and agrees that, from the Effective
Date and until payment in full of the Loans, the Notes and all other
Obligations:
SECTION 8.1. Merger, Sale of Assets, Purchases, Etc. The
Partnership shall not merge into or consolidate with any other Person or sell,
lease, transfer or otherwise dispose of any assets other than (a) sales of
electric power pursuant to the Power Purchase Agreement, of steam pursuant to
the Steam Purchase Agreement and of any other by-products of the fuel combustion
process of the Facility; (b) sales, transfers and other dispositions of assets
permitted by Section 14.6(a) hereof; and (c) Permitted Investments. The
Partnership will not purchase or acquire any assets other than (x) the purchase
of assets in connection with the completion of the Project, (y) the purchase of
assets in the ordinary course of business reasonably required in connection with
the operation of the Facility and (z) Permitted Investments.
SECTION 8.2. Debt. The Partnership shall not create, incur or
assume any Debt other than Debt of the Partnership hereunder, except that the
Partnership may be and
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become obligated in respect of (a) Debt in respect of equipment purchases up to
but not exceeding $500,000 at any one time outstanding and (b) Junior Working
Capital Loans.
SECTION 8.3. Distributions, Etc. (a) The Partnership shall not
make any distributions to any Partner or to any other Person in respect of any
partnership interest in the Partnership, whether in cash or other property, or
redeem, purchase or otherwise acquire any interest of any Partner in the
Partnership or any Junior Working Capital Loan or make any payment of principal,
interest or premium on any Junior Working Capital Loan or make any payment of
the Incentive Compensation Fee or the Overhead Fee or pay any amount
representing regional or central support costs (any such distribution, payment
or other action, a "Restricted Payment") unless at the time of such Restricted
Payment, and immediately after giving effect thereto, (i) no Significant Default
shall have occurred and be continuing and (ii) the Twelve-Month Debt Coverage
Ratio, as at the immediately preceding Installment Payment Date, is at least
1.15 to 1, except that, on the Effective Date, the Partnership may pay a cash
distribution in an amount not exceeding $40,000,000.
(b) The Partnership shall not make any payments of any nature
to any Partner or any affiliate of any Partner other than (i) in respect of
distributions, Junior Working Capital Loans, the Incentive Compensation Fee, the
Overhead Fee and amounts representing regional and central support costs to the
extent permitted by paragraph (a) of this Section 8.3 and by Section 4.6 of the
Security Deposit Agreement and (ii) payments pursuant to the provisions of any
Project Document.
SECTION 8.4. Liens, Etc. The Partnership shall not create or
suffer to exist any Lien securing any Debt or other obligation of the
Partnership or any other Person, other than Permitted Liens.
SECTION 8.5. Nature of Business. The Partnership shall not
engage in any business other than the construction and operation of the Project.
SECTION 8.6. Amendment of Contracts, Etc. The Partnership will
not, without the prior written consent of the Majority Banks, enter into any
Additional Contract or agree to or permit (i) the cancellation or termination of
any Project Document (except upon the expiration of the stated term thereof),
(ii) the assignment of the rights or obligations of any party to any Project
Document except as contemplated by this Agreement or the Security Documents, or
(iii) any amendment, supplement or modification of, or waiver with respect to
any of the provisions of, any Project Document to which the Partnership or any
Partner is a party or with respect to which the consent of the Partnership or
any Partner is required; provided, however, that the Partnership or any Partner
may, upon prior written notice to
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the Financing Parties (but without their consent), amend, supplement, waive or
otherwise modify any Project Document to which it is a party (other than the
Construction Contract or a Project Document which is expressly for the benefit
of any of the Financing Parties) in any manner which does not alter in any
material respect the rights or obligations of the respective parties thereto.
SECTION 8.7. Permitted Investments. The Partnership shall not
make any investments (whether by purchase of stock, bonds, notes or other
securities, loan, advance or otherwise) other than Permitted Investments.
SECTION 8.8. Qualifying Facility. The Partnership shall not
take any action, or omit to take any action, which would cause the Project to
cease to be a Qualifying Facility.
SECTION 8.9. Leases. The Partnership shall not enter into, or
be or become liable under, any agreement for the lease, hire or use of any real
property or of any personal property (other than leases which are capitalized
leases) which would cause the aggregate lease payments of the Partnership under
all leases of personal property to exceed $250,000 for any fiscal year.
SECTION 8.10. Fiscal Year. The Partnership shall not change
its fiscal year from the twelve-month period ending December 31 in each calendar
year.
SECTION 8.11. Change of Office. The Partnership shall not
change the location of its chief executive office or principal place of business
or the office where it keeps its records concerning the Project and all
contracts relating thereto from that set forth in Section 2.19 hereof, unless
the Partnership shall have given the Agent at least 30 days' prior written
notice thereof and all action necessary or advisable in the Agent's opinion to
protect and perfect the Liens and security interests with respect to the
Collateral created by the Security Documents shall have been taken.
SECTION 9
EVENTS OF DEFAULT
If any of the Events of Default listed below in this Section 9
shall occur and be continuing (and, in the case of any default caused by an
Obligor other than the Partnership, the Partnership shall not have cured, or
cause to have been cured, such default on behalf of such other Obligor within
the respective grace periods, if any, set forth below), the Agent may (i)
declare the entire unpaid principal amount of the Loans and Notes, all interest
accrued and unpaid thereon and all other
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amounts payable hereunder to be forthwith due and payable, whereupon such unpaid
principal amount of the Loans and Notes, all interest accrued and unpaid
thereon, and all such other amounts shall become and be forthwith due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived by the Partnership; and/or (ii) foreclose on
any or all of the Collateral; and/or (iii) proceed to enforce all other remedies
available to it under the Security Documents and under applicable law (subject
to the provisions of Section 13 hereof); provided, however, that if the only
Events of Default which have occurred and are continuing are Events of Default
referred to in paragraphs (b), (g), (h), (j) (relating to a Project Document
other than the Power Purchase Agreement, the Coal Sales Agreement, the
Transportation Contract or the Ground Lease), (m) (relating to a Project
Document other than the Power Purchase Agreement, the Coal Sales Agreement, the
Transportation Contract or the Ground Lease) and (p) below, the Agent shall not
take any of the foregoing action unless it shall have given written notice to
the Partnership that it intends to take such action and, if the Partnership is
proceeding with all due diligence to cure such Event(s) of Default, such
Event(s) of Default are not cured within 30 days thereafter. Notwithstanding the
foregoing, if an Event of Default referred to in paragraph (e) or (f) below
shall occur with respect to the Partnership or any Partner, automatically and
without notice the actions described in clause (i) above shall be deemed to have
occurred. Simultaneously with its giving of any notice to the Partnership under
this Section 9 or its declaration of acceleration pursuant to clause (i) above,
the Agent shall notify each Financing Party of such action. In the event that
the entire unpaid principal amount of the Loans, and all interest accrued
thereon, and all other amounts owing under this Agreement and the Security
Documents shall have become due and payable pursuant to this Section 9, the
Agent shall make a drawing on the Debt Service Letter of Credit in the amount
then permitted to be drawn thereunder.
Such Events of Default are the following:
(a) Any principal of or interest on any Loan, any commission,
any fee (including, without limitation, any Administration Fee or Debt
Service Letter of Credit Fee) or any other amount payable to any
Financing Party hereunder or under any Note shall not be paid when due;
or any payment shall be made with funds in the Debt Protection Account
under the Security Deposit Agreement in violation of the provisions of
Section 4.6 thereof; or
(b) Any representation or warranty made by the Partnership
herein or by any Obligor in any of the Project Documents to which such
Obligor is a party or any representation, warranty or statement in any
certificate, financial statement or other document furnished to the
Agent
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or any other Financing Party by or on behalf of the Partnership
hereunder or such Obligor under any Project Document, shall prove to
have been false or misleading in any material respect as of the time
made, confirmed or furnished; or
(c) The Partnership shall fail to perform or observe any of
its covenants contained in this Agreement (other than those referred to
in paragraphs (a) and (b) above) and such failure shall continue
unremedied for 30 or more days after notice to the Partnership by any
Financing Party; or
(d) Any Obligor shall fail to perform or observe any of its
covenants or obligations contained in any of the Project Documents
(other than the covenants and obligations referred to in paragraphs
(a), (b) and (c) above or any covenant or obligation contained in the
Indemnity Agreement) within the grace period, if any, provided for in
such Project Document, which failure shall continue unremedied for a
period of 30 days after notice by any Financing Party to the
Partnership and which failure could reasonably be expected to
materially adversely affect (i) the interest of any of the Financing
Parties under such Project Document or any other Project Document, (ii)
the ability of any Obligor to perform its obligations under such
Project Document or any other Project Document or (iii) the ability of
the Partnership or any Partner to perform its obligations under any of
the Project Documents to which it is a party; or Cogentrix Energy or
EME shall default in the performance or observance of any covenant or
obligation in the Indemnity Agreement to which such party is a party
(including, without limitation, any obligation to make a payment
thereunder) and (x) if such default is in respect of an obligation to
make a payment, such default shall continue unremedied for a period of
three Business Days or (y) otherwise, Cogentrix Energy or EME, as the
case may be, shall not have notified the Agent of such default within
30 days after it obtained knowledge thereof or such default shall
continue unremedied for a period of 15 days after notice from any
Financing Party requiring that such default be remedied; or
(e) Any Obligor shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) admit in writing its inability, or be generally unable,
to pay its debts as such debts become due, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in effect),
(v) file a petition seeking to take advantage of any other law relating
to bankruptcy, insolvency, reorganization, winding up, or composition
or readjustment of debts, (vi) fail to controvert in a timely and
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appropriate manner, or acquiesce in writing to, any petition filed
against such Obligor in an involuntary case under such Bankruptcy Code,
or (vii) take any action for the purpose of effecting any of the
foregoing; provided that it shall not be an Event of Default under this
Section 9(e) if, within 30 days after the occurrence of any of the
foregoing events with respect to an Obligor (other than the
Partnership, any Partner, the Parent, VEPCO or Allied), such Obligor
shall have been replaced by another Person acceptable to the Financing
Parties who shall have entered into Project Document(s) similar to, and
at least as favorable to the Partnership as, the Project Document(s) to
which such Obligor was a party; or
(f) A proceeding or case shall be commenced without the
application or consent of any Obligor in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution,
winding-up, or the composition or readjustment of debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like
of such Obligor under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, or a
warrant of attachment, execution or similar process shall be issued
against property of such Obligor having a value of (or original cost,
if higher) in excess of $10,000,000 in the case of VEPCO, Allied, MAPCO
Coal, Inc. or the Railroad Carrier or in excess of $10,000 in the case
of any other Obligor and such proceeding, case, warrant or process
shall continue undismissed, or any order, judgment or decree approving
or ordering any of the foregoing shall be entered and continue unstayed
and in effect, for a period of 60 or more days, or any order for relief
against such Obligor shall be entered in an involuntary case under such
Bankruptcy Code; provided that it shall not be an Event of Default
under this Section 9(f) if, within 30 days after the occurrence of any
of the foregoing events with respect to an Obligor (other than the
Partnership, any Partner, the Parent, VEPCO or Allied), such Obligor
shall have been replaced by another Person acceptable to the Financing
Parties who shall have entered into Project Document(s) similar to, and
in the judgment of the Financing Parties at least as favorable to the
Partnership as, the Project Document(s) to which such Obligor was a
party; or
(g) A judgment or judgments for the payment of money in excess
of $500,000 shall be rendered against the Partnership or any Partner
and the same shall remain in effect and unstayed and unbonded for a
period of 30 or more consecutive days; or
(h) If (A) any Obligor shall fail to obtain, renew, maintain
or comply in all material respects with all such Government Approvals
which shall at the time be necessary
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(i) for the execution, delivery or performance by each of the Obligors
of its respective rights and obligations under the Project Documents,
(ii) for the construction or operation of the Project as contemplated
by the Project Documents or (iii) for the grant by the Partnership or
any Partner or the Parent of the Liens created under the Security
Documents or for the validity and enforceability or for the perfection
of or the exercise by the Agent or the Security Agent, as the case may
be, of its rights and remedies thereunder, or any such Government
Approval shall be revoked, terminated, withdrawn, suspended, modified
or withheld or shall cease to be in full force and effect, and (except
in the case of the matters referred to in the foregoing clause (iii))
such failure to obtain, renew, maintain or comply or such revocation,
termination or other event shall continue unremedied for 30 days, or
any proceeding shall be commenced by or before any governmental
authority for the purpose of so revoking, terminating, withdrawing,
suspending, modifying or withholding any such Government Approval and
such proceeding is not dismissed within 60 days; and (B) such failure
to obtain, renew, maintain or comply with or such revocation,
termination, withdrawal, suspension, modification, withholding or
cessation or such proceeding may materially adversely affect the
interest of the Financing Parties under any of the Project Documents or
the security provided to the Financing Parties under the Security
Documents or the ability of any Obligor to perform its obligations
under any of the Project Documents; or
(i) The Partnership or any Partner shall default in the
payment when due, by acceleration or otherwise, of any amount in
respect of any Debt of the Partnership or any Partner (other than the
Debt referred to in paragraph (a) above) for more than $500,000 and
such default shall continue beyond the applicable grace period, if any,
specified in the note, agreement or other instrument relating to such
Debt, or any other event shall occur under any note, agreement or other
instrument by which any such Debt is evidenced or under which any such
Debt is created which entitles the holder or holders of such Debt (or
an agent or trustee on its or their behalf) to cause such Debt to
become due prior to its stated maturity or payment date, and such event
shall not be cured within the applicable grace period, if any,
specified in such note, agreement or other instrument; or
(j) Any material provision of any Project Document shall at
any time for any reason cease to be valid and binding or in full force
and effect or any party thereto (other than any Financing Party) shall
so assert in writing; or any material provision of any Project Document
shall be declared to be null and void or the validity or
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enforceability thereof shall be contested by any party thereto (other
than any Financing Party) or any governmental authority; or any Obligor
shall deny that it has any liability or obligation under any Project
Document, except upon fulfillment of its obligations thereunder, in
each case the effect of which is either to materially adversely affect
(i) the interest of the Financing Parties under such Project Document
or (ii) the ability of any Obligor to perform its obligations under
such Project Document; provided that it shall not be a default under
this paragraph (j) if the Partnership shall obtain a court order,
settlement or a replacement agreement with a Person satisfactory to the
Financing Parties within 30 days after such invalidity, contest or
denial shall have occurred, which is satisfactory in form and substance
to the Financing Parties; or
(k) Any Security Document shall cease, for any reason, to be
in full force and effect or any party thereto (other than any Financing
Party) shall so assert in writing; any Security Document shall cease to
be effective to grant a perfected Lien to the Grantee, the Mortgagee,
the Agent or the Security Deposit Agent, as the case may be, on the
Collateral described therein with the priority purported to be created
thereby; or the parties to any Security Document (other than any
Financing Party) shall default in the observance or performance of any
of the covenants or agreements contained in any Security Document; or
(l) If at any time any of the issued and outstanding shares of
capital stock of Cogentrix Virginia are not pledged as security for the
Obligations pursuant to the Parent Pledge Agreement and/or one or more
other stock pledge agreements in substantially the same form as the
Parent Pledge Agreement; or
(m) Termination (other than normal expiration) of, or material
amendment (other than as permitted pursuant to Section 8.6 hereof) of,
any of the Project Documents without the prior written consent of the
Majority Banks; or
(n) If the Partnership shall abandon the Project for a period
longer than 120 consecutive days; or
(o) If at any time for any reason the Facility ceases to be a
Qualifying Facility as owned by the Partnership; or
(p) (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 (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee
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appointed, or a trustee shall be appointed, to administer or to
terminate any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the opinion of the Majority Banks,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, or (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, or (v) the Partnership or any Commonly
Controlled Entity shall, or is, in the opinion of the Majority Banks,
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 subject the Partnership to any tax, penalty or other liabilities
in the aggregate material in relation to the business, operations,
property or financial or other condition of the Partnership; or
(q) If either Cogentrix Energy or EME shall at any time cease
to own, directly or indirectly through one or more wholly-owned
Subsidiaries, 50% of the general partnership interests of the
Partnership; provided, that the foregoing shall not constitute an Event
of Default (i) if Cogentrix Energy owns, directly or indirectly through
one or more wholly-owned Subsidiaries, 100% of the general partnership
interests of the Partnership or (ii) if EME ceases to own, directly or
indirectly through one or more wholly-owned Subsidiaries, 50% of the
general partnership interests of the Partnership as a result of a
direct or indirect transfer by EME of such ownership interest in the
Partnership, which transfer is consented to by the Majority Banks, such
consent not to be unreasonably withheld.
SECTION 10
INDEMNIFICATION
The Partnership hereby indemnifies and holds harmless each
Financing Party from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever (including, without limitation, those
relating to or arising out of pollution or other damage to the environment and
excluding ordinary operating costs of the applicable indemnified party),
including reasonable attorneys' fees, which such Financing Party may incur (or
which may be claimed against such Financing Party by any Person or entity
whatsoever) arising out of or in connection with the execution, delivery,
enforcement (including the foreclosure or other sale of the property subject to
the Mortgage and the ownership and/or possession of such property by such
Financing Party or any representative thereof), performance
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or administration of this Agreement and the other Project Documents.
SECTION 11
EXPENSES
All statements, reports, certificates, opinions and other
documents or information required to be furnished by the Partnership to any
Financing Party under this Agreement shall be supplied without cost to such
Financing Party. Further, the Partnership shall pay, on demand, whether or not
any Loan is made hereunder, (a) all reasonable out-of-pocket costs and expenses
of the Agent (including, without limitation, the fees and disbursements of
Simpson Thacher and Bartlett, counsel to the Agent, and of local counsel to the
Agent, but excluding ordinary operating costs of the Agent) incurred in
connection with (i) the negotiation, preparation, execution and delivery of this
Agreement and the other Project Documents or any waiver or amendment of, or
supplement or modification to, the Project Documents, (ii) the review of any of
the other agreements, instruments or documents referred to in this Agreement or
relating to the transactions contemplated hereby, and (b) the reasonable fees
and disbursements of the Consulting Professional, the Insurance Advisor and any
other special consultants engaged by the Financing Parties in connection with
the transactions contemplated by this Agreement any of the other Project
Documents and (c) all costs and expenses of collection of any Financing Party
(including reasonable fees and disbursements of counsel to any Financing Party)
incident to the enforcement, protection or preservation of any right or claim of
any Financing Party under the Project Documents.
SECTION 12
THE AGENT AND RELATIONS AMONG BANKS, ETC.
SECTION 12.1. Appointment of Agent, Powers and Immunities.
Each Bank and the Issuing Bank hereby irrevocably appoints and authorizes the
Agent to act as its agent hereunder and under the other Project Documents with
such powers as are expressly delegated to the Agent by the terms of this
Agreement, together with such other powers as are reasonably incidental thereto.
The Agent shall not have any duties or responsibilities except those expressly
set forth in this Agreement or in any other Project Document, or be a trustee
for any Bank or the Issuing Bank. Notwithstanding anything to the contrary
contained herein, the Agent shall not be required to take any action which is
contrary to this Agreement or any other Project Document or applicable law.
Neither the Agent nor any other Financing Party nor any of their respective
affiliates shall be responsible to
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73
any other Financing Party for any recitals, statements, representations or
warranties made by the Partnership contained in this Agreement or in any
certificate or other document referred to or provided for in, or received by any
Financing Party under, this Agreement, for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, the Notes or any
other document referred to or provided for herein or for any failure by the
Partnership to perform its obligations hereunder or thereunder. The Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its directors, officers,
employees or agents shall be responsible for any action taken or omitted to be
taken by it or them hereunder or under any other Project Document or in
connection herewith or therewith, except for its or their own gross negligence
or wilful misconduct.
SECTION 12.2. Reliance by Agent. The Agent shall be entitled
to rely upon any certificate, notice or other document (including any cable,
telegram or telex) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Agent. As to any matters not expressly provided for by this
Agreement, the Agent shall not be required to take any action or exercise any
discretion, but the Agent shall be required to act or to refrain from acting
upon instructions of the Majority Banks and shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or under any other
Project Document in accordance with the instructions of the Majority Banks, and
such instructions of the Majority Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Financing Parties.
SECTION 12.3. Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Agent has received
notice from a Financing Party or the Partnership referring to this Agreement,
describing such Default and stating that such notice is a "Notice of Default."
In the event that the Agent receives such a notice of the occurrence of a
Default the Agent shall give notice thereof to the Financing Parties. The Agent
shall take such action with respect to such Default as shall be reasonably
directed by the Majority Banks; 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 as it shall deem advisable in the best interests of the Financing
Parties.
SECTION 12.4. Rights as Banks. Credit Lyonnais shall have the
same rights and powers hereunder as any Bank and may
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exercise the same as though it was not acting as the Agent, and the term "Bank"
or "Banks" shall, unless the context otherwise indicates, include Credit
Lyonnais in its individual capacity. Credit Lyonnais and its affiliates may
(without having to account therefor to any Bank) accept deposits from, extend
credit (on a secured or unsecured basis) to and generally engage in any kind of
banking, trust or other business with the Partnership or any Partner or any of
their respective affiliates, as if it was not acting as the Agent.
SECTION 12.5. Indemnification. Without limiting the
obligations of the Partnership under Section 10 or Section 11 hereof, each Bank
agrees to indemnify the Agent, ratably in accordance with the aggregate
principal amount of the Term Loans held by them, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may at any time
(including, without limitation, at any time following the payment of principal
of and/or interest on the Loans) be imposed on, incurred by or asserted against
the Agent in any way relating to or arising out of this Agreement or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses which the
Partnership is obligated to pay under Section 10 and Section 11 hereof) or the
enforcement of any of the terms hereof or thereof or of any such other
documents, provided that no Bank shall be liable for any of the foregoing to the
extent they arise from the Agent's gross negligence or wilful misconduct. The
Agent shall be fully justified in refusing to take or to continuing to take any
action hereunder unless it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
SECTION 12.6. Documents. The Agent will forward to each
Financing Party, promptly after the Agent's receipt thereof, a copy of each
document furnished to the Agent for such Financing Party hereunder (and a copy
of such other documents furnished to the Agent hereunder as may be requested by
such Financing Party).
SECTION 12.7. Non-Reliance on Agent and Other Financing
Parties. Each Financing Party represents that it has, independently and without
reliance on the Agent or any other Financing Party, and based on such documents
and information as it has deemed appropriate, made its own appraisal of the
financial condition and affairs of the Partnership and its own decision to enter
into this Agreement and agrees that it will, independently and without reliance
upon the Agent or any other Financing Party, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
appraisals and decisions in taking or not taking action under this Agreement.
Neither the Agent nor any other Financing Party shall be required to keep
informed as to the performance or
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observance by the Partnership under this Agreement or any other document
referred to or provided for herein or to make inquiry of, or to inspect the
properties or books of, the Partnership. Except for notices, reports and other
documents and information expressly required to be furnished to the Financing
Parties by the Agent hereunder, neither the Agent nor any other Financing Party
shall have any duty or responsibility to provide any Financing Party with any
credit or other information concerning the Partnership, or any affiliate of the
Partnership, which may come into the possession of the Agent or such other
Financing Party or any of its or their affiliates.
SECTION 12.8. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the other Financing Parties and
the Partnership, and the Agent may be removed at any time with or without cause
by the Majority Banks. Upon any such resignation or removal, the Majority Banks
shall have the right to appoint a successor Agent. If no successor Agent shall
have been appointed by the Majority Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks and the Issuing Bank, appoint a
successor Agent, which shall be a bank with an office (or having an affiliate
with an office) in New York, New York, having a combined capital and surplus of
not less than $500,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section 12 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
SECTION 12.9. Authorization. The Agent is hereby authorized by
the Financing Parties to execute, deliver and perform each of the Project
Documents to which the Agent (whether as "Agent," "Grantee" or "Mortgagee") is
or is intended to be a party and each Financing Party agrees to be bound by all
of the agreements of the Agent contained in the Project Documents.
SECTION 13
LIMITATIONS ON RECOURSE
Notwithstanding anything to the contrary contained in this
Agreement, in any other Project Document or in any other document, certificate
or instrument executed by any Affiliated Obligor, each Bank, the Issuing Bank,
the Grantee and the Agent
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(collectively, the "Bank Parties") agree that, except as hereinafter set forth,
their rights in respect of the Obligations and any claim or liability under any
Project Document asserted against the Partnership by the Bank Parties shall be
limited to satisfaction out of, and enforcement against, the Collateral. The
Bank Parties also hereby acknowledge and agree that, except for the Affiliated
Obligors, no other Person (including, but not limited to, Edison International,
Southern California Edison Company, The Mission Group, EME, Cogentrix Energy,
Delaware Holdings, CHC or the Parent, or any present or future officer,
employee, servant, controlling Person, manager, agent, authorized representative
(including any member of the Partnership's Management Committee) or stockholder
of Edison International, Southern California Edison Company, The Mission Group,
EME, Cogentrix Energy, Delaware Holdings, CHC or the Parent) (collectively, the
"Non-Recourse Persons") shall have any liability to all or any of the Bank
Parties (such liability, including such as may arise by operation of law, being
hereby expressly waived) for the payment of any sums now or hereafter owing by
the Partnership under this Agreement or any other Project Document or for the
performance of any of the obligations of the Affiliated Obligors contained
herein or therein or shall otherwise be liable or responsible with respect
thereto, except as hereinafter set forth. Accordingly, dividends or other
distributions made by a Partner to its shareholders (other than dividends or
other distributions made by Cogentrix Virginia to the Parent) shall not be
deemed to be Collateral in which the Bank Parties have any security or other
interest and the lien of any security interest or any other Lien granted by any
Affiliated Obligor to any Bank Party under any Project Document shall not extend
to any amounts that have been distributed, by dividend or otherwise, by an
Affiliated Obligor to any of its affiliates (other than another Affiliated
Obligor). If any Default or Event of Default shall occur or if any claim of the
Bank Parties against the Partnership or alleged liability to the Bank Parties of
any Affiliated Obligor shall be asserted under this Agreement or any other
Project Document, the Bank Parties agree that, except as hereinafter set forth,
they shall not have the right to proceed directly or indirectly against the
Non-Recourse Persons or against their respective properties and assets (other
than the Collateral) for the satisfaction of any Obligations or of any such
claim or liability or for any deficiency judgment (except to the extent
enforceable out of the Collateral) in respect of the Obligations or any such
claim or liability. In furtherance of this Agreement, each Bank Party hereby
covenants severally and not for any other Bank Party that, in the event of a
proceeding under Title 11 of the United States Code in which the Partnership or
any Partner is a debtor, it shall elect to have its claims against the
Partnership or any Partner treated as fully secured pursuant to 11 U.S.C.
Section 1111(b)(2). Notwithstanding any of the foregoing, it is expressly
understood and agreed, however, that nothing contained in this Section 13 shall
in any manner or any way (i) constitute or be deemed to be a release of the
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Obligations or impair the enforceability of the liens and security interests and
possessory rights created by or arising from this Agreement and the Security
Documents and the provisions of the Security Deposit Agreement relating to the
Accounts and investments therein or, except as provided in the preceding
sentence, restrict the remedies available to the Bank Parties to realize upon
the Collateral, or (ii) affect or diminish any obligation, covenant or agreement
of any Non-Recourse Person under, or any right or benefit of the Partnership or
the Bank Parties under, any Project Document or any other agreement or
instrument or (iii) without derogating from the meaning of Collateral, affect or
diminish any rights of any Person against any other Person arising from
misappropriation or misapplication of any funds or for such other Person's gross
negligence or willful misconduct. The foregoing acknowledgments, agreements and
waivers shall survive the termination of this Agreement and shall be enforceable
by any Non-Recourse Person.
SECTION 14
MISCELLANEOUS
SECTION 14.1. No Waiver; Remedies Cumulative. No failure to
exercise and no delay in exercising on the part of any Financing Party of any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or privilege preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 14.2. Notices. Except as otherwise specified herein,
all notices, requests, demands, consents, instructions or other communications
hereunder ("notices") shall be in writing and shall be duly given or made if
delivered by hand or courier or telecopy or if sent by first class mail or by
tested or otherwise authenticated telex, telegram or cable, and shall be deemed
to have been duly given or made upon the receipt thereof if by hand or courier
or the transmittal thereof if by telex or telecopy or the delivery thereof to
the telegraph office if by telegram or cable, or on the fifth Business Day
following the deposit thereof in the mail, first class postage prepaid, in each
case addressed to the party or Transferee to which such notice is requested or
permitted to be given or made hereunder, if to the Agent, the Issuing Bank, a
Bank or the Partnership at the address specified beneath the heading "Address
for Notices" on the signature pages hereof (or, in the case of a Transferee
which is not a party hereto, at the address of such Transferee which is
furnished to the Agent by such Transferee), or at such other address of which
such Person shall have notified in writing the party giving such Notice.
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SECTION 14.3. Participations; Purchasing Banks. (a) Any
Financing Party may, in accordance with applicable law, at any time sell to one
or more banks or other entities ("Subparticipants") participating interests in
any Loan made by such Financing Party, any Note held by such Financing Party or
any other interest of such Financing Party hereunder. In the event of any such
sale by a Financing Party of a participating interest to a Subparticipant, such
Financing Party shall remain solely responsible for the performance of such
Financing Party's obligations under this Agreement, such Financing Party shall
remain the holder of any such Note for all purposes of this Agreement, the
Partnership and the Agent shall continue to deal solely and directly with such
Financing Party in connection with such Financing Party's rights and obligations
under this Agreement and such Financing Party shall not grant any such
Subparticipant any voting rights or veto power over any action by such Financing
Party under this Agreement, except that such Financing Party may agree not to
change the interest rate, amortization, mandatory prepayment provisions,
maturity or amount of the Obligations hereunder and under such Note, and agree
not to consent to the release (except in accordance with the provisions of
Section 14.6 hereof) or subordination of any of the Collateral, without the
consent of such Subparticipant. The Partnership agrees that if amounts
outstanding under this Agreement and the Notes 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 Subparticipant shall be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement and any Note in which it has purchased a participating interest to the
same extent as if the amount of its participating interest were owing directly
to it as a Financing Party under this Agreement or any such Note; provided that
such right of setoff shall be subject to the obligation of such Subparticipant
to share with the Banks, and the Banks agree to share with such Subparticipant,
as provided in Section 4.3. The Partnership also agrees that each Subparticipant
shall be entitled to the benefits of Sections 3.5, 4.5, 5.1, 5.3, 5.4, 10 and
(in the case of a participating interest in any Debt Service Letter of Credit
Loan) 3A.10 with respect to its participation in the Loans and other Obligations
hereunder outstanding from time to time; provided, that no Subparticipant shall
be entitled to receive any greater amount pursuant to such Sections than the
transferor Financing Party would have been entitled to receive in respect of the
amount of the participation transferred had no such transfer occurred.
(b) Any Bank may, in accordance with applicable law, at any
time sell to one or more additional banks or financial institutions ("Purchasing
Banks") all or any part of its rights and obligations under this Agreement and
the Term Note held by it; provided, that each Bank shall use reasonable efforts
to offer to sell such rights and obligations to financial institutions
reasonably acceptable to the Partnership and the
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Agent but the ultimate decision with respect to any disposition of such rights
and obligations shall be made by such Bank in its sole judgement. Each such sale
shall be in a minimum amount of $2,500,000, pursuant to a Loan Transfer
Supplement executed by such Purchasing Bank and such transferor Bank and
received by the Agent. Upon (i) execution of such Loan Transfer Supplement, (ii)
delivery of an executed copy thereof to the Partnership and receipt thereof by
the Agent and (iii) payment by such Purchasing Bank to the selling Bank of the
amount set forth in the related Loan Transfer Supplement and payment to the
Agent of a transfer fee of $2,000, (A) such Purchasing Bank shall for all
purposes be a Bank party to this Agreement and shall have all the rights and
obligations of a Bank under this Agreement, to the same extent as if it were an
original party hereto with the Proportionate Share set forth in such Loan
Transfer Supplement, which shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Bank as a party to this Agreement and the resulting adjustment of
Proportionate Shares arising from the purchase by such Purchasing Bank of all or
a portion of the rights and obligations of such transferor Bank under this
Agreement and the Note held by it and (B) the transferor Bank thereunder shall,
to the extent provided in such Loan Transfer Supplement, be released from its
obligations under this Agreement and, in the case of a Loan Transfer Supplement
covering all or the remaining portion of a transferor Bank's rights and
obligations under this Agreement, such transferor Bank shall cease to be a party
hereto. Upon the consummation of any transfer to a Purchasing Bank pursuant to
this paragraph (b), the transferor Bank, the Agent and the Partnership shall
make appropriate arrangements so that, if required, a replacement Note is issued
to such transferor Bank and a new Note or, as appropriate, a replacement Note,
is issued to such Purchasing Bank, in each case in a principal amount reflecting
their respective Proportionate Shares.
(c) The Agent shall maintain at its Principal Office a copy of
each Loan Transfer Supplement delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Banks and their respective
Proportionate Shares. The entries in the Register shall be available for
inspection by the Partnership or any Bank at any reasonable time and from time
to time upon reasonable prior written notice.
(d) The Partnership authorizes each Financing Party to
disclose to any Subparticipant or Purchasing Bank (each, a "Transferee") and any
prospective Transferee on a confidential basis any and all financial and other
information in such Financing Party's possession concerning the Project and the
Partnership and its affiliates including, without limitation, any and all
information which has been delivered to such Financing Party by or on behalf of
the Partnership, either Partner or the Parent pursuant to this Agreement or
which has been delivered to such Financing Party by or on behalf of the
Partnership or the
<PAGE> 81
80
Parent in connection with such Financing Party's credit evaluation of the
Partnership, any other Obligor and the Project prior to becoming a party to this
Agreement. Each Transferee and prospective Transferee shall agree in writing to
hold such information in confidence.
SECTION 14.4. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Partnership, the Agent and each
Financing Party and (subject, in the case of Transferees, to the provisions of
Section 14.3 hereof) their respective successors and assigns.
SECTION 14.5. Right of Set-off. (a) Upon the occurrence and
during the continuance of any Event of Default, each of the Financing Parties
is, subject (as between the Financing Parties) to the provisions of Section 12
hereof, hereby authorized at any time and from time to time, without notice to
the Partnership (any such notice being expressly waived by the Partnership) and
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held, and other indebtedness at any time owing, by such Financing Party in any
of its offices to or for the credit or the account of the Partnership against
any and all of the respective obligations of the Partnership now or hereafter
existing under the Project Documents, irrespective of whether or not such
Financing Party or any other Financing Party shall have made any demand
hereunder and although such obligations may be contingent or unmatured and such
deposits or indebtedness may be unmatured.
(b) A Financing Party shall promptly notify the Partnership
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of the Financing Parties under this Section 14.5 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which the
Financing Parties may have.
SECTION 14.6. Release of Collateral. (a) Limitations on
Releases. From time to time after the execution and delivery of the Security
Documents, the Partnership may, without consent of the Majority Banks, sell,
transfer or dispose of (a) any tangible property subject to the Lien of the
Security Documents for which replacement items of the same character and at
least equivalent fair market value and utility have been substituted and become
part of the Collateral and (b) other tangible property subject to the Lien of
the Security Documents that is not necessary for the proper operation of the
Facility, if, at the time of such disposition and after giving effect thereto,
no Default or Event of Default exists and the property subject to the Lien of
the Security Documents will be adequate to operate the Facility with the
capabilities described in the definition of such term in Section 1.1 hereof;
provided, however, that the
<PAGE> 82
81
Partnership shall not in any calendar year dispose of property pursuant to the
foregoing clause (b) having a fair market value as of the respective time or
times of sale, transfer or disposition exceeding $250,000 at any one time or
$500,000 in the aggregate; and provided, further, that on or before March 31 in
each year commencing with 1998, the Partnership shall deliver to the Financing
Parties an Officer's Certificate certifying (i) in reasonable detail as to all
sales, transfers and dispositions of property subject to the Lien of the
Security Documents made pursuant to this Section 14.6 during the preceding
calendar year without the consent of the Majority Banks and (ii) that all such
replacement items substituted for property subject to the Lien of the Security
Documents, and all instruments delivered to the Agent under the Security
Documents during such year in respect of such substitutions, and in respect of
releases of other property from the Lien of the Security Documents, complied
with the requirements of the Security Documents and this Agreement and all
conditions precedent for any release of property from the Lien of the Security
Documents during such year were complied with and all action necessary to
subject such replacement property to the Lien of the Security Documents has been
duly taken.
(b) Confirmations of Releases. Upon any sale, transfer or
disposition pursuant to subsection (a) above, the Lien of the Security Documents
shall cease as to the property so sold, transferred or disposed of without the
requirement of a formal release by the Agent; provided, however, that upon
request by the Partnership, the Agent shall execute an appropriate instrument
confirming the release of such property from the Lien of the Security Documents.
(c) Releases in Financing Parties' Discretion. Neither the
Agent nor the Financing Parties shall be required to make any release of
Collateral other than pursuant to subsection (a) above, but the Agent shall make
any such release if requested by the Partnership and authorized by each
Financing Party. Without limiting the generality of the foregoing, neither the
Agent nor any of the other Financing Parties shall be required to make any
release of Collateral if one or more Defaults or Events of Default shall exist.
The Partnership shall deliver to each Financing Party, in connection with each
request for the release of any part of the Collateral, an Officer's Certificate
stating that there is, and that after giving effect to the release applied for
there will be, no Default or Event of Default.
SECTION 14.7. Severability. Any provision hereof 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 without affecting the validity
or enforceability of any provision in any other jurisdiction.
<PAGE> 83
82
SECTION 14.8. Headings. The headings of the various sections
and paragraphs of this Agreement are for convenience of reference only, do not
constitute a part hereof and shall not affect the meaning or construction of any
provision hereof.
SECTION 14.9. Amendments, Etc. Neither this Agreement, any
Note, nor any terms hereof or thereof may be amended, supplemented or modified
except in accordance with the provisions of this subsection. With the written
consent of the Majority Banks and the Issuing Bank, the Agent and the
Partnership may, from time to time, enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to this
Agreement or the Notes or changing in any manner the rights of the Banks or the
Issuing Bank or of the Partnership hereunder or thereunder or waiving, on such
terms and conditions as the Agent may specify in such instrument, any of the
requirements of this Agreement or the Notes or any Default or Event of Default
and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (a) extend the maturity of any Note
or any installment thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof, or reduce any fee
payable to the Bank hereunder, or change the amount of any Bank's Proportionate
Share or release any Collateral or amend, modify or waive any provision of this
Section 14.9 or reduce the percentage specified in the definition of Majority
Banks, or consent to the assignment or transfer by the Partnership of any of its
rights and obligations under this Agreement, in each case without the written
consent of all the Banks and the Issuing Bank, or (b) amend, modify or waive any
provision of Section 12 without the written consent of the then Agent. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Banks and the Issuing Bank and shall be binding upon the
Partnership, each of the Financing Parties and all future holders of the Notes.
In the case of any waiver, the Partnership and each of the Financing Parties
shall be restored to their former position and rights hereunder and under the
outstanding Notes, and any Default or Event of Default waived shall be deemed to
be cured and not continuing; but no such waiver shall extend to any subsequent
or other Default or Event of Default, or impair any right consequent thereon.
SECTION 14.10. Survival. Without prejudice to the survival of
any other agreement of the Partnership hereunder, the agreements and obligations
of the Partnership contained in Sections 3A.10, 4.5, 5.3, 5.4 and 10 hereof
shall survive the payment in full of the Loans and the Notes and the other
Obligations and the termination of this Agreement.
SECTION 14.11. Existing Reimbursement Agreement. This
Agreement amends and restates in its entirety the Existing Reimbursement
Agreement. All references to the Existing
<PAGE> 84
83
Reimbursement Agreement in any other agreement or document shall, unless the
context otherwise requires, on and after the Effective Date, be deemed to refer
to the Existing Reimbursement Agreement, as amended and restated hereby.
SECTION 14.12. Governing Law. This Agreement and the Notes
shall be governed by and construed in accordance with the law of the State of
New York.
<PAGE> 85
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York as of the day
and year first above written.
JAMES RIVER COGENERATION COMPANY
By: COGENTRIX OF VIRGINIA, INC., a
general partner
By: /S/ Thomas F. Schwartz
------------------------------------
Title:
---------------------------------
Address for Notices:
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: President (with copy to
General Counsel)
Telephone No.: (704) 525-3800
Telecopier No.: (704) 529-5313
By: CAPISTRANO COGENERATION COMPANY,
a general partner
By: /s/ Deborah L. Gronvold
------------------------------------
Title: Vice President and Treasurer
---------------------------------
Address for Notices:
1801 Von Karman Avenue
Suite 1700
Irvine, California 92612-1046
Attention: Treasurer
Telephone No.: (714) 752-5588
Telecopier No.: (714) 752-5624
<PAGE> 86
AGENT AND ISSUING BANK
CREDIT LYONNAIS
By: /s/ James F. Guidera
------------------------------------
Title: Vice President
---------------------------------
Addresses for Notices:
1301 Avenue of the Americas
New York, New York 10019
Attention: James Guidera/Robert
Colvin
Telephone No.: (212) 261-7893/
(212) 261-7882
Telecopier No.: (212) 261-3421
<PAGE> 87
Banks
CREDIT LYONNAIS
By:/s/ James F. Guidera
------------------------------
Title: Vice President
---------------------------
Existing Term Loan Amount:
$45,417,100
Additional Term Loan Amount:
$34,582,900
Total Term Loan Amount
$80,000,000
Proportionate Share:
100%
Prime Rate and Eurodollar Rate Lending Office:
1301 Avenue of the Americas
New York, New York 10019
Address for Notices:
1301 Avenue of the Americas
New York, New York 10019
Attention: James Guidera/Robert
Colvin
Telephone No.: (212) 261-7893/
(212) 261-7882
Telecopier No.: (212) 261-3421
<PAGE> 1
- --------------------------------------------------------------------------------
COGENTRIX VIRGINIA LEASING CORPORATION
------------------------
THIRD AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of
December 22, 1997
------------------------
CREDIT LYONNAIS,
as the Agent,
the Issuing Bank
and a Lender
and
the other financial institutions
parties hereto, as Lenders
- --------------------------------------------------------------------------------
<PAGE> 2
Table of Contents
Page
----
SECTION 1. TERM LOANS...................................................... 2
1.1 Term Loans................................................... 2
1.2 Procedure for Borrowing of Additional Term Loans............. 2
1.3 Term Notes................................................... 3
1.4 Repayment of Term Loans...................................... 3
1.5 Reduction of Total Permitted Term Loan Amount................ 3
1.6 Reduction Amount Schedule.................................... 4
SECTION 2. INTEREST AND FEES............................................... 4
2.1 Rate of Interest............................................. 4
2.2 Interest Payment Dates....................................... 4
2.3 Continuation of Eurodollar Loans and CD Rate Loans........... 5
2.4 Conversion of Loans.......................................... 5
2.5 Minimum Amounts of Tranches.................................. 6
2.6 Computation of Interest...................................... 6
2.7 Inability to Determine Interest Rate......................... 6
2.8 Pro Rata Treatment and Payments.............................. 7
2.9 Illegality................................................... 8
2.10 Requirements of Law.......................................... 8
2.11 Taxes........................................................ 9
2.12 Indemnity.................................................... 10
2.13 Fees......................................................... 10
SECTION 2A. DEBT SERVICE LETTER OF CREDIT.................................. 11
2A.1 Issuance of Debt Service Letter of Credit.................... 11
2A.2 Available Amount............................................. 12
2A.3 Debt Service Letter of Credit Operations..................... 12
2A.4 Agreement To Repay Debt Service Letter of Credit
Disbursements............................................. 12
2A.5 Application of Payments...................................... 15
2A.6 Debt Service Letter of Credit Fee............................ 15
2A.7 Effect of Event of Default................................... 16
2A.8 Obligations Absolute......................................... 16
2A.9 Survival of Agreements, Representations and Warranties, Etc.. 16
2A.10 Increased Costs.............................................. 17
SECTION 3. PAYMENTS, ETC................................................... 18
3.1 Prepayments.................................................. 18
(a) Mandatory........................................ 18
(b) Optional......................................... 18
3.2 Overdue Payments............................................. 19
3.3 Computation of Time Periods.................................. 19
- i -
<PAGE> 3
Page
----
3.4 Right to Set off............................................. 19
3.5 Total Additional Term Loan Commitment Reductions............. 20
(a) Mandatory........................................ 20
(b) Optional......................................... 20
SECTION 4. CONDITIONS PRECEDENT............................................ 20
4.1 Conditions to Effectiveness........................... 20
(a) Agreement........................................ 20
(b) Deed of Trust Amendment.......................... 21
(c) Pledge Agreement. ............................... 21
(d) Security Agreement Amendment..................... 21
(e) Security Deposit Agreement....................... 21
(f) Existing Interest Rate Protection Agreements..... 21
(g) Ship Mortgage Amendment.......................... 21
(h) Management Agreement Amendment................... 21
(i) Title Insurance; Survey.......................... 21
(j) Cogentrix Energy Indemnity Agreement............. 22
(k) Power Purchaser Consent.......................... 22
(l) Corporate Proceedings of the Borrower............ 22
(m) Incumbency Certificate of the Borrower........... 22
(n) Corporate Proceedings of the Parent.............. 22
(o) Incumbency Certificate of the Parent............. 22
(p) Corporate Proceedings of Cogentrix Energy........ 23
(q) Incumbency Certificate of Cogentrix Energy....... 23
(r) Legal Opinions................................... 23
(s) No Default....................................... 23
(t) Representations and Warranties................... 24
(u) Responsible Officer's Certificate................ 24
(v) Certificate of Ownership and Abstract of Title... 24
(w) Certificates..................................... 24
(x) Evidence of Insurance............................ 24
(y) Bank Assignment.................................. 24
(z) Assigned Contracts; Consents..................... 24
(aa) Insurance Advisor's Report....................... 24
(bb) Engineer's Report................................ 24
(cc) Notes............................................ 25
(dd) Fees............................................. 25
(ee) Pro Forma Financial Statements................... 25
(ff) Debt Service Letter of Credit.................... 25
(gg) Power Purchase Agreement Amendment............... 25
(hh) Power Purchaser Notice........................... 25
(ii) Borrowing Request................................ 25
(jj) Payment of Interest and Fees..................... 26
(kk) Additional Matters............................... 26
4.2 Conditions to Additional Term Loans................... 26
(a) No Default....................................... 26
(b) No Event of Loss................................. 26
- ii -
<PAGE> 4
Page
----
SECTION 5. REPRESENTATIONS AND WARRANTIES.................................. 26
5.1 Financial Statements; Liabilities............................ 26
5.2 Corporate Existence.......................................... 27
5.3 Compliance with Law.......................................... 27
5.4 Corporate Power and Authorization; Enforceable Obligations... 27
5.5 Governmental Actions......................................... 28
5.6 No Legal Bar................................................. 28
5.7 No Litigation................................................ 29
5.8 No Default or Event of Loss.................................. 29
5.9 Ownership of Property; Liens................................. 29
5.10 No Burdensome Restrictions................................... 29
5.11 Taxes........................................................ 29
5.12 Public Utility Status........................................ 30
5.13 Federal Regulations.......................................... 30
5.14 ERISA........................................................ 31
5.15 Investment Company Act....................................... 31
5.16 Security Documents........................................... 31
5.17 Full Disclosure.............................................. 31
5.18 Power Purchase Agreement and Other Assigned Contracts........ 31
5.19 Principal Place of Business, Etc............................. 32
5.20 Water Supply................................................. 32
5.21 Compliance with Building Codes, Zoning Laws, Etc............. 32
5.22 Roads........................................................ 33
5.23 Deed of Trust................................................ 33
5.24 Sufficiency of Project Documents............................. 33
5.25 Outstanding Shares of Capital Stock of Borrower.............. 33
5.26 Environmental Matters........................................ 33
5.27 Subsidiaries................................................. 34
5.28 Representations and Warranties in Other Project Documents.... 34
5.29 Relocation of Coal Conveyor and Steam Pipelines.............. 34
SECTION 6. AFFIRMATIVE COVENANTS........................................... 34
6.1 Financial Statements......................................... 34
6.2 Certificates; Other Information.............................. 35
6.3 Payment of Obligations....................................... 36
6.4 Conduct of Business and Maintenance of Existence............. 37
6.5 Maintenance of Property; Operation of Project;
Restoration of Facility.................................... 37
6.6 Assigned Contracts........................................... 37
6.7 Insurance.................................................... 38
6.8 Inspection of Property; Books and Records; Discussions....... 42
6.9 Notices...................................................... 42
6.10 Assignments of Additional Contracts; Maintenance of
Liens of the Security Documents; Future Mortgages.......... 44
- iii -
<PAGE> 5
Page
----
6.11 Employee Plans............................................... 44
6.12 Management Letters........................................... 45
6.13 Plans........................................................ 45
6.14 Correction of Work........................................... 45
6.15 Defend Title................................................. 45
6.16 Deposits..................................................... 45
6.17 Interest Rate Protection..................................... 45
6.18 Hazardous Material........................................... 46
6.19 Notice under Consents........................................ 47
6.20 Major Maintenance Reserve Account............................ 47
SECTION 7. NEGATIVE COVENANTS.............................................. 47
7.1 Indebtedness................................................. 47
7.2 Limitation on Liens.......................................... 47
7.3 Limitation on Contingent Obligations......................... 48
7.4 Limitation on Restricted Payments............................ 48
7.5 Limitation on Investments.................................... 48
7.6 Prohibition of Fundamental Changes; Change of Office......... 49
7.7 Limitation on Leases......................................... 49
7.8 Compliance with ERISA........................................ 49
7.9 Restrictions on Disposition and Purchase of Assets........... 49
7.10 Amendments, Etc. of Contracts................................ 50
7.11 Transactions with Affiliates and Others...................... 50
7.12 Limitation on Capital Expenditures........................... 50
7.13 Conduct of Business.......................................... 51
7.14 Qualifying Facility.......................................... 51
SECTION 8. EVENTS OF DEFAULT............................................... 51
8.1 Events of Default............................................ 51
SECTION 9. THE AGENT....................................................... 56
9.1 Appointment.................................................. 56
9.2 Delegation of Duties......................................... 57
9.3 Exculpatory Provisions....................................... 57
9.4 Reliance by Agent............................................ 57
9.5 Notice of Default............................................ 58
9.6 Non-Reliance on Agent........................................ 58
9.7 Indemnification.............................................. 59
9.8 The Agent in Its Individual Capacity......................... 59
9.9 Successor Agent.............................................. 59
SECTION 10. MISCELLANEOUS.................................................. 60
10.1 Amendments and Waivers....................................... 60
10.2 Notices...................................................... 61
10.3 No Waiver; Cumulative Remedies............................... 61
- iv -
<PAGE> 6
Page
----
10.4 Survival of Representations and Warranties................... 61
10.5 Payment of Expenses and Taxes................................ 61
10.6 Successors and Assigns....................................... 62
10.7 Financing Parties Sole Beneficiaries......................... 64
10.8 Release of Collateral........................................ 65
10.9 Counterparts................................................. 66
10.10 SUBMISSION TO JURISDICTION; WAIVERS.......................... 66
10.11 Governing Law................................................ 67
10.12 Limitation of Liability...................................... 67
- v -
<PAGE> 7
Annex A DEFINITIONS
Schedule I Description of Site
Schedule II Liabilities
Schedule III Governmental Actions and Permits
Schedule IV Recordings and Filings
Schedule V Environmental Notices
Schedule VI Permitted Liens
Schedule VII Reduction Amount Schedule
Schedule VIII Pending and Threatened Litigation
Schedule IX Lender Information
Exhibit A Form of Borrowing Request
Exhibit B-1 Form of Term Note
Exhibit B-2 Form of Debt Service Letter of Credit Note
Exhibit C-1 Form of Legal Opinion of Moore & Van Allen, PLLC
Exhibit C-2 Form of Legal Opinion of Menaker & Herrmann
Exhibit C-3 Form of Legal Opinion of Vandeventer, Black,
Meredith & Martin
Exhibit C-4 Form of Legal Opinion of McGuire, Woods, Battle
& Boothe
Exhibit D [intentionally omitted]
Exhibit E Form of Bank Assignment
Exhibit F Form of Loan Transfer Supplement
Exhibit G Form of Cogentrix Energy Indemnity Agreement
Exhibit H Form of Debt Service Letter of Credit
Exhibit I Form of Deed of Trust Amendment
Exhibit J Form of Pledge Agreement
Exhibit K Form of Ship Mortgage Amendment
Exhibit L Form of Security Agreement Amendment
Exhibit M Form of Third Amended and Restated Security
Deposit Agreement
Exhibit N Form of Subordination Provisions for Junior
Working Capital Loans
Exhibit O Form of Management Agreement Amendment
- vi -
<PAGE> 8
THIRD AMENDED AND RESTATED LOAN AGREEMENT, dated as of
December 22, 1997, among (i) COGENTRIX VIRGINIA LEASING CORPORATION, a North
Carolina corporation (the "Borrower"), (ii) CREDIT LYONNAIS and each other
financial institution which becomes a party hereto pursuant to Section 10.6(c)
hereto (individually a "Lender" and collectively the "Lenders"), (iii) CREDIT
LYONNAIS, as the issuer of the Debt Service Letter of Credit referred to below
(in such capacity, the "Issuing Bank") and (iv) CREDIT LYONNAIS, as agent for
the Lenders and the Issuing Bank (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, The CIT Group/Equipment Financing. Inc.
("CIT"), The Sumitomo Bank, Limited, Chicago Branch ("Sumitomo"), Bank of
Montreal ("BMO"; collectively with CIT and Sumitomo, the "Transferor Lenders")
and CIT, as agent for the Transferor Lenders (in such capacity, the "Original
Agent") are parties to the Second Amended and Restated Loan Agreement, dated as
of May 22, 1992, as amended by the First Amendment thereto, dated as of December
15, 1993 (the "Existing Loan Agreement"), pursuant to which the Transferor
Lenders made Term Loans (capitalized terms being used herein with the respective
meanings specified therefor in Annex A) to the Borrower;
WHEREAS, Credit Lyonnais, immediately prior to this
Agreement's becoming effective pursuant hereto on the Third Restatement
Effective Date, will purchase the outstanding Term Loans made by the Transferor
Lenders and will assume all of the rights and obligations of the Transferor
Lenders under the Existing Loan Agreement;
WHEREAS, pursuant to subsection 9.9 of the Existing Loan
Agreement, CIT has notified the Transferor Lenders and the Borrower that it
shall resign as the Original Agent thereunder immediately prior to this
Agreement's becoming effective on the Third Restatement Effective Date; and
WHEREAS, the Agent is willing to assume the obligations and
responsibilities of the Original Agent under the Existing Loan Agreement; and
WHEREAS, the parties hereto mutually desire to amend the
Existing Loan Agreement to provide for, among other things, (i) the making by
the Lenders of the Additional Term Loans, (ii) the changing of the principal
amortization schedule for the Term Loans, (iii) the changing of the interest
rate in respect of the Term Loans, (iv) the extension of the maturity of the
Term Loans and (v) the issuance by the Issuing Bank of the Debt Service Letter
of Credit in favor of the Agent, and to restate the Existing Loan Agreement, as
so amended, in its entirety as hereinafter set forth;
<PAGE> 9
2
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, each of the parties
hereto hereby agrees that, from and after the Third Restatement Effective Date,
the Existing Loan Agreement (including all Exhibits and Schedules thereto) shall
be, and the same hereby is, amended and restated in its entirety to read as
follows:
SECTION 1. TERM LOANS.
1.1 Term Loans. (a) Immediately prior to this Agreement's
becoming effective on the Third Restatement Effective Date, the Lenders shall
purchase all of the outstanding Term Loans from the Transferor Lenders pursuant
to the Bank Assignment, so that the outstanding Term Loan held by each Lender
(collectively, the "Existing Term Loans") shall be in the amount set forth
opposite such Lender's name in Column A of Schedule IX hereto.
(b) Subject to the terms and conditions of this Agreement,
each Lender agrees to make additional term loans to the Borrower on the Third
Restatement Effective Date and on up to seventeen (17) Borrowing Dates
thereafter during the Additional Term Loan Commitment Period in an aggregate
principal amount on each such date up to but not exceeding such Lender's
Available Additional Term Loan Commitment on such date (collectively, the
"Additional Term Loans"; the Existing Term Loans and the Additional Term Loans
being hereinafter collectively referred to as the "Term Loans").
(c) The Existing Term Loans on the Third Restatement Effective
Date and any Additional Term Loans made on the Third Restatement Effective Date
shall initially be Prime Rate Loans. Thereafter, subject to and upon the terms
and conditions of this Agreement, the Term Loans may from time to time be
Eurodollar Loans, CD Rate Loans or Prime Rate Loans or a combination thereof, as
determined by the Borrower and notified to the Agent in accordance with
subsection 2.4.
1.2 Procedure for Borrowing of Additional Term Loans. The
Borrower may borrow under the Total Additional Term Loan Commitment on the Third
Restatement Effective Date and on up to seventeen Borrowing Dates thereafter
during the Additional Term Loan Commitment Period, provided that 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, on the Third Restatement
Effective Date, in the case of any requested borrowing on such date, and in any
other case (a) three Business Days prior to the requested Borrowing Date, if all
or any part of the requested Additional Term Loans are to be initially
Eurodollar Loans, (b) two Business Days prior to the requested Borrowing Date,
if all or any part of the requested Additional Term Loans are to be initially CD
Rate Loans, or (c) one Business
<PAGE> 10
3
Day prior to the requested Borrowing Date, otherwise) by the delivery to the
Agent of a properly completed Borrowing Request, duly executed by a Responsible
Officer of the Borrower, specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, Prime Rate Loans, CD Rate Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans or CD Rate Loans or a
combination thereof, the respective amounts of each such Type of Additional Term
Loan and the respective lengths of the initial Interest Periods therefor. Each
borrowing under the Additional Term Loan Commitments (other than on the Third
Restatement Effective Date) shall be in an amount equal to $1,000,000 or a whole
multiple of $1,000,000 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 by the Borrower in the Borrowing Request with
the aggregate of the amounts made available to the Agent by the Lenders and in
like funds as received by the Agent.
1.3 Term Notes. The Borrower shall issue to each Lender on the
Third Restatement Effective Date a promissory note substantially in the form of
Exhibit B-1 hereto with appropriate insertions (collectively, the "Term Notes"),
to evidence the Borrower's obligation to pay the principal of, and interest on,
the Term Loans made by such Lender. Each Term Note shall (a) be dated the Third
Restatement Effective Date, (b) be in a principal amount equal to the lesser of
(x) such Lender's Loan Percentage of the Total Permitted Term Loan Amount on the
Third Restatement Effective Date and (y) the aggregate unpaid principal amount
of all Term Loans made by such Lender, (c) bear interest on the unpaid principal
amount thereof as provided in Section 2 hereof and (d) be entitled to the
benefits of this Agreement and the Security Documents.
1.4 Repayment of Term Loans. The Borrower shall repay the Term
Loans in 19 consecutive quarterly installments on the 7th day of each March,
June, September and December, commencing on March 7, 1998, and on one
installment on the Final Payment Date (each such day on which an installment is
to be made, an "Installment Payment Date"), each such installment to be in an
amount equal to such Lender's Loan Percentage of the Term Loan Amortization
Amount for the Installment Payment Date on which such installment is payable.
1.5 Reduction of Total Permitted Term Loan Amount. The Total
Permitted Term Loan Amount shall automatically be reduced (a) on each
Installment Payment Date by the Reduction Amount for such Installment Payment
Date and (b) on each date on
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4
which the Term Loans are prepaid pursuant to subsection 3.1(a) of the Loan
Agreement, by an amount equal to the sum of the principal amount of Term Loans
so prepaid on such date and (c) on each day on which the Total Additional Term
Loan Commitment is reduced pursuant to subsection 3.5(a) or (b), by an amount
equal to the amount of such reduction.
1.6 Reduction Amount Schedule. In the event that the Total
Additional Term Loan Commitment shall have been reduced pursuant to subsection
3.5(a) or (b), the parties hereto agree that Schedule VII shall be amended, in a
manner satisfactory to the Agent and the Borrower, to reduce the amount of each
Reduction Amount for the then remaining Installment Payment Dates on a pro rata
basis in an aggregate amount equal to the amount of such reduction in the Total
Additional Term Loan Commitment.
SECTION 2. INTEREST AND FEES.
2.1 Rate of Interest. (a) Eurodollar Loans shall bear interest
for each day during each Interest Period with respect thereto on the unpaid
principal amount thereof at a rate per annum equal to the Eurodollar Rate
determined for such day plus the Applicable Margin.
(b) CD Rate Loans shall bear interest for each day during each
Interest Period with respect thereto on the unpaid principal amount thereof at a
rate per annum equal to the CD Rate determined for each day plus the Applicable
Margin.
(c) Prime Rate Loans shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the Prime Rate plus the
Applicable Margin.
(d) If all or a portion of the principal amount of any of the
Loans shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), each Eurodollar Loan and CD Rate Loan shall be
converted to a Prime Rate Loan at the end of the Interest Period with respect
thereto. Any such overdue principal amount shall bear interest at a rate per
annum which is 2% above the rate which would otherwise be applicable pursuant to
subsection 2.1(a), (b) or (c) from the date of such non-payment until paid in
full (as well after as before judgment).
2.2 Interest Payment Dates. (a) Interest in respect of each
Prime Rate Loan shall be payable in arrears on each Installment Payment Date
commencing on the first such day to occur after any conversion of any Eurodollar
Loan or CD Rate Loan to a Prime Rate Loan pursuant to subsections 2.3, 2.4, 2.7
or 2.9 and at maturity (whether by acceleration or otherwise).
(b) Interest in respect of each Eurodollar Loan shall be
payable in arrears (i) as to any Eurodollar Loan in respect of which the
Borrower has selected an Interest Period of one or three months, on the last day
of the then applicable Interest
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Period with respect thereto, (ii) as to any Eurodollar Loan in respect of which
the Borrower has selected an Interest Period of six, nine or twelve months, on
the day which is three months after the first day of such Interest Period and
the last day of each successive three month period thereafter, to and including
the last day of such Interest Period and (iii) at maturity (whether by
acceleration or otherwise).
(c) Interest in respect of each CD Rate Loan shall be payable
in arrears (i) as to any CD Rate Loan in respect of which the Borrower has
selected an Interest Period of 30, 60 or 90 days, on the last day of the then
applicable Interest Period with respect thereto, (ii) as to any CD Rate Loan in
respect of which the Borrower has selected an Interest Period of 180 or 360
days, on the day which is 90 days after the first day of such Interest Period
and the last day of each successive 90 day period thereafter, to and including
the last day of such Interest Period and (iii) at maturity (whether by
acceleration or otherwise).
2.3 Continuation of Eurodollar Loans and CD Rate Loans. Unless
the Borrower otherwise elects pursuant to the proviso of this sentence or
pursuant to subsection 2.4, the Borrower shall be deemed to have elected to
continue the then outstanding principal amount of any Eurodollar Loans or CD
Rate Loans at the expiration of the Interest Period with respect thereto as
Loans of the same Type having an Interest Period of the same duration as such
expiring Interest Period; provided, that the Borrower may elect to convert any
Eurodollar Loans or CD Rate Loans, on the last day of the then current Interest
Period with respect thereto, to Loans of the same Type having an Interest Period
of any other authorized duration by providing irrevocable notice to the Agent
not less than three Working Days prior to the last day of the then current
Interest Period with respect to such Eurodollar Loans or CD Rate Loans.
Notwithstanding anything to the contrary contained in this subsection 2.3, no
Eurodollar Loan or CD Rate Loan shall be continued as such when any Default or
Event of Default has occurred and is continuing, but shall be automatically
converted to a Prime Rate Loan on the last day of the then current Interest
Period with respect thereto. The Agent shall promptly notify the Borrower and
each of the Lenders that such automatic conversion contemplated by this
subsection 2.3 will occur.
2.4 Conversion of Loans. The Borrower may elect from time to
time to convert Loans which are Eurodollar Loans or CD Rate Loans to Prime Rate
Loans by giving the Agent at least three Working Days' prior irrevocable notice
of such election, provided that any such conversion of Eurodollar Loans or CD
Rate Loans to Prime Rate Loans shall only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
Loans which are Prime Rate Loans or CD Rate Loans to Eurodollar Loans by giving
the Agent at least three Working Days prior irrevocable notice of such election
specifying the Interest Period selected with respect thereto. The Borrower may
elect from time to time to convert Loans (other than any Debt
<PAGE> 13
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Service Letter of Credit Loan) which are Prime Rate Loans or Eurodollar Loans to
CD Rate Loans by giving the Agent at least three Working Days prior irrevocable
notice of such election specifying the Interest Period selected with respect
thereto. Upon receipt of such notice, the Agent shall promptly notify each
Lender thereof. All or any part of outstanding Loans which are Eurodollar Loans,
CD Rate Loans or Prime Rate Loans may be converted as provided herein, provided
that no Loan may be converted into a Eurodollar Loan or CD Rate Loan when any
Default or Event of Default has occurred and is continuing.
2.5 Minimum Amounts of Tranches. All borrowings, payments,
prepayments and 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 any Eurodollar Tranche or CD Rate
Tranche shall not be less than $1,000,000 (or the then remaining aggregate
outstanding principal amount of the Loans, if less than $1,000,000).
2.6 Computation of Interest. (a) Interest in respect of the
Eurodollar Loans and CD Rate Loans shall be calculated on the basis of a 360-day
year for the actual days elapsed and in respect of Prime Rate Loans on the basis
of 365 (366) days for the actual days elapsed. The Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate or CD Rate. Any change in the interest rate on a Loan resulting
from a change in the Prime Rate, the Eurocurrency Reserve Requirement or the CD
Reserve Percentage shall become effective as of the opening of business on the
day on which such change in the Prime Rate is announced or such change in the
Eurocurrency Reserve Requirements or the CD Reserve Percentage shall become
effective, as the case may be. The Agent shall as soon as practicable notify the
Borrower, the Issuing Bank and the Lenders of the effective date and the amount
of each such change.
(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, the Issuing Bank 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 2.1(a) or (b).
2.7 Inability to Determine Interest Rate. In the event that:
(i) the Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the interbank eurodollar market or the domestic
certificate of deposit market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate or the CD Rate for any
requested Interest Period; or
<PAGE> 14
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(ii) the Agent shall have received notice prior to the
first day of such Interest Period from Lenders constituting the
Required Lenders that the interest rate determined pursuant to
subsection 2.1(a) or (b) for such Interest Period does not accurately
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period;
then with respect to (a) proposed Loans that the Borrower has requested be made
as Eurodollar Loans or CD Rate Loans, as the case may be, or (b) the
continuation of Eurodollar Loans or CD Rate Loans, as the case may be, beyond
the expiration of the then current Interest Period with respect thereto, the
Agent shall forthwith give telecopy or telephonic notice of such determination
to the Borrower, the Issuing Bank and the Lenders at least one day prior to, as
the case may be, the requested borrowing date for such Eurodollar Loans or CD
Rate Loans, as the case may be, or the last day of such Interest Period. If such
notice is given (x) any requested Eurodollar Loans or CD Rate Loans, as the case
may be, shall be made as Prime Rate Loans, and (y) any outstanding Eurodollar
Loans or CD Rate Loans, as the case may be, shall be converted, on the last day
of the then current Interest Period with respect thereto, to Prime Rate Loans.
Until such notice has been withdrawn by the Agent, no further Eurodollar Loans
or CD Rate Loans, as the case may be, shall be made.
2.8 Pro Rata Treatment and Payments. Each payment (including
each prepayment) by the Borrower on account of principal of and interest on the
Term Loans shall be made pro rata according to the respective Loan Percentage of
each Lender. All payments (including prepayments) to be made to the Lenders by
the Borrower on account of principal, interest and fees shall be made without
set off or counterclaim and shall be made to the Agent, for the account of the
Lenders, at the Agent's office set forth in subsection 10.2, in lawful money of
the United States of America 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 payments on the Eurodollar Loans)
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 Working Day, the maturity thereof shall be
extended to the next succeeding Working 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 Working Day.
2.9 Illegality. Notwithstanding any other provisions hereof,
if any Requirement of Law or any change therein or in the interpretation or
application thereof shall make it unlawful for
<PAGE> 15
8
any Financing Party to make or maintain Eurodollar Loans as contemplated by this
Agreement, (a) the commitment of such Financing Party hereunder to make
Eurodollar Loans shall forthwith be cancelled and (b) all or any portion of such
Financing Party's Loans then outstanding as Eurodollar Loans shall be converted
automatically to Prime Rate Loans on the respective last days of the then
current Interest Periods therefor or within such earlier period as required by
law. If any such prepayment or conversion of a Eurodollar Loan occurs on a day
which is not the last day of the current Interest Period with respect thereto,
the Borrower shall pay to such Financing Party such amounts, if any, as may be
required pursuant to subsection 2.12.
2.10 Requirements of Law. (a) In the event that any
Requirement of Law or any change therein or in the interpretation or application
thereof or compliance by any Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority:
(i) does or shall subject any Lender to any tax (except for
taxes covered by subsection 2.11) of any kind whatsoever with respect
to this Agreement, any Term Note or any Eurodollar Loans or CD Rate
Loan made by it (except for taxes on the overall net income of such
Lender), or change the basis of taxation of payments to such Lender of
principal, interest or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of such Lender);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of the Eurodollar Rate or CD
Rate;
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by any amount which such Lender deems to be material, of making, renewing or
maintaining advances or extensions of credit or to reduce any amount receivable
hereunder, in each case in respect of its Eurodollar Loans or CD Rate Loans,
then, in any such case, the Borrower shall promptly pay such Lender, upon its
demand, any additional amounts necessary to compensate such Lender for such
additional cost or reduced amount receivable. If a Lender becomes entitled to
claim any additional amounts pursuant to this subsection, it shall promptly
notify the Borrower, through the Agent, of the event by reason of which it has
become so entitled. A certificate as to
<PAGE> 16
9
any additional amounts payable pursuant to the foregoing sentence submitted by
such Lender, through the Agent, to the Borrower shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and payment of the outstanding Notes.
(b) In the event that any Lender shall have determined that
the adoption of any law, rule, regulation or guideline regarding capital
adequacy, or any change therein or in the interpretation or application thereof
or compliance by any Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or Governmental Authority, including, without
limitation, the issuance of any final rule, regulation or guideline, does or
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital as a consequence of its obligations hereunder to a level
below that which such Lender or such corporation could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's or
such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, after submission
by such Lender to the Borrower (with a copy to the Agent) of a written request
therefor, the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
2.11 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without reduction 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, in the case of the Agent and each other Financing Party,
net income and franchise taxes imposed on the Agent or such other Financing
Party by the jurisdiction under the laws of which the Agent or such other
Financing Party is organized or any political subdivision or taxing authority
thereof or therein, or by any jurisdiction in which such Financing Party's
Domestic Lending Office or Eurodollar Lending Office, as the case may be, is
located or any political subdivision or taxing authority thereof or therein (all
such non-excluded taxes, levies, imposts, deductions, charges or withholdings
being hereinafter called "Taxes"). If any Taxes are required to be withheld from
any amounts payable to the Agent or any other Financing Party hereunder or under
the Notes, the amounts so payable to the Agent or such other Financing Party
shall be increased to the extent necessary to yield to the Agent or such other
Financing Party (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement and
the Notes. Whenever any 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 such other Financing Party, as the case may be, a certified
copy of an original official receipt
<PAGE> 17
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received by the Borrower showing payment thereof. If the Borrower fails to pay
any 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 and the other Financing Parties for any incremental
taxes, interest or penalties that may become payable by the Agent or any other
Financing Party as a result of any such failure.
(b) The agreements in subsection 2.11(a) shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
2.12 Indemnity. (a) The Borrower agrees to indemnify each
Financing Party and to hold each Financing Party harmless from any loss or
expense which such Financing Party may sustain or incur as a consequence of (i)
default by the Borrower in payment when due of the principal amount of or
interest on any Eurodollar Loans or CD Rate Loans, including, but not limited
to, any such loss or expense arising from interest or fees payable by such
Financing Party to lenders of funds obtained by it in order to maintain the
Eurodollar Loans or CD Rate Loans hereunder, (ii) default by the Borrower in
making a borrowing after the Borrower has given a notice of borrowing in
accordance with subsection 1.2, (iii) default by the Borrower in making any
prepayment after the Borrower has given a notice in accordance with subsection
3.1 or subsection 2A.4(h), as the case may be, (iv) default by the Borrower in
continuing any Eurodollar Loan or CD Rate Loan as such after the Borrower has
been deemed to have elected to continue such Eurodollar Loan or CD Rate Loan
pursuant to subsection 2.3 or (v) the making of a prepayment of a Eurodollar
Loan or a CD Rate Loan on a day which is not the last day of an Interest Period
with respect thereto, including, without limitation, any such loss or expense
arising from interest or fees payable by such Financing Party to lenders of
funds obtained by it in order to make or maintain the Eurodollar Loans or CD
Rate Loans hereunder. This covenant shall survive termination of this Agreement
and payment of the outstanding Notes.
(b) The Borrower agrees to indemnify each Interest Hedging
Counterparty and each Financing Party, and to hold each Interest Hedging
Counterparty and each Financing Party harmless from, any loss or expense which
such Person may sustain or incur as a result of the early termination of any
Interest Rate Protection Agreement or any modification to or amendment of any
Interest Rate Protection Agreement. This covenant shall survive the termination
of this Agreement and payment of the Loans.
2.13 Fees. (a) The Borrower agrees to pay to the Agent an
administration fee of $40,000 per annum for the period from the Third
Restatement Effective Date to the date that this Agreement shall be terminated
and all of the Obligations paid in full (the "Administration Fee"). The
Administration Fee shall be payable on the Third Restatement Effective Date and
on each anniversary of such date; provided, that no Administration Fee
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shall be payable on the anniversary of such date immediately preceding the Final
Payment Date except that, in the event that on the Final Payment Date, this
Agreement shall not have been terminated and all of the Obligations paid in
full, the Administration Fee shall be payable on the Final Payment Date and each
anniversary thereafter of the Third Restatement Effective Date until this
Agreement shall have been terminated and all of the Obligations paid in full.
(b) The Borrower agrees to pay, on the Third Restatement
Effective Date, to Credit Lyonnais for its own account an up-front fee in the
amount heretofore agreed between the Borrower and Credit Lyonnais.
(c) The Borrower agrees to pay to the Agent for the account of
each Lender a commitment fee (the "Commitment Fee") for the period from and
including the Third Restatement Effective Date to the Final Payment Date,
computed at the rate of 1/4th of 1% per annum on the average daily amount of the
Available Additional Term Loan Commitment of such Lender during the period for
which payment is made, payable quarterly in arrears on the seventh day of each
March, June, September and December and on the Final Payment Date or such
earlier date as the Total Additional Term Loan Commitment shall terminate and be
reduced to zero as provided herein, commencing on the first of such dates to
occur after the date hereof.
2.14 Maximum Interest. Anything in this Agreement or the Notes
to the contrary notwithstanding, the interest rate on any Loan or any other
amount payable under this Agreement or any Security Document shall in no event
be in excess of the maximum permitted by applicable law; provided that, to the
extent permitted by applicable law, in the event that interest is not collected
as a result of the operation of this subsection 2.14 and interest thereafter
payable pursuant to this Agreement or the Notes shall be less than such maximum
amount, then such interest thereafter payable shall be increased up to such
maximum amount to the extent necessary to recover the amount of interest, if
any, theretofore uncollected as a result of the operation of this subsection
2.14. In determining whether or not any interest payable under this Agreement or
the Notes exceeds the maximum rate permitted by applicable law, any
non-principal payment, except payments specifically stated to be "interest,"
shall be deemed, to the extent permitted by applicable law, to be a fee, expense
reimbursement or premium rather than interest.
SECTION 2A. DEBT SERVICE LETTER OF CREDIT
2A.1 Issuance of Debt Service Letter of Credit. The Issuing
Bank shall issue on the Third Restatement Effective Date, upon the terms and
subject to the conditions hereunder, the Debt Service Letter of Credit in favor
of the Agent for the benefit of the Lenders and the Issuing Bank. The Debt
Service Letter of Credit shall expire upon the first to occur of (a) the close
of
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business on the Final Payment Date, (b) the payment in full of the Term Loans
and all accrued and unpaid interest thereon, (c) the Issuing Bank's receipt of
written notice from the Agent to the effect that the Agent has accepted a letter
of credit or an alternate form of security provided by the Borrower and
acceptable to the Agent as a substitute for the Debt Service Letter of Credit,
(d) any drawing of the Debt Service Letter of Credit subsequent to the
occurrence of an Acceleration Event, as defined below, and (e) such earlier time
and date as the Agent, the Issuing Bank and the Borrower shall otherwise agree.
The date on which the Debt Service Letter of Credit shall expire is herein
referred to as the "Expiration Date." "Acceleration Event" shall mean any event
resulting in the acceleration of the maturity of the entire unpaid principal
amount of the Loans, causing all such principal and all accrued and unpaid
interest thereon to become immediately due and payable, pursuant to the
provisions of Section 8 of this Agreement.
2A.2 Available Amount. It is understood and agreed that the
Issuing Bank shall not have any obligation to pay any draft presented by the
Agent under the Debt Service Letter of Credit if the amount of such draft shall
exceed the Available Amount (as defined below) as of the date of payment of such
draft. "Available Amount" shall mean, as of any date, the amount by which the
Required Stated Amount exceeds the aggregate outstanding principal amount of all
Debt Service Letter of Credit Loans as of such date.
2A.3 Debt Service Letter of Credit Operations. The Issuing
Bank shall, as soon as practicable following its receipt of any draft and
accompanying documents purporting to represent a demand for payment under the
Debt Service Letter of Credit, (a) examine such draft and accompanying documents
to confirm that the same appear on their face to comply with the terms and
conditions of the Debt Service Letter of Credit and (b) give written or telecopy
notice to the Borrower (i) of such demand for payment and the determination by
the Issuing Bank as to whether such demand for payment was in accordance with
the terms and conditions of the Debt Service Letter of Credit and (ii) if such
demand was so in accordance, that the Issuing Bank will make a disbursement
under the Debt Service Letter of Credit on the date of such receipt or, if
permitted by the Debt Service Letter of Credit, the next Business Day
thereafter; provided, however, that the failure to give such notice shall not
relieve the Borrower of its obligation to reimburse the Issuing Bank for such
disbursement.
2A.4 Agreement To Repay Debt Service Letter of Credit
Disbursements. (a) Each payment by the Issuing Bank of any drawing under the
Debt Service Letter of Credit shall constitute a term loan (a "Debt Service
Letter of Credit Loan") made by the Issuing Bank to the Borrower on the date of
such payment in a principal amount equal to the amount of such drawing. Each
Debt Service Letter of Credit Loan shall be a Prime Rate Loan on the date made.
Thereafter, subject to and upon the terms of this
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Agreement, the Debt Service Letter of Credit Loans may from time to time be
Eurodollar Loans, Prime Rate Loans or any combination thereof, as determined by
the Borrower and notified to the Agent in accordance with subsection 2.3 or 2.4.
(b) Interest shall accrue on the outstanding Debt Service
Letter of Credit Loans as provided for and at the rates specified in subsection
2.1 and in addition to being payable on each date as specified in subsection 2.2
shall be payable on (i) each date on which a transfer is required to be made
pursuant to clause "first" of Section 4.02 of the Security Deposit Agreement
commencing on the first such date to occur after the Third Restatement Effective
Date and (ii) the Expiration Date.
(c) Each payment of interest hereunder shall be paid in
Dollars and in immediately available funds in accordance with subsection
2A.4(i).
(d) If the Borrower shall fail to make any payment due
hereunder to the Issuing Bank or under the Debt Service Letter of Credit Note
when due, it shall, on demand from time to time, pay interest on such defaulted
amount (to the extent permitted by law) to the date of actual payment (after as
well as before judgment) at the applicable rate as specified in subsection 3.2.
(e) The Debt Service Letter of Credit Loans shall be evidenced
by a single note, substantially in the form of Exhibit B-2 with the blanks
appropriately filled (the "Debt Service Letter of Credit Note"), dated the Third
Restatement Effective Date, in the principal amount of the Required Stated
Amount. The Debt Service Letter of Credit Note shall be duly executed and
delivered by the Borrower on or prior to the Third Restatement Effective Date
and payable to the order of the Issuing Bank. The Issuing Bank shall, and is
hereby irrevocably authorized by the Borrower to, endorse Schedule A (or any
continuation thereof) to the Debt Service Letter of Credit Note to evidence the
related Debt Service Letter of Credit Loan or Loans and each payment of
principal of and interest on such Debt Service Letter of Credit Loan or Loans.
The endorsements made by the Issuing Bank to Schedule A (or any continuation
thereof) to any Debt Service Letter of Credit Note shall be conclusive evidence
of the outstanding aggregate principal amount owing to the Issuing Bank with
respect to such Debt Service Letter of Credit Note and the related Debt Service
Letter of Credit Loan or Loans in the absence of manifest error; provided,
however, that the Borrower's obligations to make payments of principal and
interest in respect of Debt Service Letter of Credit Loans in accordance with
the terms of this Agreement and the Debt Service Letter of Credit Note shall not
be affected by any failure to endorse Schedule A to any Debt Service Letter of
Credit Note correctly or at all.
(f) All Debt Service Letter of Credit Loans shall be due and
payable on the Expiration Date, and the Borrower shall pay the entire
outstanding principal amount of the Debt Service
<PAGE> 21
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Letter of Credit Loans, together with all accrued and unpaid interest thereon,
on such date.
(g) The Borrower shall cause any amount to be distributed to
the Issuing Bank on any date pursuant to clause "first" of Section 4.02 of the
Security Deposit Agreement to be applied forthwith to prepay the Debt Service
Letter of Credit Loans. Any such prepayment shall be without premium or penalty.
(h) The Borrower shall have the right at any time and from
time to time to prepay the Debt Service Letter of Credit Loans, in whole or in
part, upon at least five Business Days' prior written notice to the Issuing
Bank. Any partial prepayment of Debt Service Letter of Credit Loans shall be in
an amount that is an integral multiple of $10,000 and not less than $50,000.
Each notice of prepayment shall specify the prepayment date and the principal
amount of the Debt Service Letter of Credit Loan (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
amount on such prepayment date. All prepayments under this paragraph (h) shall
be accompanied by all accrued and unpaid interest on the principal amount being
prepaid to the date of prepayment. Any such prepayment shall be without premium
or penalty.
(i) The Borrower shall make or cause the Security Agent to
make each payment or prepayment due hereunder to the Issuing Bank (including
principal of or interest on the Debt Service Letter of Credit Note or any fees
or other amounts) not later than 12:00 Noon, New York City time, on the date
when due, to the Issuing Bank at the Issuing Bank's office set forth in
subsection 10.2 in Dollars and in immediately available funds.
Any such payment or prepayment shall be made without set-off or counterclaim.
(j) If any payment to be made hereunder to the Issuing Bank or
under the Debt Service Letter of Credit Note shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing interest in connection
with such payment.
(k) The Borrower's obligation to repay the Issuing Bank for
all payments and disbursements made by the Issuing Bank under the Debt Service
Letter of Credit and to pay all interest, fees and other amounts payable
hereunder shall be absolute, unconditional and irrevocable under any and all
circumstances and irrespective of: (i) any lack of validity or enforceability of
this Agreement or the Debt Service Letter of Credit; (ii) any amendment or
waiver of, or consent to departure from, this Agreement or the Debt Service
Letter of Credit; (iii) the existence of any claim, setoff, defense or other
right which the Borrower or any other Person may at any time have against any
Financing Party (other than a defense based on the gross negligence or wilful
misconduct of the Issuing Bank) or any other Person in connection with this
Agreement, the Debt Service Letter
<PAGE> 22
15
of Credit or any other agreement or transaction; (iv) any draft or other
document presented under the Debt Service Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; or (v) payment by the Issuing Bank
under the Debt Service Letter of Credit against presentation of a draft or other
document which does not comply with the terms of the Debt Service Letter of
Credit, provided that such payment shall not have constituted gross negligence
or wilful misconduct of the Issuing Bank.
(l) It is understood that in making any payment or
disbursement under the Debt Service Letter of Credit, the following shall not be
deemed to constitute gross negligence or wilful misconduct of the Issuing Bank:
(x) the Issuing Bank's exclusive reliance on the documents presented to it by
the Agent under the Debt Service Letter of Credit as to any and all matters set
forth therein, including, without limitation, reliance on the amount of the
draft presented under the Debt Service Letter of Credit, whether or not any
document presented pursuant to the Debt Service Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
order, and whether or not any draft or other document presented pursuant to the
Debt Service Letter of Credit proves to be forged or invalid or any statement
therein proves to be inaccurate or untrue in any respect whatsoever and (y) any
noncompliance in any immaterial respect of the documents presented under the
Debt Service Letter of Credit with the terms thereof.
2A.5 Application of Payments. Each cash payment received
hereunder by the Issuing Bank shall be applied in the following order of
priority:
(a) first, to the payment of (i) any fee (including the Debt
Service Letter of Credit Fee) or expense of the Issuing Bank required
to be paid or reimbursed by the terms hereof or of any other Project
Document, (ii) accrued and unpaid interest on the Debt Service Letter
of Credit Loans and (iii) any amount (other than amounts referred to in
clause (b) below) required to be paid or reimbursed by the terms
hereof; and
(b) second, to the payment of the principal of the Debt
Service Letter of Credit Loans.
2A.6 Debt Service Letter of Credit Fee. The Borrower agrees to
pay the Issuing Bank, on each Installment Payment Date, a fee (a "Debt Service
Letter of Credit Fee") of 1.500% per annum on the average daily Available Amount
during the preceding three-month period (or shorter period commencing with the
Third Restatement Effective Date or ending with the Expiration Date). The Debt
Service Letter of Credit Fee shall commence to accrue on the Third Restatement
Effective Date and shall cease to accrue on the Expiration Date and shall be
computed on the basis of the actual number of days elapsed over a year of 365 or
366 (as the
<PAGE> 23
16
case may be) days. Once paid, the Debt Service Letter of Credit Fee shall not be
refundable under any circumstances whatsoever.
2A.7 Effect of Event of Default. The Debt Service Letter of
Credit shall not be terminated or accelerated as a result of an Event of
Default, and the Issuing Bank shall continue to honor demands for payment made
by the Agent under the Debt Service Letter of Credit in accordance with its
terms. The exercise of remedies by the Issuing Bank pursuant to this Agreement
or any other Project Document shall not affect the Agent's ability to demand
payments under the Debt Service Letter of Credit or the Issuing Bank's
obligations thereunder in respect of such demands.
2A.8 Obligations Absolute. All sums payable by the Borrower to
the Issuing Bank hereunder shall be paid without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Debt Service Letter of Credit Note or in any of the
other Project Documents to the contrary notwithstanding. The obligations and
liabilities of the Borrower to the Issuing Bank hereunder shall in no way be
released, discharged or otherwise affected (except as may be expressly provided
herein) for any reason, including without limitation: (a) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Issuing Bank, the Borrower, the Agent or
any other Person, or any action taken with respect to any Project Document by
any trustee or receiver of the Issuing Bank, the Borrower, the Agent or any
other Person, or by any court; (b) any default or failure on the part of the
Issuing Bank to perform or comply with any of the terms hereof or of any other
agreement; or (c) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing, whether or not the Borrower shall have notice or knowledge of
any of the foregoing. Except as expressly provided herein, the Borrower, to the
extent permitted by law, waives all rights now or hereafter conferred by statute
or otherwise to any abatement, suspension, deferment, diminution or reduction of
any sum payable by the Borrower hereunder.
2A.9 Survival of Agreements, Representations and Warranties,
Etc. All warranties, representations and covenants made by the Borrower in this
Agreement or in any certificate or other instrument delivered by the Borrower or
on its behalf in connection with this Agreement shall be considered to have been
relied upon by the Issuing Bank and shall survive the issuance of the Debt
Service Letter of Credit, the making of the Debt Service Letter of Credit Loans
herein contemplated and the issuance and delivery to the Issuing Bank of the
Debt Service Letter of Credit Note, regardless of any investigation made by the
Issuing Bank or on its behalf, and shall continue in full force and effect until
all amounts due or to become due hereunder and on the Debt Service Letter of
Credit Note shall have been paid in full.
<PAGE> 24
17
2A.10 Increased Costs. (a) If after the date of this Agreement
any change in law, rule or regulation or the enforcement, interpretation or
administration thereof (whether or not having force of law) by any Governmental
Authority, central bank or comparable agency charged with the enforcement or
interpretation or administration thereof shall (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, credit extended by, or letters of
credit issued by the Issuing Bank, (ii) subject extensions of credit or letters
of credit issued by the Issuing Bank to any assessment or other cost imposed by
the Federal Deposit Insurance Corporation or any successor thereto or (iii)
impose on the Issuing Bank any other or similar condition regarding this
Agreement, the Debt Service Letter of Credit Loans or the Debt Service Letter of
Credit, and the result of any event referred to in clause (i), (ii) or (iii)
above shall be (A) to increase the cost to the Issuing Bank of agreeing to
issue, issuing or maintaining the Debt Service Letter of Credit or funding (or
agreeing to fund) drawings under the Debt Service Letter of Credit or of making
or maintaining any Debt Service Letter of Credit Loan or (B) to reduce the
amount of any sum received or receivable by the Issuing Bank hereunder or under
the Debt Service Letter of Credit Note, then the Issuing Bank shall promptly
notify the Borrower in writing of such increase or reduction in a certificate
certified by an officer of the Issuing Bank, setting forth in reasonable detail
such increased cost incurred or reduction suffered by the Issuing Bank, and
shall demand payment of such additional amounts as will compensate the Issuing
Bank for such increased cost incurred or reduction suffered. On the first
Monthly Distribution Date to occur after receipt of demand from the Issuing
Bank, the Borrower shall pay to the Issuing Bank the additional amounts
specified in the notice to compensate the Issuing Bank for such increased cost
or reduction from the date of such change. The notification from the Issuing
Bank to the Borrower described above shall, absent manifest error, be conclusive
and binding as to the amounts to be paid by the Borrower pursuant to this
paragraph (a) and for all other purposes.
(b) If the costs specified in paragraph (a) of this subsection
2A.10 are to be incurred on a continuing basis and the Borrower shall have been
so notified by the Issuing Bank in writing as to the amount thereof, such costs
shall be paid to the Issuing Bank by the Borrower in arrears on each Monthly
Distribution Date. The Issuing Bank shall notify the Borrower of any subsequent
change in the amount of such costs.
(c) The agreements set forth in this subsection 2A.10 shall
survive the termination of this Agreement and the payment in full of the Loans
and its other obligations hereunder and under the Notes.
<PAGE> 25
18
SECTION 3. PAYMENTS, ETC.
3.1 Prepayments. (a) Mandatory. (i) If an Event of Loss shall
occur, on the earlier of (i) the date occurring 90 days after the date of such
Event of Loss and (ii) the date on which the insurance proceeds are received
with respect to such Event of Loss, the Borrower shall prepay in full the unpaid
principal amount of the then outstanding Loans, together with accrued interest
thereon to the date of prepayment and all other amounts owing hereunder and
under the Security Documents.
(ii) If any of the conditions to the payment by the Borrower
of Restricted Payments set forth in subsection 7.4 hereof are unsatisfied on six
consecutive Quarterly Distribution Dates, the Borrower shall, on the Borrower
Distribution Date immediately succeeding the last such Quarterly Distribution
Date, prepay the Term Loans in an amount equal to the aggregate amount then on
deposit in the Borrower's Security Account less the amount transferred on such
date from the Borrower's Security Account to optionally prepay the Term Loans
pursuant to subsection 3.1(b)(ii).
(iii) The Borrower shall prepay the Term Loans to the extent
of any net cash proceeds from sales of assets pursuant to subsection 10.8(b).
(b) Optional. (i) On any Borrower Distribution Date the
Borrower may, at its option from cash made available on such date to the
Borrower pursuant to clause "seventh" of Section 4.07 of the Security Deposit
Agreement, prepay the Term Loans, without premium or penalty, in whole or in
part, together with accrued interest thereon to the date of prepayment;
provided, that the Borrower may prepay the Term Loans in whole (but not in part)
on any Business Day so long as the Borrower shall on the same such day pay in
full all of the other Obligations and reduce pursuant to subsection 3.5(b) the
Total Additional Term Loan Commitment to zero.
(ii) On any Borrower Distribution Date, the Borrower may
request the Security Agent to transfer from the Borrower's Security Account on
such date to the Agent pursuant to Section 4.12 of the Security Deposit
Agreement an amount not exceeding the Optional Prepayment Cap for the
three-month period ending on the Installment Payment Date immediately preceding
such Borrower Distribution Date, and the Agent shall apply the amount so
transferred to it to the prepayment, without premium or penalty, of the
outstanding principal amount of the Term Loans, together with accrued interest
on the principal amount so prepaid to the date of prepayment.
(iii) Any optional prepayment of the Term Loans shall be in
an aggregate principal amount equal to $1,000,000 or a whole multiple of
$1,000,000 in excess thereof. Except as provided in this subsection 3.1(b), the
Borrower may not prepay the Term Loans at its option.
<PAGE> 26
19
(c) Notice and Application. The Borrower shall give the Agent
(which shall promptly notify each Lender) at least one Business Day's notice of
each prepayment pursuant to subsection 3.1(a) or (b) setting forth the date and
amount thereof. Partial prepayments of the Loans shall be applied first to any
Prime Rate Loans then outstanding and secondly, to the extent of any excess, to
the CD Rate Loans and Eurodollar Loans then outstanding, pro rata according to
the respective outstanding aggregate principal amounts of each such Type of
Loan; provided that prepayments of Eurodollar Loans and CD Rate Loans, if not on
the last day of the Interest Period with respect thereto, shall, at the
Borrower's option, be either (x) prepaid subject to the provisions of subsection
2.12 or (y) an amount equal to the amount of such prepayment shall be deposited
with the Agent as cash collateral for the Loans on terms reasonably satisfactory
to the Required Lenders and thereafter shall be applied to the prepayment of the
Loans in the order of the Interest Periods next ending most closely to the date
of deposit of such amount and on the last day of each such Interest Period.
3.2 Overdue Payments. Overdue principal of all Loans shall
bear interest as specified in subsection 2.1(d). All other overdue payments
hereunder or under the Notes, including overdue payments of interest, shall bear
interest until paid in full (both before and after judgment), payable on demand,
at a rate per annum equal to the Default Rate.
3.3 Computation of Time Periods. As used in this Agreement
with respect to the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including" and each of the
words "to" and "until" means "to but not including". All computations of
interest and of commitment fees shall be made by the Agent.
3.4 Right to Set off. Any deposits or other sums at any time
credited by or due from any Financing Party and any securities or other property
of the Borrower in the possession of such Financing Party may at all times be
treated as collateral security for the payment of the Notes and all other
obligations of the Borrower to the Financing Parties under this Agreement and
the Security Documents. Regardless of the adequacy of any collateral, any such
deposits or other sums credited by or due from such Financing Party to the
Borrower may be applied to or setoff against the Borrower's obligations to the
Financing Parties under the Notes and this Agreement and the Security Documents
at any time after the occurrence and during the continuance of any Event of
Default. The parties hereto agree that, if, as a result of the foregoing rights,
any Financing Party shall be entitled to apply or set-off any such deposits or
other sums, such application or set-off shall be made against the obligations of
the Borrower to the Financing Parties in the same ratio as the ratio of the then
outstanding principal amounts of their respective Loans shall bear to each
other, and the Financing Party so applying or setting off shall forthwith pay to
the other Financing Parties and will, in the event it has
<PAGE> 27
20
previously received payment on account of any such deposits or other sums
pursuant to the immediately preceding sentence, forthwith repay to such
Financing Parties its allocable share (determined as provided in the immediately
preceding sentence) of any such amounts so required to be returned or repaid.
3.5 Total Additional Term Loan Commitment Reductions.
(a) Mandatory. (i) If an Event of Loss shall occur, the Total
Additional Term Loan Commitment shall immediately be permanently terminated and
reduced to zero.
(ii) On the date that the Total Additional Term Loan
Commitment shall be reduced to zero, the Total Additional Term Loan Commitment
shall immediately be permanently terminated and permanently reduced to zero.
(iii) On the date, if any, on which the Borrower shall have
made its seventeenth borrowing of Additional Term Loans hereunder (not including
any such borrowing on the Third Restatement Effective Date), immediately after
such borrowing, the Total Additional Term Loan Commitment shall permanently be
terminated and reduced to zero.
(b) Optional. The Borrower shall have the right, upon not less
than five Business Days' notice to the Agent, to terminate the Total Additional
Term Loan Commitment or, from time to time, to reduce the amount of the Total
Additional Term Loan Commitment. Any such reduction shall be in an amount equal
to $10,000,000 or a whole multiple thereof and shall reduce permanently the
Total Additional Term Loan Commitment then in effect.
SECTION 4. CONDITIONS PRECEDENT.
4.1 Conditions to Effectiveness. This Third Amended and
Restated Loan Agreement shall become effective on the date (such date being
herein called the "Third Restatement Effective Date") each of the following
conditions have been fulfilled in a manner satisfactory to the Financing
Parties:
(a) Agreement. The Agent shall have received counterparts of
this Third Amended and Restated Loan Agreement, duly executed and
delivered by the Borrower and each Financing Party.
(b) Deed of Trust Amendment. The Agent shall have received the
Deed of Trust Amendment No. 5, duly executed and delivered by the
Borrower, and the Deed of Trust Amendment No. 5 shall have been duly
recorded in the real estate records of the City of Portsmouth,
Virginia.
<PAGE> 28
21
(c) Pledge Agreement. The Agent shall have received the Pledge
Agreement, duly executed and delivered by the Parent, along with
certificates evidencing the stock pledged thereunder and executed but
undated stock powers, with respect thereto.
(d) Security Agreement Amendment. The Agent shall have
received the Security Agreement Amendment, duly executed and delivered
by the Borrower.
(e) Security Deposit Agreement. The Agent shall have received
the Security Deposit Agreement, duly executed and delivered by each of
the parties thereto.
(f) Existing Interest Rate Protection Agreements. The Agent
shall have received evidence satisfactory to it that the Borrower shall
have terminated, or otherwise has been relieved of all of its
obligations under, all Interest Rate Protection Agreements (as defined
in the Existing Loan Agreement) in effect on the Third Restatement
Effective Date and shall have paid in full all amounts owing by it
thereunder.
(g) Ship Mortgage Amendment. The Ship Mortgage Amendment shall
have been duly executed and delivered by the Borrower and filed with
the Office of the United States Coast Guard National Vessel
Documentation Center for recording with such office.
(h) Management Agreement Amendment. The Agent shall have
received the Management Agreement Amendment, duly executed and
delivered by the parties thereto.
(i) Title Insurance; Survey. The Agent shall have received a
mortgagee's title insurance policy satisfactory to the Agent (i) in the
amount of $116,000,000, (ii) dated the Third Restatement Effective
Date, (iii) indicating that there are no Liens affecting the Project
(except Permitted Liens other than judgment liens and such Liens, if
any, as may have been approved in writing by the Agent) and (iv)
indicating that there are no survey exceptions not theretofore approved
by the Agent in writing. The Agent shall have received an "as built"
survey of the site by a licensed surveyor satisfactory to the Agent and
the title insurance company issuing such endorsement, showing no state
of facts unsatisfactory to the Agent. The Agent shall have received
evidence that the premium in respect of such endorsement shall have
been paid.
(j) Cogentrix Energy Indemnity Agreement. The Agent shall have
received the Cogentrix Energy Indemnity Agreement, duly executed and
delivered by the parties thereto.
<PAGE> 29
22
(k) Power Purchaser Consent. The Agent shall have received the
Power Purchaser Consent, duly executed and delivered by the Power
Purchaser.
(l) Corporate Proceedings of the Borrower. The Agent shall
have received 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 Third
Amended and Restated Loan Agreement, the Notes, the Security Agreement
Amendment, the Deed of Trust Amendment No. 5, the Security Deposit
Agreement, the Management Agreement Amendment and the Ship Mortgage
Amendment, (ii) borrowings provided for in this Third Amended and
Restated Loan Agreement and (iii) the consummation of the transactions
contemplated hereby and thereby. Such resolutions shall be certified by
the Secretary or an Assistant Secretary of the Borrower as being true,
correct and complete and in full force and effect on and as of the
Third Restatement Effective Date.
(m) Incumbency Certificate of the Borrower. The Agent shall
have received a certificate of the Secretary or an Assistant Secretary
of the Borrower, dated the Third Restatement Effective Date, as to the
incumbency and signature of the officer or officers signing this Third
Amended and Restated Loan Agreement, the Notes, the Security Agreement
Amendment, the Deed of Trust Amendment No.5, the Security Deposit
Agreement, the Management Agreement Amendment and the Ship Mortgage
Amendment, as the case may be, and any other agreement, document or
certificate to be delivered by the Borrower pursuant hereto, together
with evidence of the incumbency of such Secretary or Assistant
Secretary.
(n) Corporate Proceedings of the Parent. The Agent shall have
received a copy of the resolutions, in form and substance satisfactory
to the Agent, of the Board of Directors of the Parent authorizing (i)
the execution, delivery and performance of the Pledge Agreement and
(ii) the consummation of the transactions contemplated hereby and
thereby. Such resolutions shall be certified by the Secretary or an
Assistant Secretary of the Parent as being true, correct and complete
and in full force and effect on and as of the Third Restatement
Effective Date.
(o) Incumbency Certificate of the Parent. The Agent shall have
received a certificate of the Secretary or an Assistant Secretary of
the Parent, dated the Third Restatement Effective Date, as to the
incumbency and signature of the officer or officers signing the Pledge
Agreement and any other agreement, document or certificate to be
delivered by the Parent pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
<PAGE> 30
23
(p) Corporate Proceedings of Cogentrix Energy. The Agent shall
have received a copy of the resolutions, in form and substance
satisfactory to the Agent, of the Board of Directors of Cogentrix
Energy authorizing (i) the execution, delivery and performance of the
Cogentrix Energy Indemnity Agreement and the Management Agreement
Amendment and (ii) the consummation of the transactions contemplated
hereby and thereby. Such resolutions shall be certified by the
Secretary or an Assistant Secretary of Cogentrix Energy as being true,
correct and complete and in full force and effect on and as of the
Third Restatement Effective Date.
(q) Incumbency Certificate of Cogentrix Energy. The Agent
shall have received a certificate of the Secretary or an Assistant
Secretary of Cogentrix Energy, dated the Third Restatement Effective
Date, as to the incumbency and signature of the officer or officers
signing the Cogentrix Energy Indemnity Agreement and the Management
Agreement Amendment, and any other agreement, document or certificate
to be delivered by Cogentrix Energy pursuant hereto, together with
evidence of the incumbency of such Secretary or Assistant Secretary.
(r) Legal Opinions. There shall have been delivered to the
Agent and addressed to the Agent and the other Financing Parties the
following opinions of counsel, each dated the Third Restatement
Effective Date and each in form and substance satisfactory to the
Agent:
(i) an opinion of Moore & Van Allen, PLLC,
counsel for the Borrower, the Parent and Cogentrix Energy,
substantially in the form of Exhibit C-1;
(ii) an opinion of Menaker & Herrmann, special New
York counsel for the Borrower, the Parent and Cogentrix
Energy, substantially in the form of Exhibit C-2;
(iii) an opinion of Vandeventer, Black, Meredith &
Martin, special Virginia and admiralty counsel for the
Borrower, the Parent and Cogentrix Energy, substantially in
the form of Exhibit C-3; and
(iv) an opinion of McGuire, Woods, Battle &
Boothe, special real estate counsel for the Agent,
substantially in the form of Exhibit C-4.
(s) No Default. No Default or Event of Default shall have
occurred and be continuing as of the Third Restatement Effective Date.
(t) Representations and Waranties. The representations and
warranties contained in Section 5 of this Agreement or which are
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement shall
be
<PAGE> 31
24
true and correct on and as of the Third Restatement Effective Date as
if made on such date.
(u) Responsible Officer's Certificate. The Agent shall have
received a certificate, dated the Third Restatement Effective Date, of
a Responsible Officer of the Borrower to the effect set forth in
paragraphs (s) and (t) above.
(v) Certificate of Ownership and Abstract of Title. The Agent
shall have received a copy of the Certificate of Documentation and a
copy of the Abstract of Title of the Barge, indicating that the Barge
is owned by the Borrower free and clear of all recorded Liens other
than the Ship Mortgage.
(w) Certificates. The Agent shall have received the insurance
broker's certificate as required by the terms of the Ship Mortgage.
(x) Evidence of Insurance. The Financing Parties shall have
received evidence satisfactory to the Financing Parties of the
existence of the insurance specified in subsection 6.7 and of the
designation of the Agent and each other Financing Party as named
insured or loss payee, as the case may be, with respect thereto
accompanied by a certificate of the insurance broker arranging such
insurance stating that all insurance required hereunder has been
obtained and that such insurance is of the type usual and customary for
transactions similar to the transactions contemplated by this
Agreement.
(y) Bank Assignment. The Bank Assignment shall have been duly
executed and delivered by the parties thereto effecting the transfers
of the Existing Term Loans contemplated thereby.
(z) Assigned Contracts; Consents. The Agent shall have
received, with a copy for each other Financing Party, a true and
complete copy of each Assigned Contract and each Consent, certified as
such on the Third Restatement Effective Date by a Responsible Officer
of the Borrower.
(aa) Insurance Advisor's Report. The Financing Parties shall
have received the report of the Insurance Advisor, which report shall
be in form and substance satisfactory to the Financing Parties.
(bb) Engineer's Report. The Financing Parties shall have
received the report of the Independent Engineer, which report shall be
in form and substance satisfactory to the Financing Parties.
(cc) Notes. There shall have been delivered to each of the
Lenders its respective Term Note and to the Issuing
<PAGE> 32
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Bank the Debt Service Letter of Credit Note, each such Note to be duly
authorized and executed by the Borrower.
(dd) Fees. The Agent and each Lender shall have received from
the Borrower such of the fees referred to in subsection 2.13 as are
payable on or before the Third Restatement Effective Date.
(ee) Pro Forma Financial Statements. The Agent and each other
Financing Party shall have received from the Borrower (i) a pro-forma
opening balance sheet of the Borrower reflecting the transactions to be
consummated on the Third Restatement Effective Date and acceptable in
form and substance to each Financing Party and (ii) pro forma
projections of the expected revenues, operating expenses and cash flows
(including Debt Coverage Ratios) of the Borrower for the period from
the Third Restatement Effective Date to the Final Payment Date, which
projections shall (A) be satisfactory in form and substance to each
Financing Party, (B) be consistent with the report of the Independent
Engineer received by the Agent in satisfaction of subsection 4.1(bb)
above and (C) show, among other things, a Debt Coverage Ratio of no
less than 1.4 to 1.0 for the period from the Third Restatement
Effective Date to the Final Payment Date and of no less than 1.25 to
1.0 for each calendar year or portion thereof during such period.
(ff) Debt Service Letter of Credit. The Agent shall have
received the Debt Service Letter of Credit, dated no later than the
Third Restatement Effective Date.
(gg) Power Purchase Agreement Amendment. The Agent shall have
received, with a copy for each Lender, a true and complete copy of the
Power Purchase Agreement Amendment, certified as such on the Third
Restatement Effective Date by a Responsible Officer of the Borrower.
(hh) Power Purchaser Notice. The Agent shall have received
evidence satisfactory to it that the Borrower shall have delivered to
the Power Purchaser the notice specified in Section 2.3 of the Power
Purchase Agreement Amendment in order for the Power Purchase Agreement
Amendment to become effective.
(ii) Borrowing Request. The Agent shall have received a
Borrowing Request from the Borrower, properly completed in accordance
with Section 1.2, requesting a borrowing of Additional Term Loans in an
amount not more than $5,000,000.
(jj) Payment of Interest and Fees. All interest on the
Existing Term Loans, if any, outstanding under the Existing Loan
Agreement which is accrued and unpaid to and including the Third
Restatement Effective Date, and all commissions, fees and other amounts
payable by the Borrower under the Existing Loan Agreement (whether or
not then due
<PAGE> 33
26
and payable) shall have been paid in full (including any amounts
payable to any of the Transferor Lenders pursuant to subsection 2.12 of
the Existing Loan Agreement as a result of the transactions
contemplated under the Bank Assignment).
(kk) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Agent and its
counsel.
4.2 Conditions to Additional Term Loans. The agreement of each
Lender to make any Additional Term Loan requested to be made by it after the
Third Restatement Effective Date is subject to the satisfaction of the following
conditions precedent in a manner satisfactory to such Lender:
(a) No Default. No Specified Default or Event of Default shall
have occurred and be continuing on such date after giving effect to the
Additional Term Loans requested to be made on such date.
(b) No Event of Loss. No Event of Loss shall have occurred
prior to such date.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Financing Parties to enter into this
Agreement, the Borrower represents and warrants to the Financing Parties that:
5.1 Financial Statements; Liabilities. (a) The financial
statements of the Borrower for the fiscal year ended June 30, 1997 and for the
three-month period ended September 30, 1997, copies of which have been delivered
to the Financing Parties, are true and correct in all material respects, have
been prepared in accordance with GAAP and fairly present the financial condition
of the Borrower on such dates and the results of its operations and cash flows
for the respective fiscal periods ended on such dates. All material liabilities,
direct or indirect, absolute or contingent, of the Borrower as at such dates are
either disclosed in such balance sheets or are listed on Schedule II hereto.
(b) The consolidated financial statements of Cogentrix Energy
for the fiscal year ended June 30, 1997 and for the three-month period ended
September 30, 1997, copies of which have been delivered to the Financing
Parties, are true and correct in all material respects, have been prepared in
accordance with GAAP and fairly present the consolidated financial condition of
Cogentrix Energy on such dates and the consolidated results of their operations
and cash flows for the respective fiscal periods ended on such dates. All
material liabilities, direct or indirect, absolute or contingent, of Cogentrix
Energy as at such dates are
<PAGE> 34
27
either disclosed in such balance sheets or are listed on Schedule II hereto.
(d) Since June 30, 1997, there has been no material adverse
change in the properties, business, operations or financial condition of the
Borrower, the Parent, Cogentrix Energy or, to the knowledge of the Borrower, any
other Project Participant.
5.2 Corporate Existence. The Borrower is (a) duly organized
and validly existing and in good standing under the laws of the State of North
Carolina, (b) has the corporate 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 and (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 to the extent that the
failure to so qualify could not, in the aggregate, have a material adverse
effect on the business, operations, property or financial or other condition of
the Borrower and could not materially adversely affect the ability of the
Borrower to perform its obligations under this Agreement or the Notes or the
other Project Documents to which it is a party. The Borrower has been, is, and
will be engaged solely in the business of constructing, owning and operating the
Project and has no obligations or liabilities other than those incurred in
connection with its execution and delivery of the Project Documents to which it
is a party and those incurred pursuant to the provisions of the Project
Documents.
5.3 Compliance with Law. The Borrower is in compliance with
all Requirements of Law except to the extent that the failure to comply
therewith (a) would not reasonably be expected, in the aggregate, to have a
material adverse affect on the business, operations, properties or financial or
other condition of the Borrower and (b) would not materially adversely affect
the ability of the Borrower to perform its obligations under this Agreement, the
Notes or the other Project Documents to which it is a party.
5.4 Corporate Power and Authorization; Enforceable
Obligations. The Borrower has full corporate power and authority and the legal
right to own and operate the Project, to conduct its business as now conducted
and as proposed to be conducted by it, to execute, deliver and perform this
Agreement, the Notes and the other Project Documents to which it is or is to
become a party, to grant the mortgages and security interests provided for in
the Security Documents and to borrow hereunder. The Borrower has taken all
necessary corporate and legal action to authorize the borrowings on the terms
and conditions of this Agreement, the Notes and the other Project Documents to
which it is a party, to grant the mortgages and security interests provided for
in the Security Documents and to authorize the execution, delivery and
<PAGE> 35
28
performance of this Agreement, the Notes and the other Project Documents to
which it is or is to become a party. No consent or authorization of, filing
with, or other act by or in respect of any Governmental Authority, is required
in connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement, the Notes or the
other Project Documents to which the Borrower is or is to become a party, except
as referred to in Section 5.5. This Agreement, each Note and each other Project
Document to which the Borrower is a party have been duly executed and delivered
by the Borrower and constitute legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally.
5.5 Governmental Actions. No Governmental Actions are required
in connection with the participation by the Borrower, the Parent, Cogentrix
Energy, the Lenders, the Issuing Bank or the other Project Participants in the
transactions contemplated by this Agreement and the other Project Documents, or
the execution, delivery and performance by any of such Persons of the Project
Documents to which such Person is a party, or the construction, use, ownership
or operation of the Project in accordance with the applicable provisions of the
Project Documents and in compliance with all Requirements of Law (including
Environmental Laws and regulations), except for those Governmental Actions which
are set forth in Schedule III hereto. As of the Third Restatement Effective
Date, each of the Governmental Actions listed in Schedule III has been duly
obtained or made, is in full force and effect, are not the subject of any
pending or threatened judicial or administrative proceedings and, if the
applicable statute, rule or regulation provides for a fixed period for judicial
or administrative appeal or review thereof, such period has expired.
5.6 No Legal Bar. The execution, delivery and performance of
this Agreement, the Notes and the other Project Documents, the borrowings
hereunder and the use of the proceeds thereof, will not violate any Requirement
of Law or any Contractual Obligation of the Borrower (including any other
Project Document), and will not result in, or require, the creation or
imposition of any Lien on any of its properties or revenues pursuant to any
Requirement of Law or Contractual Obligation, except for the Liens created by
the Security Documents. No approvals and consents of any trustee or any holder
of any indebtedness, obligations or securities of the Borrower or, to the best
of the knowledge of the Borrower, of any other Project Participant, are required
in connection with the execution, delivery and performance by the Borrower or
any Project Participant of any Project Document to which it is a party, except
such as have been duly obtained and are in full force and effect.
<PAGE> 36
29
5.7 No Litigation. Except as disclosed in Schedule VIII, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is on the Third Restatement Effective Date pending or, to
the knowledge of the Borrower, threatened by or against the Borrower or against
any of its properties or revenues (a) with respect to this Agreement, the Notes
or any other Project Document or any of the transactions contemplated hereby or
thereby, or (b) which could have a material adverse effect on the business,
operations, property or financial or other condition of the Borrower or (c)
which could materially adversely affect the ability of the Borrower to perform
its obligations under this Agreement, the Notes or any of the other Project
Documents to which it is a party.
5.8 No Default or Event of Loss. The Borrower is not in
default under or with respect to any Contractual Obligation in any respect which
could be materially adverse to its business, operations, property or financial
or other condition, or which could materially adversely affect the ability of
the Borrower to perform its obligations under this Agreement, the Notes or any
of the other Project Documents to which it is a party. No Default or Event of
Default as to the Borrower or the Parent or Cogentrix Energy and, to the best of
the Borrower's knowledge, no Default or Event of Default arising from the acts
or omissions of any other Project Participant, has occurred and is continuing;
no Event of Loss has occurred.
5.9 Ownership of Property; Liens. The Borrower has (i) good
record and marketable title in fee simple to the property described in the Deed
of Trust (other than the Easements and the property leased pursuant to the
Ground Lease), (ii) valid title to the Easements, (iii) a valid leasehold
interest in the property leased pursuant to the Ground Lease and (iv) good and
valid title to the Barge and to the portion of the Facility constituting
personal property, in each case free and clear of all Liens other than Permitted
Liens.
5.10 No Burdensome Restrictions. No Contractual Obligation of
the Borrower and no Requirement of Law materially adversely affects, or insofar
as the Borrower may reasonably foresee is likely to materially adversely affect,
the business, operations, property or financial or other condition of the
Borrower.
5.11 Taxes. The Borrower has filed or caused to be filed all
tax returns which are required to be filed by it, 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; and no tax Liens have been
filed and no claims are being asserted with respect to any such taxes, fees or
other charges.
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30
5.12 Public Utility Status. (a) Neither the Borrower nor the
Parent nor any of their respective Affiliates is or will be, by reason of (i)
the ownership of the Project or the operation thereof by the Borrower or the
Parent, or (ii) any other transaction contemplated by this Agreement or any of
the other Project Documents, deemed by any Governmental Authority having
jurisdiction to be subject to financial, organizational or rate regulation as an
"electric utility", "electric corporation", "electrical company", "public
utility" or a "public utility holding company" under any existing law, rule or
regulation of any Governmental Authority.
(b) Neither the Lenders nor the Agent nor the Issuing Bank nor
any of their Affiliates is or will be, by reason of (i) the ownership of the
Project or the operation thereof by the Borrower, (ii) the making of the Term
Loans hereunder, (iii) the securing of the Term Loans by Liens on the Project
and the Assigned Contracts or (iv) any other transaction contemplated by this
Agreement or any of the other Project Documents, deemed to be, or be subject to
regulation as, an "electric utility", "electric corporation", "electrical
company", "public utility" or a "public utility holding company" under any
existing law, rule or regulation of any Governmental Authority; and neither the
Lenders nor the Issuing Bank nor the Agent nor any of their respective
Affiliates will, by reason of its ownership or operation of the Project upon the
exercise of remedies under the Security Documents, be deemed to be subject to
financial, organizational or rate regulation as an "electric utility", "electric
corporation", "electrical company", "public utility" or a "public utility
holding company" under any existing law, rule or regulation of any Governmental
Authority.
(c) The Facility is, and on the Third Restatement Effective
Date and thereafter at all times will continue to be, a Qualifying Facility and
is and will be exempt from all regulation under the Public Utility Holding
Company Act of 1935, as amended.
(d) The Borrower meets, and will on the Third Restatement
Effective Date and thereafter at all times continue to meet, the ownership
criteria for a "qualifying cogeneration facility" set forth in 18 CFR 292.207.
5.13 Federal Regulations. The Borrower is not engaged and will
not engage in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulations G, U and X of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect. No part
of the proceeds of any Term Loan will be used for "purchasing" or "carrying" any
"margin stock" as so defined or for any purpose which violates, or which would
be inconsistent with, the provisions of the Regulations of such Board of
Governors.
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31
5.14 ERISA. The Borrower is not in violation of applicable
provisions of ERISA or the regulations and published interpretations thereunder,
and no Reportable Event has occurred and is continuing with respect to any Plan.
5.15 Investment Company Act. The Borrower 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.
5.16 Security Documents. The Security Documents create, in
favor of the Agent for the ratable benefit of the Financing Parties, legal,
valid and enforceable mortgage Liens on or security interests in all of the
Collateral, and such Liens and security interests constitute perfected Liens on
and perfected security interests in all right, title, estate and interest of the
Borrower in the Collateral prior and superior to all other Liens, existing or
future, except for Permitted Liens. The recordings and filings shown on Schedule
IV are all the actions necessary or advisable in order to establish, protect and
perfect the interest of the Agent in the Collateral.
5.17 Full Disclosure. Neither this Agreement nor any
certificate, written statement or other document furnished by the Borrower or
the Parent or Cogentrix Energy to the Financing Parties, or to any appraiser or
engineer or environmental consultant submitting a report to the Financing
Parties, by, or to the knowledge of the Borrower on behalf of, the Borrower or
any Affiliate thereof in connection with the transactions contemplated by this
Agreement and the other Project Documents or the design, description, testing or
operation of the Project, 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 not misleading. There is no fact known to the
Borrower which the Borrower has not disclosed in writing to the Financing
Parties which materially adversely affects or, so far as the Borrower can now
reasonably foresee, will materially adversely affect the properties, business,
prospects or financial or other condition of the Borrower or the ability of the
Borrower to perform its obligations hereunder and under the Assigned Contracts
and the other Project Documents.
5.18 Power Purchase Agreement and Other Assigned Contracts.
The Power Purchase Agreement (including, without limitation, the Power Purchase
Agreement Amendment) has been duly executed and delivered by VEP and constitutes
the legal, valid and binding obligation of VEP, enforceable against VEP in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally. If the Facility remains a Qualifying Facility
pursuant to the rules and regulations of the FERC, no Governmental Actions were
or are required in connection with the execution, delivery and performance by
the Power Purchaser of the Power Purchase Agreement Amendment, other than the
filing of the Power Purchase
<PAGE> 39
32
Agreement Amendment with the Virginia State Corporation Utilities Commission
(which filing, if required, will be made on or before December 31, 1998) and
except for those which have been duly obtained or made and are in full force and
effect. As of the Third Restatement Effective Date the Borrower will have duly
performed and complied with all agreements and conditions which are required to
be performed or complied with by it under the Power Purchase Agreement
(including, without limitation, the Power Purchase Agreement Amendment) as of
such date. Each of the other Assigned Contracts has been duly executed and
delivered by the parties thereto and constitutes the legal, valid and binding
obligation of such parties, enforceable against such parties in accordance with
its terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. As of the Third Restatement Effective Date the Borrower
will have duly performed and complied with all agreements and conditions which
are required to be performed or complied with by it thereunder as of such date.
Each of the Assigned Contracts is in full force and effect and has not been
amended. There exists no default or event of default or breach in the
performance of any covenant, agreement, obligation or condition to be performed
by the Borrower under any Assigned Contract, no notice of default has been given
under any Assigned Contract, and no consent or authorization need be obtained by
the Borrower from any other party to any Assigned Contract in connection with
the execution and delivery of the Third Amended and Restated Loan Agreement, or
of any other Project Document (including any amendment thereto) being executed
and delivered on the Third Restatement Effective Date.
5.19 Principal Place of Business, Etc. The chief executive
office and principal place of business of the Borrower, and the office where it
keeps its records concerning the Project and all contracts relating thereto, is
and will be located at 9405 Arrowpoint Boulevard, Charlotte, North Carolina
28273.
5.20 Water Supply. There is readily available to the Facility
sufficient flow of water to permit the continued operation of the Facility in
accordance with the Minimum Performance Requirements.
5.21 Compliance with Building Codes, Zoning Laws, Etc. The
Project is in all material respects in compliance with all applicable zoning,
environmental protection, use and building codes, laws, regulations and
ordinances. The Borrower has no knowledge of any material violations of any
laws, ordinances, codes, requirements or orders of any Governmental Authority
affecting the Project.
5.22 Roads. All roads necessary for the full utilization of
the Project for its intended purposes have been completed.
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33
5.23 Deed of Trust. The Lien of the Deed of Trust, as amended,
is a first lien on the Mortgaged Property (as defined in the Deed of Trust),
subject only to those matters shown on that certain title insurance policy dated
as of the date of the Deed of Trust, and endorsements to such title insurance
policy dated through the date of recordation of Deed of Trust Amendment No. 5,
issued by Chicago Title Insurance Company.
5.24 Sufficiency of Project Documents. The services being and
to be performed, the materials being and to be supplied and the leasehold and
other property interests, easements and other rights granted pursuant to the
Project Documents:
(a) comprise substantially all of the property interests
necessary to secure any right material to the operation and maintenance
of the Facility in accordance with all Requirements of Law and in
accordance with projections, and
(b) provide adequate ingress and egress from the Site for any
reasonable purpose in connection with the operation of the Facility,
all without reference to any material proprietary information not owned
by the Borrower.
There are no services, materials or rights required for the operation of the
Facility in accordance with the Project Documents, other than (x) those granted
by or to be provided by or on behalf of the Borrower pursuant to the Project
Documents or (y) those that are commercially available at the Site.
5.25 Outstanding Shares of Capital Stock of Borrower. All of
the outstanding shares of the capital stock of the Borrower have been duly
authorized and validly issued in conformity with all applicable federal and
state laws and regulations and are fully paid and non-assessable. All of such
shares are held by the Parent free and clear of all Liens, except for the Lien
created by the Pledge Agreement.
5.26 Environmental Matters.
(a) Except as disclosed in the Environmental Assessment,
the Site does not contain, and, to the best knowledge of the Borrower, has not
previously contained, any Hazardous Materials or underground storage tanks
(except for underground storage tanks which have been removed by the Borrower as
previously disclosed in writing to the Lenders).
(b) Except as disclosed in the Environmental Assessment, the
Site is in compliance with all applicable federal, state and local environmental
standards and requirements affecting the Site or the Facility and there are no
environmental conditions in respect of Hazardous Materials which could interfere
with the continued operation of the Facility.
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34
(c) Except as disclosed on Schedule V hereof, the Borrower has
not received any notices of violation or advisory action by regulatory agencies
regarding environmental control matters or permit compliance.
(d) No Hazardous Material or ash has been transferred from the
Site to any other location which is not in compliance with all applicable
environmental laws, regulations or permit requirements.
(e) With respect to the Site and the Facility, there are no
proceedings, governmental administrative actions or judicial proceedings pending
or, to the best of the Borrower's knowledge, contemplated under any federal,
state or local law regulating the discharge of hazardous or toxic materials or
substances into the environment, to which the Borrower is named as a party.
5.27 Subsidiaries. The Borrower has no subsidiaries, and will
not in the future have any subsidiaries.
5.28 Representations and Warranties in Other Project
Documents. The representations and warranties of the Borrower, Cogentrix Energy
and the Parent contained in the other Project Documents were true and correct on
and as of the date made, and except to the extent any such representation or
warranty relates solely to an earlier date, the Borrower hereby confirms as of
the date hereof each such representation and warranty with the same effect as if
set forth in full herein.
5.29 Relocation of Coal Conveyor and Steam Pipelines. Since
October 5, 1988, neither Borrower nor any other Person has moved or
reconstructed all or any portion of the coal conveyor or steam pipelines lying
(as of October 5, 1988) within the boundaries of the Easements so as to cause
all or any portion of such coal conveyor or steam pipelines to lie outside the
boundaries of the Easements.
SECTION 6. AFFIRMATIVE COVENANTS.
So long as any Note remains outstanding and unpaid or any
other amount is owing to any Financing Parties hereunder or under the Security
Documents, the Borrower hereby agrees that it shall:
6.1 Financial Statements. Furnish or cause to be furnished to
each of the Financing Parties:
(a) as soon as available, but in any event within 120 days
after the end of each fiscal year of each of the Borrower and Cogentrix
Energy, a copy of the balance sheet of each of the Borrower and
Cogentrix Energy as at the end of such year and the related statements
of income, retained earnings and changes in cash flow for such year of
each of
<PAGE> 42
35
the Borrower and Cogentrix Energy, setting forth in each case in
comparative form the figures for the previous year, certified without
qualification arising out of the scope of the audit by Arthur Andersen,
LLC or other independent certified public accountants of nationally
recognized standing, and
(b) as soon as available, but in any event within 60 days
after the end of each quarterly period of each fiscal year of each of
the Borrower and Cogentrix Energy, a copy of the unaudited balance
sheet of each of the Borrower and Cogentrix Energy as at the end of
such quarterly period and the related unaudited statements of income,
retained earnings and changes in cash flow of each of the Borrower and
Cogentrix Energy for such quarterly period and for the portion of the
fiscal year then ended, setting forth in each case in comparative form
the figures for the previous period, certified by a Responsible Officer
(subject to normal year-end audit adjustments);
All financial statements delivered pursuant to this subsection shall be complete
and correct in all material respects (subject, in the case of interim
statements, to normal year-end audit adjustments) and shall be prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein.
6.2 Certificates; Other Information. Furnish to the Agent:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a) for the Borrower, a certificate of the
independent public accountants that certified such financial statements
stating that in making the examination necessary for the audit thereof
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 Sections 6.1(a) and 6.1(b) with respect to the Borrower,
a certificate of a Responsible Officer stating that during the period
covered by such financial statements the Borrower has observed and
performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Project
Documents to be observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of Default at
any time during such period or on the date of such certificate, except
as specified in such certificate;
(c) not less than 30 or more than 60 days prior to the end of
each fiscal year of the Borrower, operating budgets for the next
succeeding fiscal year of the Borrower;
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36
(d) within 30 days after each Installment Payment Date, a
certificate of the chief financial officer or treasurer of the Borrower
setting forth the Debt Service, Project Cash Flow, Project Revenues and
Cash Operating Costs for the three-month period ended on such
Installment Payment Date, and the Twelve-Month Project Cash Flow,
Twelve-Month Debt Service and Twelve-Month Debt Coverage Ratio
determined as of such Installment Payment Date;
(e) within five days after the filing thereof, the "Annual
Returns" (Form 5500 series) and attachments filed annually with the
Internal Revenue Service with respect to each Single Employer Plan;
(f) with respect to any Single Employer Plan adopted or
amended by the Borrower or any Commonly Controlled Entity, any
determination letters received from the Internal Revenue Service with
respect to the qualification of such Plan, as initially adopted or
amended under Section 401(a) of the Code;
(g) promptly, copies of any material notices, reports or
certificates given to the Borrower, Delaware Holdings, Cogentrix Energy
or the Parent under any Project Document;
(h) promptly, such additional financial and other information,
including, without limitation, budgets and operating reports, with
respect to the Borrower, Delaware Holdings, Cogentrix Energy, the
Parent, or the Project as any Financing Party may from time to time
reasonably request.
The Financing Parties will use reasonable efforts to keep confidential the
Project Documents, any financial information or any other information relating
to the plans and specifications with respect to the Project, in each case as
furnished to them by the Borrower or the Parent, except to the extent (i)
otherwise required by statute, rule, regulation or judicial process, by bank
examiners and/or auditors, (ii) the Financing Parties wish to furnish such
information to prospective purchasers of the Project in anticipation of a
foreclosure sale or other exercise of remedies under the Security Documents, or
(iii) permitted by subsection 10.6(d).
6.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all of its Indebtedness and other obligations of whatever nature, except for
any Indebtedness or other obligations which are being contested in good faith
and by appropriate proceedings if (i) adequate reserves with respect thereto are
maintained on the books of the Borrower in accordance with GAAP and (ii) such
contest does not involve any risk of the sale, forfeiture or loss of any of the
Collateral.
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37
6.4 Conduct of Business and Maintenance of Existence. (i)
Engage solely in the business of owning and operating the Project, (ii)
preserve, renew and keep in full force and effect its existence and good
standing as a corporation under the laws of the State of North Carolina and its
qualification to do business and good standing in the Commonwealth of Virginia,
(iii) take all action necessary to maintain in full force and effect all
Governmental Actions in effect on the Third Restatement Effective Date and to
obtain and maintain all Governmental Actions required at any time after the
Third Restatement Effective Date in connection with the ownership or operation
of the Facility, and (iv) maintain the Facility as a Qualifying Facility. The
Borrower will comply with all Contractual Obligations, Governmental Actions and
Requirements of Law relating to the Project or any other property of the
Borrower except to the extent that the failure to comply therewith would not, in
the aggregate, have a material adverse effect on the business, operations,
property or financial or other condition of the Borrower.
6.5 Maintenance of Property; Operation of Project; Restoration
of Facility. (a) At the Borrower's expense, keep the Facility in good working
order and condition and make all repairs, replacements and renewals with respect
thereto and additions and betterments thereto which are necessary for the
Facility to operate efficiently in accordance with the Minimum Performance
Requirements, any applicable requirements of insurance policies and at least in
accordance with accepted industry standards for similar properties. All repairs,
replacements and renewals shall be equal in quality and class to the original
work. The Borrower shall operate and maintain the Facility in a safe manner in
accordance with those electrical practices and methods as are commonly used in
prudent electrical engineering to operate equipment for the distribution of
electricity, in accordance with all Federal, State and local laws and
regulations and in accordance with the National Electric Safety Code. The
Financing Parties shall have the right to review and approve the individual(s)
or company(s) responsible for operating the Project.
(b) If, after any loss, theft, destruction or damage with
respect to the Facility referred to in clause (ii) of the definition of "Event
of Loss", the Agent determines in accordance with subclause (y) of said clause
(ii) that sufficient funds are or will be available to restore the Facility, the
Borrower at all times thereafter will proceed diligently with all work necessary
to correct the loss, theft, destruction or damage to the Facility referred to in
said clause (ii).
6.6 Assigned Contracts. Maintain or cause to be maintained in
full force and effect, without amendment or modification (except as permitted in
Section 7.10), and observe and perform all of its covenants and obligations
under, comply with all conditions under, and diligently enforce all its rights
<PAGE> 45
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under and in accordance with the terms of, each Assigned Contract.
6.7 Insurance. (a) Types of Insurance. Without cost to the
Agent or any other Financing Party, the Borrower shall maintain or cause to be
maintained in effect at all time insurance with respect to the Facility against
such hazards, in such form (subject to the provisions of Section 6.7(c) hereof)
and with such insurers as shall be approved by the Required Lenders, and in such
amounts as the Borrower would, in the prudent management of its property,
maintain, or as would be maintained by others similarly situated in respect of
property similar to the Facility; provided that, in any event, on or prior to
the Third Restatement Effective Date, the Borrower shall procure or cause to be
procured at its own expense and maintain in full force and effect until such
time as all of its obligations under this Agreement and the Notes shall have
been paid in full, with responsible insurers authorized to do business in the
State of Virginia with a Best's rating of "A-" or better (except for policies
underwritten by Lloyds of London and approved English companies, acceptable to
the Agent), the following types of insurance:
(i) Physical Damage Insurance: Property damage insurance
on an "all risk" basis including but not limited to fire and extended
coverage and coverage against earth movement and flood and providing
(1) coverage for the Facility in a minimum amount equal to the "full
insurable value" of the Facility, but in no event less than the sum of
(i) the sum of the aggregate unpaid amount of the Loans plus the amount
of the Total Available Additional Term Loan Commitment plus the
Available Amount, (ii) $6,000,000 (provided that in the event the
Borrower has not entered into an Interest Rate Protection Agreement
that provides for breakage costs, the amount of this clause (ii) shall
be zero) and (iii) all other amounts necessary to remove all liens,
encumbrances or mortgages from any of the Collateral, (2) transit
coverage with sub-limits sufficient to insure the full replacement
value of all property or equipment removed from the Project, but in no
event less than $10,000,000, (3) coverage for the steam and electrical
transmission lines and related equipment for which the insured has an
insurable interest and (4) coverage for foundations and other property
below the surface of the ground. For purposes of this Section 6.7,
"full insurable value" shall mean the full replacement value of the
Facility, including any improvements and equipment, fuel and supplies,
without deduction for physical depreciation and/or obsolescence. Such
insurance shall include an "agreed amount" clause with no co-insurance
clause and shall provide for increased costs of debris removal and loss
to undamaged property as the result of enforcement of building laws or
ordinances. Testing coverage shall be included, if applicable.
<PAGE> 46
39
(ii) Boiler and Machinery Insurance: Boiler and machinery
insurance coverage to be written on a "comprehensive form" basis for
all insurable objects, including but not limited to pressure vessels,
electrical turbines and equipment, motors, air tanks, boilers,
machinery, pressure piping or any other similar objects located on or
adjacent to the Site in a minimum aggregate amount equal to the
replacement value of the insurable objects. If the boiler and machinery
insurance is written on a policy separate from the property damage
insurance policy, both the boiler and machinery insurance policy and
the property damage insurance policy shall contain a joint loss
agreement endorsement.
The insurance policies in clauses (i) and (ii) above may have a
combined deductible of not greater than $250,000 or such other amount acceptable
to the Agent as shall (in the good faith judgment of the Agent) be available on
commercially reasonable terms in the insurance market place.
(iii) Business Interruption Insurance: Business interruption
insurance covering loss of net profits, fixed expenses, principal and
interest payable on the Notes and all liquidated damages payable
pursuant to any Project Document for a minimum period of 12 months;
such policy may provide that insurance proceeds will not be paid in
respect of the first 30 days of such business interruption or such
other period requested by the Borrower and reasonably acceptable to the
Agent and the other Financing Parties.
(iv) Contingent Business Interruption Insurance: Contingent
business interruption insurance covering loss of net profits, fixed
expenses, principal and interest payable on the Notes and all
liquidated damages payable pursuant to any Project Document for a
minimum period of 12 months during the period when the operation of the
Facility is impaired due to physical loss or damage to facilities owned
by others; such policy may provide that insurance proceeds will not be
paid in respect of the first 30 days of such impairment of operation.
(v) Workers' Compensation Insurance: Workers' compensation
insurance as required by Virginia state law, including, without
limitation, employer's liability insurance for all employees of the
Borrower, Delaware Holdings, Cogentrix Energy or the Parent in the
amount of $500,000 per occurrence (the policies with respect to which
shall include all states' coverage). The coverage of such insurance
shall comply with all Requirements of Law.
(vi) Comprehensive General Liability Insurance: Insurance
against claims for personal injury (including bodily injury and death)
and property damage. Such insurance shall be written on an occurrence
basis and provide coverage for products, completed operations, blanket
<PAGE> 47
40
contractual, explosion, collapse and underground coverage and broad
form property damage with a $1,000,000 combined single limit for bodily
injury and property damage and a $2,000,000 aggregate limit.
(vii) Comprehensive Automobile Liability: Insurance against
claims of personal injury (including bodily injury and death) and
property damage covering all owned, leased, non-owned and hired
vehicles with a $ 1,000,000 minimum limit per occurrence for combined
bodily injury and property damage liability, including no fault
insurance, where applicable.
(viii) Excess Insurance: Excess liability insurance on an
"occurrence" basis covering claims in excess of the underlying
insurance described in the foregoing clauses (v), (vi) and (vii) with a
$30,000,000 minimum limit per occurrence and a $30,000,000 minimum
aggregate annual limit.
(ix) Barge Insurance: Hull and machinery damage, protection
and indemnity, stevedoring/wharfingers legal liability and water
quality insurance coverage for the Barge, and all insurance required
for the Borrower to keep the Barge insured pursuant to the requirements
of Section 15 of Article I of the Ship Mortgage.
(b) Loss Payee. All insurance policies required in Section
6.7(a) covering loss or damage to the Facility including, without limitation,
those policies required by clauses (i), (ii), (iii) and (iv) of Section 6.7(a),
shall name the Agent as first loss payee pursuant to a standard first mortgage
endorsement substantially equivalent to the "New York Standard Mortgage
Endorsement" or "Lenders Loss Payable Endorsement 438 BFU" and shall provide
that any payment thereunder for any loss or damage shall be made to the Agent.
(c) Special Policy Provisions. All policies (other than
policies with respect to workers' compensation, occupational disability benefits
or similar insurance) shall name the Agent and the other Financing Parties as
additional insureds and shall insure the interests of the Agent and the other
Financing Parties regardless of any breach or violation by the Borrower of
warranties, declarations or conditions contained in such policies or any action
or inaction of the Borrower or any other Person; each liability policy shall
expressly provide that all provisions thereof, except the limits of liability
(which shall be applicable to all insureds as a group) and liability for
premiums, commissions, assessments or calls (which shall be solely a liability
of the Borrower) shall operate in the same manner as if there were a separate
policy covering each such insured; each policy (except workers' compensation)
shall waive any right of subrogation of the insurers to any set-off or
counterclaim against the Agent or any other Financing Party or any other
deduction, whether by attachment or otherwise, in respect of any liability of
the Borrower; and each such policy
<PAGE> 48
41
shall provide that, if such insurance is to be canceled or terminated or
materially changed for any reason whatsoever the insurers will promptly notify
the Borrower and the Agent, and any such material change, cancellation or
termination shall not be effective as to the Agent and the other Financing
Parties for 60 days (or (x) 10 days in the case of a cancellation or termination
resulting from a failure to pay a premium in respect of such policy (other than
a policy provided pursuant to clause (ix) (Barge Insurance) of subsection
6.7(a)) and (y) 30 days in the case of a material change, modification,
cancellation or termination of a policy provided pursuant to clause (ix) (Barge
Insurance) of subsection 6.7(a)) after receipt of such notice by the Agent, and
that appropriate certification shall be made to the Borrower by each insurer
with respect thereto. All insurance as required in Section 6.7(a) shall be
primary and not excess to or contributing with any insurance or self insurance
maintained by the Agent or the other Financing Parties, or their respective
officers and employees. The Agent shall have the right to join the Borrower in
the settlement, adjustment or compromise of any claim in excess of $100,000
under any insurance policy maintained pursuant to this Section 6.7.
(d) Additional Requirements. In addition to the other
requirements of this Section 6.7, the Borrower shall comply in all respects with
any insurance requirements contained in any other Project Document to which it
is a party.
(e) Certificates of Insurance. The Borrower shall deliver to
the Agent prior to the expiration date of each insurance policy required to be
maintained by it pursuant to this Section 6.7, an original certificate of
insurance executed by the insurer or its duly authorized agent evidencing the
continuance of such insurance policy (and, upon request, a certified copy of
such insurance policy). The Borrower shall deliver to the Agent within 30 days
of the end of each fiscal year of the Borrower, beginning with the fiscal year
ending December 31, 1998, a certificate or other evidence of insurance from a
recognized independent insurance broker or agent confirming (i) that all
insurance policies required by this Section 6.7 are in full force and effect as
of the date thereof, provided, however, that such broker or agent may rely as to
subsection 6.7(a)(i)(1)(ii) and (iii) on the representations and warranties of
the Borrower contained in this Agreement, (ii) that all premiums due on such
policies have been paid, (iii) the names of the issuers of such policies and
(iv) the respective amounts and expiration dates of such policies.
(f) Application of Payments. All payments received by the
Agent, any other Financing Party or the Borrower under any business interruption
insurance policy shall promptly be deposited in the Revenue Account for
application in accordance with the provisions of Sections 4.01 and 4.02 of the
Security Deposit Agreement. All payments received by the Agent, any other
Financing Party or the Borrower from any insurer with respect to loss or damage
to the Facility or other Collateral shall promptly
<PAGE> 49
42
be deposited in the Insurance Proceeds Account for application in accordance
with the provisions of Section 4.06 of the Security Deposit Agreement.
(g) No Duty of any Agent or any Lender to Verify. No provision
of this Section 6.7 or any provision of any other Project Document shall impose
on the Agent or any other Financing Party any duty or obligation to verify the
existence or adequacy of the insurance coverage maintained by the Borrower, nor
shall the Agent or any other Financing Party be responsible for any
representations or warranties made by or on behalf of the Borrower to any
insurance company or underwriter.
It is understood and agreed that the Financing Parties reserve
the right to require, through the Agent, that the amounts and scope of coverage
of any of the aforesaid insurance policies be modified if a state of facts shall
exist in respect of the Project which was not reasonably foreseeable by the
parties hereto on the Third Restatement Effective Date and which, in the Agent's
opinion, renders such coverage materially inadequate.
6.8 Inspection of Property; Books and Records; Discussions.
Keep proper books of record 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 the Financing Parties during normal business hours and after
notice to visit and inspect any of its properties and examine and make abstracts
from any of its books and records as often as reasonably may be desired, and to
discuss the business, operations, properties and financial and other condition
of the Borrower with officers and employees of the Borrower and with its
independent public accountants (and the Borrower hereby authorizes its
independent public accountants to discuss, at the request of any Financing
Party, such matters with the Financing Parties' representatives).
The Financing Parties shall have the right, at the Borrower's
expense, from time to time at reasonable intervals during the term of this
Agreement, to have the Project inspected by the Independent Engineer. The Agent
shall give reasonable notice to the Borrower prior to each such inspection. If
the Borrower obtains an inspection report on the Project or any portion thereof
at its own request, it will promptly provide a copy of such report to the Agent.
The Borrower agrees to correct or cause to be corrected any substantial defect
in the Project which the Borrower discovers or which is disclosed by any
inspection provided for in this subsection upon learning of same, or to promptly
give the Agent a reasonably detailed explanation in writing specifying the
reasons that such correction is not required within a reasonable time.
6.9 Notices. Promptly upon obtaining knowledge of any of the
following, give notice to the Agent:
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43
(a) of the occurrence of any Default or Event of Default;
(b) of any default or event of default under any of the
Assigned Contracts or any notice or assertion of such a default;
(c) of any (i) default or event of default under any
Contractual Obligation (other than the Assigned Contracts) of the
Borrower or (ii) litigation, investigation or proceeding which may
exist at any time between the Borrower and any Governmental Authority,
which in either case could have a material adverse effect on the
business, operations, property or financial or other condition of the
Borrower;
(d) of any litigation or proceeding affecting the Borrower in
which the amount involved is $100,000 or more or in which injunctive or
similar relief is sought;
(e) of the following events, as soon as possible and in any
event within 30 days after the Borrower has reason to know thereof: (i)
the occurrence or expected occurrence of any Reportable Event with
respect to any Single Employer Plan which could reasonably be expected
to have a material adverse effect on the Borrower or the Parent, or
(ii) the institution of proceedings or the taking or expected taking of
any other action by PBGC or the Borrower or the Parent to terminate,
withdraw or partially withdraw from any Single Employer Plan, or (iii)
the Reorganization or Insolvency of any Multiemployer Plan, and, in
addition to such notice, deliver to the Agent whichever of the
following may be applicable: (A) a certificate of a Responsible Officer
of the Borrower or the Parent setting forth details as to such
Reportable Event and the action that the Borrower or the Parent, as the
case may be, proposes to take with respect thereto, together with a
copy of any notice of such Reportable Event that may be required to be
filed with PBGC, or (B) any notice delivered by PBGC evidencing its
intent to institute such proceedings or any notice to PBGC that such
Plan is to be terminated, or (C) any notice of the Reorganization or
Insolvency of a Multiemployer Plan received by the Borrower or the
Parent, as the case may be;
(f) of any material adverse change in the business,
operations, property, prospects or financial or other condition of the
Borrower, the Parent, Cogentrix Energy or VEP and of any actual or
prospective change of law, rule or regulation which has or would have
such a material adverse effect;
(g) of any loss or damage to the Collateral in excess of
$50,000;
(h) of any event or condition which would change any matter
represented to in subsection 5.12; and
<PAGE> 51
44
(i) of any proposed Additional Contract.
Each notice pursuant to this Section 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 or cause to be taken with
respect thereto and, with respect to a notice given pursuant to clause (i),
shall be accompanied by a copy of the proposed Additional Contract or, if the
proposed Additional Contract has not yet been prepared, shall include a
description of the proposed terms and conditions of such Additional Contract.
For all purposes of clause (e) of this Section, the Borrower shall be deemed to
have all knowledge or knowledge of all facts attributable to the administrator
of any Single Employer Plan.
6.10 Assignments of Additional Contracts; Maintenance of Liens
of the Security Documents; Future Mortgages.
(a) Concurrently with the execution of any Additional
Contract, execute and deliver to the Agent an Assignment with respect to such
Additional Contract and cause the other party or parties to such Additional
Contract to execute and deliver to the Agent a Consent with respect to such
Assignment;
(b) Promptly upon the request of the Agent, and at the
Borrower's expense, execute and deliver, or cause the execution and delivery of,
and thereafter register, file or record in each appropriate governmental office,
any document or instrument supplemental to or confirmatory of the Security
Documents, and take such other action deemed by the Required Lenders to be
necessary or desirable for the creation or perfection of the liens and security
interests purported to be created by the Security Documents; and
(c) If the Borrower shall at any time acquire any real
property or leasehold or other interests therein not covered by the Deed of
Trust, promptly upon such acquisition execute, deliver and record a first deed
of trust in favor of the Agent covering such real property or leasehold or other
interests (which deed of trust shall be satisfactory in form and substance to
the Agent), provide a mortgagee's policy of title insurance in an amount equal
to the purchase price of such property, and in connection therewith deliver to
the Agent such opinions of counsel and certificates as shall be reasonably
requested by the Agent.
6.11 Employee Plans. For each Single Employer Plan adopted by
the Borrower, the Borrower will (a) use its best efforts to seek and receive
determination letters from the Internal Revenue Service to the effect that such
Plan is qualified within the meaning of Section 401(a) of the Code; and (b) from
and after the date of adoption of any Plan, cause such Plan to be qualified
within the meaning of Section 401(a) of the Code and to be administered in all
material respects in
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45
accordance with the requirements of ERISA and Section 401(a) of the Code.
6.12 Management Letters. Promptly deliver to the Agent a copy
of each report delivered to the Borrower or Cogentrix Energy by its independent
public accountants in connection with any annual or interim audit of the
Borrower's books, including, without limitation, any letters or reports
addressed to the Borrower or Cogentrix Energy or any of their officers relating
to the Borrower's internal controls, adequacy of records or the like.
6.13 Plans. At all times maintain at the Facility an accurate
and complete set of "as built" plans and specifications for the Facility, which
shall be amended and supplemented from time to time to reflect on a current
basis all improvements, additions and modifications to the Facility.
6.14 Correction of Work. Upon demand of the Agent, correct any
structural defect in the Project, all at the sole cost and expense of the
Borrower.
6.15 Defend Title. At all times at the Borrower's own cost and
expense warrant and defend the title to the Facility against the claims and
demands of all Persons whomsoever, except with respect to Permitted Liens.
6.16 Deposits. The Borrower will deposit or cause to be
deposited into each of the Accounts such amounts as are required to be deposited
therein pursuant to the terms of the Security Deposit Agreement.
6.17 Interest Rate Protection. If on any date the implied
yield on U.S. Treasury bonds having a maturity most nearly equal to the then
remaining period from such date to the Final Payment Date exceeds 8% per annum
(an "Interest Rate Trigger Event"), then, within 10 days of such date, the
Borrower shall enter into one or more Interest Rate Protection Agreements
reasonably satisfactory to the Agent which fix or "cap" the interest rates
payable by the Borrower with respect to 50% of the then outstanding unpaid
principal amount of the Loans in a manner reasonably satisfactory to the Agent,
taking into account the amortization of principal provided for under subsection
1.4, for the period of time from such date to the Final Payment Date (the "Cap
Requirement"). If after such date (i) the Borrower shall make a borrowing of
Additional Term Loans hereunder and (ii) an Interest Rate Trigger Event shall
exist on the date of such borrowing and (iii) the Interest Rate Protection
Agreements in effect on such date do not satisfy the Cap Requirement as
determined as of such date (taking into account the aggregate principal amount
of the Additional Term Loans then being made), then within 10 days of the date
of such borrowing, the Borrower shall enter into one or more Interest Rate
Protection Agreements reasonably satisfactory to the Agent which cause the Cap
Requirement then to be met.
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46
6.18 Hazardous Material. (a) The Borrower shall comply with or
cause compliance with all applicable Environmental Laws, shall pay or cause to
be paid when due the costs of removal of any Hazardous Material and the costs of
compliance with applicable Environmental Laws, and shall keep the Site or cause
the Site to be kept free of any Lien imposed pursuant to such Environmental
Laws. In the event the Borrower fails to do so, after notice to the Borrower and
the expiration of the earlier of (i) 30 days following such notice, or (ii) the
cure period permitted under the applicable Environmental Law, the Agent may
declare such failure an Event of Default or cause the removal of the Hazardous
Material from the Site and the cost of such removal (with interest) shall
immediately be due from the Borrower to the Agent and the same shall be added to
the Term Loans. The Borrower agrees not to release or dispose of any Hazardous
Material at the Project except in compliance with all applicable Environmental
Laws. In addition, the Borrower agrees not to allow the manufacture, storage,
transmission, presence or disposal of any Hazardous Material over, upon or under
the Site in violation of applicable Environmental Laws. The Agent shall have the
right at any time to conduct an environmental audit of the Site and the Borrower
shall cooperate in the conduct of such environmental audit. The Borrower shall
give the Agent and its agents and employees access to the Site to remove
Hazardous Material which is stored, disposed of or otherwise present at the Site
in violation of applicable Environmental Laws and the Borrower agrees to execute
a manifest to enable the Agent to do so and in the event the Borrower fails to
execute such manifest, the Borrower hereby appoints the Agent as its
attorney-in-fact to execute such manifest. The Borrower agrees to deliver to the
Agent copies of all material correspondence and notices to or from any agency,
official or other third party regarding Hazardous Materials and/or Environmental
Laws. The Borrower agrees to defend, indemnify and hold the Agent and each other
Financing Party free and harmless from and against all liability, loss, costs,
damage and expense (including attorneys' fees and expenses and consequential
damages) the Agent or the other Financing Parties may sustain by reason of (A)
the imposition or recording of a Lien by any Governmental Authority pursuant to
any Environmental Law; (B) claims of any Governmental Authority or private
parties regarding violations of Environmental Laws; (C) costs and expenses
(including, without limitation, attorneys' fees and expenses and fees incidental
to the securing of repayment of such costs and expenses) incurred by Borrower,
the Agent or any other Financing Party in connection with the removal of any
such Lien, or removal of any Hazardous Material or in connection with the
Borrower's, the Agent's or any other Financing Party's compliance with any
Environmental Laws; and (D) the assertion against the Agent or any other
Financing Party by any party of any claim in connection with Hazardous Material.
(b) The foregoing indemnification shall be a recourse
obligation of the Borrower and shall survive repayment of the Loans.
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47
6.19 Notice under Consents. Within 60 days after the Third
Restatement Effective Date, deliver a notice to each party to a Consent (other
than the Power Purchaser or the Borrower) that Credit Lyonnais is the Agent and
of Credit Lyonnais' address and of the other transactions contemplated
hereunder, each such notice to be in a form satisfactory to the Agent, and to be
delivered by a method in accordance with the notice provisions of such Consent
and by which evidence of receipt is obtained.
6.20 Major Maintenance Reserve Account. On each Quarterly
Distribution Date, the Borrower shall deposit or cause to be deposited into the
Major Maintenance Reserve Account an amount in Dollars and in immediately
available funds equal to the lesser of (a) an amount equal to the excess of (i)
100% of the Available Project Cash Flow for the three-month period ended on the
immediately preceding Installment Payment Date over (ii) the outstanding
principal amount of the Debt Service Letter of Credit Loans as of such Quarterly
Distribution Date and (b) the amount by which the Required Major Maintenance
Reserve Amount for such Quarterly Distribution Date exceeds the amount then on
deposit in the Major Maintenance Reserve Account. Amounts on deposit in the
Major Maintenance Reserve Account shall be held and disbursed by the Security
Agent in accordance with the Security Deposit Agreement.
SECTION 7. NEGATIVE COVENANTS.
So long as any Note remains outstanding and unpaid or any
other amount is owing to the Agent or any other Financing Party hereunder or
under the Security Documents, the Borrower agrees that it shall not:
7.1 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except (i) Indebtedness in respect of the Notes and other
Indebtedness owed to the Financing Parties, (ii) Indebtedness in respect of
Junior Working Capital Loans and (iii) Indebtedness in respect of Interest Rate
Protection Agreements.
7.2 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except: (a) Liens in favor of the Agent or the other
Financing Parties created by the Security Documents; (b) Liens for taxes not yet
due, or which are being contested in good faith and by appropriate proceedings
if (i) adequate reserves with respect thereto are maintained on the books of the
Borrower in accordance with GAAP and (ii) such contest does not involve any risk
of the sale, forfeiture or loss of any of the Collateral; (c) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which secure payment of sums which
are not overdue for a period of more than 30 days, or which are being contested
in good faith and by appropriate proceedings if (i) adequate reserves with
respect thereto are maintained on the books of the Borrower in accordance
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48
with GAAP and (ii) such contest does not involve any risk of the sale,
forfeiture or loss of any of the Collateral; (d) judgment liens which are
discharged within ten days after the entry thereof; (e) pledges or Liens in
connection with workmen's compensation, unemployment insurance and other social
security legislation; (f) deposits to secure the performance of statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (g) the Permitted
Liens listed on Schedule VI; and (h) rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially reduce the value of the property subject thereto or interfere with
the ordinary conduct of the business of the Borrower.
7.3 Limitation on Contingent Obligations. Agree to, or assume,
guarantee, endorse or otherwise in any way be or become responsible or liable
for, directly or indirectly, any Contingent Obligation, except: (a) those
created by the Security Documents, and (b) those created by the other Project
Documents.
7.4 Limitation on Restricted Payments. (a) Declare any
dividends (other than dividends payable solely in stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for the purchase, redemption, retirement or other acquisition of,
any shares of any class of stock of the Borrower, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
(b) make any payment of principal or interest or other amount in respect of any
Junior Working Capital Loan or (c) pay or permit the payment of any Management
Fees to Cogentrix Energy or of any amount to Cogentrix Energy or any other
Person in respect of the payment of any federal, state or local income taxes or
(d) pay any amount representing regional or central support costs (each such
payment or distribution described in (a), (b), (c) or (d) above, a "Restricted
Payment"); provided, that so long as no Default or Event of Default shall have
occurred and be continuing immediately prior to or will occur or be continuing
immediately after giving effect thereto and the Twelve-Month Debt Coverage Ratio
(determined as of the most recent Installment Payment Date) equals or exceeds
1.15 to 1.0, the Borrower may make Restricted Payments on any Borrower
Distribution Date to the extent of cash made available to the Borrower pursuant
to and in accordance with Section 4.07 of the Security Deposit Agreement (other
than clauses "first" and "second" thereof). The foregoing provisions of this
subsection 7.4 to the contrary notwithstanding, the Borrower may, on any date on
which the Lenders make Additional Term Loans to the Borrower, pay a cash
dividend in an amount not exceeding the amount of such Additional Term Loans.
7.5 Limitation on Investments. Make or commit to make any
Investment other than (a) Permitted Investments, (b) loans to
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49
Cogentrix Energy or any Affiliate thereof on any date on which the Lenders make
Additional Term Loans to the Borrower in an amount not exceeding the amount of
such Additional Term Loans and (c) a loan to Cogentrix Energy or any Affiliate
thereof on the Third Restatement Effective Date in an amount not exceeding
$12,000,000.
7.6 Prohibition of Fundamental Changes; Change of Office. (a)
Enter into any transaction of merger or consolidation, or change its form of
organization or its business, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or
(b) Change the location of its chief executive office or
principal place of business or the office where it keeps its records concerning
the Project and all contracts relating thereto from that set forth in subsection
5.19, unless the Borrower shall have given the Agent at least 30 days' prior
written notice thereof and all action necessary or advisable in the Agent's
opinion to protect and perfect the Liens and security interests with respect to
the Collateral created by the Security Documents shall have been taken.
7.7 Limitation on Leases. Enter into any agreement, or be or
become liable as lessee under any agreement (other than the Ground Lease), for
the lease, hire or use of any real or personal property without the prior
written consent of the Required Lenders, except for operating leases of personal
property entered into in the ordinary course of business, under which the
Borrower's aggregate payment obligations do not exceed $100,000 in any fiscal
year, and which are not for the purpose of acquiring fixed or capital assets.
7.8 Compliance with ERISA. (a) Terminate any Single Employer
Plan so as to result in any material liability to PBGC, (b) engage in or permit
any Affiliate to engage in any "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) involving any Plan which would subject
the Borrower to any material tax, penalty or other liability, (c) incur or
suffer to exist any material "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, involving any Plan subject to
Section 412 of the Code or Part 3 of Title I(B) of ERISA, (d) allow or permit to
exist any event (including a Reportable Event) or condition which represents a
material risk of incurring a material liability to PBGC, or (e) permit the
present value of all benefits vested under all Single Employer Plans subject to
Title IV of ERISA, based on those assumptions used to fund the Plans, as of any
valuation date with respect to such Plans to exceed the value of the assets of
the Plans allocable to such benefits.
7.9 Restrictions on Disposition and Purchase of Assets. (a)
Sell, assign, lease (as lessor), transfer or otherwise dispose of any part of
its property or assets except (i) sales of electric power pursuant to the Power
Purchase
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Agreement, sales of steam pursuant to the Steam Purchase Contract and sales of
any other by-products of the fuel combustion process of the Facility, (ii) any
sale, transfer or disposition of assets permitted under subsection 10.8, (iii)
sales of Permitted Investments for cash or other Permitted Investments and (iv)
sales of water pursuant to the Water Purchase Contract.
(b) Purchase or acquire any assets other than (a) assets
purchased in the ordinary course of business reasonably required in connection
with the operation and maintenance of the Facility and (b) Permitted
Investments.
7.10 Amendments, Etc. of Contracts. Without the prior written
consent of the Required Lenders, enter into any Additional Contract or enter
into or consent to or permit (i) the cancellation or termination of any Project
Document (except upon expiration of the stated term thereof), (ii) the
assignment of the rights or obligations of any party to any Project Document
except as contemplated by this Agreement, (iii) any amendment, supplement or
modification (including, without limitation, any change orders) of, or waiver
with respect to any of the provisions of, any Project Document, or (iv) any
modification or supplement of the Plans; provided, that the Borrower may, upon
not less than five Business Days' prior written notice to the Agent, amend,
supplement, waive or otherwise modify any Project Document to which it is a
party (other than the Power Purchase Agreement, the Coal Sales Agreement, the
Coal Sales Agreement Guarantee, the Barge Transportation Contract, the Ash
Hauling Agreement, the Steam Purchase Contract, the Management Agreement, the
Ground Lease, the Easements, the Railroad Transportation Contract, the Water
Purchase Contract or any Project Document to which any Financing Party is a
party or which is expressly for the benefit of any Financing Party as a named
third-party beneficiary) in any manner which does not alter in any material
respect the rights or obligations of the respective parties thereto or adversely
affect the Borrower's ability to perform its obligations under the Loan
Agreement or any other Project Document.
7.11 Transactions with Affiliates and Others. (a) Directly or
indirectly, purchase, acquire, exchange or lease any property from, or sell,
transfer or lease any property to, or borrow any money from, or enter into any
management or similar fee agreement with, any Affiliate or any officer, director
or employee of the Parent, Delaware Holdings, Cogentrix Energy or the Borrower,
except for the transactions contemplated by the Project Documents and by this
Agreement (including, without limitation, the Management Agreement), or (b)
enter into any other transaction or arrangement or make any payment (except as
permitted by subsection 7.4 or 7.5) to or otherwise deal with, in the ordinary
course of business or otherwise, any Affiliate except in transactions
contemplated by the Project Documents.
7.12 Limitation on Capital Expenditures. Without the prior
written consent of the Required Lenders, make or commit to
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make any Capital Expenditures except as contemplated by the Project Documents;
provided, that the Borrower may make or commit to make Capital Expenditures not
to exceed $300,000 in the aggregate for any fiscal year.
7.13 Conduct of Business. Engage in any business other than
the ownership and operation of the Project and all activities incidental
thereto.
7.14 Qualifying Facility. Take any action, or omit to take any
action, which would cause the Project to cease being a "qualifying cogeneration
facility" within the meaning of the Public Utility Regulatory Policies Act of
1978, as amended from time to time.
SECTION 8. EVENTS OF DEFAULT.
8.1 Events of Default. Upon the occurrence of any of the
following events:
(a) The Borrower shall fail to pay when due any principal of
any Loan, or within five (5) days of the date when due any interest on
any Loan or any Debt Service Letter of Credit Fee or any other fee or
other amount payable hereunder or under the Security Documents; or
(b) (i) Any representation or warranty made by the Borrower or
any Project Participant in this Agreement or in any other Project
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 or any other Project Document shall
prove to have been incorrect in any material respect on or as of the
date made or deemed made; or (ii) any representation contained in
subsection 5.12 shall not continue to be true and correct at all times;
or
(c) The Borrower shall default in the observance or
performance of (i) any covenant or agreement contained in subsection
6.7, (ii) any covenant or agreement contained in subsection 6.2(c) or
6.19 and such default shall continue unremedied for a period of 5 days
after notice thereof from the Agent or any other Financing Party, or
(iii) any covenant or agreement contained in Section 7 and such default
shall continue unremedied for a period of 30 days after the occurrence
thereof; or
(d) The Borrower shall default in the observance or
performance of any other covenant or agreement contained in this
Agreement or in the Security Deposit Agreement, or the Borrower, the
Parent, Delaware Holdings or Cogentrix Energy shall default in any
material respect in the observance or performance of any covenant or
agreement contained in any other Project Document (other than a
Security Document or
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52
the Cogentrix Energy Indemnity Agreement) or in any Interest Rate
Protection Agreement, and (i) the Borrower, Delaware Holdings,
Cogentrix Energy or the Parent shall not have notified the Agent of
such default within 30 days after it obtained knowledge thereof or (ii)
the Borrower, Delaware Holdings, Cogentrix Energy or the Parent shall
have given the notice required by clause (i) and such default shall
continue unremedied for a period of 15 days after notice from any
Financing Party requiring that such defaults be remedied; or Cogentrix
Energy shall default in the performance or observance of any covenant
or agreement in the Cogentrix Energy Indemnity Agreement (including,
without limitation, any obligation to make a payment thereunder) and
(x) if such default is in respect of an obligation to make a payment,
such default shall continue unremedied for a period of three Business
Days or (y) otherwise, Cogentrix Energy shall not have notified the
Agent of such default within 30 days after it obtained knowledge
thereof or such default shall continue unremedied for a period of 15
days after notice from any Financing Party requiring that such default
be remedied; or
(e) (1) The Borrower shall (i) default in any payment of
principal of or interest on any Indebtedness (other than the Notes)
beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created; or (ii) default in
the observance or performance of any other agreement or condition
relating to any such Indebtedness 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, or to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause such Indebtedness to become due prior to its stated
maturity or to realize upon any collateral given as security therefor;
or (2) any Project Participant shall fail to perform or observe any of
its covenants or obligations contained in any of the Project Documents
(other than the covenants and obligations referred to in paragraphs
(a), (b), (c) and (d) above) within the grace period, if any, provided
for in such Project Documents, which failure shall continue unremedied
for a period of 30 days after notice by the Agent to the Borrower and
which failure could reasonably be expected to materially adversely
affect (i) the interest of the Lenders under such Project Document or
any other Project Document, (ii) the ability of any Project Participant
to perform its obligations under such Project Document or any other
Project Document or (iii) the ability of the Borrower to perform its
obligations under any of the Project Documents to which it is a party;
provided, that it shall not be an Event of Default under this Section
8.1(e) if, within 30 days after the occurrence of any of the foregoing
events with respect to a Project Participant (other than the Borrower,
the Parent, Delaware Holdings,
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53
Cogentrix Energy, VEP or the Steam Purchaser), such Project Participant
shall have been replaced by another Person acceptable to the Required
Lenders who shall have entered into Project Document(s) similar to, and
at least as favorable to the Agent and the other Financing Parties as,
the Project Document(s) to which such Project Participant was a party
and such replacement Project Document(s) shall have been assigned to
the Agent to the same extent as the Project Document(s) being replaced;
or
(f) (i) The Borrower or any Project Participant 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 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 or other similar official for it or for
all or any substantial part of its assets, or the Borrower or any
Project Participant shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower or
any Project Participant 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 any Project
Participant 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 any Project Participant 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 any Project
Participant shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; provided, that it shall not be an
Event of Default under this Section 8.1(f) if, within 30 days after the
occurrence of any of the foregoing events with respect to a Project
Participant (other than the Borrower, the Parent, Delaware Holdings,
Cogentrix Energy, VEP or the Steam Purchaser), such Project Participant
shall have been replaced by another Person acceptable to the Required
Lenders who shall have entered into Project Documents(s) similar to,
and at least as favorable to the Agent and the other Financing Parties
as, the Project Documents(s) to which such Project Participant was a
party and such replacement Project
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54
Documents(s) shall have been assigned to the Agent to the same extent
as the Project Document(s) being replaced; 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 which is not remedied before the imposition of
a 100% penalty tax and which, in the sole opinion of the Required
Lenders, will result in a liability to the Borrower in excess of
$100,000, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect
to any Plan, or (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 institution of proceedings 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, and, in the
case of a Reportable Event, the continuance of such Reportable Event
unremedied for ten days after notice of such Reportable Event pursuant
to Section 4043(a), (c) or (d) of ERISA is given or the continuance of
such proceedings for ten days after commencement thereof, as the case
may be, or (iv) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, or (v) any other event or condition shall occur
or exist with respect to a Single Employer Plan; and in each case in
clauses (i) through (v) above, such event or condition, together with
all other such events or conditions, if any, would in the reasonable
opinion of the Required Lenders subject the Borrower, Delaware
Holdings, Cogentrix Energy or the Parent to any tax, penalty or other
liabilities in the aggregate material in relation to the business,
operations, property or financial or other condition of the Borrower,
Delaware Holdings, Cogentrix Energy or the Parent; or
(h) One or more judgments or decrees shall be entered against
the Borrower, the Parent, Delaware Holdings, Cogentrix Energy or VEP
involving in the aggregate a liability (not paid or fully covered by
insurance) of at least $250,000 in the case of the Borrower, $3,000,000
in the case of the Parent, Delaware Holdings or Cogentrix Energy, or
$10,000,000 in the case of VEP, and all such judgments or decrees shall
not have been bonded, vacated, discharged or stayed within 60 days from
the entry thereof; or
(i) Any Security Document shall cease, for any reason, to be
in full force and effect (except upon the termination thereof in
accordance with its terms), or the Borrower shall so assert in writing,
or the Borrower or the Parent shall default in the observance or
performance of any covenant or agreement contained in any Security
Document; or
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55
(j) Any Project Document shall at any time for any reason
cease to be in full force and effect (other than by reason of any
action by any Financing Party), or shall be declared to be null and
void in whole or in part or be terminated (other than by reason of any
action by any Financing Party) except upon expiration of the stated
term thereof, or any Project Participant shall renounce the same or
deny that it has any or further liability thereunder; provided, that it
shall not be an Event of Default under this Section 8.1(j) if, within
30 days after the occurrence of any of the foregoing events with
respect to a Project Participant (other than the Borrower, the Parent,
Delaware Holdings, Cogentrix Energy, VEP or the Steam Purchaser), such
Project Participant shall have been replaced by another Person
acceptable to the Required Lenders who shall have entered into Project
Document(s) similar to, and at least as favorable to the Agent and the
other Financing Parties as, the Project Document(s) to which such
Project Participant was a party and such replacement Project
Document(s) shall have been assigned to the Agent to the same extent as
the Project Document(s) being replaced; or
(k) The Borrower shall fail to comply with any material
requirement of any Governmental Authority within 30 days after notice
in writing of such requirement shall have been given to the Borrower by
such Governmental Authority or, if such notice shall specify a later
date for compliance, by such later date, unless the Borrower is
contesting such requirement in any reasonable manner which contest does
not adversely affect the operation of the Facility, or in the sole
opinion of the Lenders, affect the Lenders' rights or the priority of
their Liens on or security interests in the Collateral; or
(l) At any time title to any part of the Collateral shall not
be satisfactory to the Agent by reason of any Lien or other defect
(even though the same may have existed prior to the Third Restatement
Effective Date), except Permitted Liens and the Liens of the Security
Documents, and such Lien or other defect shall not be corrected within
15 days after notice to the Borrower; or
(m) (i) The Parent shall at any time sell, assign, mortgage,
pledge, encumber, hypothecate or otherwise transfer or dispose of any
of the shares of the capital stock of the Borrower held by it, except
in accordance with the provisions on the Pledge Agreement, or (ii)
Cogentrix Energy shall cease at any time to be the owner, directly or
indirectly through one or more wholly-owned Subsidiaries, of all of the
outstanding shares of stock of the Borrower of each class having
ordinary voting power (other than stock having such power only by
reason of the happening of a contingency).
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56
then, and in any such event, (a) if such event is an Event of Default specified
in paragraph (f) above with respect to the Borrower, the principal amount of the
Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and the Security Documents shall immediately become due and payable,
and the Total Additional Term Loan Commitment shall immediately terminate and
the Available Additional Term Loan Commitment of each Lender shall be
immediately reduced to zero, without any action by the Financing Parties; and
(b) if such event is any other Event of Default, with the consent of the
Required Lenders, the Agent may or upon the request of the Required Lenders, the
Agent shall, by notice of default to the Borrower, do either or both of the
following: (i) declare the Total Additional Term Loan Commitment to be
terminated and the Available Additional Term Loan Commitment of each Lender to
be reduced to zero forthwith, whereupon the Additional Term Loan Commitment
shall immediately terminate and the Available Additional Term Loan Commitment of
each Lender shall immediately be reduced to zero and (ii) declare the principal
amount of the Loans (with accrued interest thereon) and all other amounts owing
under this Agreement and the Security Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable. Presentment,
demand, protest and, except as expressly provided above in this Section 8.1, all
notices of any kind are hereby expressly waived. Upon the occurrence and during
the continuance of any Event of Default, the rights, powers, privileges and
remedies available to the Agent and the other Financing Parties under this
Agreement and the Security Documents or by statute or by rule of law may be
exercised by the Agent and the other Financing Parties at any time and from time
to time whether or not the Loans shall be due and payable, and whether or not
the Agent or the other Financing Parties shall have instituted any foreclosure
or other action for the enforcement of the Security Documents or the Notes. In
the event that the entire unpaid principal amount of the Loans, and all interest
accrued thereon, and all other amounts owing under this Agreement and the
Security Documents shall have become due and payable pursuant to this subsection
8.1, the Agent shall make a drawing on the Debt Service Letter of Credit in the
amount then permitted to be drawn thereunder.
SECTION 9. THE AGENT
9.1 Appointment. Each Lender and the Issuing Bank hereby
irrevocably designates and appoints Credit Lyonnais as the agent of such
Financing Party under this Agreement and the Security Documents. Each such
Lender and the Issuing Bank hereby irrevocably authorizes Credit Lyonnais, as
the agent for such Financing Party, to take such action on its behalf under the
provisions of this Agreement and the Security Documents, to execute on its
behalf, where required, the Security Documents (and any amendments, supplements
or modifications thereof) and to exercise such powers and perform such duties as
are expressly delegated to the Agent by the terms of this Agreement and the
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Security Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or the Security Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein and therein, 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 the Security Documents, or shall otherwise exist
against the Agent.
9.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the Security 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 to any
Lender or the Issuing Bank 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 to any Lender or the Issuing Bank for any action lawfully taken or
omitted to be taken by it or any such Person under or in connection with this
Agreement or any other Project 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, on behalf of, or with respect to any
Project Participant contained in this Agreement or any other Project Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent from any Person under or in connection with,
this Agreement, any Note or any other Project Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any other Project Document or the Notes or for any failure of the
Borrower or any Project Participant to perform its obligations hereunder or
thereunder. Neither the Agent nor any of its officers shall 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, the Notes or the other Project Documents, or to
inspect the properties, books or records of any Project Participant.
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 of 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.
The Agent may deem and treat the payee of any Note as the owner thereof for all
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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 Security
Document or Project Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate and 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, the Notes, the Security
Documents and the Project 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 and all future holders of the
Notes.
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 or of any default under any other Project Document unless it has
received notice from a Lender, the Issuing Bank or the Borrower referring to
this Agreement (or such Project Document), describing such Default or Event of
Default or other default and stating that such notice is a "notice of default".
In the event that the Agent receives such a notice, it shall promptly give
notice thereof to the Lenders and the Issuing Bank and shall consult with them
concerning the course of action to be taken on their behalf. The Agent shall
take such action with respect to such Default, Event of Default or other 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, Event of Default or other default as it shall deem
advisable in the best interests of the Lenders and the Issuing Bank.
9.6 Non-Reliance on Agent. 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 any Project Participant, 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 the business, operations,
property, projections, financial and other condition and creditworthiness of the
Borrower and the other Project Participants 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
either the Agent or any other Lender or the Issuing Bank, and based on such
documents and information as it
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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 documents executed in connection herewith, 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 any Project Participant.
9.7 Indemnification. The Lenders and the Issuing Bank 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
in accordance with their respective Loan Percentages, 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
Term Notes) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the use of proceeds of the Loans hereunder or
relating to or arising out of this Agreement, the Notes or the other Project
Documents or any other 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 neither any Lender nor the Issuing Bank 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 payment of the Notes and all other amounts
payable hereunder.
9.8 The 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 and its Affiliates as though the Agent were
not the Agent hereunder. With respect to Loans made by it and any Note issued to
it, the Agent shall have the same rights and powers under this Agreement 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 30
days' notice to the Lenders, the Issuing Bank and the Borrower. If such notice
shall be given, the Agent shall use reasonable commercial efforts during such
30-day period to procure a successor reasonably satisfactory to the Borrower and
the Required Lenders to serve as agent hereunder and under and in connection
with the other Project Documents. If at the end of such 30-day period the Agent
shall be unable to produce such a successor, the Required Lenders shall appoint
a successor agent for the Lenders and the Issuing Bank. Any such successor agent
shall succeed to the rights, powers and duties of the resigning Agent, and the
term "Agent" shall mean such successor agent. Upon the appointment of such
successor agent or upon the
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expiration of such 30-day period (or any longer period to which the resigning
Agent has agreed), the resigning Agent's rights, powers and duties as Agent
shall be terminated, without any other or future act or deed on the part of such
resigning Agent or any of the parties to this Agreement or any of the other
Project Documents or any holders of the Notes. After the resigning Agent's
resignation hereunder as "Agent", the provisions of this Section 9 shall inure
to the benefit of such resigning Agent as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
SECTION 10. MISCELLANEOUS.
10.1 Amendments and Waivers. Neither this Agreement, any Note,
nor any terms hereof or thereof may be amended, supplemented or modified except
in accordance with the provisions of this subsection. With the written consent
of the Required Lenders and the Issuing Bank, the Agent and the Borrower may,
from time to time, enter into written amendments, supplements or modifications
hereto for the purpose of adding any provisions to this Agreement or the Notes
or changing in any manner the rights of the Lenders or the Issuing Bank or of
the Borrower hereunder or thereunder or waiving, on such terms and conditions as
the Agent may specify in such instrument, any of the requirements of this
Agreement or the Notes or any Default or Event of Default and its consequences;
provided, however, that (except as may be otherwise provided under subsection
1.6) no such waiver and no such amendment, supplement or modification shall (a)
extend the maturity of any Note or any installment thereof, or reduce the rate
or extend the time of payment of interest thereon, or reduce the principal
amount thereof, or reduce any fee payable to the Lenders hereunder, or change
the amount of any Lender's Loan Percentage or release any Collateral or amend,
modify or waive any provision of this subsection or reduce the percentage
specified in the definition of Required Lenders, or consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement, in each case without the written consent of all the Lenders and the
Issuing Bank, or (b) amend, modify or waive any provision of Section 9 without
the written consent of the then Agent. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and the
Issuing Bank and shall be binding upon the Borrower, each of the Financing
Parties and all future holders of the Notes. In the case of any waiver, the
Borrower and each of the Financing Parties shall be restored to their former
position and rights hereunder and under the outstanding Notes, and any Default
or Event of Default waived shall be deemed to be cured and not continuing; but
no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon.
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10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing and shall be
either delivered in person, sent by facsimile transmission or mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows or to such other address as any party may hereafter
designate in writing to the other parties hereto:
The Borrower: Cogentrix Virginia Leasing
Corporation
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
Attention: Vice President-
Finance and Treasurer
Telecopier: (704) 523-6373
The Agent and
the Issuing Bank: Credit Lyonnais
1301 Avenue of the Americas
New York, New York 10019
Attention: James Guidera/Robert Colvin
Telecopier: (212) 261-3421
The Lenders: The respective addresses set forth in
Schedule IX hereto.
Every notice, request and demand hereunder to the Borrower, the Agent or the
other Financing Parties shall be deemed to have been duly given or made when
delivered, or transmitted by facsimile transmission to it, or if mailed, when
actually received by it (as evidenced by the postal receipt therefor); provided
that a notice of default pursuant to Section 8 shall be deemed to have been duly
given to the Borrower when delivered, if in person, when transmitted, if by
facsimile transmission, or, if by mail, five (5) days after the date deposited
in the mail.
10.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent, the Issuing Bank or the
Lenders, any right, remedy, power or privilege hereunder, 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.
10.4 Survival of Representations and Warranties. All
representations and warranties made hereunder 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 Notes.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agent, the Issuing Bank and
<PAGE> 69
62
the Lenders for all out-of-pocket costs and expenses incurred in connection with
the negotiation, preparation and execution of this Agreement, the Project
Documents and the Notes or any amendment, supplement or modification to this
Agreement, the Project Documents and the Notes and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the fees and
disbursements of Simpson Thacher & Bartlett, counsel to the Agent, the fees and
expenses of the Independent Engineer and the fees and expenses of the Insurance
Advisor; (b) to pay or reimburse the Agent, the Issuing Bank and the Lenders for
all costs and expenses, including, without limitation, fees and disbursements of
counsel, incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes and the Project Documents; (c) to pay the
premium for any policy of title insurance issued to the Agent, the Issuing Bank
or the Lenders in connection with the Deed of Trust, including, without
limitation, any endorsements thereto and continuations thereof; (d) to pay,
indemnify, and hold the Agent, the Issuing Bank and the Lenders harmless from,
any and all title and conveyancing charges, mortgage taxes, escrow fees and
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes (other than
taxes on the overall net income of such Lender), if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
the consummation 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 Notes or any other Project Document; and (e) to pay,
indemnify, and hold the Agent, the Issuing Bank and the Lenders harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the Notes and the other
Project Documents (all the foregoing being called, collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Agent, the Issuing Bank or any Lender.
The agreements in this Section shall survive repayment of the Notes and the
termination of this Agreement and the other Project Documents.
10.6 Successors and Assigns. (a) This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Lenders, the Issuing
Bank, the Agent, their respective successors and assigns and all future holders
of the Notes, except that the Borrower may not assign or transfer any of its
rights under this Agreement without the prior written consent of the Lenders and
the Issuing Bank.
(b) Any Financing Party may, in the ordinary course of its
business and in accordance with applicable law, at any time
<PAGE> 70
63
sell to one or more financial institutions or other entities ("Participants")
participating interests in any Loans owing to such Financing Party or any other
interests of such Financing Party hereunder. In the event of any such sale by a
Financing Party of a participating interest to a Participant, such Financing
Party's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Financing Party shall remain solely responsible for
the performance thereof, such Financing Party shall remain the holder of its
Note for all purposes under this Agreement, and the Borrower and the Agent shall
continue to deal solely and directly with such Financing Party in connection
with such Financing Party's rights and obligations under this Agreement. The
Borrower agrees that if amounts outstanding under this Agreement, the Security
Documents or the Notes 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 be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement, the Security
Documents and any Notes to the same extent as if the amount of its participating
interest were owing directly to it as a Financing Party under this Agreement or
any Notes; provided that such right of set-off shall be subject to the
obligation of such Participant to share with the Financing Parties, and the
Financing Parties agree to share with such Participant, as provided in
subsection 3.4. The Borrower also agrees that each Participant shall be entitled
to the benefits of subsections 2.10, 2.11, 2.12 and (in the case of a
participating interest in any Debt Service Letter of Credit Loan) 2A.10, with
respect to its participation in the Eurodollar Loans outstanding from time to
time; provided, that no Participant shall be entitled to receive any greater
amount pursuant to such subsections than the transferor Financing Party would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Financing Party to such Participant had no such
transfer occurred.
(c) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time assign to one or more banks or
other entities ("Assignees"), all or any part of any Term Loans owing to such
Lender, any Term Notes held by such Lender or any other interest of such Lender
hereunder, pursuant to a Loan Transfer Supplement, substantially in the form of
Exhibit F, executed by such Assignee, such transferor Lender and the Agent
provided that each Lender shall use reasonable efforts to offer to sell such
rights and obligations to financial institutions reasonably acceptable to the
Borrower, provided, further, that the ultimate decision with respect to any
disposition of such rights and obligations shall be made by such Lender in its
sole judgment. Upon (i) the execution of such Loan Transfer Supplement, (ii)
delivery of an executed copy thereof to the Borrower and (iii) payment by such
Assignee to the transferor Lender, such Assignee shall for all purposes be a
Lender party to this Agreement and shall have all the rights and obligations of
a Lender under this Agreement, to the same extent as if it were an original
party hereto. Upon the
<PAGE> 71
64
consummation of any transfer to an Assignee pursuant to this paragraph (c), the
transferor Lender, the Agent and the Borrower shall make appropriate
arrangements so that, if required, replacement Term Notes are issued to such
transferor Lender and new Term Notes or, as appropriate, replacement Term Notes,
are issued to such Assignee, in each case in principal amounts reflecting their
outstanding Term Loans as adjusted pursuant to such Loan Transfer Supplement.
(d) The Borrower authorizes each Financing Party to disclose
to any Participant or Assignee (each, a "Transferee") and to any prospective
Transferee any and all financial and other information in such Financing Party's
possession concerning the Borrower pursuant to this Agreement or which has been
delivered to such Financing Party by the Borrower pursuant to this Agreement or
which has been delivered to such Financing Party by the Borrower in connection
with such Financing Party's credit evaluation of the Borrower prior to entering
into this Agreement.
(e) If, pursuant to this subsection, any interest in this
Agreement or any Note is transferred to any Assignee which is organized under
the laws of any jurisdiction other than the United States or any State thereof,
the transferor Lender shall cause such Assignee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Lender (for
the benefit of the transferor Lender, the Agent and the Borrower) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Borrower or the transferor Lender with respect to any payments to be
made to such Assignee in respect of the Term Loans, (ii) to furnish to the
transferor Lender, the Agent and the Borrower either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such
Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Lender, the Agent and the Borrower), to deliver to the
Agent and the Borrower a new Form 4224 or Form 1001 on or before the date that
any such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it pursuant
hereto, and such extensions or renewals thereof 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
any such form inapplicable or which would prevent such Assignee from duly
completing and delivering any such form with respect to it and such Assignee so
advises the Borrower and the Agent.
10.7 Financing Parties Sole Beneficiaries. All conditions of
the obligation of any Financing Party to make Loans hereunder are imposed solely
and exclusively for the benefit of the Financing Parties and their respective
successors and assigns and no other Person shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled
<PAGE> 72
65
to assume that any Financing Party will refuse to make Loans in the absence of
strict compliance with any or all thereof and no Person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by the Financing Parties at any
time if in their sole discretion they deem it advisable to do so. Inspections
and approvals of the Plans, the Project, and the workmanship and materials used
therein impose no responsibility or liability of any nature whatsoever on any
Financing Party, and no Person shall, under any circumstances, be entitled to
rely upon such inspections and approvals by any Financing Party for any reason.
The Financing Parties are obligated hereunder solely to make Loans if and to the
extent required by this Agreement.
10.8 Release of Collateral. (a) From time to time after the
execution and delivery of the Security Documents, the Borrower may, without the
consent of the Financing Parties, sell, transfer or dispose of (i) any tangible
property subject to the Lien of the Security Documents for which replacement
items of the same character and at least equivalent fair market value, useful
life and utility have been substituted and become part of the Collateral and
(ii) other tangible property subject to the Lien of the Security Documents that
is not, and is not reasonably foreseeable to be at any future time, necessary
for the proper operation of the Project, if, at the time of such disposition and
after giving effect thereto, (A) no Default or Event of Default exists and the
property subject to the Lien of the Security Documents will be adequate to
operate the Project with the same capabilities as before such disposition, and
(B) the net cash proceeds, if any, of such sale, transfer or disposition shall
be deposited in the Revenue Account pursuant to Section 3.01 of the Security
Deposit Agreement; provided, however, that the Borrower shall not in any
calendar year dispose of property pursuant to the foregoing clause (ii) having a
fair market value as of the respective time or times of the sale, transfer or
disposition exceeding $350,000 at any one time or $750,000 in the aggregate.
(b) With the consent of each of the Financing Parties, the
Borrower may sell, transfer or dispose of assets in excess of the limits
contained in the proviso of paragraph (a) above provided that the net cash
proceeds from any such sales, transfers or dispositions of assets shall be
applied to prepay the Term Loans, unless otherwise agreed in writing by each of
the Financing Parties.
(c) Upon any sale, transfer or disposition pursuant to
subsection (a) above, the Lien of the Security Documents shall cease as to the
property so sold, transferred or disposed of without the requirement of a formal
release by the Agent; provided, however, that upon request by the Borrower, the
Agent shall execute an appropriate instrument confirming the release of such
property from the Lien of the Security Documents.
(d) Neither the Agent nor any of the other Financing Parties
shall be required to make any release of Collateral other
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66
than pursuant to subsection (c) above. Without limiting the generality of the
foregoing, neither the Agent nor any of the other Financing Parties shall be
required to make any release of Collateral if one or more Defaults or Events of
Default shall exist. The Borrower shall deliver to each Financing Party, in
connection with each request for the release of any part of the Collateral, a
certificate of a Responsible Officer of the Borrower stating that there is, and
that after giving effect to the release applied for there will be, no Default or
Event of Default.
10.9 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
10.10 SUBMISSION TO JURISDICTION; WAIVERS. (a) THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY, IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR ANY
SECURITY DOCUMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT 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;
(ii) 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;
(iii) 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 SPECIFIED IN SUBSECTION 10.2 OR
AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT HERETO; AND
(iv) 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.
(b) EACH OF THE BORROWER AND THE FINANCING PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE NOTES OR ANY
SECURITY DOCUMENT AND FOR ANY COUNTERCLAIM THEREUNDER.
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67
10.11 Governing Law. This Agreement and the Notes and the
rights and obligations of the parties under this Agreement and the Notes shall
be governed by, and construed and interpreted in accordance with, the laws of
the State of New York.
10.12 Limitation of Liability. There shall be full recourse to
the Borrower and all of its assets for the liabilities of the Borrower under
this Agreement and the Notes and its other obligations, but in no event shall
the Parent, Delaware Holdings, Cogentrix Energy or any officer, director or
holder of any equity interest in the Borrower, Delaware Holdings, Cogentrix
Energy or the Parent be personally liable or obligated for such liabilities and
obligations of the Borrower, except as may be specifically provided in any other
Project Document to which the Parent, Delaware Holdings, or Cogentrix Energy is
a party. Nothing herein contained shall limit or be construed to (i) limit the
obligations and liabilities of the Parent, Delaware Holdings or Cogentrix Energy
in accordance with the terms of any Project Document creating such liabilities
and obligations to which the Parent, Delaware Holdings or Cogentrix Energy is
party or (ii) effect or diminish any rights of any Person against any other
Person arising from misappropriation or misapplication of any funds or for such
other Person's fraud, gross negligence or willful misconduct. The provisions of
this Section 10.12 shall survive the termination of this Agreement.
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
COGENTRIX VIRGINIA LEASING
CORPORATION
By: /s/ Thomas F. Schwartz
-----------------------------
Title:
CREDIT LYONNAIS, as a Lender,
as the Issuing Bank and as the
Agent
By: /s/ James F. Guidera
-----------------------------
Title: Vice President
<PAGE> 76
ANNEX A
DEFINITIONS
As used in the Agreement, the Notes and the Security Documents
(all as hereinafter defined), the following terms have the following meanings
(such definitions to be equally applicable to both singular and plural forms of
the terms defined):
"Acceleration Event": as defined in subsection 2A.1 of the
Agreement.
"Accounts": as defined in the Security Deposit Agreement.
"Additional Contract": any contract of the Borrower, other
than those specifically described in the definition of "Assigned
Contracts", providing for (i) the sale or exchange by the Borrower of
any of the Facility's electrical or steam output or (ii) the supply or
transportation of fuel, goods or services essential to the operation of
the Facility other than employment contracts and contracts involving
less than $50,000 or (iii) the removal of ash from the Facility or (iv)
the acquisition of real or personal property related to any
construction relating to, or the maintenance or operation of, the
Project.
"Additional Term Loan Commitment Period": the period starting
on and including the Third Restatement Effective Date and ending on but
not including the Final Payment Date.
"Additional Term Loans": as defined in subsection 1.1(b) of
the Agreement.
"Administration Fee": as defined in subsection 2.13(a) of the
Agreement.
"Affiliate": of any designated Person, any 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 (i) any Person which
beneficially owns or holds 10% or more of any class of voting
securities of such designated Person or 10% or more of the equity
interest in such designated Person and (ii) any Person of which such
designated Person beneficially owns or holds 10% or more of any class
of voting securities or in which such designated Person beneficially
owns or holds 10% or more of the equity interest. For the purposes of
this definition, "control" (including, with correlative meanings, the
terms "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or
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2
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.
"Agent": Credit Lyonnais, as agent for the Lenders and the
Issuing Bank, or any successor
agent appointed pursuant to subsection 9.9 of the Agreement.
"Agreement": the Construction and Term Loan Agreement, dated
as of December 15, 1986, among the Borrower, CIT and MHT, as amended
and restated in its entirety by the Amended and Restated Construction
and Term Loan Agreement, dated as of September 15, 1988, among the
Borrower, the financial institutions parties thereto as lenders, CIT as
Agent for the lenders, and MHT as Paying Agent for the lenders, as
further amended and restated in its entirety by the Second Amended and
Restated Loan Agreement, as further amended and restated in its
entirety by the Third Amended and Restated Loan Agreement, and as the
same may be further amended, supplemented or otherwise modified from
time to time.
"Applicable Margin": as to any Eurodollar Loan, from the Third
Restatement Effective Date to but not including the first anniversary
of the Third Restatement Effective Date, 0.875%, and thereafter, 1.0%;
as to any CD Rate Loan, from the Third Restatement Effective Date to
but not including the first anniversary of the Third Restatement
Effective Date, 1.0%, and thereafter, 1.125%; as to any Prime Rate
Loan, from the Third Restatement Effective Date to but not including
the first anniversary of the Third Restatement Effective Date, 0.250%,
and thereafter, 0.375%.
"Arch Coal": Arch Coal, Inc. (formerly known as Arch Mineral
Corporation), a Delaware corporation.
"Arch Sales": Arch Coal Sales Company, Inc., a Delaware
corporation.
"Ash Hauling Agreement": the Agreement for Ash Removal
Services, dated as of January 27, 1990, as amended by the Amendment No.
1 thereto dated as of December 22, 1997, between the Borrower and ReUse
Technology, Inc., as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the provisions of
subsection 7.10 of the Agreement.
"Assigned Contracts": the collective reference to the Power
Purchase Agreement, the Construction Contract, the Coal Sales
Agreement, the Coal Sales Agreement Guarantee, the Barge Transportation
Contract, the Ash Hauling Agreement, the Steam Purchase Contract, the
Water Purchase Contract, the Management Agreement, the Ground Lease,
the Easements, the Railroad Transportation Contract, the Technical
Services Agreement (insofar as it relates to the
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3
Project) and, from and after the date any Additional Contract is
assigned by the Borrower to the Lenders pursuant to subsection 6.10(a)
of the Agreement, such Additional Contract.
"Assignments": the collective reference to the Assignments of
Contracts, each executed by the Borrower in favor of the Agent,
assigning to the Agent each of the Assigned Contracts, and from and
after the date any Additional Contract is assigned by the Borrower to
the Agent pursuant to subsection 6.10(a) of the Agreement, the
Assignment with respect to such Additional Contract.
"Assumed Debt Service": for any period, the sum of:
(a) Debt Service for such period (excluding any
amount in respect of any Commitment Fee and any payments made
in respect of principal of the Term Loans pursuant to
subsection 1.4 of the Loan Agreement) plus
(b) the sum obtained by adding together the Reduction
Amounts for the Installment Payment Dates occurring during
such period plus
(c) the Assumed Interest Amount for such period.
"Assumed Interest Amount": for any period, the product of the
Commitment Fees, if any, payable during such period times 26.5.
"Available Additional Term Loan Commitment": as to any Lender
on any date, an amount equal to the product of such Lender's Loan
Percentage times the Total Additional Term Loan Commitment on such
date.
"Available Amount": as defined in subsection 2A.2 of the
Agreement.
"Available Project Cash Flow": for any period, the amount, if
any, by which Project Cash Flow for such period exceeds Debt Service
for such period.
"Bank Assignment": the Loan Transfer Supplement, dated as of
December 22, 1997, among the Transferor Lenders and Credit Lyonnais,
substantially in the form of Exhibit E to the Agreement.
"Barge": that certain vessel named "COGENTRIX 1", Official No.
974857 owned by the Borrower and mortgaged to the Agent pursuant to the
Ship Mortgage.
"Barge Operator": McAllister Brothers, Inc., a New York
corporation.
<PAGE> 79
4
"Barge Transportation Contract": the Barge Transportation
Contract, dated as of December 23, 1986, as amended by Amendment No. 1
dated as of November 1, 1990, between the Borrower and the Barge
Operator, and as the same may be further amended, supplemented or
otherwise modified from time to time in accordance with the provisions
of Section 7.10 of the Agreement.
"BMO": Bank of Montreal.
"Borrower": Cogentrix Virginia Leasing Corporation, a North
Carolina corporation.
"Borrower Distribution Date": as defined in the Security
Deposit Agreement.
"Borrower's Security Account": The Borrower's Security Account
established pursuant to the Security Deposit Agreement.
"Borrowing Date": any day specified in a Borrowing Request
pursuant to subsection 1.2 as a day on which the Borrower requests the
Lenders to make Additional Term Loans, which day must be either (i) the
Third Restatement Effective Date or (ii) in the case of Eurodollar
Loans, a Working Day, or otherwise, a Business Day.
"Borrowing Request": a request and certificate of the Borrower
substantially in the form of Exhibit A to the Agreement (with such
changes as may be agreed upon by the Agent and the Borrower).
"Business Day": a day other than a Saturday, a Sunday or any
other day on which commercial banks in New York City or Charlotte,
North Carolina are required or authorized by law to be closed.
"Capital Expenditure": any expenditure in respect of the
purchase or other acquisition of fixed capital assets (excluding normal
replacements and maintenance which are properly charged to current
operations).
"Capital Lease": 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 or, if not so capitalized, for which the
amounts of the asset and liability (had such lease been capitalized)
would at such time be so required to be disclosed in a note to such a
balance sheet.
"Carrier": Norfolk and Western Railway Company.
"Cash Operating Costs": for any period, the sum (without
duplication) of the following for the Borrower: (i) all salaries,
employee benefits and other compensation
<PAGE> 80
5
paid, plus (ii) the cost of fuel and the cost of other materials and
utilities paid, including the transportation costs paid for fuel and
such other materials and utilities, plus (iii) ash disposal costs paid,
plus (iv) insurance premiums paid, plus (v) costs of operating and
maintaining the Project paid (excluding any allocation of regional or
central support costs), plus (vi) property and other taxes (except
income taxes) paid, plus (vii) fees for accounting, legal and other
professional services paid, plus (viii) general and administrative
expenses paid, plus (ix) Capital Expenditures paid, plus (x) all other
cash expenditures relating to operating, maintenance and administrative
costs of the Project paid, plus (xi) Specified Costs paid; provided
that there shall be excluded from the foregoing items (i) through (xi)
payments with respect to federal, state and local income taxes,
payments with respect to Management Fees, payments with respect to Debt
Service and payments of principal, interest or fees with respect to all
other Indebtedness for borrowed money (including, without limitation,
Junior Working Capital Loans); provided further, that (i) in the event
that Specified Costs are incurred during any period in which Cogentrix
Energy is required to provide funds on behalf of the Borrower pursuant
to Section 2.02 of the Cogentrix Energy Indemnity Agreement, such
Specified Costs shall be included as Cash Operating Costs only to the
extent Cogentrix Energy shall have actually provided such funds in
accordance with such section on or before the date such Specified Costs
become due and payable and (ii) in the event that during any period
Cogentrix Energy shall have paid under the Cogentrix Energy Indemnity
Agreement an amount which when added to all other amounts which
Cogentrix Energy shall have paid under such agreement equals or exceeds
$30,000,000, Specified Costs paid during such period or any period
thereafter shall be included as Cash Operating Costs in any period only
to the extent that the amount of such Specified Costs, when added to
the amount of all Specified Costs previously paid, do not exceed
$30,000,000.
"CD Assessment Rate": for any day as applied to any CD Rate
Loan, the net annual assessment rate (rounded upward to the nearest
1/100th of 1%) determined by Credit Lyonnais to be payable by prime
banks to the Federal Deposit Insurance Corporation or any successor
("FDIC") for FDIC's insuring time deposits made in dollars at offices
of such banks in the United States.
"CD Base Rate": with respect to each day during each Interest
Period pertaining to a CD Rate Loan, the rate of interest per annum
equal to the rate notified to the Borrower by the Agent as the average
rate per annum bid at 11:00 A.M. (New York City time) (or as soon
thereafter as practicable) on the first day of such Interest Period by
a total of three certificates of deposit dealers of recognized standing
selected by Credit Lyonnais for the purchase at
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6
face value from Credit Lyonnais of its certificates of deposit in an
amount comparable to the CD Rate Loan of Credit Lyonnais to which such
Interest Period applies and having a maturity comparable to such
Interest Period.
"CD Rate": with respect to each day during each Interest
Period pertaining to a CD Rate Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to
the nearest 1/100th of 1%):
CD Base Rate
---------------------------- + CD Assessment Rate
1.00 - CD Reserve Percentage
"CD Rate Loans": Loans as to which the applicable rate of
interest is based upon the CD Rate.
"CD Reserve Percentage": for any day as applied to any CD Rate
Loan, that percentage (expressed as a decimal) which is in effect on
such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor), for determining the maximum reserve
requirement for a member bank of the Federal Reserve System in New York
City with deposits exceeding one billion Dollars in respect of new
non-personal time deposits in Dollars in New York City having a
maturity comparable to the Interest Period for such CD Rate Loan and in
an amount of $100,000 or more.
"CD Rate Tranche": the collective reference to CD Rate Loans
the Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such CD Rate Loans
shall originally have been made on the same day).
"CIT": the CIT Group/Equipment Financing, Inc., a New York
corporation.
"Clairant": Clairant Corporation.
"Coal Sales Agreement": Coal Sales Agreement, dated as of
December 15, 1986, among the Borrower, Enoxy Coal Sales, Inc. and Enoxy
Coal, Inc., as assigned pursuant to the Assignment and Assumption
Agreement, dated as of September 29, 1995 to Arch Sales, as amended by
the First Amendment thereto, dated as of September 29, 1995, as the
same may be further amended, supplemented or otherwise modified from
time to time in accordance with the provisions of subsection 7.10 of
the Agreement.
"Coal Sales Agreement Guarantee": Guarantee Agreement, dated
as of September 29, 1995, between Arch Coal and the Borrower, as the
same may be amended, supplemented or otherwise modified from time to
time in accordance with the provisions of subsection 7.10 of the
Agreement.
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7
"Coal Supplier": Arch Sales or any other coal supplier
satisfactory to the Required Lenders.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Cogentrix Energy": Cogentrix Energy, Inc., a North Carolina
corporation.
"Cogentrix Energy Indemnity Agreement": the Indemnity
Agreement, dated as of December 22, 1997, between Cogentrix Energy and
the Agent, substantially in the form of Exhibit G to the Agreement.
"Collateral": the collective reference to all real and
personal property of the Borrower, tangible and intangible, and the
proceeds thereof, subjected from time to time to the Liens intended to
be created by the Agreement or any Security Document.
"Commitment Fee": as defined in subsection 2.13(c).
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 414(b) or (c) of the Code.
"Consents": the collective reference to the Power Purchaser
Consent and each of the other consents and agreements executed and
delivered by the parties (other than the Borrower) to each Assigned
Contract, consenting to the assignment by the Borrower to the Agent on
behalf of the Lenders of such Assigned Contract.
"Construction Contract": the Construction Contract, dated as
of December 31, 1985 and as amended as of December 1, 1986 (including
all exhibits, schedules, annexes and drawings and specifications
attached thereto or referred to therein), between the Borrower and the
Contractor, providing for construction of the Facility, as the same may
be amended, supplemented or otherwise modified from time to time in
accordance with the provisions of subsection 7.10 of the Agreement.
"Contingent Obligation": as to any Person, any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (a) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working
capital or equity
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8
capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation or (d) otherwise to assure or
hold harmless the owner of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation
shall not include endorsements of instruments for deposit or collection
in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as
determined by the independent public accountants referred to in
subsection 6.1 of the Agreement.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of
its property is bound.
"Debt Coverage Ratio": for any period, the ratio of (a)
Project Cash Flow for such period to (b) Debt Service (not counting,
for the purposes of calculating this ratio, any mandatory prepayments
of principal on the Term Loans pursuant to subsection 3.1(a)(ii) of the
Third Amended and Restated Loan Agreement) for such period.
"Debt Service": for any period, the sum, without duplication,
of (a) all amounts payable by the Borrower during such period pursuant
to the Agreement in respect of principal of, and interest on, the
Loans, (b) all amounts, if any, payable by the Borrower (minus the
amounts, if any, receivable by the Borrower to the extent such amounts
have actually been received by the Borrower, or may be set off or
applied by the Borrower against amounts payable by the Borrower) during
such period under any Interest Rate Protection Agreement or any other
interest rate hedging arrangement, (c) fees payable under or in
connection with the Agreement (including without limitation all
Commitment Fees, Administration Fees and Debt Service Letter of Credit
Fees) and (d) all other amounts in respect of principal, interest, cash
collateral and other fees and expenses payable by the Borrower during
such period to the Agent or the Lenders pursuant to the Project
Documents (whether upon the payment date thereof, by acceleration or
otherwise).
"Debt Service Account": the Debt Service Account established
pursuant to the Security Deposit Agreement.
"Debt Service Letter of Credit": the irrevocable letter of
credit, substantially in the form of Exhibit H to
<PAGE> 84
9
the Agreement to be issued pursuant thereto by the Issuing Bank in
favor of the Agent, on behalf of the Lenders and the Issuing Bank, for
the account of the Borrower and in the amount of the Required Stated
Amount.
"Debt Service Letter of Credit Fee": as defined in subsection
2A.6 of the Agreement.
"Debt Service Letter of Credit Loans": as defined in
subsection 2A.4(a) of the Agreement.
"Debt Service Letter of Credit Note": as defined in subsection
2A.4(e) of the Agreement.
"Deed of Trust": the Deed of Trust and Security Agreement,
dated as of December 15, 1986, made by the Borrower in favor of
Courtland L. Traver of Arlington, Virginia, as Trustee (the "Trustee"),
as amended by the Deed of Trust Amendment No. 1, Deed of Trust
Amendment No. 2, Deed of Trust Amendment No. 3, the Deed of Trust
Amendment No. 4 and the Deed of Trust Amendment No. 5, and as the same
may be further amended, supplemented or otherwise modified in
accordance with its terms.
"Deed of Trust Amendment No. 1": the First Amendment of Deed
of Trust, dated as of September 15, 1988, by and between the Borrower,
the Trustee, the Agent and MHT.
"Deed of Trust Amendment No. 2": the Second Amendment of Deed
of Trust, dated as of April 26, 1991, by and among the Borrower, the
Trustee, the Agent and MHT.
"Deed of Trust Amendment No. 3": the Third Amendment of Deed
of Trust, dated as of May 15, 1992, by and among the Borrower, the
Trustee, the Agent and MHT.
"Deed of Trust Amendment No. 4": the Fourth Amendment of Deed
of Trust, dated as of February 1, 1995, by and among the Borrower, the
Trustee and the Original Agent.
"Deed of Trust Amendment No. 5": the Fifth Amendment of Deed
of Trust, dated as of December 22, 1997, by and among the Borrower, the
Trustee and the Agent, substantially in the form of Exhibit I to the
Agreement.
"Deeds": the collective reference to (i) the Deed, dated as of
January 15, 1987 between Hampton Roads Sanitation District and the
Borrower; and (ii) the Deed, dated as of January 15, 1987, between
Sweetbriar Development Corporation and the Borrower.
"Default": any of the events specified in Section 8 of the
Agreement, whether or not any requirement for the giving of notice, the
lapse of time, or both, or for the happening of any other condition,
has been satisfied.
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10
"Default Rate": for any day, the Prime Rate for such day plus
a margin of 2%.
"Delaware Holdings": Cogentrix Delaware Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Cogentrix Energy.
"Designer": Duke Power Company.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Domestic Lending Office": initially, the office of each
Lender designated as such in Schedule IX; thereafter, such other office
of such Lender, if any, located within the United States which shall be
making or maintaining Prime Rate Loans.
"Easement Agreement": the Easements Agreement, dated as of
December 1, 1986, between VCI and the Borrower, as amended by the
Easement Agreement Amendment, and as the same may be further amended,
supplemented or modified from time to time in accordance with the
provisions of Section 7.10 of the Agreement.
"Easements": the easements conveyed pursuant to the Easement
Agreement.
"Easement Agreement Amendment": the First Amendment to
Easement Agreement, dated as of September 1, 1988, between VCI and the
Borrower.
"Enoxy": Enoxy Coal, Inc., a Delaware corporation.
"Environmental Assessment": the environmental assessment dated
April 16, 1992 by Engineering Consulting Services, Ltd., as supplied
pursuant to subsection 4.1(x) of the Existing Loan Agreement.
"Environmental Laws": any and all Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning environmental protection matters, including, without
limitation, Hazardous Materials, 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 Requirement": 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
<PAGE> 86
11
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 at
which Dollar deposits are offered to Credit Lyonnais by prime banks in
the London interbank market at or about 10:00 a.m., New York City time,
two Working Days prior to the beginning of such Interest Period 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 the
Eurodollar Loan of Credit Lyonnais to be outstanding during such
Interest Period.
"Eurodollar Lending Office": initially, the office of each
Lender designated as such in Schedule IX; thereafter, such other office
of such Lender, if any, which shall be making or maintaining Eurodollar
Loans as designated in a written notice from such Lender to the Agent
and the Borrower.
"Eurodollar Loans": loans hereunder at such time as they are
made and/or are being maintained at a rate of interest based upon the
Eurodollar Rate.
"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 upwards to the nearest 1/100th of one percent):
Eurodollar Base Rate
---------------------------------------
1.00 - Eurocurrency Reserve Requirement
"Eurodollar Tranche": the collective reference to Eurodollar
Loans the Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such
Eurodollar Loans shall originally have been made on the same day).
"Event of Default": any of the events specified in Section 8
of the Agreement, provided that any requirement for the giving of
notice, the lapse of time, or both, or for the happening of any other
condition, has been satisfied.
"Event of Loss": (i) the actual or constructive total loss of
the Facility; or (ii) the loss, theft, destruction or damage (herein
called an "Event") of such portion of the Facility as shall render the
Facility unable to meet the Minimum Performance Requirements, unless
(x) no Default or
<PAGE> 87
12
Event of Default shall have occurred and be continuing and (y) in the
opinion of the Agent sufficient funds are or will be available to the
Borrower to restore the Facility such that it will be able to meet the
Minimum Performance Requirements within one year after the occurrence
of such Event; or (iii) the condemnation, confiscation or seizure of,
or requisition of title to, or requisition for a period exceeding six
months of the use of, such portion of the Facility and/or the Site as
shall render the Facility unable to meet the Minimum Performance
Requirements.
"Existing Loan Agreement": as defined in the first recital to
the Third Amended and Restated Loan Agreement.
"Expiration Date": as defined in subsection 2A.1 of the
Agreement.
"Facility": the 110 megawatt coal-fueled cogeneration facility
(consisting of two 55 megawatt units) constructed on the Site, having
the design-scope and the minimum performance characteristics described
in the Plans prepared by the Designer, including the interconnection
and transportation equipment installed by the Borrower and including
the coal unloading facility, coal conveyor system, steam delivery
system and the Barge.
"Federal Funds Rate": for any day, the rate per annum (rounded
upwards to the nearest 1/100th of one percent) equal to the weighted
average of the rates on overnight Federal funds transactions with
member banks of the Federal Reserve System arranged by Federal Funds
brokers on such day as published by the Federal Reserve Bank of New
York; provided, that (a) if such day is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding
Business Day and (b) if no such rate is so published on the next
succeeding Business Day, the Federal Funds Rate for such day shall be
the average rate quoted by Credit Lyonnais on such day on such
transactions as determined by the Agent.
"FERC": the Federal Energy Regulatory Commission or any
successor or analogous Governmental Authority.
"Final Payment Date": December 31, 2002.
"Financing Parties": the collective reference to the Agent,
the Lenders, the Issuing Bank and the Interest Hedging Counterparties;
individually, a "Financing Party."
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Actions": authorizations, consents, approvals,
waivers, exemptions, variances, franchises,
<PAGE> 88
13
permissions, permits and licenses of, and filings and declarations
with, any Governmental Authority, including, without limitation, FERC,
the Virginia State Corporation Commission, the U.S. Army Corps of
Engineers, the Interstate Commerce Commission and the Virginia State
Department of Environmental Quality.
"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.
"Ground Lease": the Ground Lease and Easement Agreement, dated
as of December 1, 1986, between VCI and the Borrower, as the same may
be amended, supplemented or modified from time to time in accordance
with the provisions of subsection 7.10 of the Agreement.
"Hazardous Materials": any hazardous materials, hazardous
wastes, hazardous constituents, hazardous or toxic substances,
petroleum products (including crude oil or any fraction thereof)
defined or regulated as such in or under any Environmental Law.
"Hoescht": Hoescht Celanese Corporation.
"Indebtedness": as to any Person, without duplication, (a) all
obligations of such Person for borrowed money or with respect to
deposits or advances of any kind (including repurchase obligations);
(b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments; (c) (i) all obligations of such Person
upon which interest charges are customarily paid, (ii) all obligations
of such Person under any conditional sale or other title retention
agreement relating to property purchased by such Person and (iii) all
obligations of such Person issued or assumed as the deferred purchase
price of property or services (in each case other than obligations
under agreements for the purchase of goods (including fuel) and
services in the normal course of business which are not more than 90
days past due); (d) all obligations of such Person associated with
Capital Leases; (e) all obligations of such Person associated with
interest rate protection agreements, foreign currency exchange
agreements or other interest or exchange rate hedging arrangements; (f)
all obligations of such Person associated with direct or indirect
guarantees of, and all obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, any Indebtedness of any other Person (other
than endorsements of negotiable instruments in the ordinary course of
business); (g) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances and
<PAGE> 89
14
(h) all obligations of such Person or a Commonly Controlled Entity to a
Multiemployer Plan.
"Independent Engineer": the Harris Group, or any other
independent engineering firm approved in writing by the Agent.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Installment Payment Date": as defined in subsection 1.4 of
the Agreement.
"Insurance Advisor": Sedgewick Power and Nuclear Services or
such other insurance advisor as the Required Lenders may engage at any
time to examine and advise the Financing Parties with respect to the
insurance relating to the Facility.
"Insurance Proceeds Account": the Insurance Proceeds Account
established pursuant to the Security Deposit Agreement.
"Interest Hedging Counterparty": Credit Lyonnais and any
Lender, in each case in its capacity as a counterparty to an Interest
Rate Protection Agreement.
"Interest Period": (a) with respect to any Eurodollar Loan:
each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loans and ending
one, three, six, nine or twelve months thereafter, as selected
by the Borrower in accordance with the provisions of
subsection 2.3 of the Agreement;
and (b) with respect to any CD Rate Loan:
a period beginning on, as the case may be, the date of
conversion of a Prime Rate Loan or a Eurodollar Loan into such
CD Rate Loan or the date of expiration of the then current
Interest Period for such CD Rate Loan, and ending 30, 60, 90,
180 or 360 days thereafter (to the extent available), as
selected by the Borrower in its notice of conversion or
continuation as provided in subsection 2.3 of the Agreement;
provided that the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the
next succeeding Working Day unless the
<PAGE> 90
15
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 Working
Day;
(ii) if any Interest Period pertaining to a CD
Rate Loan would end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding
Business Day;
(iii) any Interest Period that would otherwise
extend beyond the date final payment of the Loan is due shall
end on such date and the Borrower shall not select any
Interest Period that will end after the Final Payment Date;
(iv) if the Borrower shall fail to give notice as
provided in subsection 2.3 of the Agreement, the Borrower
shall be deemed to have selected a Loan of the same Type as
the Loan with respect to which the Interest Period is expiring
and having an Interest Period of the same duration as the
expiring Interest Period;
(v) any Interest Period pertaining to a
Eurodollar Loan that begins on the last Working 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 Working Day of a
calendar month;
(vi) the Borrower shall select Interest Periods so
as not to require a payment or optional prepayment of any
Eurodollar Loan or CD Rate Loan during an Interest Period for
such Loan; and
(vii) the Borrower shall not select any Interest
Period in respect of any Eurodollar Loan which is a Debt
Service Letter of Credit Loan that will end after the next
succeeding Quarterly Distribution Date.
"Interest Rate Protection Agreement": any contract entered
into by the Borrower with an Interest Hedging Counterparty in respect
of an interest rate swap transaction, interest "cap" or "collar"
transaction and/or any other interest rate hedging transaction or
interest rate protection transaction and, solely for the purposes of
subsection 6.17 of the Agreement, any unsecured contract entered into
by the Borrower with any financial institution in respect of an
interest rate "cap" transaction provided that such financial
institution has a credit rating for its long-term unsecured debt of "A"
or better by Standard & Poor's Corporation and "A2" or better by
Moody's Investors Service, Inc., and is otherwise reasonably
satisfactory to the Agent.
<PAGE> 91
16
"Investment": as to any Person, all investments, computed in
accordance with GAAP, made by purchase of stock, bonds, notes,
debentures or other securities, capital contribution, loan, advance,
guarantee of any Indebtedness of such Person or creation or assumption
of any other contingent liability in respect of any Indebtedness of
such Person, or otherwise.
"Issuing Bank": Credit Lyonnais, in its capacity as the issuer
of the Debt Service Letter of Credit.
"Junior Working Capital Loans": unsecured Indebtedness of the
Borrower (a) that is evidenced by an instrument or instruments
subordinated to the rights of the holders of the Notes by provisions
substantially in the form of Exhibit N to the Agreement or
incorporating such provisions by reference, (b) that is for money
borrowed by the Borrower from and owed to Cogentrix Energy and/or
Delaware Holdings, and (c) the proceeds of which are used entirely to
pay Cash Operating Costs or Debt Service.
"Lenders": Credit Lyonnais and each other financial
institution that becomes a "Lender" pursuant to subsection 10.6(c) of
the Agreement.
"Lien": any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale
or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any statement under the Uniform Commercial Code or comparable
law of any jurisdiction).
"Loans": the collective reference to the Term Loans and the
Debt Service Letter of Credit Loans; individually, a "Loan."
"Loan Percentage": as to any Lender, the percentage set forth
opposite the name of such Lender in Column B of Schedule IX to the
Agreement.
"Management Agreement": the Amended and Restated Management
Agreement, dated as of September 15, 1988 between the Borrower and the
Parent, as supplemented by the Supplemental Agreement, dated as of
December 15, 1993, by Cogentrix Energy, Delaware Holdings and the
Parent, as amended by the Management Agreement Amendment, and as the
same may be further amended, supplemented or otherwise modified from
time to time in accordance with the provisions of subsection 7.10 of
the Agreement.
<PAGE> 92
17
"Management Agreement Amendment": the Amendment No. 1 to the
Management Agreement, dated as of December 22, 1997, substantially in
the form of Exhibit O to the Agreement.
"Management Fee": any fee payable pursuant to Article IV of
the Management Agreement, including without limitation the General
Management Fee payable thereunder.
"Major Maintenance Costs": all costs incurred by the Borrower
for labor, materials and other direct expenses for any overhaul or
refurbishment of the turbines of the Facility.
"Major Maintenance Reserve Account": the Major Maintenance
Reserve Account established pursuant to the Security Deposit Agreement.
"Major Maintenance Reserve Account Deposit Amount": for any
Quarterly Distribution Date, the amount required to be deposited into
the Major Maintenance Reserve Account pursuant to subsection 6.20 of
the Loan Agreement on such date.
"MHT": Manufacturers Hanover Trust Company, a New York banking
corporation.
"Minimum Performance Requirements": the requirements set forth
below:
(i) the Facility shall be in compliance in all
material respects with all Federal, State and local laws and
governmental regulations (including zoning, pollution and
environmental control requirements); and
(ii) the Facility shall have a continuous net
generating capacity of at least 94.7 megawatts.
"Monthly Distribution Date": as defined in the Security
Deposit Agreement.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Notes": the collective reference to the Term Notes and the
Debt Service Letter of Credit Note; individually, a "Note."
"Obligations": as defined in the Security Deposit Agreement.
"Optional Prepayment Cap": for any period, an amount equal to
the excess, if any, of (a) the Assumed Debt Service for such period
over (b) Debt Service for such period.
<PAGE> 93
18
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Parent": Cogentrix, Inc., a North Carolina corporation and a
wholly-owned subsidiary of Cogentrix Holdings Corporation.
"Permits": all applicable authorizations, consents,
certificates, licenses, approvals, waivers, exemptions, variances,
franchises, permissions and permits of any Governmental Authority
required in connection with the purchase, acquisition, design,
construction,installation, ownership or operation of the Project and/or
in connection with any of the transactions contemplated by the Project
Documents.
"Permitted Investments": investments in the instruments and
securities specified in Section 6.1 of the Security Deposit Agreement,
and advances customarily required in the ordinary course of business to
agents and suppliers of the Borrower as advance payment of insurance
premiums, taxes and telephone charges, fuel, supplies, operating
deposits or other like payments or expenses.
"Permitted Liens": the Liens (i) permitted under subsection
7.2 of the Agreement and (ii) listed on Schedule VI to the Agreement.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Plan": any pension plan which is covered by Title IV of ERISA
and in respect of which the Borrower, Delaware Holdings, Cogentrix
Energy or the Parent or a Commonly Controlled Entity is an "employer"
as defined in Section 3(5) of ERISA.
"Plans": the plans and specifications for construction of the
Facility referenced on Schedule V to the Existing Loan Agreement, as
prepared by Duke Power Company (the "Designer" or "Duke").
"Pledge Agreement": the Third Amended and Restated Pledge and
Security Agreement, dated as of December 22, 1997, made by Cogentrix,
Inc. to the Agent, substantially in the form of Exhibit J to the Loan
Agreement and as the same may be further amended, supplemented or
otherwise modified from time to time.
"Power Purchase Agreement": the Power Purchase and Operating
Agreement, dated as of July 21, 1986, as amended as of January 9, 1987,
and as further amended by the letter dated July 7, 1987 from VEP to the
Parent, originally
<PAGE> 94
19
between VEP and Cogentrix of Virginia, Inc. ("CVI"), and as assigned to
and assumed by the Borrower with the consent of VEP, and including the
Bill of Sale, Assignment and Assumption between CVI and the Borrower
and the Consent to Assignment and Release by VEP relating thereto, and
as amended and restated by the Power Purchase Agreement Amendment, as
the same may be further amended, supplemented or otherwise modified
from time to time in accordance with the provisions of Section 7.10 of
the Agreement.
"Power Purchase Agreement Amendment": the Third Amendment and
Restatement of the Power Purchase and Operating Agreement, dated as of
December 5, 1997, by and between the Borrower and the Power Purchaser.
"Power Purchaser": VEP.
"Power Purchaser Consent": the Consent to Assignment of Power
Purchase Agreement, dated December 5, 1997, by the Power Purchaser.
"Prime Rate": the greater of (i) 3/4 of 1% above the Federal
Funds Rate and (ii) the prime commercial lending rate publicly
announced by Credit Lyonnais in New York, New York from time to time
for extensions of credit in the United States. The Prime Rate is not
intended to be the lowest rate of interest charged by Credit Lyonnais
in connection with extensions of credit to debtors. Each change in the
Prime Rate shall, on the date of such change, result in a corresponding
change in any interest rate provided for in the Agreement which is
based on the Prime Rate.
"Prime Rate Loans": loans hereunder at such time as they are
made and/or being maintained at a rate of interest based upon the Prime
Rate.
"Project": the Facility, the Site and all licenses, permits
and easements and other real property interests and rights relating to
the Facility or the Site which are owned or leased by the Borrower or
in which the Borrower has any rights, including, without limitation,
the Easements.
"Project Cash Flow": for any period, the amount, if any, by
which Project Revenues for such period exceed Cash Operating Costs for
such period.
"Project Documents": the collective reference to the
Agreement, the Notes, any Interest Rate Protection Agreements, the
Deeds, the Plans, the Security Documents, the Cogentrix Energy
Indemnity Agreement, the Assigned Contracts and any Additional
Contracts.
<PAGE> 95
20
"Project Participant": any Person, other than any Financing
Party, party to a Project Document (other than the Deeds).
"Project Revenues": for any period, the sum (without
duplication) of (i) all revenues received by the Borrower under the
Power Purchase Agreement and the Steam Purchase Contract during such
period plus (ii) all other revenues received by the Borrower during
such period from the sale of electricity, heat or steam produced by the
Facility or the sale of ash or other by-products produced by the
Facility plus (iii) the amount of income distributed to the Revenue
Account in respect of Permitted Investments during such period plus
(iv) all payments made by Cogentrix Energy pursuant to the Cogentrix
Energy Indemnity Agreement during such period plus (v) all proceeds of
any Additional Term Loans to the extent actually applied to pay
Specified Costs during such period.
"Property Tax Account": the Property Tax Account established
pursuant to the Security Deposit Agreement.
"Qualifying Facility": a cogeneration facility meeting all the
requirements for a "cogeneration facility" which is a "qualifying
facility" set forth in Part 292 of the rules and regulations of FERC
under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as
such statutes, rules and regulations may from time to time be amended
or supplemented or replaced by other statutes, rules and regulations.
"Quarterly Distribution Date": as defined in the Security
Deposit Agreement.
"Railroad Transportation Contract": the Railroad
Transportation Contract, dated as of December 22, 1986, between the
Borrower and the Carrier, as amended by the First Amendment thereto,
dated October 3, 1991, and as the same may be further amended,
supplemented or otherwise modified from time to time in accordance with
the provisions of Section 7.10 of the Agreement.
"Reduction Amount": for any Installment Payment Date, the
amount set forth opposite such Installment Payment Date on Schedule VII
to the Agreement.
"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 or the regulations thereunder.
"Required Stated Amount": $6,000,000.
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21
"Required Lenders": at a particular time Lenders whose
Commitment Percentages aggregate at least 66 2/3%.
"Required Major Maintenance Reserve Amount":
(i) during the period from the Third Restatement
Effective Date to the day preceding the first Quarterly
Distribution Date to occur in calendar year 2000, $0;
(ii) during the period from such Quarterly
Distribution Date to the day preceding the second Quarterly
Distribution Date to occur in calendar year 2000, $200,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs;
(iii) during the period from such Quarterly
Distribution Date to the day preceding the third Quarterly
Distribution Date to occur in calendar year 2000, $400,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs;
(iv) during the period from such Quarterly
Distribution Date to the day preceding the fourth Quarterly
Distribution Date to occur in calendar year 2000, $600,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs;
(v) during the period from such Quarterly
Distribution Date to the day preceding the first Quarterly
Distribution Date to occur in calendar year 2001, $800,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs,
(vi) during the period from such Quarterly
Distribution Date to the day preceding the second Quarterly
Distribution Date to occur in calendar year 2001, $1,000,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs;
(vii) during the period from such Quarterly
Distribution Date to the day preceding the third Quarterly
Distribution Date to occur in calendar year 2001, $1,200,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the
<PAGE> 97
22
Major Maintenance Reserve Account to pay Major Maintenance
Costs;
(viii) during the period from such Quarterly
Distribution Date to the day preceding the fourth Quarterly
Distribution Date to occur in calendar year 2001, $1,400,000
less the cumulative amount withdrawn prior to such Quarterly
Distribution Date from the Major Maintenance Reserve Account
to pay Major Maintenance Costs;
(ix) during the period from such Quarterly
Distribution Date and to the date that the Agent receives a
certificate from a Responsible Officer of the Borrower
certifying that no more Major Maintenance Expenses will be
incurred and that all such costs have been paid in full,
$1,600,000 less the cumulative amount withdrawn prior to such
Quarterly Distribution Date from the Major Maintenance Reserve
Account to pay Major Maintenance Costs; and
(x) thereafter, $0.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or partnership agreement 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 of its properties or to which such
Person or any of its properties is subject.
"Responsible Officer": the president, the principal financial
officer, the treasurer, the vice-president of finance, a senior vice
president or an executive vice president of the Borrower or, with
respect to financial matters, the chief financial officer of the
Borrower.
"Restricted Payment": as defined in subsection 7.4 of the
Agreement.
"Revenue Account": the Revenue Account established pursuant to
the Security Deposit Agreement.
"Second Amended and Restated Loan Agreement": the Second
Amended and Restated Loan Agreement, dated as of May 15, 1992, among
the Borrower, the financial institutions parties thereto as lenders,
and the Original Agent.
"Security Agent": First Union National Bank of North Carolina,
as security agent under the Security Deposit Agreement.
"Security Agreement": the Amended and Restated Security
Agreement, dated as September 15, 1988, between the
<PAGE> 98
23
Borrower and CIT, as agent for the Lenders, as amended by the First
Amendment thereto dated as of May 15, 1992, as further amended by the
Security Agreement Amendment and as the same may be further amended,
supplemented or otherwise modified from time to time.
"Security Agreement Amendment": the Second Amendment to the
Security Agreement dated as of December 22, 1997, substantially in the
form of Exhibit L to the Agreement.
"Security Deposit Agreement": the Third Amended and Restated
Security Deposit Agreement, dated as of December 22, 1997, among the
Agent, the Security Agent and the Borrower substantially in the form of
Exhibit M to the Agreement, as the same may be amended, supplemented or
otherwise modified from time to time.
"Security Documents": the Deed of Trust, the Ship Mortgage,
the Pledge Agreement, the Assignments, the Security Agreement and the
Security Deposit Agreement.
"Ship Mortgage": the First Preferred Ship Mortgage dated April
16, 1991, made by the Borrower in favor of the Agent, as amended by the
First Amendment thereto, dated as of May 15, 1992, as further amended
by the Ship Mortgage Amendment, and as the same may from time to time
be further amended, supplemented or otherwise modified.
"Ship Mortgage Amendment": the Second Amendment to the Ship
Mortgage, dated as of December 22, 1997, substantially in the form of
Exhibit K to the Loan Agreement.
"Single Employer Plan": any Plan which is not a Multiemployer
Plan.
"Site": the location in Portsmouth, Virginia described in
Schedule I to the Agreement, together with all improvements from time
to time constructed thereon and all appurtenances thereto.
"Specified Costs": as defined in the Cogentrix Energy
Indemnity Agreement.
"Specified Default": any of the events specified in subsection
8.1(f) with respect to the Borrower, whether or not any requirement for
the giving of notice, the lapse of time, or both, or for the happening
of any other condition, has been satisfied.
"Steam Purchaser": Clariant and any other party obligated to
purchase steam under the Steam Purchase Contract.
"Steam Purchase Contract": the Steam Purchase Contract, dated
as of December 31, 1985, between the
<PAGE> 99
24
Borrower and the Steam Purchaser (as the successor thereunder to VCI),
as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the provisions of subsection 7.10 of
the Agreement.
"Sumitomo": The Sumitomo Bank, Limited, Chicago Branch.
"Tax Account": the Tax Account established pursuant to the
Security Deposit Agreement.
"Technical Services Agreement": Technical Services Agreement,
dated as of April 26, 1983, between Cogentrix of North Carolina, Inc.
and the Designer, as the same has been assigned to the Borrower
pursuant to the Assignment dated as of December 1, 1986.
"Term Loan Amortization Amount": for any Installment Payment
Date, an amount equal to the excess, if any, of the then outstanding
unpaid principal amount of the Term Loans over the Total Permitted Term
Loan Amount on such Installment Payment Date.
"Term Loans": as defined in subsection 1.1 of the Agreement.
"Term Notes": as defined in subsection 1.3 of the Agreement.
"Third Amended and Restated Loan Agreement": the Third Amended
and Restated Loan Agreement, dated as of December 22, 1997, among the
Borrower, the Lenders, the Issuing Bank and the Agent, as the same may
be amended, supplemented or otherwise modified from time to time.
"Third Restatement Effective Date": the date on which the
conditions set forth in subsection 4.1 of the Third Amended and
Restated Loan Agreement shall have been fulfilled in a manner
satisfactory to the Lenders or waived by the Lenders, as such date is
specified in a notice given by the Agent to the other parties hereto.
"Total Additional Term Loan Commitment": for any day, an
amount equal to the lesser of (a) an amount equal to the excess of the
Total Permitted Term Loan Amount on such day over the aggregate unpaid
principal amount of the Term Loans on such day and (b) the Total
Additional Term Loan Commitment Cap for such day.
"Total Additional Term Loan Commitment Cap": on any day, an
amount equal to $43,500,000 less the aggregate amount of all reductions
made on or before such day in the amount of the Total Additional Term
Loan Commitment pursuant to subsection 3.5(a) or (b) of the Loan
Agreement.
<PAGE> 100
25
"Total Permitted Term Loan Amount": (a) on the Third
Restatement Effective Date, an amount equal to $102,000,000 and (b) on
any date thereafter, such amount as reduced from time to time pursuant
to subsection 1.5 of the Loan Agreement.
"Tranche": the collective reference to Eurodollar Loans or CD
Rate Loans having the same Interest Period (whether or not originally
made on the same day); Tranches may be identified as "Eurodollar
Tranches" or "CD Rate Tranches", as the case may be.
"Transferor Lenders": the collective reference to CIT,
Sumitomo and BMO, as the lenders under the Existing Loan Agreement.
"Twelve-Month Project Cash Flow": as of any Installment
Payment Date, the sum of Project Cash Flow for the twelve-month period
ending on such date (or, in the case of the Installment Payment Dates
occurring in March, June, September and December of 1998, for the
period from the Third Restatement Effective Date to such Installment
Payment Date).
"Twelve-Month Debt Coverage Ratio": as of any Installment
Payment Date, the ratio of (a) Twelve-Month Project Cash Flow as of
such date to (b) Twelve-Month Debt Service (not counting, for purposes
of calculating this ratio, any mandatory prepayments of principal of
the Term Loans pursuant to subsection 3.1(a)(ii) of the Agreement) as
of such date.
"Twelve-Month Debt Service": as of any Installment Payment
Date, Assumed Debt Service for the twelve-month period ending on such
date (or, in the case of the Installment Payment Dates occurring in
March, June, September and December of 1998, for the period from the
Third Restatement Effective Date to such Installment Payment Date).
"Type": as to any Loan, its nature as a Prime Rate Loan, CD
Rate Loan or a Eurodollar Loan.
"Value": as defined in the Security Deposit Agreement.
"VCI": Virginia Chemicals, Inc.
"VEP": Virginia Electric and Power Company, a Virginia
corporation.
"Water Purchase Contract": the Water Purchase Contract, dated
as of February 1, 1995, between Clariant (as the successor thereunder
to Hoechst) and the Borrower, as
<PAGE> 101
26
the same may be amended, supplemented or otherwise modified in
accordance with subsection 7.10 of the Agreement.
"Working Day": any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London,
England.
All terms defined in this Annex A shall have the defined
meanings when used and not defined in the Agreement, any Note or any Security
Document or in any certificate or other document made or delivered pursuant
hereto.
As used in the Agreement, any Note or any Security Document
and in any certificate or other document made or delivered pursuant to any
thereof, accounting terms relating to the Borrower not defined in this Annex A,
and accounting terms partly defined in this Annex A to the extent not defined,
shall have the respective meanings given to them under GAAP.
The words "hereof," "herein" and "hereunder" and words of
similar import when used in an agreement shall refer to such agreement as a
whole and not to any particular provision of such agreement, and section,
schedule and exhibit references in any agreement are to such agreement unless
otherwise specified.
<PAGE> 102
SCHEDULE I
DESCRIPTION OF SITE
The Site is described in Exhibits A and A-1 to the Deed of
Trust, which description is incorporated herein by reference.
<PAGE> 103
SCHEDULE II
LIABILITIES
Cogentrix Virginia Leasing Corporation:
None
Cogentrix Energy, Inc.:
- Indemnity agreement in connection with loan agreement
between Credit Lyonnais, as agent, lenders and Cogentrix of
North Carolina, Inc.
- Reimbursement obligation related to draws under a $16
million letter of credit issued for the benefit of Credit
Suisse, as agent and lenders related to Birchwood Power
Partners, L.P.'s project debt.
<PAGE> 104
SCHEDULE III
GOVERNMENTAL ACTIONS AND PERMITS
PART A
PERMITS OBTAINED
I. Federal Permits and Licenses
A. Certification as a Qualifying Facility,
Section 3, Federal Power Act
1. Order Granting Application for Certification as a
Qualifying Cogeneration Facility issued August 21,
1986, to Borrower by the Federal Energy Regulatory
Commission of the United States of America ("FERC").
2. Notice of Qualifying Status as a Qualifying
Cogeneration Facility filed December 30, 1993, by
Borrower to the FERC (Self-Certification).
3. Notice of Qualifying Status as a Qualifying
Cogeneration Facility filed December 22, 1997 by
Borrower with FERC to reflect a change in the owner of
the thermal host for the Facility.
B. Dredge and Fill Permits
1. Permit number 86-1471-01 effective December 17, 1986
issued by U.S. Army Corps of Engineers to permit
construction of pier facility at Virginia Chemicals
site located at the foot of Norfolk Road, Portsmouth,
Virginia.
2. Permit number 86-1412-01 effective December 17, 1986
issued by U.S. Army Corps of Engineers to permit
construction of conveyor and steam line over Lake
Kingman.
C. Coast Guard Approvals
1. Letter dated November 25, 1986 from U.S. Coast Guard
states that no Coast Guard permit is necessary for
construction of conveyor and steam line over Lake
Kingman.
2. Certificate of Ownership of Vessel issued by the
Department of Transportation U.S. Coast Guard on May 2,
1991 evidencing Borrower's ownership of Cogentrix I
(Official No. 974857).
<PAGE> 105
2
II. Virginia State Permits and Licenses
A. Air Quality
1. Air Quality (PSD) Permit No. 61049 issued December
23, 1986 to Borrower by the State Air Pollution
Control Board of the Commonwealth of Virginia.
B. Dredge and Fill Permits
1. Permit number 86-1471-2 dated December 15, 1986 issued
by the Marine Resources Commission of the Commonwealth
of Virginia to permit construction of pier facility at
Virginia Chemical site.
2. Permit number 86-1412-2 dated December 15, 1986 issued
by the Marine Resources Commission of the Commonwealth
of Virginia to permit construction of conveyor and
steam line over Lake Kingman.
C. Power Purchase Agreement
1. The Power Purchase and Operating Agreement, dated as of
July 21, 1986, between VEP and CVI, was filed with the
Virginia State Corporation Commission on March 31,
1986.
2. The amendment, dated January 9, 1987, to the Power
Purchase Agreement was filed with the Virginia State
Corporation Commission.
3. The amendment, dated July 13, 1987 to the Power
Purchase Agreement was filed with the Virginia State
Corporation Commission.
C. Water Quality
1. Water Quality (VPDES) permit No. VA 0074781 was issued
by the Department of Environmental Quality of the
Commonwealth of Virginia on August 29, 1994.
2. Water Quality (VPDES) permit No. VA 0074781
Modification was issued by the Department of
Environmental Quality of the Commonwealth of Virginia
on August 26, 1997.
D. Well Permit
1. Ground water permit No. SE-98 for drilling of two wells
was issued by the State Water Control Board of the
Commonwealth of Virginia on June 11, 1987.
<PAGE> 106
3
III. Local Permits
A. Building
1. Initial building permit No. 0757 issued December 22,
1986 by City of Portsmouth to Borrower and
Contractor.
2. Borrower has obtained all necessary building permits
from the City of Portsmouth with respect to the
construction of the Facility.
B. Utility
1. Water Supply
Letter dated December 23, 1986 from Department of
Public Utilities, City of Portsmouth, stating the
capabilities of the Portsmouth Water System.
2. Sewer Hook-up
Letter dated November 18, 1986 from Hampton Roads
Sanitation District (HRSD) stating that the HRSD
sanitation main can accommodate the projected use from
the Facility.
C. Certificate of Occupancy
1. Borrower obtained the Permanent Certificate of
Occupancy from City of Portsmouth on October 3, 1988.
IV. Other
The UCC, real estate and barge filings and recordings listed on
Schedule IV, Part I have been made.
<PAGE> 107
PART B
PERMITS TO BE OBTAINED
1. The UCC-3 assignments, real estate and barge filings
and recordings listed in Schedule IV, Part II will be
filed in connection with the transactions contemplated
by the Third Amended and Restated Loan Agreement in
each of the filing offices referred to in Schedule IV,
Part II.
2. The Power Purchase Agreement Amendment must be filed by
VEP with the Virginia State Corporation Commission on
or before December 31, 1998.
<PAGE> 108
SCHEDULE IV
RECORDINGS AND FILINGS
<TABLE>
<CAPTION>
I. EXISTING FILINGS AND OTHER ACTIONS
A. UNIFORM COMMERCIAL CODE FILINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
1. Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0293888 01/15/87
North Carolina Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
(All of the Debtor's right, title
and interest in and to all property,
tangible and intangible,...)
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0301248 02/09/87
North Carolina Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
(Change to Exhibit A, real
property for the Site.)
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0499997 10/13/88
North Carolina Leasing Corporation Financing, Inc., Agent Amendment (Exhibit A: Amendments to UCC-3
Coal Conveyor Easement, Steam Easement,
and Virginia Chemicals Ground
Lease parcel; Addition of Access
Easement. Addition of Ash Hauling
Agreement (Schedule I-"Basic Contracts"))
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0556838 04/10/89
North Carolina Leasing Corporation Financing, Inc., as Agent Amendment/D. address change from UCC-3
"Parkway Plaza Blvd" to
"Arrowpoint Blvd"
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0839434 12/02/91
North Carolina Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 0293888 UCC-3
at "Parkway Blvd"
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 0909964 07/23/92
North Carolina Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
(Schedule I, Defined Terms:
Addition of "Barge," "Ground
Lease," and "Easements"; Amendment
to "Additional Contracts," "Facility,"
and "Security Deposit Agreement";
Amendment to Ash Hauling Agreement
("Basic Contracts"); Deletion of
"Performance Bond" and "Labor and
Material Payment Bond" ("Basic
Contracts"). Amendment to final
sentence of Schedule I to allow Debtor
</TABLE>
<PAGE> 109
2
<TABLE>
<CAPTION>
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
to sell collateral pursuant to the
terms of the Second Amended Restated
Loan Agreement.)
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 1403846 12/04/96
North Carolina Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 0293888 UCC-3
at "Parkway Blvd"
====================================================================================================================================
2. Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 000722 01/15/87
County, North Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
Carolina (All of the Debtor's right, title and
interest in and to all property,
tangible and intangible,...)
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 001814 02/09/87
County, North Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
Carolina (Change to Exhibit A, real property
for the Site.)
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 018813 10/13/88
County, North Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
Carolina (Exhibit A: Amendments to Coal
Conveyor Easement, Steam
Easement, and Virginia Chemicals
Ground Lease parcel;
Addition of Access Easement.
Addition of Ash Hauling Agreement
(Schedule I-"Basic Contracts").)
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 006378 04/13/89
County, North Leasing Corporation Financing, Inc., as Agent Amendment/D. address change UCC-3
Carolina
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 015694 11/29/91
County, North Leasing Corporation Financing, Inc., as Agent Continuation of F/S No.000722 UCC-3
Carolina
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 010196 07/22/92
County, North Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
Carolina (Schedule I, Defined Terms: Addition
of "Barge," "Ground Lease," and
"Easements"; Amendment to "Additional
Contracts," "Facility," and
"Security Deposit Agreement"; Amendment
to Ash Hauling Agreement ("Basic
Contracts"); Deletion of "Performance
Bond" and "Labor and Material Payment
Bond" ("Basic Contracts"). Amendment to
final sentence of Schedule I to allow
Debtor to sell collateral pursuant to
the terms of the Second
</TABLE>
<PAGE> 110
3
<TABLE>
<CAPTION>
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
Amended Restated Loan Agreement.)
====================================================================================================================================
Mecklenburg Cogentrix Virginia The CIT Group/ Equipment 014046 10/07/96
County, North Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 000722 UCC-3
Carolina
====================================================================================================================================
3. Secretary of Cogentrix Virginia The CIT Group/ Equipment 120499 (472135) 03/13/87
State, Kentucky Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
(All of the Debtor's right, title
and interest in and to all property,
tangible and intangible,...)
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 120499 (557880) 04/11/89
Kentucky Leasing Corporation Financing, Inc., as Agent Amendment/D. address change from UCC-3
"Parkway Plaza Blvd" to
"Arrowpoint Blvd"
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 120499 (657330) 12/02/91
Kentucky Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 120499 at UCC-3
"Parkway Plaza Blvd"
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 120499 (692631) 11/05/92
Kentucky Leasing Corporation Financing, Inc., as Agent Amendment to original financing UCC-3
statement; and D. address change
(Exhibit A: Amendment to Coal
Conveyor Easement, Steam Easement,
and Virginia Chemicals Ground Lease
parcel; Addition of Access Easement.
Schedule I, Defined Terms: Addition
of "Barge, "Ground Lease," and
"Easements"; Amendment to "Additional
Contracts," "Facility," and "Security
Deposit Agreement";Amendment to Ash
Hauling Agreement ("Basic Contracts");
Deletion of "Performance Bond" and
"Labor and Material Payment Bond"
("Basic Contracts"). Amendment to
final sentence of Schedule I to
allow Debtor to sell collateral pursuant
to the terms of the Second Amended
Restated Loan Agreement.)
====================================================================================================================================
Secretary of State, Cogentrix Virginia The CIT Group/ Equipment 120499 12/4/96
Kentucky Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 120499 UCC-3
====================================================================================================================================
Secretary of State, Cogentix Virginia The CIT Group/ Equipment 120499 01/07/97
Kentucky Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 120499 UCC-3
====================================================================================================================================
4. Martin County, Cogentrix Virginia The CIT Group/ Equipment 42089 03/06/87
Kentucky Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
(All of the Debtor's right, title
and interest in and to all
</TABLE>
<PAGE> 111
4
<TABLE>
<CAPTION>
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
property, tangible and intangible,...)
====================================================================================================================================
Martin County, Cogentrix Virginia The CIT Group/ Equipment 55888 4/13/89
Kentucky Leasing Corporation Financing, Inc., as Agent Amendment/D. address change from UCC-3
"Parkway Plaza Blvd" to
"Arrowpoint Blvd"
====================================================================================================================================
Martin County, Cogentrix Virginia The CIT Group/ Equipment 42089 11/29/91
Kentucky Leasing Corporation Financing, Inc., as Agent Continuation of F/S 42089 UCC-3
====================================================================================================================================
Martin County, Cogentrix Virginia The CIT Group/ Equipment 42089 11/05/92
Kentucky Leasing Corporation Financing, Inc., as Agent Amendment (Exhibit A: Amendment to UCC-3
Coal Conveyor Easement, Steam
Easement, and Virginia Chemicals
Ground Lease parcel; Addition of
Access Easement. Schedule I, Defined
Terms: Addition of "Barge, "Ground
Lease," and "Easements"; Amendment
to "Additional Contracts," "Facility,"
and "Security Deposit Agreement";
Amendment to Ash Hauling Agreement
("Basic Contracts");Deletion of
"Performance Bond" and "Labor and
Material Payment Bond".
====================================================================================================================================
Martin County, Cogentrix Virginia The CIT Group/ Equipment 42089 02/13/97
Kentucky Leasing Corporation Financing, Inc., as Agent Continuation of F/S 42089 UCC-3
====================================================================================================================================
5. State Corporation Cogentrix Virginia The CIT Group/ Equipment 870120272 01/15/87
Commission, Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
Virginia (All of the Debtor's right, title and
interest in and to all property,
tangible and intangible,...)
====================================================================================================================================
State Corporation Cogentrix Virginia The CIT Group/ Equipment 870212524 02/09/87
Commission, Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
Virginia (Change to Exhibit A, real property
for Site.)
====================================================================================================================================
State Corporation Cogentrix Virginia The CIT Group/ Equipment 881021216 10/13/88
Commission, Leasing Corporation Financing, Inc., as Agent Amendment (Exhibit A: Amendment to UCC-3
Virginia Coal Conveyor Easment, Steam Easement,
and Virginia Chemicals Ground Lease
parcel; Addition of Access Easement.
Addition of Ash Hauling Agreement
(Schedule I-"Basic contracts").)
====================================================================================================================================
State Corporation Cogentrix Virginia The CIT Group/ Equipment 890421702 04/17/89
Commission, Leasing Corporation Financing, Inc., as Agent Amendment/ D. address change UCC-3
Virginia
</TABLE>
<PAGE> 112
5
<TABLE>
<CAPTION>
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
State Corporation Cogentrix Virginia The CIT Group/ Equipment 911210678 12/03/91
Commission, Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 870120272 UCC-3
Virginia
====================================================================================================================================
State Corporation Cogentrix Virginia The CIT Group/ Equipment 920731112 07/24/92
Commission, Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
Virginia (Schedule I, Defined Terms: Addition
of "Barge," "Ground Lease," and
"Easements"; Amendment to "Additional
Contracts," "Facility," and "Security
Deposit Agreement"; Amendment to Ash
Hauling Agreement ("Basic Contracts");
Deletion of "Performance Bond" and
"Labor and Material Payment Bond"
("Basic Contracts"). Amendment to
final sentence of Schedule I to allow
Debtor to sell collateral pursuant
to the terms of the Second Amended
Restated Loan Agreement.)
====================================================================================================================================
State Corporation Cogentrix Virginia The CIT Group/ Equipment 9612047806 12/04/96
Commission, Leasing Corporation Financing, Inc., as Agent Continuation of F/S No. 870120272 UCC-3
Virginia
====================================================================================================================================
6. Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 01/22/87
Virginia Leasing Corporation Financing, Inc., as Agent Financing Statement UCC-1
(All of the Debtor's right, title
and interest in and to all property,
tangible and intangible,...)
====================================================================================================================================
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 10/12/88
Virginia Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
(Exhibit A: Amendments to Coal Conveyor
Easement, Steam Easement, and Virginia
Chemicals Ground Lease parcel; Addition
of Access Easement. Addition of Ash
Hauling Agreement (Schedule I-"Basic
Contracts").)
====================================================================================================================================
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 04/11/89
Virginia Leasing Corporation Financing, Inc., as Agent Amendment/ D. address change UCC-3
====================================================================================================================================
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 12/04/91
Virginia Leasing Corporation Financing, Inc., as Agent Continuation of F/S 56307 UCC-3
</TABLE>
<PAGE> 113
6
<TABLE>
<CAPTION>
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File
--------------- ------ ------------- -------- Date/Type
---------
====================================================================================================================================
<C> <C> <C> <C> <C>
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 07/27/92
Virginia Leasing Corporation Financing, Inc., as Agent Amendment UCC-3
(Schedule I, Defined Terms: Addition
of "Barge," "Ground Lease," and
"Easements"; Amendment to "Additional
Contracts," "Facility," and "Security
Deposit Agreement"; Amendment to Ash
Hauling Agreement("Basic Contracts");
Deletion of "Performance Bond" and
"Labor and Material Payment Bond"
("Basic Contracts"). Amendment to
final sentence of Schedule I to allow
Debtor to sell collateral pursuant
to the terms of the Second Amended
Restated Loan Agreement.)
====================================================================================================================================
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 12/06/96
Virginia Leasing Corporation Financing, Inc., as Agent Continuation of F/S 56307 UCC-3
====================================================================================================================================
Portsmouth City, Cogentrix Virginia The CIT Group/ Equipment 56307 01/09/97
Virginia Leasing Corporation Financing, Inc., as Agent Continuation of F/S 56307 UCC-3
====================================================================================================================================
</TABLE>
<PAGE> 114
7
<TABLE>
<CAPTION>
B. REAL ESTATE RECORDINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File No. File Date/Type
- --------------- ------ ------------- -------- --------------
====================================================================================================================================
<S> <C> <C> <C> <C>
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 980, at Page 708 December 15, 1986;
Virginia Leasing Corporation Financing, Inc., as Agent Deed of Trust,
Deeds, Easement and
Ground Lease
====================================================================================================================================
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 1013, at Page 1928 September 1, 1988;
Virginia Leasing Corporation Financing, Inc., as Agent Easements Agreement
Amendment
====================================================================================================================================
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 1013, at Page 1941 September 15, 1988;
Virginia Leasing Corporation Financing, Inc., as Agent Deed of Trust
Amendment No. 1
====================================================================================================================================
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 1056, at Page 1261 April 26, 1991;
Virginia Leasing Corporation Financing, Inc., as Agent Deed of Trust
Amendment No. 2
====================================================================================================================================
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 1076, at Page 1467 May 15, 1992; Deed
Virginia Leasing Corporation Financing, Inc., as Agent of Trust Amendment
No. 3
====================================================================================================================================
City of Portsmouth, Cogentrix Virginia The CIT Group/ Equipment Deed Book 1207, at Page 1115 February 1, 1995;
Virginia Leasing Corporation Financing, Inc., as Agent Deed of Trust
Amendment No. 4
====================================================================================================================================
</TABLE>
<PAGE> 115
8
<TABLE>
<CAPTION>
C. BARGE FILINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File No./ Type File Date
- --------------- ------ ------------- -------------- ---------
====================================================================================================================================
<S> <C> <C> <C> <C>
Office of the Cogentrix Virginia The CIT Group/Equipment Book No. PM 9105 as Instrument No. 9 5/2/91
Documentation Officer; Leasing Corporation Financing, Inc., as Agent
Port of Norfolk,
Virginia
====================================================================================================================================
Office of the Cogentrix Virginia The CIT Group/Equipment Book No. PM 9208 as Instrument No. 47 8/5/92
Documentation Officer; Leasing Corporation Financing, Inc., as Agent
Port of Norfolk,
Virginia
====================================================================================================================================
</TABLE>
II. NEW FILINGS AND OTHER ACTIONS
<TABLE>
<CAPTION>
A. UNIFORM COMMERCIAL CODE FILINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File No./ Type File Type
--------------- ------ ------------- -------------- ---------
====================================================================================================================================
<C> <C> <C> <C> <C>
2. Secretary of State, Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
North Carolina Leasing Corporation No. 0293888 from The CIT Group/
Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
2. Secretary of Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
State, Kentucky Leasing Corporation No. 120499 from The CIT Group/
Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
3. Mecklenburg Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
County, North Leasing Corporation No. 000722 from The CIT Group/
Carolina Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
4. Martin County, Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
Kentucky Leasing Corporation No. 42089 from The CIT Group/
Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
5. State Corporation Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
Commission, Leasing Corporation No. 870120272 from The CIT Group/
Virginia Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
6. Portsmouth City, Cogentrix Virginia Credit Lyonnais, as Agent Assignment of Financing Statement UCC-3
Virginia Leasing Corporation No. 56307 from The CIT Group/
Equipment Financing, Inc. to
Credit Lyonnais
====================================================================================================================================
</TABLE>
<PAGE> 116
9
<TABLE>
<CAPTION>
B. ACTIONS WITH RESPECT TO PLEDGED STOCK
Possession of stock certficates specified below together with undated stock powers executed in blank.
====================================================================================================================================
Grantor Issuer Class of Stock Stock Certificate No. and Date No. of Shares
- ------- ------ -------------- ------------------------------ -------------
====================================================================================================================================
<S> <C> <C> <C> <C>
Cogentrix, Inc. Cogentrix Virginia Common Stock 2 1,000
Leasing Corporation June 30, 1986
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
C. REAL ESTATE RECORDINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File Type
- --------------- ------ ------------- ---------
====================================================================================================================================
<S> <C> <C> <C>
City of Portsmouth, Cogentrix Virginia Credit Lyonnais, as Agent Deed of Trust, Amendment No. 5
Virginia Leasing Corporation
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
D. BARGE FILINGS
====================================================================================================================================
Place of Filing Debtor Secured Party File Type
- --------------- ------ ------------- ---------
====================================================================================================================================
<S> <C> <C> <C>
National Vessel Cogentrix Virginia Credit Lyonnais, as Agent Second Amendment to the First
Documentation Center; Leasing Corporation Preferred Ship Mortgage
Office of the United
States Coast Guard
====================================================================================================================================
</TABLE>
<PAGE> 117
SCHEDULE V
ENVIRONMENTAL NOTICES
In October 1993, the Virginia Department of Environmental
Quality (the "VDEQ") issued a notice of violation under the Facility's Virginia
Pollution Discharge Elimination System Permit (the "VPDES"). The notice of
violation related to a discharge of high pH water in excess of permit limits.
In August 1994 the VDEQ issued a notice of violation under the
VPDES. The notice of violation related to exceedences in the limit in the VPDES
for total suspended solids in July 94 and August 1994.
In each case, the exceedences were relatively minor, the
problems giving rise to the exceedences were corrected promptly and no fines
were assessed. No further action is required.
<PAGE> 118
SCHEDULE VI
PERMITTED LIENS
All of the title exceptions listed on Schedule B of that
certain policy of title insurance Policy No. PM977493C issued by Commonwealth
Land Title Insurance Company and those certain Endorsements issued in reference
to such title insurance policy dated through the date of recordation of the Deed
of Trust Amendment No. 5, in each case as of the Third Restatement Effective
Date.
<PAGE> 119
SCHEDULE VII
REDUCTION AMOUNT SCHEDULE
<TABLE>
<CAPTION>
Installment
Number Payment Date Amount
- ------ ------------ ------
<S> <C> <C>
1 March 7, 1998 $4,590,000
2 June 7, 1998 $4,590,000
3 September 7, 1998 $4,590,000
4 December 7, 1998 $4,590,000
5 March 7, 1999 $4,845,000
6 June 7, 1999 $4,845,000
7 September 7, 1999 $4,845,000
8 December 7, 1999 $4,845,000
9 March 7, 2000 $5,355,000
10 June 7, 2000 $5,355,000
11 September 7, 2000 $5,355,000
12 December 7, 2000 $5,355,000
13 March 7, 2001 $5,610,000
14 June 7, 2001 $5,610,000
15 September 7, 2001 $5,610,000
16 December 7, 2001 $5,610,000
17 March 7, 2002 $6,120,000
18 June 7, 2002 $6,120,000
19 September 7, 2002 $6,120,000
20 December 31, 2002 $2,040,000
</TABLE>
<PAGE> 120
SCHEDULE VIII
PENDING AND THREATENED LITIGATION
A. Borrower
There is no pending or threatened litigation involving the
Borrower.
B. Project Participants
The Borrower is aware of no pending or threatened litigation
against any Project Participant which seeks to restrain, prevent or change the
transactions contemplated by the Project Documents or which could materially
adversely affect the ability of the Borrower, the Parent or any Project
Participant to perform its obligations under any of the Project Documents to
which it is a party in whole or in part, or questioning the validity or legality
of the transactions contemplated by the Project Documents.
<PAGE> 121
SCHEDULE IX
<TABLE>
<CAPTION>
Lender Column A Column B
Existing Term Loan Amount1/ Loan Percentage
- ------ --------------------------- ---------------
<S> <C> <C>
CREDIT LYONNAIS $58,500,000.03 100%
CREDIT LYONNAIS
1301 Avenue of the Americas
New York, New York 10019
Attention: James Guidera
Robert Colvin
Telephone: (212) 261-7893/
(212) 261-7882
Telecopier: (212) 261-7890
DOMESTIC LENDING OFFICE AND
EURODOLLAR LENDING OFFICE:
1301 Avenue of the Americas
New York, New York 10019
Attention: Robert Colvin/
Joslyn Rothe
Telephone: (212) 261-7882/
(212) 261-7886
Telecopier: (212) 261-7890
</TABLE>
<PAGE> 1
THIRD AMENDMENT
TO
AMENDED AND RESTATED
CONSTRUCTION AND TERM LOAN AGREEMENT
THIRD AMENDMENT, dated as of December 1, 1997 (this "Third Amendment"),
to the AMENDED AND RESTATED CONSTRUCTION AND TERM LOAN AGREEMENT, dated as of
December 1, 1993, as amended by the First Amendment thereto dated as of March
31, 1996 and the Second Amendment thereto dated as of May 31, 1996 (the "Loan
Agreement"), among Cogentrix of Rocky Mount, Inc. (the "Borrower"), the Tranche
B Lenders parties thereto (the "Tranche B Lenders") and the Prudential Insurance
Company of America, as agent for the Tranche B Lenders (the "Credit Facility
Agent").
The Borrower has requested that the Lenders amend Section 10.18 of the
Loan Agreement to permit the Borrower to change its fiscal year end from June 30
to December 31 of each year, and the Lenders party hereto are willing to agree
to such request upon the terms and conditions set forth herein.
Accordingly, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Loan Agreement.
2. Amendment of Loan Agreement. Section 10.18 of the Loan Agreement is
hereby amended by deleting the reference therein to "June 30" and substituting
in lieu thereof "December 31".
3. Waiver. The provisions of Section 11.11 of the Loan Agreement that
require at least 60 days' prior written notice to the Credit Facility Agent of a
change in the Borrower's fiscal year are hereby waived to the extent necessary
to permit the transactions contemplated by this Third Amendment.
4. Financial Statements. For purposes of Section 10.08(a) of the Loan
Agreement, for the six-month period beginning July 1, 1997 and ending December
31, 1997, the Borrower hereby agrees to furnish or cause to be furnished to the
Credit Facility Agent and each Lender as soon as available, but in any event
within 120 days after December 31, 1997, a copy of the balance sheet of each
Reporting Participant as of December 31, 1997 and the related statements of
income, retained earnings and changes in cash flow of such Reporting Participant
for the six-months ended December 31, 1997, setting forth in each case in
comparative form the figures for the corresponding period
<PAGE> 2
in the previous fiscal year, certified without qualification or exception as to
the scope of its audit by independent public accountants of national standing
reasonably acceptable to the Credit Facility Agent.
5. No Other Amendments or Waivers. Except as expressly amended or
waived hereby, the provisions of the Loan Agreement are, and shall remain, in
full force and effect. The waiver contained herein shall not constitute a waiver
of any other provisions of the Loan Agreement or for any purpose except as
expressly set forth herein.
6. Counterparts. This Third Amendment may be executed by one or more of
the parties hereto on any number of separate counterparts, all of which
counterparts, taken together, shall constitute one and the same instrument.
7. Effective Date. This Third Amendment shall become effective on the
date on which the Credit Facility Agent shall have received counterparts hereof
executed by the Borrower and by the Required Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed and delivered by their duly authorized officers as of the
day and year first above written.
COGENTRIX OF ROCKY MOUNT, INC.
By: /s/ Elizabeth L. Rippetoe
-----------------------------------
Title: Vice President and Assistant
General Counsel
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, as Credit
Facility Agent and a Tranche B Lender
By: /s/ Joseph J. Lemanowicz
-----------------------------------
Title: Vice President
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Thomas P. Shea
-----------------------------------
Title:
2
<PAGE> 3
CENTURY INDEMNITY COMPANY
By: CIGNA Investments, Inc.
By: /s/ Thomas P. Shea
-----------------------------------
Title:
CIGNA REINSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Thomas P. Shea
-----------------------------------
Title:
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By: CIGNA Investments, Inc.
By: /s/ Thomas P. Shea
-----------------------------------
Title:
3
<PAGE> 1
THIRD AMENDMENT
TO
CONSTRUCTION AND TERM LOAN AGREEMENT
THIRD AMENDMENT, dated as of December 1, 1997 (this "Third Amendment"),
to the CONSTRUCTION AND TERM LOAN AGREEMENT, dated as of June 15, 1989, as
amended by the First Amendment thereto dated as of December 15, 1993 and the
Amendment, Waiver and Consent dated as of January 31, 1994 (the "Loan
Agreement"), among Cogentrix of Pennsylvania, Inc. (the "Borrower"), Banque
Paribas, New York Branch and the other banking institutions party thereto as
banks (the "Banks") and Banque Paribas, New York Branch, as agent for the Banks
(the "Agent").
The Borrower has requested that the Banks amend Section 5.19 of the
Loan Agreement to permit the Borrower to change its fiscal year end from June 30
to December 31 of each year, and the Banks party hereto are willing to agree to
such request upon the terms and conditions set forth herein.
Accordingly, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Loan Agreement.
2. Amendment of Loan Agreement. Section 5.19 of the Loan Agreement is
hereby amended by deleting the reference therein to "June 30" and substituting
in lieu thereof "December 31".
3. Financial Statements. For purposes of Section 5.8(a) of the Loan
Agreement, for the six-month period beginning July 1, 1997 and ending December
31, 1997, the Borrower hereby agrees to furnish or cause to be furnished to the
Agent and each Bank as soon as available, but in any event within 90 days after
December 31, 1997, a copy of the balance sheet of each Reporting Participant as
of December 31, 1997 and the related statements of income, retained earnings and
changes in cash flow of such Reporting Participant for the six-months ended
December 31, 1997, setting forth in each case in comparative form the figures
for the corresponding period in the previous fiscal year, certified without
qualification or exception as to the scope of its audit by independent public
accountants of national standing reasonably acceptable to the Agent.
4. No Other Amendments or Waivers. Except as expressly amended or
waived hereby, the provisions of the Loan Agreement are, and shall remain, in
full force and effect. The waiver contained herein shall not constitute a waiver
of any other provisions of the Loan Agreement or for any purpose except as
expressly set forth herein.
<PAGE> 2
5. Counterparts. This Third Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts, all of which
counterparts, taken together, shall constitute one and the same instrument.
6. Effective Date. This Third Amendment shall become effective on the
date on which the Agent shall have received counterparts hereof executed by the
Borrower and by the Required Banks.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed and delivered by their duly authorized officers as of the
day and year first above written.
COGENTRIX OF PENNSYLVANIA, INC.
By: /s/ Elizabeth L. Rippetoe
-----------------------------------
Title: Vice President
Assistant General Counsel
BANQUE PARIBAS, NEW YORK BRANCH,
in its capacity as Agent and as a Bank
By: /s/ David Lee
-----------------------------------
Title: Vice President
By: /s/ Ralph Scholtz
-----------------------------------
Title: Director
Consented to:
THE DAIWA BANK, LIMITED
By: /s/ Jun Oguda
-----------------------------
Title: Attorney-in-fact
POSTIPANKKI, LTD.
By: /s/ Larry Malm Ari Kaarakainen
---------------------------------------
Title: SVP VP
2
<PAGE> 1
EXHIBIT NO. 10.57
AMENDED AND RESTATED
SUBORDINATED NOTE
April 1, 1991 as amended and
$8,000,000 restated as of April 22, 1994
FOR VALUE RECEIVED, COGENTRIX OF PENNSYLVANIA, INC., a Delaware
corporation (the "Company"), hereby promises to pay to the order of COGENTRIX
DELAWARE HOLDINGS, INC. (the "Payee"), at its office located at 1105 North
Market Street, Suite 1108, Wilmington, Delaware 19899, the principal sum of
EIGHT MILLION DOLLARS ($8,000,000) or such lesser principal amount as may be
from time to time outstanding hereunder, in lawful money of the United States of
America and in immediately available funds, and to pay interest on the unpaid
principal amount of this Note, at such office, in like money and funds, for the
period commencing on the date hereof until such principal amount is paid in
full, at a rate per annum equal to 11.75%.
The principal of and accrued interest on this Note shall be due and
payable on April 30 and October 31 in each year or, if later, the date on which
cash is available for distribution to the Company from the Borrower's Security
Account pursuant to Section 4.06(b) of the Security Deposit Agreement (as
defined in the Loan Agreement) (each a "Semi-Annual Date"), but only to the
extent of the Company's Excess Project Cash Flow (as defined below) on such
Semi-Annual Date, in an amount equal to the lesser of the amount of the
Company's Excess Project Cash Flow or the outstanding principal amount of, and
accrued and unpaid interest on, this Note as of such date. Notwithstanding the
foregoing, the outstanding principal amount of this Note, together with all
accrued and unpaid interest hereon, shall be due and payable on the Maturity
Date (as defined below). Accrued interest on this Note shall also be payable on
the date the principal of this Note is paid in full. Amounts paid under this
Note shall be applied first to the payment of accrued and unpaid interest on
this Note and second to the payment of the principal hereof.
As used herein, (a) "Excess Project Cash Flow" shall mean, as of any
date, the lesser of Excess Project Cash Flow (as defined in the Loan Agreement)
for the preceding two fiscal quarters or the amount of cash available for
distribution to the Company from the Borrower's Security Account pursuant to
Section 4.06(b) of the Security Deposit Agreement on such date, and (b)
"Maturity Date" shall mean the date which is the later of March 31, 2005 or the
date on which the Senior Debt referred to below shall have been paid in full.
Upon the payment of the outstanding principal of and all accrued
interest on this Note, the obligations of the Company under this Note shall
terminate.
This Note is an amendment and restatement of the Subordinated Note
referred to in the Capital Funds Agreement dated as of August 15, 1989 among
Westinghouse Electric Corporation, successor by merger to Westinghouse Credit
Corporation ("Westinghouse"), the
<PAGE> 2
Company and Banque Paribas, New York Branch ("Paribas"), as Agent (as amended
and supplemented from time to time, the "Capital Funds Agreement"), and
evidences the Subordinated Loan made by Westinghouse to the Company pursuant to
the provisions of the Capital Funds Agreement, which Subordinated Loan was
assigned and transferred by Westinghouse to the Payee. Capitalized terms used in
this Note have the respective meanings assigned to them in the Capital Funds
Agreement.
Each holder of this Note, by its acceptance hereof, agrees to and shall
be bound by all the provisions hereof.
Subordination:
As used herein, the term "Senior Debt" shall mean all indebtedness,
obligations and liabilities of the Company to Paribas and the other Banks (as
hereinafter defined) and to the Agent arising out of or in connection with the
Construction and Term Loan Agreement dated as of June 15, 1989 (as amended or
supplemented from time to time, the "Loan Agreement") among the Company,
Paribas, as Agent, and the banking institutions which are or become parties
thereto (Paribas and said banking institutions being herein called the "Banks"),
including, without limitation, all principal, premium (if any) and interest on
all loans made to the Company under the Loan Agreement and any and all renewals
or extensions thereof (including any interest accruing subsequent to the
commencement of bankruptcy, insolvency or similar proceedings with respect to
the Company), all fees, expenses, costs and other amounts payable by the Company
pursuant to the Loan Agreement, and the Borrower's Interest Hedging Transactions
(as such term is defined in the Loan Agreement). As used herein, the term
"Subordinated Debt" shall mean all principal of and interest on, and any other
amount payable with respect to, this Note.
Unless and until all Senior Debt shall have been paid in full in
accordance with its terms, the Company will not, directly or indirectly, make or
agree to make:
(a) any payment (in cash or property, by set-off or
otherwise), direct or indirect, of or on account of any principal or
interest in respect of this Note (or any indebtedness subordinated to
this Note), and no such payment shall be accepted by any holder of this
Note, or
(b) any redemption, purchase or other acquisition, direct or
indirect, of this Note (or any indebtedness subordinated to this Note),
and no holder of this Note shall be a party to any such redemption,
purchase or other acquisition,
if a Default or an Event of Default (as defined in the Loan Agreement) shall
have occurred and be continuing or if any such action referred to in paragraphs
(a) and (b) above would be in violation of the provisions of Section 6.3 of the
Loan Agreement.
Upon (i) any acceleration of the principal amount due on this Note or
(ii) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or
- 2 -
<PAGE> 3
securities, to creditors upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, then and in any
such event all principal, premium (if any), and interest and all other amounts
due or to become due upon all Senior Debt shall first be paid in full before the
holder of this Note shall be entitled to retain any assets so paid or
distributed in respect of the Subordinated Debt evidenced by this Note (for
principal, interest or otherwise); and, upon any such dissolution or winding up
or liquidation or reorganization, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the holder of this Note would be entitled, except as otherwise provided
herein, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
or by the holder of this Note if received by it, directly to the holders of
Senior Debt (pro rata to each such holder on the basis of the respective amounts
of Senior Debt held by such holder) or their representatives, to the extent
necessary to pay all Senior Debt in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt, before any payment
or distribution is made to the holder of this Note.
The holder of this Note hereby irrevocably authorizes and empowers
(without imposing any obligation on) each holder of Senior Debt and such
holder's representatives, under the circumstances set forth in the immediately
preceding paragraph, to demand, sue for, collect and receive every such payment
or distribution described therein and give acquittance therefor, to file claims
and proofs of claims in any statutory or nonstatutory proceeding, to vote such
Senior Debt holder's ratable share of the full amount of the Subordinated Debt
evidenced by this Note in its sole discretion in connection with any resolution,
arrangement, plan of reorganization, compromise, settlement or extension and to
take all such other action (including, without limitation, the right to
participate in any composition of creditors and the right to vote such Senior
Debt holder's ratable share of the Subordinated Debt evidenced by this Note at
creditors' meetings for the election of trustees, acceptances of plans and
otherwise), in the name of the holder of this Note or otherwise, as such Senior
Debt holder's representatives may deem necessary or desirable for the
enforcement of the subordination provisions of this Note. The holder of this
Note shall execute and deliver to each holder of Senior Debt and such holder's
representatives all such further instruments confirming the foregoing
authorization, and all such powers of attorney, proofs of claim, assignments of
claim and other instruments, and shall take all such other action as may be
requested by such holder or such holder's representatives in order to enable
such holder to enforce all claims upon or in respect of such holder's ratable
share of the Subordinated Debt evidenced by this Note.
Should any payment or distribution be collected or received by the
holder of this Note and such collection or receipt is not expressly permitted by
the foregoing provisions, such holder shall forthwith turn over the same to the
holders of the Senior Debt or their representatives in the form received (except
for the endorsement or the assignment of such holder when necessary) and, until
so turned over, the same shall be held in trust by such holder as the property
of the holders of the Senior Debt.
- 3 -
<PAGE> 4
If any Senior Debt shall become or be declared to be immediately due
and payable, the unpaid principal amount of and accrued interest on this Note
shall become immediately due and payable, notwithstanding any inconsistent terms
hereof. No holder of this Note shall, without the prior written consent of the
holders of Senior Debt, have any right to demand payment of, or accelerate the
maturity of, or institute any proceedings to enforce any indebtedness evidenced
by, this Note until the Senior Debt is paid in full.
Until the Senior Debt shall have been paid in full, the holder of this
Note will not, without the prior written consent of the holders of the Senior
Debt, commence or join with any other person in commencing any proceeding
against the Company or any other person with respect to the Subordinated Debt
under any bankruptcy, reorganization, readjustment of debt, dissolution,
receivership, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction, nor shall the holder of this Note, without the prior
written consent of the holders of the Senior Debt, participate in any assignment
for the benefit of creditors, compositions, or arrangements with respect to the
Company's debts with respect to the Subordinated Debt.
Subject to the payment in full of all Senior Debt, the holder of this
Note shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company made on the Senior Debt until
the Subordinated Debt evidenced by this Note shall be paid in full; provided,
however, that nothing herein contained shall be deemed to assign or grant to any
holder of this Note, or subrogate such holder to, any right of a holder of
Senior Debt as a mortgagee, secured party or other lien or pledgeholder to any
property of the Company which secures such Senior Debt.
Nothing contained in this Note is intended to or shall impair as
between the Company, its creditors other than the holders of Senior Debt, and
the holders of this Note, the obligation of the Company, which is absolute and
unconditional, to pay to the holder of this Note, as and when the same shall
become due and payable in accordance with its terms, principal and interest
hereon, subject to the rights of the holders of Senior Debt as herein provided,
or to affect the relative rights of the holder of this Note and creditors of the
Company other than the holders of Senior Debt.
The subordination provisions of this Note, the subordination effected
thereby, and the rights of the holders of the Senior Debt, shall not be affected
by (a) any amendment of or addition or supplement to the Loan Agreement or any
Senior Debt or any instrument or agreement relating thereto, (b) any exercise or
non-exercise of any right, power or remedy under or in respect of the Loan
Agreement or any Senior Debt or any instrument or agreement relating thereto, or
(c) any waiver, consent, release, indulgence, extension, renewal, modification,
delay, or other action, inaction or omission in respect of the Loan Agreement or
any Senior Debt or any instrument or agreement relating thereto; whether or not
any holder of this Note shall have had notice or knowledge of any of the
foregoing.
Each holder of this Note by its acceptance hereof authorizes and
directs the Company on its behalf to take such further action as may be
necessary or appropriate to effectuate the
- 4 -
<PAGE> 5
subordination as provided herein and appoints the Company its attorney-in-fact
for any and all such purposes.
Limitation on Transfer:
This Note may not be assigned or transferred except in accordance with
the provisions of Section 5 of the Consent dated as of April 22, 1994 between
the Company and the Banks executed and delivered under the Loan Agreement.
The provisions of this Note shall be governed by, and construed in
accordance with, the law of the State of New York.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed on its behalf by one of its officers duly authorized thereunto.
COGENTRIX OF PENNSYLVANIA, INC.
By /s/ Thomas F. Schwartz
-----------------------------------
Name: Thomas F. Schwartz
Title: Vice President - Finance and
Treasurer
- 6 -
<PAGE> 1
SEVENTH AMENDMENT
TO REIMBURSEMENT AND LOAN AGREEMENT
SEVENTH AMENDMENT, dated as of December 1, 1997 (this "Seventh
Amendment"), to the REIMBURSEMENT AND LOAN AGREEMENT, dated as of December 1,
1990, as amended by the First Amendment thereto dated as of February 1, 1991,
the Second Amendment thereto dated as of December 1, 1991, the Third Amendment
thereto dated as of December 15, 1993, the Fourth Amendment thereto dated as of
February 15, 1995, the Fifth Amendment thereto dated as of June 1, 1995 and the
Sixth Amendment thereto dated as of March 31, 1996 (the "Reimbursement
Agreement"), among Cogentrix of Richmond, Inc. (the "Borrower"), Banque Paribas,
New York Branch, as letter of credit issuer (the "Issuing Bank"), Banque
Paribas, New York Branch, and each other financial institution party thereto
(the "Lenders"), and Banque Paribas, New York Branch, as agent for the Issuing
Bank and the Lenders (the "Agent").
The Borrower has requested that the Lenders amend Section 10.18 of the
Reimbursement Agreement to permit the Borrower to change its fiscal year end
from June 30 to December 31 of each year, and the Lenders party hereto are
willing to agree to such request upon the terms and conditions set forth herein.
Accordingly, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Reimbursement
Agreement.
2. Amendment of Reimbursement Agreement. Section 10.18 of the
Reimbursement Agreement is hereby amended by deleting the reference therein to
"June 30" and substituting in lieu thereof "December 31".
3. Waiver. The provisions of Section 11.11 of the Reimbursement
Agreement that require at least 60 days' prior written notice to the Agent of a
change in the Borrower's fiscal year are hereby waived to the extent necessary
to permit the transactions contemplated by this Seventh Amendment.
4. Financial Statements. For purposes of Section 10.08(a) of the
Reimbursement Agreement, for the six-month period beginning July 1, 1997 and
ending December 31, 1997, the Borrower hereby agrees to furnish or cause to be
furnished to the Agent and each Lender as soon as available, but in any event
within 120 days after December 31, 1997, a copy of the balance sheet of each
Reporting Participant as of December 31, 1997 and the related statements of
income, retained earnings and changes in cash flow of such Reporting Participant
for the six-months ended December 31, 1997, setting forth in each case in
comparative form the figures for the corresponding period in the previous fiscal
year, certified without qualification or exception as to the scope of its
<PAGE> 2
audit by independent public accountants of national standing reasonably
acceptable to the Agent.
5. No Other Amendments or Waivers. Except as expressly amended or
waived hereby, the provisions of the Reimbursement Agreement are, and shall
remain, in full force and effect. The waiver contained herein shall not
constitute a waiver of any other provisions of the Reimbursement Agreement or
for any purpose except as expressly set forth herein.
6. Counterparts. This Seventh Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, all of which
counterparts, taken together, shall constitute one and the same instrument.
7. Effective Date. This Seventh Amendment shall become effective on the
date on which the Agent shall have received counterparts hereof executed by the
Borrower and by the Required Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be duly executed and delivered by their duly authorized officers as
of the day and year first above written.
COGENTRIX OF RICHMOND, INC.
By: /s/ Elizabeth L. Rippetoe
-------------------------------------
Title: Vice President
Assistant General Counsel
BANQUE PARIBAS, NEW YORK BRANCH
in its capacity as Agent, Issuing Bank,
and as a Lender
By: /s/ David Lee
-------------------------------------
Title: VP
By: /s/ Andrew Platt
-------------------------------------
Title: AVP
Consented to:
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By: /s/ Takeo Kada
-------------------------------
Takeo Kada
Title: Senior Vice President
THE YASUDA TRUST AND BANKING CO., LTD.
By: /s/ R M Laudenschlager
-------------------------------
Rohn Laudenschlager
Title: Senior Vice President
2
<PAGE> 3
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Christine Harrigan
------------------------------
Title: Authorized Signatory
THE SUMITOMO BANK, LTD. THE SUMITOMO BANK, LTD.
By: /s/ James L. Hogan By: /s/ Nancy Z. Reimann
------------------------------ -----------------------------
James L. Hogan Nancy Z. Reimann
Title: Vice President and Manager Title: Vice President
SOCIETE GENERALE
By: /s/ Ralph Saheb
------------------------------
Title: Vice President and
Regional Operations Manager
THE NIPPON CREDIT BANK, LTD., NEW YORK BRANCH
By: /s/ Koichi Sunagawa
------------------------------
Title: Assistant Vice President
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ James F. Guidera
------------------------------
Title: Vice President
COMPAGNIE FINANCIERE de CIC et de
L'UNION EUROPEENNE
By: /s/ Lawrence Carbillet By: /s/ David Staffellbach
------------------------------ ----------------------------
Title: VP Title: AVP
THE SANWA BANK, LTD.
By: /s/ Thomas R. Cantello
-------------------------------
Title: Assistant Vice President
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By: /s/ David S. Barrick By: /s/ Diedera Van Den Berg
------------------------------ --------------------------
David S. Barrick Diedera Van Den Berg
Title: Managing Director Title: Senior Associate
3
<PAGE> 1
================================================================================
THIRD AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT
dated as of February 11, 1998
among
JAMES RIVER COGENERATION COMPANY
COGENTRIX OF VIRGINIA, INC.
CREDIT LYONNAIS
as Grantee for the Benefit of the Secured Parties
and as Issuing Bank
and
FIRST UNION NATIONAL BANK,
as Security Agent
------------------------------------------
Cogeneration Facility
Hopewell, Virginia
------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions................................................. 3
ARTICLE II
Appointment of Security Agent;
Establishment of Accounts .................................. 6
SECTION 2.1 Appointment of Security Agent............................... 6
SECTION 2.2 Creation of Accounts........................................ 6
ARTICLE III
Deposits into Accounts...................................... 7
SECTION 3.1 Security Interest; Deposit of Revenues and
Special Payments............................................ 7
SECTION 3.2 Books of Account............................................ 7
SECTION 3.3 Deposits Irrevocable........................................ 8
SECTION 3.4 Indemnity Agreements........................................ 8
ARTICLE IV
Payments from Accounts...................................... 8
SECTION 4.1 Revenue Account -- Weekly Payments.......................... 8
SECTION 4.2 Revenue Account -- Monthly Payments......................... 8
SECTION 4.3 Revenue Account -- Quarterly Payments....................... 10
SECTION 4.4 Senior Debt Service Account................................. 11
SECTION 4.5 Distributions from the Debt Protection Security Account..... 11
SECTION 4.6 Debt Protection Account..................................... 12
SECTION 4.7 Special Payment Account..................................... 13
SECTION 4.8 Property Tax Account........................................ 13
SECTION 4.9 ............................................................ 14
SECTION 4.10 Transfers Following Events of Default Acceleration.......... 14
SECTION 4.11 Transfers from Accounts on the Effective Date............... 14
ARTICLE V
Investment.................................................. 16
ARTICLE VI
Security Agent.............................................. 16
SECTION 6.1 Rights, Duties, Etc......................................... 16
SECTION 6.2 Resignation or Removal...................................... 17
ARTICLE VII
Determinations.............................................. 18
-i-
<PAGE> 3
TABLE OF CONTENTS (Cont'd)
Page
----
SECTION 7.1 Value....................................................... 18
SECTION 7.2 Other Determinations........................................ 18
SECTION 7.3 Available Cash.............................................. 18
ARTICLE VIII
Miscellaneous............................................... 19
SECTION 8.1 Fees and Indemnification of Security Agent.................. 19
SECTION 8.2 Termination, Etc............................................ 19
SECTION 8.3 Severability................................................ 19
SECTION 8.4 Counterparts................................................ 20
SECTION 8.5 Amendments.................................................. 20
SECTION 8.6 Applicable Law.............................................. 20
SECTION 8.7 Notices..................................................... 20
SECTION 8.8 Limitations on Recourse..................................... 20
SECTION 8.9 Benefit of Agreement........................................ 22
-ii-
<PAGE> 4
THIRD AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT, dated
as of February 11, 1998, among JAMES RIVER COGENERATION COMPANY, a North
Carolina general partnership (the "Partnership"); COGENTRIX OF VIRGINIA, INC., a
Virginia corporation ("Cogentrix Virginia"); CREDIT LYONNAIS, as grantee (in
such capacity, the "Grantee") for the benefit of the Secured Parties referred to
below and as issuer of the Debt Service Letter of Credit as defined in the
Reimbursement Agreement referred to below (in such capacity, the "Issuing
Bank"); and FIRST UNION NATIONAL BANK, a national banking association, as agent
for the Grantee under this Agreement (the "Security Agent").
W I T N E S S E T H :
WHEREAS, the Partnership owns and operates a cogeneration
facility having a gross nameplate rating of 110 megawatts located in Hopewell,
Virginia (the "Facility"); and
WHEREAS, the acquisition, construction and equipping of the
Facility has been financed by credit facilities made available pursuant to an
Application for Letter of Credit and Reimbursement Agreement dated as of
December 1, 1986, as amended by First Amendment dated as of February 20, 1987,
among Cogentrix Virginia, Bank Paribas, New York Branch, as issuing bank (in
such capacity, the "Original Issuing Bank"), certain banks (the "Original
Banks") and Banque Paribas, New York Branch, as agent (in such capacity, the
"Original Agent"), and as further amended by an Assumption and Modification
Agreement dated as of October 1, 1987 among the Partnership, Cogentrix Virginia,
the Original Issuing Bank, the Original Banks and the Original Agent (herein
called the "Original Reimbursement Agreement"); and
WHEREAS, pursuant to the provisions of the Original
Reimbursement Agreement, Cogentrix Virginia, the Grantee, NCNB National Bank of
North Carolina (the "Original Security Agent"), Cogentrix, Inc., a North
Carolina corporation, and Combustion Engineering, Inc., a Delaware corporation,
entered into a Security Deposit Agreement dated as of December 31, 1986, as
amended by Modification Agreement dated as of October 1, 1987 among said parties
and the Partnership (herein called the "Original Security Deposit Agreement");
and
WHEREAS, the parties to the Original Reimbursement Agreement
amended and restated such agreement pursuant to the Amended and Restated
Application for Letter of Credit and Reimbursement Agreement dated as of
September 1, 1988, among the Partnership, the Original Issuing Bank, the Banks
(as defined therein) and the Original Agent, and such parties subsequently
amended and restated such Amended and Restated Application for Letter of Credit
and
<PAGE> 5
2
Reimbursement Agreement pursuant to the Second Amended and Restated
Application for Letter of Credit and Reimbursement Agreement, dated as of July
1, 1996, among the Partnership, (as defined therein) and the Original Agent
(such Second Amended and Restated Application for Letter of Credit and
Reimbursement Agreement herein called the "Existing Reimbursement Agreement");
and
WHEREAS, the Partnership, Cogentrix Virginia, the Grantee and
the Original Security Agent amended and restated the Original Security Deposit
Agreement pursuant to the Amended and Restated Security Deposit Agreement, dated
as of September 1, 1988, and such parties subsequently amended and restated such
Amended and Restated Security Deposit Agreement pursuant to the Second Amended
and Restated Security Deposit Agreement, dated as of July 1, 1996 (such Second
Amended and Restated Security Deposit Agreement herein called the "Existing
Security Deposit Agreement"); and
WHEREAS, the Original Agent desires to resign as agent for the
banks under the Existing Reimbursement Agreement and as grantee under the
Existing Security Deposit Agreement and Credit Lyonnais has agreed to accept
such positions; and
WHEREAS, the parties to the Existing Reimbursement Agreement
have agreed to amend and restate the Existing Reimbursement Agreement in its
entirety pursuant to a Third Amended and Restated Application for Letter of
Credit and Reimbursement Agreement, dated as of February 11, 1998 (herein, as
amended, supplemented or otherwise modified from time to time, called the
"Reimbursement Agreement"), among the Partnership, the banks identified as
"Banks" on the signature pages thereof (the "Banks") and Credit Lyonnais as the
Issuing Bank and as the agent for the Banks and the Issuing Bank (in such
capacity, the "Agent"); and
WHEREAS, it is a condition to the Reimbursement Agreement's
becoming effective that the Existing Security Deposit Agreement shall be amended
and restated in its entirety to read as hereinafter set forth; and
WHEREAS, First Union National Bank has agreed to continue to
act as agent for the Grantee pursuant to the terms of this Agreement; and
NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree that on the Effective Date (as hereinafter defined)
the Existing Security Deposit Agreement shall be amended and restated in its
entirety to read as follows:
<PAGE> 6
3
ARTICLE I
Definitions
Unless the context shall otherwise require, the capitalized
terms used herein (and not otherwise defined herein) shall have the meanings
assigned to them in the Reimbursement Agreement (such definitions to be equally
applicable to the singular and plural forms of the terms defined).
In addition, the following terms when used herein shall have
the following meanings:
"Accounts" shall mean the Revenue Account, the Senior Debt
Service Account, the Debt Protection Account, the Special Payment
Account, the Property Tax Account and the Insurance Proceeds Account.
"Agreement", "hereto", "hereof", "hereunder" and words of
similar import shall mean this Third Amended and Restated Security
Deposit Agreement, as the same may from time to time be amended,
supplemented or otherwise modified in accordance with the provisions
hereof.
"Debt Protection Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.2 of the Existing Security Deposit Agreement, and continued
to be maintained by the Security Agent pursuant to this Agreement.
"Distribution Certificate" shall mean a certificate signed by
the Treasurer of the Partnership and countersigned by the Grantee
certifying that, as of a Partnership Distribution Date, all conditions
have been satisfied under Section 8.3 of the Reimbursement Agreement
for the Partnership to make Restricted Payments.
"Effective Date" shall mean the date designated as the
"Effective Date" in a written notice delivered by the Grantee to the
Security Agent.
"Insurance Proceeds Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.2(b) hereof.
"Lenders" shall mean the Grantee and the Secured Parties.
"Monthly Distribution Date" the seventh day of each calendar
month unless such day is not a Business Day, in which case the Business
Day next succeeding such seventh day of such calendar month.
"Partnership Distribution Date" shall mean the first Business
Day to occur after each date on which the Security Agent makes the
transfers from the Revenue Account required
<PAGE> 7
4
by Section 4.3 hereof.
"Permitted Investments" shall mean (a) marketable direct
obligations of the United States of America, (b) marketable obligations
directly and fully guaranteed as to interest and principal by the
United States of America, (c) demand deposits with the Security Agent,
and time deposits, certificates of deposit and banker's acceptances
issued by (i) the Agent or (ii) 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 Standard & Poor's Corporation and "A2" or better by Moody's
Investors Service, Inc., (d) commercial paper or tax exempt obligations
given the highest rating by Moody's Investors Service, Inc. and
Standard & Poor's Corporation, (e) obligations of the Agent or any bank
described in clause (c) above, in respect of the repurchase of
obligations of the type as described in clauses (a) and (b) hereof,
provided that such repurchase obligations shall be fully secured by
obligations of the type described in said clauses (a) and (b) and the
possession of such obligations shall be transferred to, and segregated
from other obligations owned by, the Agent or any such bank, (f)
instruments rated "AAA" by Standard & Poor's Corporation and "Aaa" by
Moody's Investors Service, Inc. issued by investment companies and
having a maturity of 180 days or less, (g) eurodollar certificates of
deposit issued by the Agent or any bank described in clause (c) above,
and (h) marketable securities rated not less than "A-1" by Standard &
Poor's Corporation or not less than "Prime-1" by Moody's Investors
Service, Inc. In no event shall any cash in the Accounts be invested in
any obligation, certificate of deposit, acceptance, commercial paper or
instrument which by its terms matures (A) more than 180 days after the
date of investment, unless the Agent or a bank meeting the requirements
of clause (c) above shall have agreed to repurchase such obligation,
certificate of deposit, acceptance, commercial paper or instrument at
its purchase price plus earned interest within no more than 180 days
after its purchase hereunder or (B) after the next Installment Payment
Date.
"Property Tax Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.2(b) hereof.
"Quarterly Distribution Date" shall mean the earlier of (i)
the date which is one month after each Installment Payment Date and
(ii) the date after each Installment Payment Date on which the
Partnership delivers the certificate required by Section 7.15 of the
Reimbursement Agreement.
"Revenue Account" shall mean the special account designated by
that name established by the Security Agent
<PAGE> 8
5
pursuant to Section 2.2 of the Existing Security Deposit Agreement, and
continued to be maintained by the Security Agent pursuant to this
Agreement.
"Revenues" shall mean all revenues and payments at any time
received by the Partnership (other than (i) the proceeds of Loans made
under the Reimbursement Agreement, (ii) Special Payments and (iii) any
proceeds payable into the Insurance Proceeds Account pursuant to
Section 4.12 hereof), including (without limitation) (a) all payments
received by the Partnership under the Power Purchase Agreement and the
Steam Purchase Agreement, (b) all other payments received by the
Partnership from the sale of electricity or steam or by-products
produced by the Facility, (c) all proceeds of any business interruption
insurance or contingent business interruption insurance, (d) all
payments received by the Partnership pursuant to any Swap, (e) the net
cash proceeds of any sale transfer or other disposition of any asset by
the Partnership whether or not permitted by Section 8.1 or 14.6 of the
Reimbursement Agreement, (f) all payments received under all other
Project Documents, (g) all payments received by the Partnership in
respect of property tax refunds and (h) the proceeds of all Junior
Working Capital Loans.
"Secured Obligations" shall mean the Senior Debt.
"Secured Parties" shall mean the Banks, the Agent, the Issuing
Bank and any Swap Counterparties.
"Senior Debt" shall mean all Obligations of the Partnership to
the Secured Parties or any of them.
"Senior Debt Service Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.2 of the Existing Security Deposit Agreement, and continued
to be maintained by the Security Agent pursuant to this Agreement.
"Special Payment Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.2 of the Existing Security Deposit Agreement, and continued
to be maintained by the Security Agent pursuant to this Agreement.
"Special Payments" shall mean the proceeds of all payments of
damages made by Pontiki or MAPCO Coal, Inc. to the Partnership pursuant
to Section 9.06 of the Coal Sales Agreement.
"Value" shall have the meaning ascribed thereto in Section 7.1
hereof.
"Weekly Distribution Date" shall have the meaning ascribed
thereto in Section 4.1 hereof.
<PAGE> 9
6
ARTICLE II
Appointment of Security Agent;
Establishment of Accounts
SECTION 2.1 Appointment of Security Agent. First Union
National Bank is hereby appointed by the Partnership and the Grantee as security
agent hereunder, and the Security Agent hereby agrees to act as such and to
accept all cash, payments, other amounts and Permitted Investments to be
delivered to or held by the Security Agent pursuant to the terms of this
Agreement. The Security Agent shall hold and safeguard the Accounts (and the
cash, instruments and securities on deposit therein) during the term of this
Agreement and shall treat the cash, instruments and securities in the Accounts
as funds, instruments and securities pledged by the Partnership to the Lenders
to be held by the Security Agent, as agent of the Lenders, in trust in
accordance with the provisions hereof.
SECTION 2.2 Creation of Accounts. (a) The Security Agent has
heretofore established and is maintaining the following four special, segregated
and irrevocable cash collateral accounts which shall be maintained at all times
until the termination of this Agreement:
(1) Revenue Account
(2) Senior Debt Service Account
(3) Debt Protection Account
(4) Special Payment Account
(b) The Security Agent shall establish on the Effective Date
the following two additional special, segregated and irrevocable cash collateral
accounts which shall be maintained at all times until the termination of this
Agreement:
(1) Insurance Proceeds Account
(2) Property Tax Account
(c) All moneys, investments and securities at any time on
deposit in any of the Accounts shall constitute trust funds to be held in the
custody of the Security Agent for the purposes and on the terms set forth in
this Agreement.
(d) On the Effective Date after the transfers contemplated by
Section 4.11 hereof shall have been made, the Security Agent shall close and
thereafter shall not be required to maintain the Excess Generation Reserve
Accounts (as defined in the Existing Security Deposit Agreement).
<PAGE> 10
7
ARTICLE III
Deposits into Accounts
SECTION 3.1 Security Interest; Deposit of Revenues and
Special Payments. (a) In order to secure the performance by the Partnership of
all of its covenants, agreements and obligations under the Project Documents and
the payment by the Partnership of all Secured Obligations, this Agreement is
intended to create, and the Partnership hereby pledges to, and creates in favor
of the Grantee for the equal and ratable benefit of the Secured Parties a
security interest in and to, the Accounts, all cash, investments and securities
at any time on deposit in the Accounts, all present and future accounts (as
defined in the North Carolina Uniform Commercial Code) of the Partnership, all
other rights of the Partnership to receive the payment of money including
(without limitation) all moneys due and to become due to the Partnership under
the Power Purchase Agreement and the Steam Purchase Agreement and any other
contract of the Partnership for the sale of electricity or steam or by-products
produced by the Facility and all moneys due and to become due to the Partnership
under the Construction Contract, and all proceeds of any of the foregoing. For
the purpose of perfecting the security interest of the Lenders in and to the
Accounts and all cash, investments and securities at any time on deposit in the
Accounts, the Security Agent shall be deemed to be the agent of the Grantee.
(b) The Partnership shall instruct each Person from whom it
receives any Revenues to pay such Revenues directly to the Security Agent for
deposit in the Revenue Account, and if for any reason the Partnership shall
receive any Revenues it shall deliver such Revenues in the exact form received
(but with the Partnership's endorsement, if necessary) to the Security Agent for
deposit in the Revenue Account not later than the third Business Day after the
Partnership's receipt thereof. The Security Agent shall have the right to
collect all Revenues directly from the Persons owing the same. All Revenues
received by the Security Agent shall be deposited in the Revenue Account (except
as otherwise permitted by Section 3.4 hereof).
(c) The Partnership shall have no rights or powers with
respect to the Accounts or any of the cash or investments therein except the
Partnership shall have the right to (i) direct investments as provided in
Article V hereof and (ii) have the cash in the Accounts applied in accordance
with the terms hereof.
SECTION 3.2 Books of Account. The Security Agent shall
maintain books of account for the Partnership on a cash basis and record therein
all revenues and expenses of the Partnership of which the Security Agent has
knowledge and all distributions from the Accounts hereunder.
SECTION 3.3 Deposits Irrevocable. Any deposit made into any
Account hereunder shall be irrevocable and the amount of such deposit and any
instrument or security held in such Account
<PAGE> 11
8
hereunder and all interest thereon shall be held in trust by the Security Agent
and applied solely as provided herein.
SECTION 3.4 Indemnity Agreements. The Security Agent shall
deposit all payments received pursuant to either of the Indemnity Agreements as
directed by the Grantee which directions shall be in accordance with Section
3.01 of such Indemnity Agreement.
ARTICLE IV
Payments from Accounts
SECTION 4.1 Revenue Account -- Weekly Payments. On the last
Business Day in each week (a "Weekly Distribution Date"), the Security Agent
shall distribute, from the cash available in the Revenue Account (after making
any distributions then required by Section 4.4 hereof), the following amounts in
the following order of priority:
(a) first, to the Partnership for the benefit of the Persons
entitled thereto and in the respective amounts as specified in writing
by the Partnership (provided that the payments for coal purchased and
for the transportation costs of coal shall be paid by the Security
Agent directly to the Persons entitled thereto), an amount equal to the
Cash Operating Costs then due and owing by the Partnership for the
preceding week (other than payments in respect of real and personal
property taxes); provided that, upon the request of the Grantee the
Partnership shall, at the time of requesting any amount to be paid
pursuant to this clause "first", submit to the Grantee copies of
invoices or other evidence of the expense to be paid;
(b) second, to the Grantee, an amount (as certified to the
Security Agent by the Grantee) equal to the amount then due and owing
to any Lender pursuant to Section 5 or Section 3A.10 of the
Reimbursement Agreement; and
(c) third, to the Grantee, an amount (as certified to the
Security Agent by the Grantee) equal to any Administration Fee that is
then due and payable to the Agent.
SECTION 4.2 Revenue Account -- Monthly Payments. On each
Monthly Distribution Date, the Security Agent shall distribute, from the cash
available in the Revenue Account (after making any distribution then required by
Section 4.1), the following amounts in the following order of priority:
(a) first, to the Property Tax Account, an amount equal to
one-twelfth of the real and personal property taxes becoming due and
payable within the next succeeding 12 months (based on estimates of
such taxes and the increase in the Value of the Property Tax Account
that will occur during
<PAGE> 12
9
such 12 months, in each case made in good faith to the best of the
Partnership's knowledge), as certified to the Security Agent by the
Partnership;
(b) second, (on a pro rata basis if there are insufficient
funds to make the transfers contemplated by subclauses (i) and (ii) of
this clause "second") (i) to the Senior Debt Service Account, an amount
(as certified to the Security Agent by the Grantee) equal to:
(a) (x) the interest on all outstanding Loans accrued
and unpaid during the one-month period ended on such Monthly
Distribution Date (together with any deficiency in the
accumulation of such amount during any preceding period or
periods) plus (y) an amount equal to the amount then due and
payable by the Partnership with respect to the Swaps (together
with any deficiency in the accumulation of such amount during
any preceding period or periods ); plus
(b) if any such interest on outstanding Loans or
amount payable with respect to the Swaps is due and payable on
a date that is on or before the next succeeding Monthly
Distribution Date, an amount equal to the excess of (1) all
such interest on outstanding Loans and other amounts payable
with respect to the Swaps which will be due and payable on
such date over (2) the amount then on deposit in the Senior
Debt Service Account for the purpose of paying such interest
on outstanding Loans and such amounts payable with respect to
the Swaps including any amounts then deposited pursuant to
clause (a) above; and
(ii) to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the Debt Service
Letter of Credit Fee then due and payable;
(c) third, (on a pro rata basis if there are insufficient
funds to make the transfers contemplated by subclauses (i) and (ii) of
this clause "third") (i) to the Senior Debt Service Account, an amount
(as certified to the Security Agent by the Grantee) equal to:
(a) one-third of the principal amount of the Term
Loans which is due and payable on such Monthly Distribution
Date or, if no such amount is due and payable on such date,
one-third of the principal amount of the Term Loans which is
due and payable on the next succeeding Installment Payment
Date (together with any deficiency in the accumulation of such
amount during any preceding month or months since the last
Installment Payment Date); less
(b) any increase in the Value of the Senior Debt
Service Account which occurred during such month as a result
of earnings on the amounts on deposit therein; and
<PAGE> 13
10
(ii) to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the Debt Service
Letter of Credit Loans then due and payable; and
(d) fourth, to the Grantee, an amount (as certified to the
Security Agent by the Grantee) equal to the aggregate amount of Senior
Debt that is then due and payable to any Lender under the Project
Documents, other than amounts (a) in respect of the principal of or
interest on the Loans, (b) in respect of any Administration Fee or any
Debt Service Letter of Credit Fee or (c) pursuant to Section 5 or
Section 3A.10 of the Reimbursement Agreement.
SECTION 4.3 Revenue Account -- Quarterly Payments. On each
Quarterly Distribution Date the Security Agent shall distribute, from the cash
available in the Revenue Account (after making any distributions then required
by Section 4.1 or 4.2), an amount (as certified to the Security Agent by the
Grantee) equal to the sum of (a) Available Project Cash Flow of the Partnership
for the three-month period ended on the immediately preceding Installment
Payment Date (or, with respect to the first Quarterly Distribution Date to occur
after the Effective Date, the period commencing on the Effective Date and ending
on the Installment Payment Date immediately preceding such Quarterly
Distribution Date) and (b) the aggregate amount of Revenues (other than Project
Revenues) deposited in the Revenue Account during such period, in the following
order of priority:
(i) first, to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the outstanding
principal amount of all Debt Service Letter of Credit Loans; and
(ii) second, to the Debt Protection Account, an amount (as
certified to the Security Agent by the Grantee) equal to the remainder
of such Available Project Cash Flow and Revenues.
; provided, that for purposes of determining the amount to be transferred from
the Revenue Account by the Security Agent pursuant to this Section 4.3 on the
Quarterly Distribution Date next succeeding the Effective Date, there shall be
added to the sum of (a) and (b) above an amount (as certified to the Security
Agent by the Grantee) equal to the cash on deposit in the Accounts on the
Effective Date after the transfers pursuant to Section 4.11 hereof have been
made.
SECTION 4.4 Senior Debt Service Account. (a) On each date on
which any interest on or principal of the Senior Debt becomes due and payable
pursuant to the Reimbursement Agreement or the Notes, the Security Agent shall
distribute to the Grantee, from the cash available in the Senior Debt Service
Account, an amount equal to such interest or principal then due and payable, as
specified in writing by the Grantee, for
<PAGE> 14
11
application by the Grantee in accordance with the provisions of the
Reimbursement Agreement. Any interest on or principal of the Senior Debt which
is not paid when due because of insufficient cash available in the Senior Debt
Service Account or otherwise shall continue to be due, shall accrue interest
from the date due to the date paid at the rate provided for in the Reimbursement
Agreement, and shall be payable as an expense pursuant to Section 4.1 hereof.
(b) In the event that, on any date on which a payment of
interest on or principal or other amount (including any, Administration Fee or
Debt Service Letter of Credit Fee or any amount payable with respect to any
Swap) in respect of the Senior Debt becomes due and payable pursuant to the
Reimbursement Agreement, the Notes or any of the Security Documents, there shall
be insufficient cash available in the Senior Debt Service Account, and the Debt
Protection Account to make such payment, the Security Agent shall immediately so
notify the Grantee and the Grantee shall make a drawing under the Debt Service
Letter of Credit in an amount equal to the lesser of the amount available to be
drawn upon under the Debt Service Letter of Credit and the amount required to
make such payment of interest or principal or other amount in full, and apply
the proceeds of such drawing to such payment.
(c) If at any time the amount on deposit in the Senior Debt
Service Account shall exceed the then outstanding amount of the Senior Debt
together with both the interest anticipated to accrue thereon and the, Debt
Service Letter of Credit Fees and Administration Fees anticipated to be due and
payable until the date scheduled for the payment in full of the Senior Debt (as
determined in good faith by the Partnership or, if the Grantee shall disagree
with the Partnership's determination, by the Grantee), the Security Agent shall,
upon receipt of a certificate signed by the Treasurer of the Partnership (and
countersigned by the Grantee), certifying as to the amount of such excess in the
Senior Debt Service Account and stating that no Default or Event of Default has
occurred and is continuing, transfer such excess amount from the Senior Debt
Service Account to the Debt Protection Account.
SECTION 4.5 Distributions from the Debt Protection Account.
To the extent that at any time the cash then
<PAGE> 15
12
available in the Revenue Account is insufficient (i) to pay the Cash Operating
Costs then due, or (ii) to pay principal and interest and any other amount then
due and payable in respect of the Senior Debt, after giving effect to transfers
from the Senior Debt Service Account pursuant to Section 4.4 hereof, or (iii) to
deposit into the Senior Debt Service Account the amount required to be deposited
therein pursuant to Section 4.2 hereof, or (iv) to transfer to the Issuing Bank
the outstanding principal amount of the Debt Service Letter of Credit Loans in
accordance with Section 4.3 hereof or (v) to transfer any amounts then due and
owing to any Swap Counterparty with respect to any Swap in accordance with
Section 4.2 hereof, the Security Agent shall immediately so notify the Grantee
and obtain the cash necessary to make such payment, deposits and transfers (in
accordance with a certificate of the Grantee) from the cash available in the
Debt Protection Account.
SECTION 4.6 Debt Protection Account. On each Partnership
Distribution Date, the Security Agent shall distribute, from the cash available
in the Debt Protection Account (after giving effect to any deposit in the Debt
Protection Account made on such date pursuant to Section 4.3 hereof), the
following amounts in the following order of priority, all as specified in a
certificate of the Treasurer of the Partnership, approved in writing by the
Grantee:
(i) first, upon receipt of a certificate of the Grantee
certifying that a mandatory prepayment of the Term Loans is required to
be made by the Partnership on such Partnership Distribution Date
pursuant to Section 3.3(b)(ii) of the Reimbursement Agreement, to the
Grantee for application to such mandatory prepayment, all amounts then
on deposit in the Debt Protection Account;
(ii) second, if the Partnership shall have delivered to the
Security Agent a Distribution Certificate (countersigned by the
Grantee), to the Partnership an amount (as certified to the Security
Agent by the Partnership and the Grantee) equal to the regional and
central support costs allocated to the Project;
(iii) third, if the Partnership shall have delivered to the
Security Agent a Distribution Certificate (countersigned by the
Grantee), to Cogentrix Virginia, an amount (as certified to the
Security Agent by the Partnership and the Grantee) equal to the
Overhead Fee then due and payable (or previously due but unpaid plus
interest thereon as provided in the Operation and Maintenance
Agreement) by the Partnership to Cogentrix Virginia;
(iv) fourth, if the Partnership shall have delivered to the
Security Agent a Distribution Certificate (countersigned by the
Grantee), to Cogentrix Virginia, an amount (as certified to the
Security Agent by the Partnership and the Grantee) equal to the
Incentive Compensation Fee, if any, which is then due and payable (or
previously due but unpaid
<PAGE> 16
13
plus interest thereon as provided in the Operation and Maintenance
Agreement) by the Partnership to Cogentrix Virginia;
(v) fifth, if the Partnership shall have delivered to the
Security Agent a Distribution Certificate (countersigned by the
Grantee), to the obligors in respect of Junior Working Capital Loans,
an amount (as certified to the Security Agent by the Partnership and
the Grantee) equal to the principal of and interest on and other
amounts then due and owing in respect of Junior Working Capital Loans;
and
(vi) sixth, if the Partnership shall have delivered to the
Security Agent a Distribution Certificate (countersigned by the
Grantee), to the Partnership, an amount equal to the remainder of the
cash available in the Debt Protection Account on such Partnership
Distribution Date.
If the Partnership has not delivered a Distribution
Certificate on any Partnership Distribution Date, the Partnership may deliver
such certificate on any Business Day thereafter that is prior to the next
succeeding Partnership Distribution Date and the Security Agent shall, on the
first Business Day after such delivery, transfer from the Debt Protection
Account in accordance with clauses "second" through "sixth" above, an amount
equal to the lesser of (a) the cash then available in the Debt Protection
Account and (b) the cash that was available in the Debt Protection Account on
the immediately preceding Partnership Distribution Date.
SECTION 4.7 Special Payment Account. All Special Payments
deposited in the Special Payment Account after the Effective Date shall be
distributed from time to time by the Security Agent to the Grantee, upon receipt
by the Security Agent of a written request therefor from the Grantee, and shall
be applied to the prepayment of the Term Loans as provided in Section
3.3(b)(iii) of the Reimbursement Agreement.
SECTION 4.8 Property Tax Account. On each date on which any
real or personal property taxes are due and payable by the Partnership, the
Security Agent shall transfer to the governmental authority or authorities
referred to below, from the cash available in the Property Tax Account, an
amount equal to such taxes, provided that the Security Agent shall have received
a certificate signed by the Treasurer of the Partnership, specifying the amount
or amounts of such taxes and the governmental authority or authorities to which
such taxes are payable. Any such taxes not paid when due because of insufficient
cash available in the Property Tax Account shall be payable as a Cash Operating
Cost pursuant to clause "first" of Section 4.1. If any amount shall remain on
deposit in the Property Tax Account immediately after making any transfer from
said Account pursuant to the first sentence of this Section 4.8, the Security
Agent shall transfer such remaining amount to the Revenue Account.
<PAGE> 17
14
SECTION 4.9 [intentionally omitted]
SECTION 4.10 Transfers Following Events of Default
Acceleration. (a) Upon receipt by the Security Agent of written notice from the
Grantee stating that an Event of Default under the Reimbursement Agreement has
occurred and is continuing, the Security Agent shall thereafter transfer cash
from the Revenue Account pursuant to clause "first" of Section 4.1 hereof and/or
clause "first" of Section 4.2 hereof only after receiving the prior written
consent of the Grantee until notified in writing by the Grantee that such Event
of Default has been waived by the Secured Parties or cured. Such notice shall be
given by the Grantee promptly following any such waiver or cure.
(b) If the Grantee shall at any time notify the Security Agent
in writing that an Event of Default under the Reimbursement Agreement has
occurred and is continuing and that as a result thereof the entire outstanding
principal amount of the Loans has become due and payable, then the Security
Agent shall, if requested by the Grantee, promptly withdraw the cash and
investments on deposit in the Accounts to the extent necessary to pay in full
the Senior Debt (as certified to the Security Agent by the Grantee) and deliver
the same to the Grantee, to be applied forthwith to the payment of the Senior
Debt. The Grantee agrees that it shall not request the Security Agent to make
any withdrawal contemplated by the preceding sentence unless the entire
outstanding principal amount of the Loans has become due and payable as a result
of an Event of Default under the Reimbursement Agreement.
SECTION 4.11 Transfers from Accounts on the Effective Date.
On the Effective Date, the Security Agent shall distribute to the Partnership
all of the cash available on such date in the Accounts (other than the Revenue
Account) as defined in the Existing Security Deposit Agreement.
SECTION 4.12 Insurance Proceeds Account. (a) The Partnership
and the Grantee shall deposit in the Insurance Proceeds Account all payments
received by the Partnership or the Agent from any insurer pursuant to any
insurance against loss or damage to the Project, or to any other insurable
Collateral, maintained by the Partnership pursuant to Section 7.3 of the
Reimbursement Agreement. The Partnership and the Grantee shall also deposit in
the Insurance Proceeds Account the proceeds of any condemnation, requisition or
other governmental taking of any portion of the Project received by it.
(b) All moneys and securities at any time on deposit in the
Insurance Proceeds Account, including all interest or other income earned with
respect thereto, are herein called the "Insurance Proceeds Deposits".
(c) The Insurance Proceeds Deposits shall be accumulated in
the Insurance Proceeds Account and held therein until paid to or upon the order
of the Partnership as provided in paragraph (d) of this Section 4.12, or paid to
the Grantee as
<PAGE> 18
15
provided in paragraph (e) or (f) of this Section 4.12, or returned to the
Partnership as provided in Section 8.2 hereof.
(d) Subject to the provisions of paragraphs (e) and (f) of
this Section 4.12, moneys on deposit in the Insurance Proceeds Account shall be
paid over to or upon the order of the Partnership to reimburse it for, or to
pay, the cost of renewing, repairing, rebuilding or otherwise replacing the
damaged or destroyed or condemned property in respect of which such moneys were
received, upon the receipt by the Security Agent of a certificate of the
Treasurer of the Partnership, countersigned by the Grantee, (i) describing in
reasonable detail the work done and materials purchased by way of the renewal,
repair, rebuilding or other replacement of the damaged or destroyed or condemned
property, (ii) stating the specific amount requested to be paid over to or upon
the order of the Partnership, that such amount is requested to reimburse the
Partnership for, or to pay, the cost of such renewal, repair, rebuilding or
other replacement and that such amount, together with amounts remaining in the
Insurance Proceeds Account for such purpose and other funds of the Partnership
available for such purpose, are sufficient to pay in full the cost of such
renewal, repair, rebuilding or other replacement, and (iii) stating that no
Default or Event of Default has occurred and is continuing.
(e) If the Grantee shall at any time notify the Security Agent
in writing that an Event of Loss has occurred, the Security Agent shall to the
extent requested in such writing promptly withdraw the Insurance Proceeds
Deposits from the Insurance Proceeds Account and deliver the same to the
Grantee, for application by the Grantee to the payment of the Obligations in
such order as the Secured Parties may determine.
(f) If the Grantee shall at any time notify the Security Agent
in writing that an Event of Default under the Reimbursement Agreement has
occurred and is continuing, then the Security Agent shall, if and to the extent
requested in such writing by the Grantee, promptly withdraw the Insurance
Proceeds Deposits from the Insurance Proceeds Account and deliver the same to
the Grantee, to be held by the Grantee and applied to the payment of the
Obligations as they become due in such order as the Secured Parties may
determine.
ARTICLE V
Investment
Any cash held by the Security Agent in any Account shall be
invested by the Security Agent from time to time as directed in writing by the
Partnership (unless the Grantee shall have notified the Security Agent that an
Event of Default shall have occurred and is continuing and that the Security
Agent's authority to invest and reinvest at the written direction of the
Partnership is suspended) in Permitted Investments. Any income or gain realized
as a result of any such investment shall be held
<PAGE> 19
16
as part of the applicable Account and reinvested as provided herein. The
Security Agent shall have no liability for any loss resulting from any such
investment other than by reason of its wilful misconduct or gross negligence.
Any such investment may be sold (without regard to maturity date) by the
Security Agent whenever necessary to make any distribution required by this
Agreement.
ARTICLE VI
Security Agent
SECTION 6.1 Rights, Duties, Etc. The acceptance by the
Security Agent of its duties hereunder is subject to the following terms and
conditions which the parties to this Agreement hereby agree shall govern and
control with respect to the Security Agent's rights, duties, liabilities and
immunities:
(a) it shall act hereunder as an agent only and shall not be
responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any funds or securities
deposited with or held by it;
(b) it shall be protected in acting upon any written notice,
certificate, instruction, request or other paper or document, as to the
due execution thereof and the validity and effectiveness of the
provisions thereof and as to the truth of any information therein
contained, which the Security Agent in good faith believes to be
genuine;
(c) it shall not be liable for any error of judgment or for
any act done or step taken or omitted except in the case of its gross
negligence, wilful misconduct or bad faith;
(d) it may consult with and obtain advice from counsel in the
event of any dispute or question as to the construction of any
provision hereof;
(e) it shall have no duties as Security Agent except those
which are expressly set forth herein and in any modification or
amendment hereof; provided, however, that no such modification or
amendment hereof shall affect its duties unless it shall have given its
prior written consent thereto;
(f) it may execute or perform any duties hereunder either
directly or through agents or attorneys;
(g) it may engage or be interested in any financial or other
transactions with any party hereto and may act on, or as depositary,
trustee or agent for, any committee or body of holders of obligations
of such Persons as freely as if it were not Security Agent hereunder;
and
<PAGE> 20
17
(h) it shall not be obligated to take any action which in its
reasonable judgment would involve it in expense or liability unless it
has been furnished with reasonable indemnity (it being understood and
agreed that the general indemnity of the Partnership will constitute a
reasonable indemnity).
SECTION 6.2 Resignation or Removal. (a) The Security Agent
may at any time resign by giving notice to each other party to this Agreement,
such resignation to be effective upon the appointment of a successor Security
Agent as hereinafter provided.
(b) The Partnership (with the written approval of the Grantee)
or the Grantee may remove the Security Agent at any time by giving notice to
each other party to this Agreement, such removal to be effective upon the
appointment of a successor Security Agent as hereinafter provided.
(c) In the event of any resignation or removal of the Security
Agent, a successor Security Agent, which shall be a bank or trust company
organized under the laws of the United States of America or of the State of New
York or North Carolina, having its principal corporate trust office in New York
or North Carolina and a capital and surplus of not less than $100,000,000, shall
be appointed by the Grantee, subject to the approval of the Partnership (which
approval shall not be unreasonably withheld). If a successor Security Agent
shall not have been appointed and accepted its appointment as Security Agent
hereunder within 45 days after such notice of resignation of the Security Agent
or such notice of removal of the Security Agent, the Security Agent or the
Grantee may apply to any court of competent jurisdiction to appoint a successor
Security Agent to act until such time, if any, as a successor Security Agent
shall have accepted its appointment as above provided. Any successor Security
Agent so appointed by such court shall immediately and without further act be
superseded by any successor Security Agent appointed by the Grantee with the
approval of the Partnership as above provided. Any such successor Security Agent
shall deliver to each party to this Agreement a written instrument accepting
such appointment hereunder and thereupon such successor Security Agent shall
succeed to all the rights and duties of the Security Agent hereunder and shall
be entitled to receive the Accounts from the predecessor Security Agent.
ARTICLE VII
Determinations
SECTION 7.1 Value. Cash and Permitted Investments on deposit
from time to time in the Accounts shall be valued by the Security Agent as
follows:
(a) cash shall be valued at the face amount thereof; and
<PAGE> 21
18
(b) Permitted Investments shall be valued at the lesser of the
face amount thereof and the purchase price thereof.
The term "Value" shall mean, with respect to any Account, the
aggregate value of the cash and Permitted Investments then on deposit in such
Account, valued in accordance with the provisions of this Section 7.1.
SECTION 7.2 Other Determinations. The Partnership, the
Grantee and the Security Agent shall establish procedures pursuant to which the
Security Agent may conclusively determine, for purposes of this Agreement, the
amounts from time to time to be distributed or paid by the Security Agent from
cash available in the Accounts. In the event of any dispute as to any such
amount, the Security Agent is authorized and directed to retain in its
possession without liability to anyone all or any part of the cash available in
the Accounts until such dispute shall have been settled by mutual agreement of
the Partnership and the Grantee or by a final order, decree or judgment of a
Federal or State court of competent jurisdiction located in the State of North
Carolina or the State of New York, and time for an appeal has expired and no
appeal has been perfected, but the Security Agent shall be under no duty
whatsoever to institute or defend any such proceedings.
SECTION 7.3 Available Cash. In determining the amount of
available cash in any Account at any time, in addition to any cash then on
deposit in such Account, the Security Agent shall treat as available cash the
amount which the Security Agent would have received on such day if the Security
Agent had liquidated all the Permitted Investments (at then prevailing market
prices) then on deposit in such Account. The Security Agent will use its best
efforts to sell Permitted Investments such that actual cash is available on each
date on which each distribution is to be made pursuant to this Agreement so that
the Security Agent can make such distribution in cash on such date.
<PAGE> 22
19
ARTICLE VIII
Miscellaneous
SECTION 8.1 Fees and Indemnification of Security Agent. The
Partnership and Cogentrix Virginia jointly and severally agree to pay such fees
as the Security Agent charges as compensation for its services under this
Agreement. In addition, the Partnership and Cogentrix Virginia hereby jointly
and severally assume liability for and agree to indemnify, protect, save and
keep harmless the Security Agent and its respective successors, assigns, agents
and servants, from and against any and all claims, liabilities, obligations,
losses, damages, penalties, costs and expenses that may be imposed on, incurred
by, or asserted against, at any time, the Security Agent (whether or not also
indemnified against by the Partnership or any other Person under any contract or
instrument) and in any way relating to or arising out of the execution and
delivery of this Agreement, the establishment of the Accounts, the acceptance of
deposits, the purchase or sale of Permitted Investments, the retention of cash
and Permitted Investments or the proceeds thereof and any payment, transfer or
other application of cash or Permitted Investments by the Security Agent in
accordance with the provisions of this Agreement, or as may arise by reason of
any act, omission or error of the Security Agent made in good faith in the
conduct of its duties; except that neither the Partnership nor Cogentrix
Virginia shall be required to indemnify, protect, save and keep harmless the
Security Agent against its own gross negligence, active or passive, or wilful
misconduct. The indemnities contained in this Section 8.1 shall survive the
termination of this Agreement.
SECTION 8.2 Termination, Etc. The provisions of Article III
with respect to the Accounts shall terminate on the date on which all Secured
Obligations shall have been paid in full and the Reimbursement Agreement shall
have been terminated. Promptly after such termination (x) any Permitted
Investments in the Accounts shall be liquidated, (y) a reconciliation shall be
made of the distributions made from the Accounts and any necessary adjustments
to the balances of the Accounts as a result of such reconciliation shall be made
and (z) the moneys in the Accounts (after giving effect to such liquidation and
such adjustments) shall be distributed to the Partnership. Any taxes payable as
a result of any distribution from any Account pursuant to this Section 8.2 shall
be paid by the Partnership from the moneys distributed to the Partnership
pursuant to this Section 8.2 or otherwise and shall not be treated as an expense
of the Facility for purposes of any Project Document.
SECTION 8.3 Severability. If any one or more of the
covenants or agreements provided in this Agreement on the part of the parties
hereto to be performed should be determined by a court of competent jurisdiction
to be contrary to law, such covenant or agreement shall be deemed and construed
to be severable from the remaining covenants and agreements herein contained and
shall in no way affect the validity of the
<PAGE> 23
20
remaining provisions of this Agreement.
SECTION 8.4 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 8.5 Amendments. This Agreement may not be modified
or amended without the prior written consent of each of the parties hereto.
SECTION 8.6 Applicable Law. This Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the State
of North Carolina applicable to agreements made and to be performed entirely in
such State, including all matters of construction, validity and performance.
SECTION 8.7 Notices. Unless otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests and
other communications required or permitted by the terms hereof to be given to
any Person shall be in writing and shall become effective, if mailed, five
Business Days after being deposited in the United States mail, proper postage
for first-class mail affixed thereto or, if delivered by hand or courier service
or in the form of a telex, telecopy or telegram, when received, and shall be
directed to the address or telex or telecopy number of such Person designated
pursuant to the Reimbursement Agreement, or in the case of the Security Agent,
to First Union National Bank, 230 South Tryon Street, Charlotte, North Carolina
28288-1179, Attention: Corporate Trust Department, or such other address or
telex or telecopy number as may be specified from time to time by any such
Person.
SECTION 8.8 Limitations on Recourse. Notwithstanding
anything contained in this Agreement or in any other document, certificate or
instrument executed by any Affiliated Obligor, the Grantee and the Security
Agent (collectively, the "Bank Parties") agree that, except as hereinafter set
forth, their rights in respect of all of the obligations and liabilities of the
Partnership to the Bank Parties or any of them now or in the future existing
under or in connection with this Agreement (the "Security Deposit Obligations")
shall be limited to satisfaction out of, and enforcement against, (i) with
respect to the Grantee, the Collateral and (ii) with respect to the Security
Agent, the Accounts. The Collateral and Accounts are hereinafter referred to as
the "Limited Recourse Collateral." The Bank Parties also hereby acknowledge and
agree that, except for the Affiliated Obligors, no other Person (including, but
not limited to, Edison International, Southern California Edison Company, The
Mission Group, EME, Cogentrix Energy,
<PAGE> 24
21
Delaware Holdings, CHC or the Parent, or any present or future officer,
employee, servant, controlling Person, manager, agent, authorized representative
(including any member of the Partnership's Management Committee) or stockholder
of Edison International, Southern California Edison Company, The Mission Group,
EME, Cogentrix Energy, Delaware Holdings, CHC or the Parent) (collectively, the
"Non-Recourse Persons") shall have any liability to all or any of the Bank
Parties (such liability, including such as may arise by operation of law, being
hereby expressly waived) for the payment of any sums now or hereafter owing by
the Partnership under this Agreement or any other Project Document or for the
performance of any of the obligations of the Affiliated Obligors contained
herein or therein or shall otherwise be liable or responsible with respect
thereto, except as hereinafter set forth. Accordingly, dividends or other
distributions made by a Partner to its shareholders (other than dividends or
other distributions made by Cogentrix Virginia to the Parent) shall not be
deemed to be Limited Recourse Collateral in which the Bank Parties have any
security or other interest. If any Default or Event of Default shall occur or if
any claim of the Bank Parties against the Partnership or alleged liability to
the Bank Parties of any Affiliated Obligor shall be asserted under this
Agreement or any other Project Document, the Bank Parties agree that, except as
hereinafter set forth, they shall not have the right to proceed directly or
indirectly against the Non-Recourse Persons or against their respective
properties and assets (other than the Limited Recourse Collateral) for the
satisfaction of any Security Deposit Obligations or of any such claim or
liability or for any deficiency judgment (except to the extent enforceable out
of the Limited Recourse Collateral to which a Bank Party is entitled) in respect
of the Security Deposit Obligations or any such claim or liability. In
furtherance of this Agreement, each Bank Party hereby covenants severally and
not for any other Bank Party that, in the event of a proceeding under Title 11
of the United States Code in which the Partnership or any Partner is a debtor,
it shall elect to have its claims against the Partnership or any Partner treated
as fully secured pursuant to 11 U.S.C. Section 1111(b)(2). Notwithstanding any
of the foregoing, it is expressly understood and agreed, however, that nothing
contained in this Section 8.8 shall in any manner or any way (i) constitute or
be deemed to be a release of the Senior Debt or impair the enforceability of the
liens and security interests and possessory rights created by or arising from
this Agreement, the Reimbursement Agreement and the other Project Documents, or,
except as provided in the preceding sentence, restrict the remedies available to
the Bank Parties to realize upon the Limited Recourse Collateral, or (ii) affect
or diminish any obligation, covenant or agreement of any Non-Recourse Person
under, or any right or benefit of the Partnership or the Bank Parties under, any
Project Document or any other instrument or (iii) without derogating from the
meaning of Limited Recourse Collateral, affect or diminish any rights of any
Person against any other Person arising from misappropriation or misapplication
of any funds or for such other Person's gross negligence or willful misconduct.
The foregoing acknowledgments, agreements and waivers shall survive the
termination of this Agreement and shall be enforceable by any Non-Recourse
Person.
SECTION 8.9 Benefit of Agreement. This Agreement shall
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns.
<PAGE> 25
22
IN WITNESS WHEREOF, the parties hereto have each caused this
Third Amended and Restated Security Deposit Agreement to be duly executed by
their duly authorized officers, all as of the day and year first above written.
JAMES RIVER COGENERATION COMPANY
By: Cogentrix of Virginia, Inc., a
General Partner
By: /s/ Elizabeth L. Rippetoe
----------------------------------
Title:
---------------------------
By: Capistrano Cogeneration Company, a
General Partner
By: /s/ Deborah L. Gronvold
----------------------------------
Title:
---------------------------
COGENTRIX OF VIRGINIA, INC.
By: /s/ Elizabeth L. Rippetoe
----------------------------------
Title:
---------------------------
CREDIT LYONNAIS, as Grantee for the
benefit of the Secured Parties
By: /s/ James F. Guidera
----------------------------------
Title:
---------------------------
FIRST UNION NATIONAL BANK, as
Security Agent
By: /s/ S. Schwartz
----------------------------------
Title: Assistant Vice President
---------------------------
<PAGE> 1
================================================================================
COGENTRIX VIRGINIA LEASING CORPORATION
--------------------
THIRD AMENDED AND RESTATED
SECURITY DEPOSIT AGREEMENT
Dated as of
December 22, 1997
--------------------
CREDIT LYONNAIS
as Agent
and Issuing Bank
FIRST UNION NATIONAL BANK
as Security Agent
================================================================================
<PAGE> 2
THIRD AMENDED AND RESTATED
SECURITY DEPOSIT AGREEMENT
THIRD AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT, dated
as of December 22, 1997, among COGENTRIX VIRGINIA LEASING CORPORATION, a North
Carolina corporation (the "Borrower"), CREDIT LYONNAIS, as issuer of the Debt
Service Letter of Credit as defined in the Loan Agreement referred to below (in
such capacity, the "Issuing Bank") and as Agent (in such capacity, the "Agent")
for the Issuing Bank and for the financial institutions parties to the Loan
Agreement referred to below (the "Lenders") and FIRST UNION NATIONAL BANK, as
agent for the Agent, the Issuing Bank and the Lenders under this Agreement (in
such capacity, the "Security Agent").
W I T N E S S E T H :
WHEREAS, the Borrower owns and operates a cogeneration
facility having a gross nameplate rating of 110 megawatts located in Portsmouth,
Virginia (the "Facility"); and
WHEREAS, the acquisition, construction and equipping of the
Facility has been financed by loans made to the Borrower pursuant to the
Construction and Term Loan Agreement, dated as of December 15, 1986, among the
Borrower, The CIT Group/Equipment Financing, Inc. ("CIT") and Manufacturers
Hanover Trust Company ("MHT"), as amended and restated by the Amended and
Restated Construction and Term Loan Agreement, dated as of September 15, 1988,
among the Borrower, the lenders parties thereto, CIT, as agent for the lenders
and MHT, as Paying Agent (the "Original Loan Agreement"); and
WHEREAS, pursuant to the provisions of the Original Loan
Agreement, the Borrower entered into the Amended and Restated Security Deposit
Agreement, dated as of September 15, 1988 (the "Original Security Deposit
Agreement"), among the Borrower, the Parent, CIT, as agent for the lenders
parties to the Original Loan Agreement, MHT and the Security Agent; and
WHEREAS, the Original Loan Agreement has been amended and
restated in its entirety by the Second Amended and Restated Loan Agreement,
dated as of May 15, 1992, as amended by the First Amendment thereto, dated as of
December 15, 1993, among the Borrower, CIT, Bank of Montreal and the Agent (the
"Existing Loan Agreement"); and
WHEREAS, pursuant to the Existing Loan Agreement, the Original
Security Deposit Agreement was amended and restated in
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its entirety by the Second Amended and Restated Security Deposit Agreement,
dated as of May 15, 1992 as supplemented by the Letter Agreement dated June 17,
1992, and amended by the First Amendment thereto dated as of December 15, 1993
(the "Existing Security Deposit Agreement"), among the Borrower, Cogentrix,
Inc., CIT, as agent for the lenders under the Existing Loan Agreement, MHT and
the Security Agent; and
WHEREAS, CIT desires to resign as the agent for the lenders
under the Existing Loan Agreement and Credit Lyonnais has agreed to accept such
position; and
WHEREAS, the parties thereto have agreed to amend and restate
the Existing Loan Agreement in its entirety pursuant to the Third Amended and
Restated Loan Agreement, dated as of December 22, 1997 (the "Loan Agreement"),
among the Borrower, the Lenders thereunder, the Issuing Bank and the Agent; and
WHEREAS, it is a condition to the Loan Agreement's becoming
effective that the Existing Security Deposit Agreement shall be amended and
restated in its entirety to read as hereinafter set forth; and
WHEREAS, First Union National Bank has agreed to continue to
act as Security Agent pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree that, on and as of the Third Restatement Effective Date
(as defined in the Loan Agreement), the Existing Security Deposit Agreement
shall be amended and restated in its entirety to read as follows:
ARTICLE I
Defined Terms
1.1 Definitions. For all purposes of this Agreement, terms
used herein which are defined in the Loan Agreement shall have the respective
meanings set forth in the Loan Agreement unless the context otherwise requires,
and the following terms shall have the following meanings (such definitions to
be equally applicable to both singular and plural forms of the terms defined):
"Accounts" shall mean the Revenue Account, the Tax Account,
the Debt Service Account, the Borrower's Security Account, the Major
Maintenance Reserve Account, the Property Tax Account and the Insurance
Proceeds Account.
"Agreement", "hereto", "hereof", "hereunder" and words of
similar import shall mean this Third Amended and Restated Security
Deposit Agreement, as the same may from time to
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time be amended, supplemented, or otherwise modified in accordance with
the provisions hereof.
"Borrower Distribution Date" shall mean the first Business Day
to occur after each date on which the Security Agent makes the
transfers from the Revenue Account required by Section 4.02 hereof.
"Borrower's Security Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.02(b) hereof.
"Debt Service Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.02(b) hereof.
"Distribution Certificate" a certificate signed by a
Responsible Officer of the Borrower and countersigned by the Agent
certifying that, as of a Borrower Distribution Date, all conditions
have been satisfied under subsection 7.4 of the Loan Agreement for the
Borrower to make Restricted Payments.
"Insurance Proceeds Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.02 of the Existing Security Deposit Agreement, and continued
to be maintained by the Security Agent pursuant to this Agreement.
"Monthly Distribution Date" the seventh day of each calendar
month unless such day is not a Business Day, in which case the Business
Day next succeeding such seventh day of such calendar month.
"Major Maintenance Reserve Account" shall mean the special
account designated by that name established by the Security Agent
pursuant to Section 2.02(b) hereof.
"Moody's" shall mean Moody's Investor Service, Inc.
"Obligations" shall mean all indebtedness, liabilities and
obligations of the Borrower to the Agent, the Lenders, the Issuing Bank
or any Interest Hedging Counterparty, whether now existing or hereafter
incurred, direct or indirect, absolute or contingent, secured or
unsecured, matured or unmatured, joint or several, whether for
principal, interest, fees, expenses or otherwise, including, without
limitation, the principal amount of, and accrued interest and premium
(if any) on, the Notes, and all other amounts due to the Agent, the
Lenders, the Issuing Bank or any Interest Hedging Counterparty from
time to time under, arising out of, or in connection with the Loan
Agreement, the Notes, any Interest Rate Protection Agreement or any of
the other Project Documents.
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"Property Tax Account" shall mean the special account
designated by that name established by the Security Agent pursuant to
Section 2.02(b) hereof.
"Priority Cash Operating Costs" shall mean all Cash Operating
Costs other than payments in respect of real and personal property
taxes.
"Quarterly Distribution Date" shall mean the earlier of (i)
the date which is one month after each Installment Payment Date and
(ii) the date after each Installment Payment Date on which the Borrower
delivers the certificate required by Section 6.2(d) of the Loan
Agreement.
"Revenue Account" shall mean the special account designated by
that name established by the Security Agent pursuant to Section 2.02 of
the Existing Security Deposit Agreement, and continued to be maintained
by the Security Agent pursuant to this Agreement.
"Revenues" shall mean all revenues and payments at any time
received by or for the account of the Borrower (other than (i) the
proceeds of Loans made under the Loan Agreement and (ii) insurance
proceeds payable into the Insurance Proceeds Account), including
(without limitation) (a) all payments received by the Borrower under
the Power Purchase Agreement and the Steam Purchase Contract and all
other payments received by the Borrower from the sale of electricity or
steam produced by the Facility, (b) all revenues received from the sale
of by-products produced from the Facilities, (c) all proceeds of any
business interruption insurance or contingent business interruption
insurance, (d) all payments received by the Borrower pursuant to any
Interest Rate Protection Agreement, (e) the net cash proceeds of any
sale, transfer or other disposition of any asset by the Borrower
whether or not permitted by subsection 7.9(a) or 10.8 of the Loan
Agreement, (f) all payments received under all other Project Documents,
(g) all payments received by the Borrower in respect of property tax
refunds and Virginia income tax refunds and (h) the proceeds of all
Junior Working Capital Loans.
"S&P" shall mean Standard & Poor's Corporation.
"Tax Account" shall mean the special account designated by
that name established by the Security Agent pursuant to Section 2.02 of
the Existing Security Deposit Agreement, and continued to be maintained
by the Security Agent pursuant to this Agreement.
"Value" shall have the meaning assigned thereto in Section
7.01.
"Weekly Distribution Date" shall have the meaning assigned
thereto in Section 4.01(a).
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ARTICLE II
Appointment of Security Agent;
Establishment of Accounts
SECTION 2.01 Appointment of Security Agent. First Union
National Bank is hereby appointed by the Borrower, the Agent, the Lenders and
the Issuing Bank to continue to act as Security Agent hereunder, and the
Security Agent hereby agrees to continue to act as such and to accept all cash,
payments, other amounts and Permitted Investments to be delivered to or held by
the Security Agent pursuant to the terms of this Agreement. The Security Agent
shall hold and safeguard the Accounts (and the cash, instruments and securities
on deposit therein) during the term of this Agreement and shall treat the cash,
instruments and securities in the Accounts as funds, instruments and securities
pledged by the Borrower to the Agent (for the ratable benefit of the Lenders,
the Issuing Bank and each Interest Hedging Counterparty) to be held by the
Security Agent, as agent of the Agent, the Lenders, the Issuing Bank and each
Interest Hedging Counterparty, in trust, for the benefit of the Agent, the
Lenders, the Issuing Bank and each Interest Hedging Counterparty, in accordance
with the provisions hereof.
SECTION 2.02 Creation of Accounts. (a) The Security Agent has
heretofore established and is maintaining the following three special,
segregated and irrevocable cash collateral accounts which shall be maintained at
all times until the termination of this Agreement:
(1) Revenue Account
(2) Insurance Proceeds Account
(3) Tax Account
(b) The Security Agent shall establish on the Third
Restatement Effective Date the following four additional special, segregated and
irrevocable cash collateral accounts which shall be maintained at all times
until the termination of this Agreement:
(1) Borrower's Security Account
(2) Debt Service Account
(3) Property Tax Account
(4) Major Maintenance Reserve Account
(c) All moneys, investments and securities at any time on
deposit in any of the Accounts shall constitute trust funds to be held in the
custody of the Security Agent for the purposes and on the terms set forth in
this Agreement.
(d) On the Third Restatement Effective Date after the
transfers contemplated by Section 4.11 have been made, the Security Agent shall
close and thereafter shall not be required to maintain the Debt Protection
Account, the VEP Repayment
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Account-Capacity Charge and the VEP Repayment Account-Rate Reduction, as defined
in the Existing Security Deposit Agreement.
ARTICLE III
Deposits into Accounts
SECTION 3.01 Security Interest; Deposit of Revenues. (a) In
order to secure the performance by the Borrower of all of its covenants,
agreements and obligations under the Project Documents and the payment by the
Borrower of all Obligations, this Agreement is intended to create, and the
Borrower hereby pledges and assigns to the Agent (for the ratable benefit of the
Agent, the Lenders, the Issuing Bank and each Interest Hedging Counterparty),
and creates in favor of the Agent (for the equal and ratable benefit of the
Agent, the Lenders, the Issuing Bank and each Interest Hedging Counterparty) a
security interest in and to, the Accounts, all cash, investments and securities
at any time on deposit in the Accounts, all present and future accounts (as
defined in the North Carolina Uniform Commercial Code) of the Borrower and all
other rights of the Borrower to receive the payment of money including (without
limitation) all moneys due and to become due to the Borrower under the Power
Purchase Agreement and the Steam Purchase Contract and any other contract of the
Borrower for the sale of electricity or steam or by-products produced by the
Facility, and all proceeds of any of the foregoing. For the purpose of
perfecting the security interest of the Agent in and to the Accounts and all
cash, investments and securities at any time on deposit in the Accounts, the
Security Agent shall be deemed to be the agent of the Agent, the Lenders, the
Issuing Bank and each Interest Hedging Counterparty.
(b) The Borrower shall instruct each Person from whom it
receives any Revenues to pay such Revenues directly to the Security Agent for
deposit in the Revenue Account, and if for any reason the Borrower shall receive
any Revenues it shall deliver such Revenues in the exact form received (but with
the Borrower's endorsement, if necessary) to the Security Agent for deposit in
the Revenue Account not later than the third Business Day after the Borrower's
receipt thereof. The Security Agent shall have the right, but not the
obligation, to collect all Revenues directly from the Persons owing the same.
All Revenues received by the Security Agent shall be deposited in the Revenue
Account.
(c) The Borrower shall have no rights or powers with respect
to the Accounts or any of the cash or investments therein except (i) the
Borrower shall have the right to direct investments as provided in Article V
hereof and (ii) the Borrower shall have the right to have the cash in the
Accounts applied in accordance with the terms hereof.
SECTION 3.02 Books of Account. The Security Agent shall
maintain for the Borrower on a cash basis a record of all
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cash receipts and expenditures of the Borrower of which the Security Agent has
knowledge and all distributions from the Accounts hereunder.
SECTION 3.03 Deposits Irrevocable. Any deposit made into any
Account hereunder shall be irrevocable and the amount of such deposit and any
instrument or security held in such Account hereunder and all interest thereon
shall be held in trust by the Security Agent and applied solely as provided
herein.
SECTION 3.04 Cogentrix Energy Indemnity Agreement. The
Security Agent shall deposit all payments received pursuant to the Cogentrix
Energy Indemnity Agreement as directed by the Agent which directions shall be in
accordance with Section 3.01 thereof.
ARTICLE IV
Payments from Accounts
SECTION 4.01 Revenue Account -- Weekly and Monthly Payments.
(a) On the last Business Day in each calendar week (a "Weekly Distribution
Date"), the Security Agent shall distribute, from the cash available in the
Revenue Account, the following amounts in the following order of priority:
first, to the Borrower for the benefit of the Persons entitled
thereto and in the respective amounts as specified in a writing by the
Borrower received by the Security Agent at least one business day prior
to the date of distribution (provided that payments for coal purchased
by the Borrower and for the transportation costs, including railroad
and barge, of such coal (collectively "Coal Payments") shall be paid by
the Security Agent directly to the Persons entitled thereto as
designated in such writing received from the Borrower), an amount equal
to the Priority Cash Operating Costs then due and owing by the Borrower
for the preceding week; provided, that for purposes of the foregoing
sentence, "Priority Cash Operating Costs" shall include Capital
Expenditures (as defined in the Loan Agreement) in an amount not to
exceed $300,000 in the aggregate in any calendar year unless the Agent
shall approve a larger aggregate amount in writing; provided further,
that, upon the request of the Agent the Borrower shall, at the time of
requesting any amount to be paid pursuant to this clause "first" of
this Section 4.01(a), submit to the Agent copies of invoices or other
evidence of the expense to be paid. Notwithstanding the foregoing,
unless the Agent shall otherwise notify the Security Agent in writing
as to any requested expense or unless the Security Agent shall have
received actual written notice from the Agent that a Default or Event
of Default has occurred under the Loan Agreement, the Security Agent
may rely on the written certification of the Borrower as to the payment
of expenses;
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second, to the Agent, an amount (as certified to the Security
Agent by the Agent) equal to the amount then due and payable by the
Borrower to any Financing Party pursuant to subsection 2.10, 2.11, 2.12
or 2A.10 of the Loan Agreement; and
third, to the Agent, an amount (as certified to the Security
Agent by the Agent) equal to the sum of (i) any Commitment Fees that
are then due and payable to the Lenders plus (ii) any Administration
Fee that is then due and payable to the Agent.
(b) On each Monthly Distribution Date, the Security Agent
shall distribute, from the cash available in the Revenue Account (after making
all transfers then required by Section 4.01(a)), the following amounts in the
following order of priority:
first, to the Property Tax Account, an amount equal to
one-twelfth of the real and personal property taxes becoming due and
payable within the next succeeding 12 months (based on estimates of
such taxes and the increase in the Value of the Property Tax Account
that will occur during such 12 months, in each case made in good faith
to the best of the Borrower's knowledge), as certified to the Security
Agent by the Borrower;
second, (on a pro rata basis if there are insufficient funds
to make the transfers contemplated by subclauses (i) and (ii) of this
clause "second") (i) to the Debt Service Account, an amount (as
certified to the Security Agent by the Agent) equal to:
(a) (x) the interest on all outstanding Loans accrued
and unpaid during the one-month period ended on such Monthly
Distribution Date (together with any deficiency in the
accumulation of such amount during any preceding period or
periods) plus (y) an amount equal to the amount then due and
payable by the Borrower with respect to the Interest Rate
Protection Agreements (together with any deficiency in the
accumulation of such amount during any preceding period or
periods ); plus
(b) if any such interest on outstanding Loans or
amount payable with respect to the Interest Rate Protection
Agreements is due and payable on a date that is on or before
the next succeeding Monthly Distribution Date, an amount equal
to the excess of (1) all such interest on outstanding Loans
and other amounts payable with respect to the Interest Rate
Protection Agreements which will be due and payable on such
date over (2) the amount then on deposit in the Debt Service
Account for the purpose of paying such interest on outstanding
Loans and such amounts payable
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with respect to the Interest Rate Protection Agreements
including any amounts then deposited pursuant to clause (a)
above; and
(ii) to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the Debt Service
Letter of Credit Fee then due and payable;
third, (on a pro rata basis if there are insufficient funds to
make the transfers contemplated by subclauses (i) and (ii) of this
clause "third") (i) to the Debt Service Account, an amount (as
certified to the Security Agent by the Agent) equal to the aggregate
principal amount of the Term Loans due and payable on such Monthly
Distribution Date; and
(ii) to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the Debt Service
Letter of Credit Loans then due and payable;
fourth, to the Agent, an amount (as certified to the Security
Agent by the Agent) equal to the aggregate amount of Obligations that
is then due and payable to any Financing Party under the Project
Documents, other than amounts (a) in respect of the principal of or
interest on the Loans, (b) in respect of any Commitment Fee,
Administration Fee or any Debt Service Letter of Credit Fee or (c)
pursuant to subsection 2.10, 2.11, 2.12 or 2A.10 of the Loan Agreement.
SECTION 4.02 Revenue Account -- Quarterly Payments. On each
Quarterly Distribution Date the Security Agent shall distribute, from the cash
available in the Revenue Account (after making any distributions then required
by Section 4.01(a) or (b)), an amount (as certified to the Security Agent by the
Agent) equal to the sum of (a) Available Project Cash Flow of the Borrower for
the three-month period ended on the immediately preceding Installment Payment
Date (or, with respect to the first Quarterly Distribution Date to occur after
the Third Restatement Effective Date, the period commencing on the Third
Restatement Effective Date and ending on the Installment Payment Date
immediately preceding such Quarterly Distribution Date) and (b) the aggregate
amount of Revenues (other than Project Revenues) deposited in the Revenue
Account during such period, in the following order of priority:
(i) first, to the Issuing Bank, an amount (as certified to
the Security Agent by the Issuing Bank) equal to the outstanding
principal amount of all Debt Service Letter of Credit Loans;
(ii) second, to the Major Maintenance Reserve Account, an
amount (as certified to the Security Agent by the Agent) equal to the
Major Maintenance Reserve Deposit Amount for such Quarterly
Distribution Date; and
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(iii) third, to the Borrower's Security Account, an amount
(as certified to the Security Agent by the Agent) equal to the
remainder of such Available Project Cash Flow and Revenues.
; provided, that for purposes of determining the amount to be transferred from
the Revenue Account by the Security Agent pursuant to this Section 4.02 on the
Quarterly Distribution Date next succeeding the Third Restatement Effective
Date, there shall be added to the sum of (i), (ii) and (iii) above an amount (as
certified to the Security Agent by the Agent) equal to the cash on deposit in
the Revenue Account on the Third Restatement Effective Date after the transfers
pursuant to Section 4.11 have been made.
SECTION 4.03 Tax Account. On each date on which income taxes
on the net income of the Borrower are due and payable, the Security Agent shall
distribute, from the cash available in the Tax Account, to Cogentrix Energy or
such other Person or Persons to whom such taxes are due, an amount equal to such
taxes (computed as provided in clause "second" of Section 4.07 hereof); provided
that the Security Agent shall have received a certificate of the chief financial
officer or treasurer of the Borrower, approved in writing by the Agent,
specifying the date on which such income taxes are due and are to be distributed
and the amount or amounts due to Cogentrix Energy or the other Person or Persons
to whom such amounts are payable.
SECTION 4.04 Distributions from the Borrower's Security
Account, Major Maintenance Reserve Account and the Tax Account. To the extent
that at any time the cash then available in the Revenue Account is insufficient
(i) to pay the Cash Operating Costs then due, or (ii) to pay principal and
interest and any other amount then due and payable in respect of the
Obligations, after giving effect to transfers from the Debt Service Account
pursuant to Section 4.05, or (iii) to deposit into the Debt Service Account the
amount required to be deposited therein pursuant to Section 4.01(b), or (iv) to
transfer to the Issuing Bank the outstanding principal amount of the Debt
Service Letter of Credit Loans in accordance with Section 4.02 or (v) to
transfer any amounts then due and owing to any Interest Hedging Counterparty
with respect to any Interest Hedging Transaction in accordance with Section
4.01(b), the Security Agent shall immediately so notify the Agent and obtain the
cash necessary to make such payment, deposits and transfers from the following
sources in the indicated order of priority (in accordance with a certificate of
the Agent):
first, from the cash available in the Borrower's Security
Account;
second, from the cash available in the Tax Account; and
third, from the cash available in the Major Maintenance
Reserve Account.
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SECTION 4.05 Debt Service Account. (a) On each date on which
any interest on or principal of the Term Loans or any interest on the Debt
Service Letter of Credit Loans becomes due and payable pursuant to the Loan
Agreement, the Notes, or any of the Security Documents or any amount becomes due
and payable with respect to any Interest Rate Protection Agreement, the Security
Agent shall transfer to the Agent for payment of such interest or principal or
such amount with respect to any Interest Rate Protection Agreement, from the
cash available in the Debt Service Account, an amount equal to such interest or
principal or amount with respect to any Interest Rate Protection Agreement then
due and payable as certified to the Security Agent by the Agent and, unless a
Default or Event of Default shall have occurred and be continuing, the Borrower.
Any interest on or principal or other amount with respect to any Obligations
which is not paid when due because of insufficient cash available in the Debt
Service Account or otherwise shall continue to be due and shall accrue interest
from the date due to the date paid at the rate provided for in the Loan
Agreement.
(b) In the event that, on any date on which a payment of
interest on or principal or other amount (including any Commitment Fee,
Administration Fee or Debt Service Letter of Credit Fee or any amount payable
with respect to any Interest Rate Protection Agreement) in respect of the
Obligations becomes due and payable pursuant to the Loan Agreement, the Notes,
or any of the Security Documents, there shall be insufficient cash available in
the Debt Service Account, the Tax Account, the Major Maintenance Reserve Account
and the Borrower's Security Account to make such payment, the Security Agent
shall immediately so notify the Agent and the Agent shall make a drawing under
the Debt Service Letter of Credit in an amount equal to the lesser of the amount
available to be drawn upon under the Debt Service Letter of Credit and the
amount required to make such payment of interest or principal or other amount in
full, and apply the proceeds of such drawing to such payment.
(c) If at any time the amount on deposit in the Debt Service
Account shall exceed the then outstanding amount of the Obligations together
with both the interest anticipated to accrue thereon and the Commitment Fees,
Debt Service Letter of Credit Fees and Administration Fees anticipated to be due
and payable until the date scheduled for the payment in full of the Obligations
(as determined in good faith by the Borrower or, if the Agent shall disagree
with the Borrower's determination, by the Agent), the Security Agent shall, upon
receipt of a certificate signed by a Responsible Officer of the Borrower (and
countersigned by the Agent), certifying as to the amount of such excess in the
Debt Service Account, as the case may be, and stating that no Default or Event
of Default has occurred and is continuing, transfer such excess amount from such
Account to the Borrower's Security Account.
SECTION 4.06 Insurance Proceeds Account. (a) The Borrower and
the Agent shall deposit in the Insurance Proceeds
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Account all payments received by the Borrower or the Agent from any insurer
pursuant to the "all-risk" insurance against loss or damage to the Facility and
other insurable Collateral maintained by the Borrower pursuant to subsection 6.7
of the Loan Agreement or pursuant to the Ship Mortgage. The Borrower and the
Agent shall also deposit in the Insurance Proceeds Account the proceeds of any
condemnation, requisition or other governmental taking of any portion of the
Project received by it.
(b) All moneys and securities at any time on deposit in the
Insurance Proceeds Account, including all interest or other income earned with
respect thereto, are herein called the "Insurance Proceeds Deposits".
(c) The Insurance Proceeds Deposits shall be accumulated in
the Insurance Proceeds Account and held therein until paid to or upon the order
of the Borrower as provided in paragraph (d) of this Section 4.06, or paid to
the Agent as provided in paragraph (e) or (f) of this Section 4.06, or returned
to the Borrower as provided in Section 8.02 hereof.
(d) Subject to the provisions of paragraphs (e) and (f) of
this Section 4.06, moneys on deposit in the Insurance Proceeds Account shall be
paid over to or upon the order of the Borrower to reimburse it for, or to pay,
the cost of renewing, repairing, rebuilding or otherwise replacing the damaged
or destroyed or condemned property in respect of which such moneys were
received, upon the receipt by the Security Agent of a certificate of a
Responsible Officer of the Borrower, countersigned by the Agent, (i) describing
in reasonable detail the work done and materials purchased by way of the
renewal, repair, rebuilding or other replacement of the damaged or destroyed or
condemned property, (ii) stating the specific amount requested to be paid over
to or upon the order of the Borrower, that such amount is requested to reimburse
the Borrower for, or to pay, the cost of such renewal, repair, rebuilding or
other replacement and that such amount, together with amounts remaining in the
Insurance Proceeds Account for such purpose and other funds of the Borrower
available for such purpose, are sufficient to pay in full the cost of such
renewal, repair, rebuilding or other replacement, and (iii) stating that no
Event of Default has occurred and is continuing.
(e) If the Agent shall at any time notify the Security Agent
in writing that an Event of Loss has occurred, the Security Agent shall to the
extent requested in such writing promptly withdraw the Insurance Proceeds
Deposits from the Insurance Proceeds Account and deliver the same to the Agent,
for application by the Agent to the payment of the Obligations in such order as
the Lenders, the Issuing Bank and the Interest Hedging Counterparties may
determine.
(f) If the Agent shall at any time notify the Security Agent
in writing that an Event of Default under the Loan Agreement has occurred and is
continuing, then the Security Agent
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shall, if and to the extent requested in such writing by the Agent, promptly
withdraw the Insurance Proceeds Deposits from the Insurance Proceeds Account and
deliver the same to the Agent, to be held by the Agent and applied to the
payment of the Obligations as they become due in such order as the Lenders, the
Issuing Bank and the Interest Hedging Counterparties may determine.
SECTION 4.07 Borrower's Security Account. On each Borrower
Distribution Date, the Security Agent shall transfer, from the Borrower's
Security Account, the following amounts in the following order of priority:
first, upon receipt of a written request pursuant to Section
4.12 by the Borrower and countersigned by the Agent, to the Agent for
application pursuant to subsection 3.1(b)(ii) of the Loan Agreement,
the amount specified in such request;
second, upon receipt of a certificate of the Agent certifying
that a mandatory prepayment of the Term Loans is required to be made by
the Borrower on such Borrower Distribution Date pursuant to subsection
3.1(a)(ii) of the Loan Agreement, to the Agent for application to such
mandatory prepayment, all amounts then on deposit in the Borrower's
Security Account;
third, if the Borrower shall have delivered to the Security
Agent a Distribution Certificate (countersigned by the Agent), to the
Tax Account, an amount equal to (a) the estimated income taxes (as
specified in such certificate) on the taxable income of the Borrower
accrued and unpaid to such Borrower Distribution Date computed as
though the business of the Borrower was at all times during such period
conducted by a separate, distinct and unaffiliated legal entity less
(b) the Value of the Tax Account on such Borrower Distribution Date
prior to giving effect to such transfer;
fourth, if the Borrower shall have delivered to the Security
Agent a Distribution Certificate (countersigned by the Agent), to the
Borrower an amount (as certified to the Security Agent by the Borrower
and the Agent) equal to the regional and central support costs
allocated to the Project;
fifth, if the Borrower shall have delivered to the Security
Agent a Distribution Certificate (countersigned by the Agent), to the
Borrower for the benefit of Cogentrix Energy, the amount (as certified
to the Security Agent by the Borrower and the Agent) of the Management
Fee then due and payable;
sixth, if the Borrower shall have delivered to the Security
Agent a Distribution Certificate (countersigned by the Agent), to the
Borrower for the benefit of the holders
<PAGE> 15
14
of the Junior Working Capital Loans, an amount (as certified to the
Security Agent by the Borrower and the Agent) equal to the principal of
and interest and other amounts then due and owing in respect of the
Junior Working Capital Loans; and
seventh, if the Borrower shall have delivered to the Security
Agent a Distribution Certificate (countersigned by the Agent), to the
Borrower, an amount equal to the remainder of the cash available in the
Borrower's Security Account on such Borrower Distribution Date.
If the Borrower has not delivered a Distribution Certificate
on any Borrower Distribution Date, the Borrower may deliver such certificate on
any Business Day thereafter that is prior to the next succeeding Borrower
Distribution Date and the Security Agent shall, on the first Business Day after
such delivery, transfer from the Borrower's Security Account in accordance with
clauses "third" through "seventh" above, an amount equal to the lesser of (a)
the cash then available in the Borrower's Security Account and (b) the cash that
was available in the Borrower's Security Account on the immediately preceding
Borrower Distribution Date.
SECTION 4.08 Transfers Following Events of Default
Acceleration. (a) Upon receipt by the Security Agent of written notice from the
Agent stating that an Event of Default under the Loan Agreement has occurred and
is continuing, the Security Agent shall thereafter transfer cash from the
Revenue Account pursuant to clause "first" of Section 4.01(a) only after
receiving the prior written consent of the Agent until notified in writing by
the Agent that such Event of Default has been waived by the Required Lenders or
cured. Such notice shall be given by the Agent promptly following any such
waiver or cure.
(b) If the Agent shall at any time notify the Security Agent
in writing that an Event of Default under the Loan Agreement has occurred and is
continuing and that as a result thereof the entire outstanding principal amount
of the Loans has become due and payable, then the Security Agent shall, if
requested by the Agent, promptly withdraw the cash and investments on deposit in
the Accounts to the extent necessary to pay in full the Obligations (as
certified to the Security Agent by the Agent) and deliver the same to the Agent,
to be applied forthwith to the payment of the Obligations. The Agent agrees that
it shall not request the Security Agent to make any withdrawal contemplated by
the preceding sentence unless the entire outstanding principal amount of the
Loans has become due and payable as a result of an Event of Default under the
Loan Agreement.
SECTION 4.09 Property Tax Account. On each date on which any
real or personal property taxes are due and payable by the Borrower, the
Security Agent shall transfer to the Governmental Authority or Authorities
referred to below, from the
<PAGE> 16
15
cash available in the Property Tax Account, an amount equal to such taxes,
provided that the Security Agent shall have received a certificate signed by a
Responsible Officer of the Borrower, specifying the amount or amounts of such
taxes and the Governmental Authority or Authorities to which such taxes are
payable. Any such taxes not paid when due because of insufficient cash available
in the Property Tax Account shall be payable as a Priority Cash Operating Cost
pursuant to clause "first" of Section 4.01(a). If any amount shall remain on
deposit in the Property Tax Account immediately after making any transfer from
said Account pursuant to the first sentence of this Section 4.09, the Security
Agent shall transfer such remaining amount to the Revenue Account.
SECTION 4.10 Transfers from the Major Maintenance Reserve
Account. (a) Upon receipt by the Security Agent of a certificate of the Borrower
(countersigned by the Agent) stating that, after the Third Restatement Effective
Date, the Borrower has incurred Major Maintenance Costs, the Security Agent
shall transfer to the Revenue Account, from the cash available in the Major
Maintenance Reserve Account, the amount of Major Maintenance Costs specified in
such certificate as being due and payable by the Borrower.
(b) If at any time the Security Agent shall have received a
certificate from the Borrower (countersigned by the Agent) stating that the
amount on deposit in the Major Maintenance Reserve Account on any day exceeds
the Required Major Maintenance Reserve Amount for such day and specifying the
amount of such excess, the Security Agent shall transfer an amount equal to such
excess from the Major Maintenance Reserve Account to the Revenue Account.
SECTION 4.11 Transfers from Accounts on the Effective Date. On
the Third Restatement Effective Date, the Security Agent shall distribute to the
Borrower all of the cash available on such date in the Accounts (other than the
Revenue Account) as defined in the Existing Security Deposit Agreement and shall
distribute to the Borrower from the Revenue Account an amount equal to the
lesser of $2,000,000 and the cash then on deposit in the Revenue Account on such
date.
SECTION 4.12 Prepayments from Borrower's Security Account. The
Borrower may, on any Borrower Distribution Date, request the Security Agent, in
a writing countersigned by the Agent, to transfer to the Agent from the cash
then available in the Borrower's Security Account an amount not exceeding the
maximum amount permitted to be so transferred under subsection 3.1(b)(ii) of the
Loan Agreement, to be applied by the Agent on such Borrower Distribution Date to
the prepayment of the Term Loans in accordance with the provisions of subsection
3.1(b)(ii) of the Loan Agreement.
<PAGE> 17
16
ARTICLE V
Investment
Any cash held by the Security Agent in any Account shall be
invested by the Security Agent from time to time as directed in writing by the
Borrower (unless the Agent shall have notified the Security Agent that an Event
of Default under the Loan Agreement has occurred and is continuing and that the
Security Agent's authority to invest and reinvest at the written direction of
the Borrower is suspended) in the "Permitted Investments" described below. Any
income or gain realized as a result of any such investment shall be held as part
of the applicable Account and reinvested as provided herein. Any income tax
payable on account of any such income or gain shall be payable by the Borrower
as a Priority Cash Operating Cost as provided in clause "first" of Section
4.01(a) hereof. The Security Agent shall have no liability for any loss
resulting from any such investment other than by reason of its wilful misconduct
or gross negligence. Any such investment may be sold (without regard to maturity
date) by the Security Agent whenever necessary to make any distribution required
by this Agreement. The Security Agent will promptly notify the Agent and the
Borrower of any loss resulting from any such investment and the Agent, in its
sole discretion may either (i) request the Borrower to, and the Borrower shall,
pay an amount to the Security Agent equal to such loss for deposit in the
appropriate Account, and such payment shall not be reimbursable pursuant to
Section 4.01 hereof without the prior consent of the Agent or (ii) instruct the
Security Agent in writing to reimburse the affected Account from Revenues
pursuant to Section 4.01 hereof. "Permitted Investments" shall mean: (i)
marketable direct obligations of the United States of America; (ii) marketable
obligations directly and fully guaranteed as to interest and principal by the
United States of America; (iii) demand deposits with the Security Agent, and
time deposits, certificates of deposit and banker's acceptances issued by (x)
the Agent or (y) 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 of America 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; (iv) commercial paper or tax-exempt obligations given the highest
rating by S&P and Moody's; (v) obligations of the Agent or any bank described in
clause (iii) above, in respect of the repurchase of obligations of the type as
described in clauses (i) and (ii) hereof, provided, that such repurchase
obligations shall be fully secured by obligations of the type described in said
clauses (i) and (ii) and the possession of such obligations shall be transferred
to, and segregated from other obligations owned by, the Agent or any such bank;
(vi) instruments rated "AAA" by S&P and "Aaa" by Moody's issued by investment
companies and having a maturity of 180 days or less; (vii) eurodollar
certificates of deposit issued by the Agent or any bank described in clause
(iii) above; and (viii) marketable securities rated not less than "A-1" by S&P
or not
<PAGE> 18
17
less than "Prime-1" by Moody's. In no event shall any cash in the Accounts be
invested in any obligation, certificate of deposit, acceptance, commercial paper
or instrument which by its terms matures (A) more than 180 days after the date
of investment, unless the Agent or a bank meeting the requirements of clause
(iii) above shall have agreed to repurchase such obligation, certificate of
deposit, acceptance, commercial paper or instrument at its purchase price plus
earned interest within no more than 180 days after its purchase hereunder or (B)
after the next Installment Payment Date.
ARTICLE VI
Security Agent Acting as Such
SECTION 6.01 Rights, Duties, etc. The acceptance by the
Security Agent of its duties hereunder is subject to the following terms and
conditions which the parties to this Agreement hereby agree shall govern and
control with respect to its rights, duties, liabilities and immunities:
(a) the Security Agent shall act hereunder as an agent only
and shall not be responsible or liable in any manner whatever for the
sufficiency, correctness, genuineness or validity of any funds or
securities deposited with or held by it;
(b) the Security Agent shall be protected in acting and may
rely exclusively upon any written notice, certificate, instruction,
request or other paper or document, as to the due execution thereof and
the validity and effectiveness of the provisions thereof and as to the
truth of any information therein contained, which the Security Agent in
good faith believes to be genuine;
(c) the Security Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted except in the
case of its gross negligence, wilful misconduct or bad faith;
(d) the Security Agent may consult with and obtain advice from
counsel in the event of any dispute or question as to the construction
of any provision hereof;
(e) the Security Agent shall have no duties hereunder except
those which are expressly set forth herein and in any modification or
amendment hereof; provided, however, that no such modification or
amendment hereof shall affect its duties unless it shall have given its
prior written consent thereto;
(f) the Security Agent may execute or perform any duties
hereunder either directly or through agents or attorneys;
<PAGE> 19
18
(g) the Security Agent may engage or be interested in any
financial or other transactions with any Person who is a party hereto
or to any other Project Document and may act on, or as depositary,
trustee or agent for, any committee or body of holders of obligations
of such Persons as freely as if it were not Security Agent hereunder;
and
(h) the Security Agent shall not be obligated to take any
action which in its reasonable judgment would involve it in expense or
liability unless it has been furnished with reasonable indemnity
satisfactory to it (it being understood and agreed that the general
indemnity of the Borrower will constitute a reasonable indemnity).
SECTION 6.02 Resignation or Removal. (a) The Security Agent
may at any time resign by giving written notice to each other party to this
Agreement, such resignation to be effective upon the appointment of a successor
Security Agent as hereinafter provided.
(b) The Borrower (with the written approval of the Agent) or
the Agent may remove the Security Agent at any time by giving written notice to
each other party to this Agreement, such removal to be effective upon the
appointment of a successor Security Agent as hereinafter provided.
(c) In the event of any resignation or removal of the Security
Agent, a successor Security Agent, which shall be a bank or trust company
organized under the laws of the United States of America or of the State of New
York or North Carolina, having its principal corporate trust office in New York
City, North Carolina or Chicago and a capital and surplus of not less than
$100,000,000, shall be appointed by the Agent, subject to the approval of the
Borrower. Any such successor Security Agent shall deliver to each party to this
Agreement a written instrument accepting such appointment hereunder and
thereupon such successor Security Agent shall succeed to all the rights and
duties of the Security Agent hereunder and shall be entitled to receive the
Accounts from the predecessor Security Agent. If a successor Security Agent
shall not have been appointed and accepted its appointment as Security Agent
hereunder within 45 days after such notice of resignation of the Security Agent
or such notice of removal of the Security Agent, the Security Agent or the Agent
may apply to any court of competent jurisdiction to appoint a successor Security
Agent to act until such time, if any, as a successor Security Agent shall have
accepted its appointment as above provided. Any successor Security Agent so
appointed by such court shall immediately and without further act be superseded
by any successor Security Agent appointed by the Agent with the approval of the
Borrower as above provided.
<PAGE> 20
19
ARTICLE VII
Determinations
SECTION 7.01 Value. Cash and Permitted Investments on deposit
from time to time in the Accounts shall be valued by the Security Agent as
follows:
(a) cash shall be valued at the face amount thereof; and
(b) Permitted Investments shall be valued at the lesser of the
face amount thereof and the purchase price thereof.
The term "Value" shall mean, with respect to any Account, the
aggregate value of the cash and Permitted Investments then on deposit in such
Account, valued in accordance with the provisions of this Section 7.01.
SECTION 7.02 Other Determinations. The Borrower, the Agent and
the Security Agent shall establish procedures reasonably acceptable to the
Security Agent pursuant to which the Security Agent may conclusively determine,
for purposes of this Agreement, the amounts from time to time to be distributed
or paid by the Security Agent from cash available in the Accounts. In any event,
the Security Agent shall not be required to make any distributions or
determinations hereunder except upon the written instructions of the Borrower or
the Agent, as applicable. In the event of any dispute as to any such amount, the
Security Agent is authorized and directed to follow the instructions of the
Agent, without liability to the Borrower or any other Person. The foregoing
shall not relieve the Agent from any obligation or liability it may otherwise
have to the Borrower.
SECTION 7.03 Available Cash. In determining the amount of
available cash in any Account at any time, the Security Agent shall treat as
available cash the amount which the Security Agent would have received on such
day if the Security Agent had liquidated all the Permitted Investments (at then
prevailing market prices) then on deposit in such Account. The Security Agent
will use its best efforts to sell Permitted Investments such that actual cash is
available on each date on which each distribution is to be made pursuant to this
Agreement so that the Security Agent can make such distribution in cash on such
date.
<PAGE> 21
20
ARTICLE VIII
Miscellaneous
SECTION 8.01 Fees and Indemnification of Security Agent. The
Borrower shall pay such fees as the Security Agent charges as compensation for
its services under this Agreement. In addition, the Borrower hereby assumes
liability for and agrees to indemnify, protect, save and keep harmless the
Security Agent and its respective successors, assigns, agents and servants, from
and against any and all claims, liabilities, obligations, losses, damages,
penalties, reasonable and verifiable costs and expenses (excluding fees and
expenses of counsel to the Security Agent incurred in the execution and delivery
of this Agreement) that may be imposed on, incurred by, or asserted against, at
any time, the Security Agent (whether or not also indemnified against by the
Borrower or any other Person under any contract or instrument) and in any way
relating to or arising out of the execution, delivery and performance of this
Agreement, the establishment of the Accounts, the acceptance of deposits, the
purchase or sale of Permitted Investments, the retention of cash and Permitted
Investments or the proceeds thereof and any payment, transfer or other
application of cash or Permitted Investments by the Security Agent in accordance
with the provisions of this Agreement, or as may arise by reason of any act,
omission or error of the Security Agent made in good faith in the conduct of its
duties; except that the Borrower shall not be required to indemnify, protect,
save and keep harmless the Security Agent against its own gross negligence,
active or passive, or wilful misconduct. The indemnities contained in this
Section 8.01 shall survive the termination of this Agreement.
SECTION 8.02 Termination. The provisions of Article III with
respect to the Accounts shall terminate on the earlier of (a) any date specified
by the Agent in writing to the other parties hereto and (b) the date on which
all of the Obligations shall have been paid in full and the Loan Agreement shall
have been terminated as specified by the Agent in writing to the Security Agent.
Promptly after such termination (y) any Permitted Investments in the Accounts
shall be liquidated and (z) the moneys in the Accounts (after giving effect to
such liquidation and such adjustments) shall be distributed to the Borrower. Any
taxes payable as a result of any distribution from any Account pursuant to this
Section 8.02 shall be paid by the Borrower from the moneys distributed to the
Borrower pursuant to this Section 8.02 or otherwise and shall not be treated as
an expense of the Facility for purposes of any Project Document.
SECTION 8.03 Severability. If any one or more of the covenants
or agreements provided in this Agreement on the part of the parties hereto to be
performed should be determined by a court of competent jurisdiction to be
contrary to law, such covenant or agreement shall be deemed and construed to be
severable from the remaining covenants and agreements herein
<PAGE> 22
21
contained and shall in no way affect the validity of the remaining provisions of
this Agreement.
SECTION 8.04 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 8.05 Amendments. This Agreement may not be modified or
amended without the prior written consent of each of the parties hereto.
SECTION 8.06 Applicable Law. This Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the State
of North Carolina applicable to agreements made and to be performed entirely in
such State, including all matters of construction, validity and performance.
SECTION 8.07 Notices. Unless otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests and
other communications required or permitted by the terms hereof to be given to
any Person shall be in writing and shall become effective, if mailed, five
Business Days after being deposited in the United States mail, proper postage
for first-class mail affixed thereto or, if delivered by hand or courier service
or in the form of a telex, telecopy or telegram, when received, and shall be
directed as set forth below or to such other address as may be specified from
time to time by any such Person:
The Security
Agent: First Union National Bank of North
Carolina
Corporate Trust Department
CMG-4
Two First Union Center
Charlotte, North Carolina 28288
Attention: Terry Baker
Telecopier: (704) 383-7316
The Agent: Credit Lyonnais
1301 Avenue of the Americas
New York, New York 10019
Attention: James Guidera/
Robert Colvin
Telecopier: (212) 261-7890
The Borrower: Cogentrix Virginia Leasing Corporation
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: Vice President -
Finance and Treasurer
Telecopier: (704) 523-6373
<PAGE> 23
22
SECTION 8.08 Benefit of Agreement. This Agreement shall inure
solely to the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns.
SECTION 8.09 Nature of Agency and Accounts. The Borrower
understands and agrees that the Security Agent is acting hereunder solely as the
agent of the Agent, the Lenders, the Issuing Bank and each Interest Hedging
Counterparty, and that all funds at any time on deposit in the Accounts are in
the possession and control of the Agent for the ratable benefit of the Agent,
the Lenders, the Issuing Bank and each Interest Hedging Counterparty.
SECTION 8.10 Cogentrix, Inc. Cogentrix, Inc. hereby consents
to this Agreement, and Cogentrix, Inc. and each of the parties hereto agree
that, on and after the Third Restatement Effective Date, Cogentrix, Inc. shall
not be a party hereto or to the Existing Security Deposit Agreement.
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have each caused this
Security Deposit Agreement to be duly executed by their duly authorized
officers, all as of the day and year first above written.
COGENTRIX VIRGINIA LEASING
CORPORATION
By: /s/ Elizabeth L. Rippetoe
------------------------------------
Title:
CREDIT LYONNAIS, as Agent and
Issuing Bank
By: /s/ James F. Guidera
------------------------------------
Title:
FIRST UNION NATIONAL BANK, as
Security Agent
By: /s/ Terry Baker
------------------------------------
Title: Vice President
Consented to and agreed solely for
purposes of Section 8.10 hereof:
COGENTRIX, INC.
By: /s/ Elizabeth L. Rippetoe
-------------------------------
Title:
<PAGE> 1
EXECUTION COPY
AMENDMENT NO. 3 TO
PLEDGE AND SECURITY AGREEMENT
AMENDMENT NO. 3, dated as of February 11, 1998, by and between
COGENTRIX, INC. (the "Pledgor") and CREDIT LYONNAIS, as grantee (in such
capacity, the "Grantee") to the PLEDGE AND SECURITY AGREEMENT, dated as of
December 1, 1986, made by the Pledgor to Banque Paribas, New York Branch
("Paribas"), as grantee (in such capacity, the "Original Grantee") as amended by
Amendment No. 1, dated as of September 1, 1988, between the Pledgor and the
Original Grantee, and as amended by Amendment No. 2, dated as of July 1, 1996,
among the Pledgor and the Original Grantee (such Pledge and Security Agreement,
as so amended, the "Pledge Agreement").
W I T N E S S E T H :
WHEREAS, the Pledgor is the legal and beneficial owner of all
of the issued and outstanding shares of stock of Cogentrix of Virginia, Inc., a
Virginia corporation (the "Subsidiary");
WHEREAS, the Pledgor entered into the Pledge Agreement in
connection with the execution and delivery by the Subsidiary of an Application
for Letter of Credit and Reimbursement Agreement dated as of December 1, 1986,
as amended by First Amendment, dated as of February 20, 1987, with Paribas, as
issuing bank and agent, and certain other banks (the "Original Reimbursement
Agreement"), with respect to the financing of a cogeneration facility located in
Hopewell, Virginia (the "Facility") then being constructed by the Subsidiary;
WHEREAS, the Facility has been acquired and constructed, and
is being operated, by James River Cogeneration Company, a North Carolina general
partnership (the "Partnership"), of which the Subsidiary is a general partner,
and the Partnership has been assigned, and has assumed, all of the Subsidiary's
rights and interests and all of the Subsidiary's obligations, indebtedness,
liabilities and agreements in, to and under the Original Reimbursement Agreement
pursuant to an Assumption and Modification Agreement, dated as of October 1,
1987, among the parties to the Original Reimbursement Agreement and the
Partnership (the "Modification Agreement");
WHEREAS, the Partnership, Paribas, as issuing bank and agent,
and the other banks parties thereto amended and restated the Original
Reimbursement Agreement, as modified and amended by the Modification Agreement,
pursuant to an Amended and Restated Application for Letter of Credit and
Reimbursement Agreement, dated as of September 1, 1988, and such parties amended
such Amended and Restated Application for Letter of Credit and Reimbursement
Agreement pursuant to Amendment No. 1, dated as of December 1, 1993, Amendment
No. 2, dated as of February 15, 1995, Amendment No. 3, dated as of March 15,
1996, and such parties amended and restated such Amended and Restated
Application for Letter of Credit and Reimbursement Agreement pursuant to the
Second Amended and Restated
<PAGE> 2
2
Application for Letter of Credit and Reimbursement Agreement, dated as of July
1, 1996, each among such parties (such Amended and Restated Letter of Credit and
Reimbursement Agreement, as so amended and amended and restated, the "Existing
Reimbursement Agreement");
WHEREAS, Credit Lyonnais has agreed to replace Paribas as
agent under the Existing Reimbursement Agreement and as grantee under the Pledge
Agreement;
WHEREAS, pursuant to the request of the Subsidiary and the
Partnership, the Partnership, the parties to to the Existing Reimbursement
Agreement have agreed to amend and restate such agreement in its entirety
pursuant to the Third Amended and Restated Application for Letter of Credit and
Reimbursement Agreement, dated as of February 11, 1998, among the Partnership,
the Banks (as defined therein), the Issuing Bank (as defined therein) and Credit
Lyonnais, as agent for the Issuing Bank and the Banks (in such capacity, the
"Agent") (herein, as amended, supplemented or otherwise modified from time to
time, called the "Reimbursement Agreement") for the purpose of, among other
things, appointing Credit Lyonnais as Agent and providing for the issuance by
the Issuing Bank of the Debt Service Letter of Credit referred to therein; and
WHEREAS, said Third Amended and Restated Application for
Letter of Credit and Reimbursement Agreement will not become effective unless,
among other things, the Pledgor enters into this Amendment No. 3 to the Pledge
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the Pledgor and the Grantee agree as follows:
1. The term "Reimbursement Agreement," wherever used in the
Pledge Agreement, shall mean the Reimbursement Agreement, as defined above.
2. Each reference in the Pledge Agreement to the term
"Grantee" shall be deemed a reference to Credit Lyonnais, as grantee for the
Secured Parties (as defined in the Reimbursement Agreement).
3. Section 5 of the Pledge Agreement is hereby amended in its
entirety by deleting said Section and substituting in lieu thereof the
following:
"Section 5 Cash Dividends; Voting Rights;
Subrogation; Amendments. (a) Unless a Significant Default
under the Reimbursement Agreement shall have occurred and be
continuing, the Pledgor shall be entitled to receive all cash
dividends paid in respect of the Pledged Stock. Unless an
Event of Default under the Reimbursement Agreement shall have
occurred and be continuing and the Grantee shall have given
written notice to the Pledgor of its intention to exercise all
voting and corporate rights with respect to the Pledged Stock,
the Pledgor shall be entitled to vote the Pledged Stock and to
give consents, waivers and ratifications in respect of the
Pledged Stock; provided that no vote shall be cast nor
consent, waiver or ratification given nor action taken which
would impair the Collateral or be inconsistent with or violate
any provision of this Pledge Agreement, the Reimbursement
Agreement, any of the Notes, or any of the
<PAGE> 3
3
Security Documents.
(b) Notwithstanding any payment or payments made by
the Pledgor hereunder, or the receipt of any amounts by any of
the Secured Parties with respect to the Collateral, or any
setoff or application of funds of the Pledgor by any of the
Secured Parties, the Pledgor shall not be entitled to be
subrogated to any of the rights of such Secured Parties
against the Subsidiary or any collateral security held by any
of the Secured Parties for the payment of the Obligations
until all amounts owing to the Secured Parties by the
Subsidiary on account of the Obligations are paid in full.
(c) The Pledgor hereby consents that, without the
necessity of any reservation of rights against the Pledgor,
and without notice to or further assent by the Pledgor, any
demand for payment of any of the Obligations made by any of
the Secured Parties may be rescinded by any of the Secured
Parties and any of the Obligations continued, and the
Obligations, or the liability of the Subsidiary or 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 of the Secured Parties and the
Reimbursement Agreement, the Notes, the Project Documents, any
Swaps and any collateral security documents or guarantees or
documents in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as any of the
Secured Parties may deem advisable from time to time, and any
collateral security at any time held by any of the Secured
Parties for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released, all without the
necessity of any reservation of rights against the Pledgor and
without notice to or further assent by the Pledgor, which will
remain bound hereunder, notwithstanding any such renewal,
extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or
release. The Grantee shall have no obligation to protect,
secure, perfect or insure any other collateral security
document or property subject thereto at any time held as
security for the Obligations. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by any
Secured Party upon this Pledge Agreement, and the Obligations,
and any of them, shall conclusively be deemed to have been
created, contracted or incurred in reliance upon this Pledge
Agreement, and all dealings between the Grantor, the Pledgor
and the Secured Parties shall likewise be conclusively
presumed to have been had or consummated in reliance upon this
Pledge Agreement. The Pledgor waives diligence, presentment,
protest, demand for payment and notice of default or
nonpayment to or upon the Subsidiary or the Pledgor with
respect to the Obligations."
4. Section 8 of the Pledge Agreement is hereby amended as
follows:
(a) The first sentence of Section 8 of the Pledge
Agreement is hereby amended by: (1) deleting the word "and" at the end of
paragraph (g) thereof; (2) deleting the period at the end of paragraph (h)
thereof and substituting in lieu thereof "; and"; and (3) by
<PAGE> 4
4
adding thereto the following paragraph:
"and (i)(_) the shares of Pledged Stock constitute
all the issued and outstanding shares of all classes
of the capital stock of the Subsidiary;"
(b) The second sentence of Section 8 of the Pledge
Agreement is hereby amended by deleting said sentence and substituting in lieu
thereof the following:
"The Pledgor covenants and agrees that:
(i) it shall maintain the security interest created
by this Pledge Agreement as a first, perfected security
interest and shall defend such security interest against
claims and demands of all Persons whomsoever;
(ii) if any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, the
Pledgor shall cause such note, instrument or chattel paper to
be immediately delivered to the Grantee, duly endorsed in a
manner satisfactory to the Grantee, to be held as Collateral
pursuant to this Pledge Agreement;
(iii) it will have like title to and right to pledge
any other property at any time hereafter pledged to the
Grantee as Collateral hereunder and will likewise defend the
Secured Parties' right thereto and security interest therein;
(iv) without the prior written consent of the
Grantee, the Pledgor will not enter into any agreement or
undertaking restricting the right or ability of the Pledgor or
the Grantee to sell, assign or transfer any of the Collateral;
and
(v) it shall pay, and save the Grantee and the
Secured Parties harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by
this Pledge Agreement."
5. The first sentence of Section 9 of the Pledge Agreement is
hereby amended by deleting the term "Banks" where it appears therein and
substituting in lieu thereof the term "Secured Parties".
6. The Pledgor hereby confirms the pledge, assignment,
hypothecation, transfer and delivery to the Grantee for the equal and ratable
benefit of the Secured Parties (as defined in the Reimbursement Agreement) of,
and the granting by the Pledgor to the Grantee for the equal and ratable benefit
of the Secured Parties (as defined in the Reimbursement Agreement) of a first
lien on and first perfected security interest in, the Pledged Stock and all
proceeds thereof in accordance with the provisions of the Pledge Agreement, as
collateral security for the prompt and complete payment when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations (as defined in
the Reimbursement Agreement) now existing or hereafter arising.
<PAGE> 5
5
7. The Pledgor hereby represents and warrants that the
representations and warranties contained in Section 8 of the Pledge Agreement
(as amended hereby) are each true and correct as of the date hereof.
8. Except as expressly amended hereby, the Pledge Agreement
shall continue to be, and shall remain, in full force and effect in accordance
with its terms.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 3 to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
COGENTRIX, INC.
By: /s/ Elizabeth L. Rippetoe
-------------------------------------
Title: Vice President, Assistant
General Counsel and Assistant
Secretary
CREDIT LYONNAIS, as Grantee
By: /s/ James F. Guidera
-------------------------------------
Title: Vice President
<PAGE> 7
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Pledge
Agreement, dated as of February 11, 1998, to the Pledge and Security Agreement,
dated as of December 1, 1986, as amended by Amendment No. 1, dated as of
September 1, 1988, Amendment No. 2, dated as of July 1, 1996, and Amendment No.
3, dated as of February 11, 1998 (as so amended and as it may be further
amended, supplemented or otherwise modified from time to time, the "Pledge
Agreement"), made by Cogentrix, Inc. for the benefit of Credit Lyonnais, as
grantee (in such capacity, the "Grantee"). The undersigned agrees for the
benefit of the Grantee as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to it.
2. The undersigned will notify the Grantee promptly in writing of the
occurrence of any of the events described in Section 3 of the Pledge Agreement.
3. The terms of Section 10(b) of the Pledge Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 10 of the Pledge Agreement.
COGENTRIX OF VIRGINIA, INC.
By: /s/ Elizabeth L. Rippetoe
--------------------------
Title: Vice President,
Assistant General Counsel and
Assistant Secretary
Address for Notices:
9405 Arrowpoint Boulevard
Charlotte, NC 28273-8110
Fax: 704-529-1006
Attn: General Counsel
<PAGE> 1
EXECUTION COPY
AMENDMENT NO. 3 TO
ASSIGNMENT AND SECURITY AGREEMENT
AMENDMENT NO. 3, dated as of February 11, 1998, between
COGENTRIX OF VIRGINIA, INC., a Virginia corporation (the "Company"), and CREDIT
LYONNAIS, as grantee (in such capacity, the "Grantee") for the benefit of the
Secured Parties referred to below to the ASSIGNMENT AND SECURITY AGREEMENT,
dated as of October 1, 1987, as amended by Amendment No. 1, dated as of
September 1, 1988, and as amended by Amendment No. 2, dated July 1, 1996 (as so
amended, the "Partner Assignment"), between the Company and Banque Paribas, New
York Branch ("Paribas"), as grantee (in such capacity the "Original Grantee").
W I T N E S S E T H :
WHEREAS, the Company and the Original Grantee entered into the
Partner Assignment in order to grant to the Original Grantee, for the equal and
ratable benefit of the Secured Parties, a first lien on and a continuing first
priority security interest in all of the Company's personal property, tangible
and intangible, whether then owned or at any time thereafter acquired, as
security for the payment when due (whether at the stated maturity, by
acceleration or otherwise) of all of the Obligations of James River Cogeneration
Company, a North Carolina general partnership (the "Partnership") as defined in
the Application for Letter of Credit and Reimbursement Agreement, dated as of
December 1, 1986, as amended by the First Amendment, dated as of February 20,
1987, among Cogentrix of Virginia, Inc., Paribas, as issuing bank and as agent,
and the other banks parties thereto, and as further modified by the Assumption
and Modification Agreement, dated as of October 1, 1987, among said parties and
the Partnership and as amended and restated in its entirety by the Amended and
Restated Application for Letter of Credit and Reimbursement Agreement, dated as
of September 1, 1988, as amended by Amendment No. 1, dated as of December 1,
1993, Amendment No. 2, dated as of February 15, 1995, and Amendment No. 3, dated
as of March 15, 1996, each among the Partnership, Paribas, as issuing bank and
agent, and the other banks parties thereto, and as again amended and restated in
its entirety by the Second Amended and Restated Application for Letter of Credit
and Reimbursement Agreement, dated as of July 1, 1996, among the Partnership,
Paribas, as agent, and the other banks parties thereto (the "Existing
Reimbursement Agreement");
WHEREAS, Credit Lyonnais has agreed to succeed Paribas as
agent under the Existing Reimbursement Agreement and as grantee under the
Partner Assignment;
WHEREAS, at the request of the Partnership, the parties to the
Existing Reimbursement Agreement have agreed to amend and restate such agreement
in its entirety pursuant to the Third Amended and Restated Application for
Letter of Credit and Reimbursement Agreement, dated as of February 11, 1998,
among the Partnership, the Banks (as defined therein), the Issuing Bank (as
defined therein) and Credit Lyonnais, as agent for the Issuing Bank and the
Banks (in such capacity, the "Agent") (herein, as amended, supplemented
<PAGE> 2
2
or otherwise modified from time to time, called the "Reimbursement Agreement")
for the purpose of, among other things, appointing Credit Lyonnais as Agent and
providing for the issuance by the Issuing Bank of the Debt Service Letter of
Credit referred to therein; and
WHEREAS, said Third Amended and Restated Application for
Letter of Credit and Reimbursement Agreement will not become effective unless,
among other things, the Company enters into this Amendment No. 3 to the Partner
Assignment;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Grantee agree as follows:
1. The term "Reimbursement Agreement," wherever used herein or
in the Partner Assignment, shall be deemed references to the Reimbursement
Agreement, as defined above.
2. The term "Obligations" and all other capitalized terms used
in the Partner Assignment which are defined in the Reimbursement Agreement shall
have the respective meanings as therein defined.
3. Each reference in the Partner Assignment to the term
"Grantee" shall be deemed a reference to Credit Lyonnais, as grantee for the
Secured Parties (as defined in the Reimbursement Agreement).
4. The third sentence of paragraph (a) of Section 8 of the
Partner Assignment is hereby amended by deleting therefrom the term "Bank" and
substituting in lieu thereof the phrase "Secured Party".
5. Section 11 of the Partner Assignment is hereby amended by
deleting in its entirety the first and second sentences of such section and
substituting therefor the following sentences:
"Any notice to the Grantee shall be deemed effective only if
sent to and received at the office of the Grantee at 1301
Avenue of the Americas, New York, New York 10019-6022. Any
notice to the Company hereunder shall be deemed to have been
duly given when delivered by hand or when deposited in the
mail, first class postage prepaid, addressed to the Company at
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273,
Attention: President (with copy to General Counsel)."
6. Section 16 of the Partner Assignment is hereby amended as
follows:
(a) The first and second sentences of paragraph (a)
thereof are hereby amended by deleting from each such
sentence the term "Bank" and substituting in lieu
thereof the phrase "Secured Party".
(b) The second sentence of paragraph (b) thereof is
hereby amended by deleting the term "Bank" therefrom
and substituting in lieu thereof the phrase "Secured
Party".
<PAGE> 3
3
(c) The third sentence of paragraph (b) thereof is
hereby amended by deleting the term "Banks" therefrom
and substituting in lieu thereof the phrase "Secured
Parties".
7. The second sentence of Section 18 of the Partner Assignment
is hereby amended by deleting therefrom the term "Banks" and substituting in
lieu thereof the phrase "Secured Parties".
8. The Company hereby confirms the pledge, assignment,
hypothecation, transfer and delivery to the Grantee for the equal and ratable
benefit of the Secured Parties (as defined in the Reimbursement Agreement) of,
and the granting by the Company to the Grantee for the equal and ratable benefit
of the Secured Parties of a first lien on and first perfected security interest
in, the Collateral (as defined in the Partner Assignment) and all proceeds
thereof in accordance with the provisions of the Partner Assignment, as
collateral security for the prompt and complete payment when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations (as defined in
the Reimbursement Agreement) now existing or hereafter arising.
9. The Company hereby represents and warrants that the
representations and warranties contained in clauses (a), (b), (c) and (d) of
Section 4 of the Partner Assignment are each true and correct as of the date
hereof.
10. Except as expressly amended hereby, the Partner Assignment
shall continue to be, and shall remain, in full force and effect in accordance
with its terms.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 3 to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
COGENTRIX OF VIRGINIA, INC.
By: /s/ Elizabeth L. Rippetoe
--------------------------------------
Title: Vice President
CREDIT LYONNAIS, as Grantee
By: /s/ James F. Guidera
--------------------------------------
Title: Vice President
<PAGE> 1
THIRD AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of
December 22, 1997, made by COGENTRIX, INC., a North Carolina corporation (the
"Pledgor"), to CREDIT LYONNAIS, its successors and assigns, as agent for the
Lenders and the Issuing Bank (as such terms are defined in the Loan Agreement
referred to below) (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, Cogentrix Virginia Leasing Corporation (the
"Borrower") owns and operates a cogeneration facility having a gross nameplate
rating of 110 megawatts located in Portsmouth, Virginia (the "Facility"); and
WHEREAS, the acquisition, construction and equipping of the
Facility has been financed by credit facilities made available pursuant to the
Amended and Restated Construction and Term Loan Agreement, dated as of September
15, 1988, among the Borrower, The CIT Group/Equipment Financing, Inc. ("CIT"),
Bank of Scotland, Grand Cayman Branch and Manufacturers Hanover Trust Company
("MHT") as Paying Agent (the "Construction Loan Agreement"); and
WHEREAS, pursuant to the provisions of the Construction Loan
Agreement, the Pledgor entered into the Amended and Restated Pledge Agreement,
dated as of September 15, 1988 (the "1988 Pledge Agreement"); and
WHEREAS, the Construction Loan Agreement was amended and
restated in its entirety by the Second Amended and Restated Loan Agreement,
dated as of May 15, 1992, among the Borrower, the Lenders and CIT, as agent for
the lenders thereunder (as amended, herein called the "Existing Loan
Agreement"); and
WHEREAS, pursuant to the provisions of the Existing Loan
Agreement, the Pledgor amended and restated the 1988 Pledge Agreement by
entering into the Second Amended and Restated Pledge Agreement, dated as of May
15, 1992 (the "Existing Pledge Agreement"); and
<PAGE> 2
2
WHEREAS, the parties thereto have agreed to amend and restate
the Existing Loan Agreement in its entirety pursuant to the Third Amended and
Restated Loan Agreement, dated as of December 22, 1997, among the Borrower, the
Lenders (as defined therein), the Issuing Bank (as defined therein) and the
Agent (herein, as amended, supplemented or otherwise modified from time to time,
called the "Loan Agreement") for the purpose of, among other things, appointing
Credit Lyonnais to succeed CIT as Agent; and
WHEREAS, it is a condition to the Loan Agreement's becoming
effective that the Pledge Agreement shall be amended and restated as provided
below;
NOW, THEREFORE, in consideration of the premises and mutual
covenants provided for herein and for other good and valuable consideration
receipt of which is hereby acknowledged, the Pledgor agrees with the Agent on
behalf of and for the benefit of the Lenders, the Issuing Bank and the Interest
Hedging Counterparties that the Existing Pledge Agreement shall be amended and
restated in its entirety so that it shall read as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms defined in the Loan Agreement shall have such defined meanings when used
herein. The term "Pledged Stock" shall mean the shares of capital stock listed
on Schedule 1 hereto, together with all stock certificates, options or rights of
any nature whatsoever that may be issued or granted by the Issuer to the Pledgor
while this Agreement is in effect.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers to the Agent on behalf of and for the benefit of the
Lenders, the Issuing Bank and the Interest Hedging Counterparties all the
Pledged Stock and hereby grants to the Agent on behalf of and for the ratable
benefit of the Lenders, the Issuing Bank and the Interest Hedging Counterparties
a first lien on, and security interest in, the Pledged Stock and in all proceeds
thereof, together with appropriate undated stock powers duly executed in blank,
as collateral security for (i) the prompt and complete payment when due (whether
at the stated maturity, by acceleration or otherwise) of the unpaid principal of
and interest on the Notes issued to evidence Loans made and to be made by the
Lenders and the Issuing Bank to the Borrower pursuant to the Loan Agreement and
(ii) the due and punctual payment and performance by the Borrower and the
Pledgor of all their respective obligations and liabilities under, arising out
of or in connection with the Loan Agreement, any Interest Rate Protection
Agreement and this Pledge Agreement (all the foregoing being hereinafter called
the "Obligations").
3. Stock Dividends, Distributions, etc. If, while this
Agreement is in effect, the Pledgor shall become entitled to receive or shall
receive any stock certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for any shares of any Pledged Stock, or
otherwise, the Pledgor agrees to accept the same as the Lenders', the Issuing
Bank's and the Interest Hedging Counterparties' agent and to hold the same in
trust on behalf of and for the benefit of the Lenders, the Issuing Bank and the
Interest Hedging Counterparties and to deliver the same forthwith to the Agent
in the exact form received, with the indorsement of the Pledgor when necessary
and/or appropriate undated stock powers duly executed in blank, to be held by
the Agent on behalf of and for the benefit of the Lenders, the Issuing Bank and
the Interest Hedging Counterparties, subject to the terms hereof, as additional
collateral security for
<PAGE> 3
3
the Obligations. Any sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of the issuer thereof shall be paid over to the Agent
to be held by it in trust as additional collateral security for the Obligations;
and in case any distribution of capital shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect to the
Pledged Stock pursuant to the recapitalization or reclassification of the
capital of the issuer thereof or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Agent to be held by it as
additional collateral security for the Obligations. All sums of money and
property so paid or distributed in respect of the Pledged Stock which are
received by the Pledgor shall, until paid or delivered to the Agent, be held by
the Pledgor in trust as additional collateral security for the Obligations.
4. Collateral. All property at any time pledged with the Agent
hereunder (whether described herein or not) and all income therefrom and
proceeds thereof, are herein collectively sometimes called the "Collateral".
5. Cash Dividends; Voting Rights. Unless a Default or an Event
of Default under the Loan Agreement shall have occurred and be continuing, the
Pledgor shall be entitled to receive all cash dividends paid in respect of the
Pledged Stock, to vote the Pledged Stock and to give consents, waivers and
ratifications in respect of the Pledged Stock, provided, however, that no vote
shall be cast or consent, waiver or ratification given or taken which would
impair the Collateral or be inconsistent with or violate any provision of this
Pledge Agreement, the Loan Agreement, the Notes or the Project Documents.
6. Subrogation. Notwithstanding any payment or payments made
by the Pledgor hereunder, or the receipt of any amounts by the Lenders, the
Issuing Bank or the Interest Hedging Counterparties with respect to the
Collateral, or any setoff or application of funds of the Pledgor by the Lenders,
the Issuing Bank or the Interest Hedging Counterparties, the Pledgor shall not
be entitled to be subrogated to any of the rights of such Lenders, the Issuing
Bank or the Interest Hedging Counterparties against the Borrower or any
collateral security held by the Agent, the Lenders, the Issuing Bank or the
Interest Hedging Counterparties for the payment of the Obligations until all
amounts owing to the Lenders, the Issuing Bank and the Interest Hedging
Counterparties by the Borrower on account of the Obligations are paid in full.
7. Amendments, Modifications and Waivers with respect to
Obligations. The Pledgor hereby consents that, without the necessity of any
reservation of rights against the Pledgor, and without notice to or further
assent by the Pledgor, any demand for payment of any of the Obligations made by
the Agent, the Lenders, the Issuing Bank or the Interest Hedging Counterparties
may be rescinded by the Agent, the Lenders, the Issuing Bank or the Interest
Hedging Counterparties and any of the Obligations continued, and the
Obligations, or the liability of the Borrower or 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 the Agent, the Lenders, the Issuing Bank or the
Interest Hedging Counterparties and the Loan Agreement, the Notes, the Project
Documents, any Interest Rate Protection Agreement and any collateral security
documents or guarantees or documents in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Lenders, the
Issuing Bank or the Interest Hedging Counterparties may deem advisable from time
to time, and any collateral security at any time held by the Lenders, the
<PAGE> 4
4
Issuing Bank or the Interest Hedging Counterparties for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released, all without
the necessity of any reservation of rights against the Pledgor and without
notice to or further assent by the Pledgor, which will remain bound hereunder,
notwithstanding any such renewal, extension, modification, acceleration,
compromise, amendment, supplement, termination, sale, exchange, waiver,
surrender or release. The Agent shall have no obligation to protect, secure,
perfect or insure any other collateral security document or property subject
thereto at any time held as security for the Obligations. The Pledgor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by any Lenders, the Issuing Bank
or any Interest Hedging Counterparties upon this Agreement, and the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred in reliance upon this Agreement, and all dealings between the
Borrower, the Pledgor, the Lenders, the Issuing Bank and the Interest Hedging
Counterparties shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Agreement. The Pledgor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or the Pledgor with respect to the Obligations.
8. Rights of the Lenders, the Agent, the Issuing Bank and The
Interest Hedging Counterparties. Neither the Agent nor the Lenders nor the
Issuing Bank nor the Interest Hedging Counterparties shall be liable for failure
to collect or realize upon the Obligations or any collateral security or
guarantee therefor, or any part thereof, or for any delay in so doing nor shall
any of them be under any obligation to take any action whatsoever with regard
thereto. Any or all shares of the Pledged Stock held by the Agent hereunder may,
if a Default has occurred and is continuing, without notice, be registered in
the name of the Agent or its nominee, and the Agent or its nominee may
thereafter without notice, exercise all voting and corporate rights at any
meeting of any corporation issuing any of the shares included in the Pledged
Stock and exercise any and all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining to any shares of the Pledged
Stock as if it were the absolute owner thereof, including without limitation,
the right to exchange at its discretion, any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation issuing any of such shares or upon the exercise
by any such issuer or the Agent of any right, privilege or option pertaining to
any shares of the Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it, but the Agent shall have no duty to exercise
any of the aforesaid rights, privileges or options and shall not be responsible
for any failure to do so or delay in so doing. The Agent's right to vote the
Pledged Stock and its other rights under this Section 8 shall constitute an
irrevocable appointment coupled with an interest and shall remain valid and in
effect until the Obligations have been paid in full.
9. Remedies. In the event that any portion of the Obligations
has been declared due and payable, the Agent, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon the Borrower or
any other person (all and each of which demands, advertisements and/or notices
are hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Collateral, or any
<PAGE> 5
5
part thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of the Agent's offices or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk, with the right to the Agent, any Lenders, the Issuing Bank or the
Interest Hedging Counterparties upon any such sale or sales, public or private,
to purchase the whole or any part of said Collateral so sold, free of any right
or equity of redemption in the Pledgor, which right or equity is hereby
expressly waived or released. The Agent shall pay over the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all of the
Collateral or in any way relating to the rights of the Agent hereunder,
including reasonable attorney's fees and legal expenses, to the Lenders, the
Issuing Bank and the Interest Hedging Counterparties for application by them to
the payment in whole or in part, of the Obligations in such order as the Agent
may elect, and only after so paying over such net proceeds and after the payment
by the Agent of any other amount required by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the
Agent account for the surplus, if any, to the Pledgor. The Pledgor agrees that
the Agent need not give more than ten days' notice of the time and place of any
public sale or of the time after which a private sale or other intended
disposition is to take place and that such notice is reasonable notification of
such matters. No notification need be given to the Pledgor if it has signed
after default a statement renouncing or modifying any right to notification of
sale or other intended disposition. In addition to the rights and remedies
granted to the Agent, the Lenders, the Issuing Bank and the Interest Hedging
Counterparties in this Agreement and in any other instrument or agreement
securing, evidencing or relating to any of the Obligations, each of the Agent,
the Lenders, the Issuing Bank and the Interest Hedging Counterparties shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
of the State of New York. The Pledgor further agrees to waive and agrees not to
assert any rights or privileges which it may acquire under Section 9-112 of the
Uniform Commercial Code. Notwithstanding anything to the contrary contained
herein or in any other Project Document, the Pledgor shall not be liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all amounts to which the Lenders, the Issuing Bank and
the Interest Hedging Counterparties are entitled, and the fees of any attorneys
employed by the Agent to collect such deficiency.
10. Representations, Warranties and Covenants of the Pledgor.
(i) The Pledgor represents and warrants that:
(a) it is the legal record and beneficial owner of, and has
good and marketable title to, the Pledged Stock subject to no pledge,
lien, mortgage, hypothecation, security interest, charge, option or
other encumbrance whatsoever, except the lien and security interest
created by this Agreement;
(b) it has full power, authority and legal right to pledge all
the Pledged Stock pursuant to this Agreement;
(c) the shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of the Borrower;
(d) this Agreement has been duly authorized, executed and
delivered by the
<PAGE> 6
6
Pledgor and constitutes a legal, valid and binding obligation of the
Pledgor enforceable in accordance with its terms;
(e) no consent of any other party (including, without
limitation, stockholders or creditors of the Pledgor or the Borrower)
other than those which have been obtained and no consent, license,
permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental
authority, domestic or foreign, is required to be obtained by the
Pledgor in connection with the execution, delivery or performance of
this Agreement;
(f) the execution, delivery and performance of this Agreement
will not violate any provision of any applicable law or regulation or
of any order, judgment, writ, award or decree of any court, arbitrator
or governmental authority, domestic or foreign, or of the certificate
of incorporation or by-laws of the Pledgor or of any securities issued
by the Pledgor or any of its Subsidiaries, or of any mortgage,
indenture, lease, contract, or other agreement, instrument or
undertaking to which the Pledgor or any of its Subsidiaries is a party
or which purports to be binding upon the Pledgor or any of its
Subsidiaries or upon any of their respective assets and will not result
in the creation or imposition of any lien, charge or encumbrance on or
security interest in any of the assets of the Pledgor or any of its
Subsidiaries except as contemplated by this Agreement;
(g) all the shares of the Pledged Stock have been duly and
validly issued, are fully paid and non-assessable; and
(h) the pledge, assignment and delivery of such Pledged Stock
pursuant to this Agreement creates a valid first lien on and a first
perfected security interest in such shares of the Pledged Stock, and
the proceeds thereof, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge, option or encumbrance or to
any agreement purporting to grant to any third party a security
interest in the property or assets of the Pledgor which would include
the Pledged Stock.
(ii) The Pledgor covenants and agrees that:
(a) it shall maintain the security interest created by this
Agreement as a first, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever.
At any time and from time to time, upon the written request of the
Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Agent may reasonably
request for the purposes of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall
be or become evidenced by any promissory note, other instrument or
chattel paper, such note, instrument or chattel paper shall be
immediately delivered to the Agent, duly endorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this
Agreement;
(b) it will have like title to and right to pledge any other
property at any time hereafter pledged to the Agent as Collateral
hereunder and will likewise defend the
<PAGE> 7
7
Agent's, the Lenders', the Issuing Bank's and the Interest Hedging
Counterparties' right thereto and security interest therein;
(c) without the prior written consent of the Agent, the
Pledgor will not enter into any agreement or undertaking restricting
the right or ability of the Pledgor or the Agent to sell, assign or
transfer any of the Collateral; and
(d) it shall pay, and save the Agent and the Lenders harmless
from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated
by this Agreement.
11. No Disposition, etc. (i) Without the prior written consent
of the Agent, the Pledgor agrees that it will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral; provided, however, that the Pledgor may transfer the Collateral to a
wholly-owned subsidiary of the Pledgor acceptable in all respects to the Agent
and the Lenders in their sole discretion (which discretion shall be exercised by
the Agent and the Lenders in good faith) upon the execution by such subsidiary
in favor of the Agent of a pledge agreement substantially in the form of this
Agreement. (ii) Without the prior written consent of the Agent, the Pledgor will
not create, incur or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with respect to any
of the Collateral, or any interest therein, or any proceeds thereof, except for
the lien and security interest provided for by this Agreement. (iii) Without the
prior written consent of the Agent, the Pledgor agrees that it will not vote to
enable the Borrower to, and will not otherwise permit the Borrower to, issue any
stock or other securities of any nature in addition to or in exchange or
substitution for the Pledged Stock.
12. Registration Rights. (a) If the Agent shall determine to
exercise its right to sell any or all of the Pledged Stock pursuant to Section 9
hereof, and if in the opinion of counsel for the Agent it is necessary, or if in
the opinion of the Agent it is advisable, to have the Pledged Stock, or that
portion thereof to be sold, registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), the Pledgor will cause the
Borrower and any other corporation issuing securities included in the Pledged
Stock contemplated to be sold, to execute and deliver, and cause the directors
and officers of each thereof to execute and deliver, all at the Pledgor's
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things as may be necessary or, in the opinion of the Agent,
advisable to register the Pledged Stock, or that portion thereof to be sold,
under the provisions of the Securities Act and to cause the registration
statement relating thereto to become effective and to remain effective for a
period of one year from the date of the first public offering of the Pledged
Stock, or that portion thereof to be sold, and to make all amendments thereto
and/or to the related prospectus which, in the opinion of the Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. The Pledgor agrees to cause the Borrower to
comply with the provisions of the securities or "Blue Sky" laws of any
jurisdiction which the Agent shall designate and to cause the Borrower to make
available to its security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
<PAGE> 8
8
(b) The Pledgor recognizes that the Agent, the Lenders, the
Issuing Bank or the Interest Hedging Counterparties may be unable to effect a
public sale of any or all the Pledged Stock by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
or purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Agent, the Lenders, the Issuing
Bank and the Interest Hedging Counterparties shall be under no obligation to
delay a sale of any of the Pledged Stock for the period of time necessary to
permit the Borrower to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if the Borrower
would agree to do so.
(c) The Pledgor further agrees to do or cause to be done all
such other acts and things as may be necessary to make such sale or sales of any
portion or all of the Pledged Stock valid and binding and in compliance with any
and all applicable laws, regulations, orders, writs, injunctions, decrees or
awards of any and all courts, arbitrators or governmental instrumentalities,
domestic or foreign, having jurisdiction over any such sale or sales, all at the
Pledgor's expense. The Pledgor further agrees that a breach of any of the
covenants contained in this paragraph 12 will cause irreparable injury to the
Lenders, the Issuing Bank and the Interest Hedging Counterparties, that the
Agent, the Lenders, the Issuing Bank and the Interest Hedging Counterparties
have no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this paragraph shall be
specifically enforceable against the Pledgor and the Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred under
the Loan Agreement. The Pledgor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the Lenders, the
Issuing Bank and the Interest Hedging Counterparties by reason of a breach of
any of such covenants and, consequently, agrees that, if the Agent, the Lenders,
the Issuing Bank or the Interest Hedging Counterparties shall sue for damages
for breach, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Pledged Stock on the date the Lenders, the Issuing
Bank or the Interest Hedging Counterparties shall demand compliance with this
paragraph.
13. Further Assurances. The Pledgor agrees that at any time
and from time to time upon the written request of the Agent, the Pledgor will
execute and deliver such further documents and do such further acts and things
as the Agent may reasonably request in order to effect the purposes of this
Agreement.
14. 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.
<PAGE> 9
9
15. No Waiver; Cumulative Remedies. Neither the Agent nor any
of the Lenders nor the Issuing Bank nor any of the Interest Hedging
Counterparties shall by any act, delay, omission or otherwise be deemed to have
waived any of its or their rights or remedies hereunder and no waiver shall be
valid unless in writing, signed by the Agent on behalf of the Lenders, the
Issuing Bank and the Interest Hedging Counterparties, and then only to the
extent therein set forth. A waiver by the Agent 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 Lenders, the Issuing Bank or the Interest Hedging Counterparties
would otherwise have on any future occasion. No failure to exercise nor any
delay in exercising, on the part of the Agent, the Lenders, the Issuing Bank or
the Interest Hedging Counterparties, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
16. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the Agent on behalf of the
Lenders, the Issuing Bank and the Interest Hedging Counterparties. This
Agreement and all obligations of the Pledgor hereunder shall be binding upon the
successors and assigns of the Pledgor, and shall, together with the rights and
remedies of the Agent hereunder, inure to the benefit of the Agent, the Lenders,
the Issuing Bank, the Interest Hedging Counterparties, and their respective
successors and assigns. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to
be duly executed and delivered by its duly authorized officer as of the day and
year first above written.
COGENTRIX, INC.
By: /s/ Elizabeth L. Rippetoe
-------------------------
Title: Vice President,
Assistant General Counsel
and Assistant Secretary
<PAGE> 10
SCHEDULE 1
To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
Common Stock of COGENTRIX VIRGINIA LEASING CORPORATION, $1.00
par value; 1,000 shares of which are authorized and 1,000 shares of which are
issued and outstanding, such outstanding shares being represented by stock
certificates as follows:
Certificate Certificate No. of
No. Date Shares
- ----------- ----------- ------
2 June 30, 1986 1,000
<PAGE> 11
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Pledge
Agreement, dated as of December 22, 1997 (the "Pledge Agreement"), made by
Cogentrix, Inc. for the benefit of Credit Lyonnais, as Agent for the Lenders,
the Issuing Bank and the Interest Hedging Counterparties referred to in the
Pledge Agreement. Each of the undersigned agrees for the benefit of such parties
referred to in the Pledge Agreement as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to it.
2. The undersigned will notify the Agent promptly in writing of the
occurrence of any of the events described in paragraph 3 of the Pledge
Agreement.
3. The terms of paragraph 12(c) of the Pledge Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 12 of the Pledge Agreement.
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ Elizabeth L. Rippetoe
-------------------------------------
Title: Vice President, Assistant
General Counsel and Assistant
Secretary
Address for Notices:
9405 Arrowpoint Boulevard
Charlotte, NC 28273-8110
Fax: 704-529-1006
Attn: General Counsel
<PAGE> 1
EXHIBIT NO. 10.110
EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN
COGENTRIX ENERGY, INC. AND DENNIS W. ALEXANDER, ESQUIRE
THIS AGREEMENT is effective as of the 1st day of January 1994, between
Cogentrix Energy, Inc., a North Carolina corporation (the "Corporation"), and
Dennis W. Alexander (the "Executive").
In consideration of the mutual covenants and obligations set forth
herein, the parties agree as follows:
1. Employment and Duties.
a. The Corporation desires to employ Executive as Senior Vice
President, General Counsel and Secretary and to be appointed to the Board of
Directors;
b. As Senior Vice President, General Counsel and Secretary,
Executive shall perform such duties and services consistent with his positions,
as may be assigned to him.
2. Term of Agreement.
a. Subject to the conditions set forth within, this Agreement
shall be effective January 1, 1994, and its terms will commence on February 1,
1994. The Agreement shall renew automatically at the end of each calendar year
unless Executive is involuntarily terminated pursuant to paragraph 4.
3. Compensation; Entitlements.
a. Upon appointment as Senior Vice President, General Counsel
and Secretary and commencing February 1, 1994, the Corporation shall pay to
Executive an annual base salary (the "Base Salary") of One Hundred Eighty
Thousand Dollars ($180,000) payable in equal monthly installments of $15,000 per
month.
b. Executive is entitled to Board of Director's fees of $6,250
per meeting, paid quarterly regardless of meeting dates, with a minimum of four
(4) meetings per year.
<PAGE> 2
c. Executive is entitled to a signing bonus of Thirty Thousand
Dollars ($30,000) payable on March 1, 1994, and a bonus of Ninety Thousand
Dollars ($90,000) payable on December 15, 1994.
d. During 1995, Executive is entitled to no less than Fifteen
Thousand Dollars ($15,000) per month and Six Thousand Two Hundred Fifty Dollars
($6,250.00) per quarter compensation as a Board Member.
Such compensation may be increased during 1995 or in subsequent years.
e. Commencing July 1, 1994, Executive will be participating in
Corporation's Profit Sharing Plan equal to no less than 0.3% of Net Income
Before Taxes, as defined in the Profit Sharing Plan, and in addition, is
entitled to participate in the provisions as outlined in the Management
Incentive Bonus Plan.
f. Executive is eligible for and entitled to participate in
any future equity or quasi-equity programs offered by Cogentrix at a level
commensurate with other Senior Vice Presidents.
g. With respect to Executive's residence at 5 Pine Street,
Exeter, New Hampshire, Corporation will make up the difference, if any, in the
sale price of Executive's home and $375,000 in the event such sale occurs
prior to June 15, 1994; provided, that the maximum amount of such payment by
Corporation shall be $50,000. If Executive is unable to sell his home by June
15, 1994, the Corporation will guarantee a $350,000 sale price of his home and
provide an interest free loan equal to the equity in the home. Corporation
will then assume Executive's monthly mortgage payments until such time as the
home is sold, at which time the mortgage will be satisfied by the Corporation
and all net proceeds of the sale of the home will belong to Corporation and
the interest free loan to Executive will be cancelled by the Corporation.
h. The cost to sell Executive's home, including such expenses
as Broker's commission and Attorney's fees, will be assumed by the Corporation.
The closing costs associated with the purchase of Executive's new residence,
such as mortgage charges, survey, legal, title fees, insurance, etc., will also
be assumed by the Corporation.
2
<PAGE> 3
i. Corporation will pay all costs associated with movement of
Executive's household goods from Exeter, New Hampshire to Charlotte, North
Carolina, including any storage of goods as the result of such move. Ordinary
travel expenses in the movement of Executive's family to Charlotte will be
assumed by the Corporation.
j. Temporary residence of a one-bedroom apartment at the
Residence Inn or equivalent will be provided to Executive from February 1, 1994
until June 15, 1994 or such earlier date as Executive moves into a permanent
residence in Charlotte.
k. Bi-weekly air travel between Charlotte and Boston for
Executive or spouse will be provided at Corporation's expense until June 15,
1994 or earlier of moving date.
l. The Corporation will reimburse Executive by March 15, 1995
for any additional tax liability for 1994 created by the relocation expense and
reimbursement or any imputed income as the result of Executive's relocation to
Charlotte in 1994.
m. The Corporation will provide Executive with a country club
membership.
n. Executive will be eligible to participate in the
Corporation benefit programs in accordance with the plan provisions related
thereto for Senior Vice Presidents. Executive will be eligible for four (4)
weeks vacation in 1994 and a minimum of four (4) weeks in subsequent years.
o. Executive shall be a member of the Board of Directors of
Corporation.
4. Involuntary Termination; Severance Benefits.
a. The Corporation may involuntarily terminate Executive's
employment under this Agreement at any time upon thirty (30) days written notice
subject to the terms and conditions specified herein regarding compensation and
benefits due and owing to Executive upon termination:
(1) 1994 - In the event Executive is involuntarily
terminated during 1994, he shall be entitled to
receive all salary, benefits and bonuses he would
otherwise have received under the provisions of this
Agreement had he continued working throughout the
year, within thirty (30) days of his date of
termination, and Executive shall also receive a
severance payment equal to 150% of the total
3
<PAGE> 4
compensation he was entitled to receive in 1994
(including salary, bonuses and Board fees) also to be
paid within thirty (30) days of the date of
termination.
(2) 1995 - In the event Executive is involuntarily
terminated at any time during 1995, Executive shall
receive a severance payment equal to 150% of his
total compensation received in 1994 (including
salary, bonuses and Board fees) to be paid within
thirty (30) days of the date of termination.
(3) 1996 - In the event Executive is involuntarily
terminated at any time during 1996, he shall receive
a severance payment equal to 125% of his total
compensation received in 1995 (including salary,
bonuses and Board fees) to be paid within thirty (30)
days of the date of termination.
(4) 1997 and Subsequent Years of Employment - In the
event Executive is involuntarily terminated at any
time in 1997 or in any subsequent year, Executive
shall receive a severance payment equal to 100% of
his total compensation received in the prior calendar
year (including salary, bonuses and Board fees) to be
paid within thirty (30) days of the date of
termination.
5. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall be deemed to have taken place if: (i) any person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the owner or beneficial owner of the Corporation's securities, after the
date of execution of the underlying Agreement, having 30% or more of the
combined voting power of the then outstanding securities of the Corporation that
may be cast for the election of directors of the Corporation (other than as a
result of an issuance of securities initiated by the Corporation, or open market
purchases are made), or (ii) the persons who were directors of the Corporation
before such transactions shall cease to constitute a majority of the Board of
the Corporation, or any successor to the Corporation, as the direct or indirect
result of, or in connection with, any cash tender or exchange offer, merger or
other business combination, sale of assets or contested election, or any
combination of the foregoing transactions.
4
<PAGE> 5
a. In the event of a "Change in Control," Executive shall be
deemed to have been involuntarily terminated if any of the following occurs: (i)
any alteration in Executive's title, duties, authority, location of workplace
and responsibilities from those in effect immediately prior to a change in
control of the Corporation or the assignment to Executive of any duties
inconsistent with his status as a management employee, (ii) a reduction in
Executive's annual base salary as in effect immediately prior to a change in
control of the Corporation, (iii) the failure by the Corporation, to make any
other payment to Executive of compensation, including Board fees, bonuses, or
benefit payments.
b. If any of the triggering events shall be described above
occur, Executive shall be entitled to the amount of severance payments described
in paragraph 4, depending on which year such event occurs.
6. Enforcement. It is the desire and intent of the parties hereto that
the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.
7. Notices. All notices and other communications which are
required or permitted hereunder shall be in writing and shall be delivered
personally or sent by air courier or first class certified or registered mail,
postage prepaid, return receipt requested. All notices and other communications
given to any party hereto in accordance with the provision of this Agreement
shall be deemed to have been given on the date of delivery if personally
delivered; on the business day after the date when sent if sent by air courier;
and on the third business day after the date when sent if sent by mail, in each
case addressed to such party as provided in this Section or in accordance with
the latest unrevoked direction from such party.
8. Indemnification. The Corporation agrees to indemnify
Executive and hold him harmless against any and all losses, claims, damages,
liabilities and costs (and all actions in respect thereof and any legal or other
expenses in giving testimony or furnishing documents in response to a subpoena
or otherwise), including without limitation, the costs of investigating,
preparing or defending any such action or claim, whether or not in connection
with litigation in which Executive is a party, as
5
<PAGE> 6
and when incurred, directly or indirectly caused by, relating to, based upon or
arising out of any work performed by Executive in connection with this Agreement
to the full extent permitted by the General Corporation Law of North Carolina
and by the bylaws of the Corporation.
The indemnification provisions shall be in addition to any
liability which the Corporation may otherwise have to Executive.
If any action, proceeding or investigation is commenced as to
which Executive proposes to demand such indemnification, he shall notify the
Corporation with reasonable promptness. Executive shall have the right to retain
counsel of his own choice to represent him and the Corporation shall pay all
reasonable fees and expenses of such counsel; and such counsel shall, to the
fullest extent consistent with its professional responsibilities, cooperate with
the Corporation and any counsel designated by it. The Corporation shall be
liable for any settlement of any claim against Executive made with its written
consent, which consent shall not be unreasonably withheld, to the fullest extent
permitted by the General Corporation Law of North Carolina and the bylaws of the
Corporation.
9. Prior Agreements/Oral Modifications/Amendments. This
Agreement supersedes all prior agreements and constitutes the entire Agreement
and understanding between Executive and Corporation. It may not be amended,
modified in any manner or terminated orally; and no amendment, modification,
termination or attempted waiver of any of the provisions hereof shall be binding
unless in writing and signed by the party against whom the same is sought to be
enforced; provided, however, that the Executive's compensation or benefits may
be increased at any time by the Corporation without in any way affecting any of
the other terms and conditions of this Agreement which in all other respects
shall remain in full force and effect.
10. Attorney's Fees. In the event of any litigation between
the parties to this Agreement, or any of them, concerning this Agreement, the
prevailing party shall be entitled to recover its reasonable attorney's fees.
6
<PAGE> 7
11. Binding Agreement; Benefit. The provisions of this
Agreement will be binding upon, and will inure to the benefit of, the respective
heirs, legal representatives and successors of the parties hereto.
12. Governing Law. This Agreement will be governed by, and
construed and enforced in accordance with the laws of North Carolina.
13. Waiver of Breach.The waiver by either party of a breach of
any provision of this Agreement by the other party must be in writing and shall
not operate or be construed as a waiver of any subsequent breach by such other
party.
14. Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Severability. Any provision of this Agreement that 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.
16. Successors; Binding Agreement. This Agreement shall be
binding upon and inure to the benefit of the Corporation and its successors and
assigns (whether direct or indirect, by purchase, merger, consolidation or
otherwise) and Executive and his heirs. In the event that Executive shall die
after becoming entitled to payment of the benefits, hereunder, such payment
shall be made by the Corporation to Executive's beneficiary designated by him
for purposes of the group life insurance plan of the Corporation in which
Executive shall participate or, if there is no such designated beneficiary, to
Executive's estate.
17. Assignment. This Agreement is personal in its nature and
the parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
however, that the provisions hereof shall inure to the benefit of, and be
binding upon
7
<PAGE> 8
each successor of the Corporation whether by merger, consolidation,
transfer of all or substantially all assets, or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
EXECUTIVE FOR CORPORATION
--------- ---------------
DENNIS W. ALEXANDER COGENTRIX ENERGY, INC.
By: /s/ Dennis W. Alexander /s/ Frank J. Benner
Date: 12/21/93 Date: 12/20/93
WITNESS: WITNESS:
/s/ Joan J. Alexander /s/ Lori T. Hladik
Date: 12/21/93 Date: 12/20/93
8
<PAGE> 1
EXHIBIT NO. 21.1
COGENTRIX ENERGY, INC.
SUBSIDIARIES
<TABLE>
<S> <C>
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 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 Limited (Grand Cayman)
Cogentrix of Brazil, Inc. (DE)
Cogentrix do Brasil Ltda. (Brazil)
Cogentrix International Holdings, BV (Netherlands)
Cogentrix Mauritius Company (Mauritius)
Yellow Sea Cogeneration Company (Mauritius)
Liberty Power/Cogentrix Bolivia, Inc. (DE)
(Partners and Partnerships denoted by asterisk)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 99,575
<SECURITIES> 42,118
<RECEIVABLES> 49,781
<ALLOWANCES> 0
<INVENTORY> 15,210
<CURRENT-ASSETS> 209,149
<PP&E> 684,816
<DEPRECIATION> 188,227
<TOTAL-ASSETS> 822,974
<CURRENT-LIABILITIES> 106,615
<BONDS> 595,112
0
0
<COMMON> 130
<OTHER-SE> 58,168
<TOTAL-LIABILITY-AND-EQUITY> 822,974
<SALES> 167,531
<TOTAL-REVENUES> 180,467
<CGS> 132,338
<TOTAL-COSTS> 132,338
<OTHER-EXPENSES> 2,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,680
<INCOME-PRETAX> 20,176
<INCOME-TAX> 7,971
<INCOME-CONTINUING> 12,205
<DISCONTINUED> 0
<EXTRAORDINARY> (1,502)
<CHANGES> 0
<NET-INCOME> 10,703
<EPS-PRIMARY> 37.95
<EPS-DILUTED> 37.95
<FN>
<F1>Effective January 1, 1998, the Company changed its fiscal year to commence on
January 1 and conclude on December 31 of each year. The Company's fiscal year
previously commenced each July 1, concluding on June 30 of the following
calendar year.
</FN>
</TABLE>
