<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COGENTRIX ENERGY, INC.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 4911, 4961 56-1853081
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9405 ARROWPOINT BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273-8110
(704) 525-3800
(Address and telephone number
of principal executive offices)
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THOMAS F. SCHWARTZ
SENIOR VICE PRESIDENT -- FINANCE AND TREASURER
9405 ARROWPOINT BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273-8110
(704) 525-3800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DUMONT CLARKE IV, ESQ. JERRY THOMAS, ESQ.
MOORE & VAN ALLEN, PLLC SIMPSON THACHER & BARTLETT
NATIONSBANK CORPORATE CENTER 425 LEXINGTON AVENUE
100 NORTH TRYON STREET, FLOOR 47 NEW YORK, N.Y. 10017
CHARLOTTE, NORTH CAROLINA 28202-4003
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
8.75% Senior Notes due 2008... $220,000,000 100% $220,000,000 $64,900
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</TABLE>
(1) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the securities to
be received by the Registrant in exchange for the securities to be issued
hereunder in the Exchange Offer described herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED NOVEMBER 12, 1998
P R O S P E C T U S
(COGENTRIX LOGO)
COGENTRIX ENERGY, INC.
OFFER TO EXCHANGE 8.75% SENIOR NOTES DUE 2008
FOR ALL OUTSTANDING 8.75% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
EXCHANGE OFFER. Cogentrix Energy, Inc., a North Carolina corporation
("Cogentrix Energy"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal") (the "Exchange Offer"), to exchange
its 8.75% Senior Notes due 2008 (the "Exchange Senior Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus is a part, for an equal principal amount of its outstanding 8.75%
Senior Notes due 2008 (the "Old Senior Notes") of which $220 million in
principal amount is outstanding. The Exchange Senior Notes and the Old Senior
Notes are sometimes collectively referred to herein as the "Senior Notes."
Cogentrix Energy will accept for exchange any and all Old Senior Notes that
are validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on , 1998, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Senior Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Senior Notes will
be issued and delivered promptly after the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Senior Notes being
tendered for exchange. See "The Exchange Offer." Old Senior Notes may be
tendered only in integral multiples of $1,000. Cogentrix Energy has agreed to
pay the expenses of the Exchange Offer.
THE INDENTURE. The Exchange Senior Notes will be obligations of Cogentrix
Energy evidencing the same debt as the Old Senior Notes and will be entitled to
the benefits of the same indenture, dated as of October 20, 1998, including any
and all amendments or supplements thereto (the "Indenture"), between Cogentrix
Energy and First Union National Bank, as trustee (the "Trustee"). The form and
terms of the Exchange Senior Notes are substantially the same as the form and
terms of the Old Senior Notes except that:
- the offering of the Exchange Senior Notes has been registered under the
Securities Act and
- the Exchange Senior Notes will not be subject to transfer restrictions.
INTEREST AND MATURITY. Interest on the Exchange Senior Notes will be
payable semiannually in arrears on April 15 and October 15 of each year (each an
"Interest Payment Date"), commencing on the first such date following their date
of issuance. Interest on the Exchange Senior Notes will accrue from the last
Interest Payment Date on which interest was paid on the Old Senior Notes that
are accepted for exchange or, if no interest has been paid, from October 20,
1998. Accordingly, interest which has accrued since the last Interest Payment
Date or October 20, 1998 on the Old Senior Notes accepted for exchange will
cease to be payable upon issuance of the Exchange Senior Notes. Untendered Old
Senior Notes that are not exchanged for Exchange Senior Notes pursuant to the
Exchange Offer will remain outstanding and bear interest at a rate of 8.75% per
annum after the Expiration Date. The Exchange Senior Notes will mature on
October 15, 2008.
OPTIONAL REDEMPTION. The Exchange Senior Notes will be redeemable, in
whole or in part, at any time at the option of Cogentrix Energy at a redemption
price equal to (i) the then outstanding principal amount of the Exchange Senior
Notes being redeemed plus accrued and unpaid interest thereon to the date of
redemption plus (ii) a premium equal to the excess of (a) the present value at
the time of redemption of the principal amount of the Exchange Senior Notes
being redeemed plus any required interest payments due on the Exchange Senior
Notes being redeemed through Stated Maturity (as defined herein) computed using
a discount rate equal to the Treasury Rate (as defined herein) plus 50 basis
points over (b) the then outstanding principal amount of the Exchange Senior
Notes being redeemed. See "Description of Senior Notes -- Optional Redemption."
LACK OF PUBLIC MARKET. The Exchange Senior Notes will be a new issue of
securities for which there currently is no market. Cogentrix Energy does not
intend to list the Exchange Senior Notes on any national securities exchange or
to seek admission thereof to trading on the Nasdaq National Market. There can be
no assurance that an active market for the Exchange Senior Notes will develop.
See "Risk Factors -- Lack of Public Market for the Senior Notes."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD SENIOR NOTES IN THE
EXCHANGE OFFER.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
<PAGE> 3
AVAILABLE INFORMATION
Notwithstanding that it is not required to remain subject to the
informational reporting requirements of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), the Company (as defined herein) has covenanted
in the Indentures (as defined herein) to, and, in accordance therewith, files,
and will continue to file, reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's Regional Offices in New York (Seven World
Trade Center, 13th Floor, New York, New York 10048), and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of
these materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Information on the public reference facilities maintained by the Commission may
be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Any such
request and requests for the agreements summarized herein should be directed to:
Cogentrix Energy, Inc., 9405 Arrowpoint Boulevard, Charlotte, North Carolina
28273, telephone number (704) 525-3800.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents are not
necessarily complete, and each statement is qualified in its entirety by
reference to the copy of the applicable contract or other document filed with
the Commission. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
public reference facilities of the Commission described above. The Registration
Statement and certain of the exhibits relating thereto may also be viewed at the
Commission's site on the World Wide Web at http://www.sec.gov.
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS WHICH CONTAIN IMPORTANT BUSINESS
AND FINANCIAL INFORMATION ABOUT THE COMPANY ARE AVAILABLE UPON REQUEST FROM
COGENTRIX ENERGY, INC., 9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA
28273, TELEPHONE NUMBER (704) 525-3800. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1998. SEE
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
---------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM HOLDERS OF OLD SENIOR NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
---------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 27A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking
statements are based on the beliefs of Cogentrix Energy's management, as well as
on assumptions made by and information currently available to Cogentrix Energy
at the time such statements
i
<PAGE> 4
were made. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect," "intend" and similar expressions, as they relate to
Cogentrix Energy, are intended to identify such forward-looking statements.
Although Cogentrix Energy believes these statements are reasonable, prospective
purchasers of the Exchange Senior Notes should consider carefully the
uncertainties described under the caption "Risk Factors," as well as the other
information and data included in this Prospectus, in evaluating an investment in
the Exchange Senior Notes. Cogentrix Energy cautions the reader, however, that
the uncertainties described under the caption "Risk Factors" may not be
exhaustive and that those or other factors, many of which are outside of
Cogentrix Energy's control, could have a material adverse effect on Cogentrix
Energy and its ability to service its indebtedness, including principal and
interest payments on the Exchange Senior Notes. All forward-looking statements
attributable to Cogentrix Energy or to any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements set forth
under the captions "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements of the Company, including the notes thereto, included in
this Prospectus. References herein to "Cogentrix Energy" mean Cogentrix Energy,
Inc., which is a development and management company that conducts its electric
generating business primarily through subsidiaries, including subsidiaries that
hold investments in unconsolidated affiliates. References herein to the
"Company" mean Cogentrix Energy and its direct and indirect subsidiaries. The
subsidiaries of Cogentrix Energy that are engaged in the ownership and operation
of electric generating facilities are sometimes referred to individually as a
"project subsidiary" and collectively as the Company's "project subsidiaries."
In March 1998, the Company acquired an approximate 74% interest in each of
two electric generating facilities from LS Power Corporation (the "LS Power
Acquisition"). In August 1998, the Company acquired an approximate 52% interest
in an 800-megawatt, gas-fired electric generating facility (the "Batesville
Facility") under construction in Batesville, Mississippi (the "Batesville
Acquisition"), which is expected to be completed in June 2000. In October 1998,
the Company acquired from Bechtel Generating Company, Inc. ("BGCI") BGCI's
ownership interests in 12 electric generating facilities and a natural gas
pipeline (the "BGCI Acquisition"). The LS Power Acquisition, the Batesville
Acquisition and the BGCI Acquisition are collectively referred to herein as the
"Recent Acquisitions."
THE COMPANY
The Company is engaged in the business of acquiring, developing, owning and
operating electric generating facilities, principally in the United States. The
Company sells electricity and steam, principally under long-term power purchase
agreements with investment grade utilities and long-term steam sales agreements
with various industrial hosts. The Company was one of the early participants in
the market for electric power generated by independent power producers that
developed in the United States as a result of the enactment of the Public
Utility Regulatory Policies Act of 1978, as amended ("PURPA"). Since its
inception in 1983, the Company has developed substantial expertise in the
development, construction and operation of electric generating facilities. The
Company is one of the largest independent power producers in the United States
based on net ownership of total project megawatts in operation.
The Company currently owns (entirely or in part) a total of 25 facilities
in the United States with an installed capacity of approximately 4,030 megawatts
and has a net equity interest in such facilities of approximately 1,690
megawatts. All of these facilities have been financed through project financing
structures that are "substantially non-recourse" to Cogentrix Energy and to its
other project subsidiaries. The Company developed, constructed and currently
operates 10 of these 25 facilities. A key part of the Company's strategy is the
acquisition of interests in domestic electric generating facilities. The LS
Power Acquisition, completed in March 1998, expanded the Company's operations
into the upper Midwest and diversified its generating base by adding two
gas-fired electric generating facilities to the Company's portfolio of
generating assets. The BGCI Acquisition and the Batesville Acquisition
strengthen the Company's competitive position and further diversify the
Company's operations with regard to fuel source and dependence on any single
project or customer. Upon completion of the construction of the Batesville
Facility, the Company will have ownership interests in a total of 26 domestic
electric generating facilities with an installed capacity of approximately 4,800
megawatts and a net equity interest in such facilities of approximately 2,110
megawatts.
The Company has established a strong record of efficiency and reliability
in operating its facilities, as evidenced by the facilities it operates
averaging 97.4% availability in the twelve-month period ended June 30, 1998,
96.9% availability in fiscal 1997 and 96.4% availability in fiscal 1996. The
Company attributes this strong performance record to the standard design
technology at most of its facilities, the Company's extensive employee training
programs, redundancies in certain components of its facilities and a
comprehensive program of preventive maintenance at each facility.
<PAGE> 6
STRATEGY
The Company's development strategy is to concentrate on opportunities to
develop or acquire interests in mid-sized electric generating facilities which
use low-cost, state-of-the-art proven technology. In its efforts to identify
these opportunities, the Company strives to target projects that will allow the
Company to capitalize on its reputation as a low-cost, efficient and reliable
energy provider. The Company seeks to manage the risks associated with owning
and operating electric generating facilities by emphasizing diversification and
balance among its investments in facilities in terms of geographic location,
customer base, technology and fuel source. In developing future greenfield
projects, the Company anticipates that it will increasingly do so on a joint
venture basis with various strategic partners.
The Company has targeted three market segments for its future acquisition
and development activities:
Acquisitions of Domestic Electric Generating Assets. A key part
of the Company's strategy is the acquisition of interests in domestic
electric generating assets. The Company intends to capitalize on its
management and technical expertise to identify and target as
acquisition candidates electric generating facilities that have power
sales contracts with electric utilities (or other customers) with
significant credit strength. The Company will also seek to acquire
interests in electric generating facilities that are highly efficient,
low-cost energy providers that can take advantage of opportunities in
a rapidly deregulating energy market. In such instances, the Company
expects to hedge its exposure to electric market price risk by
entering into contractual arrangements with utilities, fuel suppliers
and/or power marketers. The Company has significantly expanded and
diversified its project portfolio through the Recent Acquisitions,
increasing its net ownership of total project megawatts in operation
by approximately 75% since December 31, 1997 and substantially
diversifying its geographic location, customer base, technology and
fuel mix.
"Inside-the-Fence" Project Development. The Company intends to
continue its focus on the industrial market for "inside-the-fence"
project opportunities to develop, own, manage and operate on-site
cogenerating facilities for large, energy-intensive industrial
customers. The Company believes that cogenerating facilities with
state-of-the art technology could readily be employed to replace or
upgrade existing facilities employing older technology that many
industrial companies currently operate to produce both electricity and
thermal energy for their own consumption.
Greenfield Project Development. The Company intends to pursue
domestic development of highly efficient, low-cost electric generating
facilities, concentrating on mid-sized facilities that use natural gas
as fuel. In doing so, the Company expects to hedge its exposure to
electric market price risk by entering into contractual arrangements
with utilities, fuel suppliers and/or power marketers. The Company
also intends to pursue international project development opportunities
on a highly selective basis in countries where demand for power is
growing rapidly, private investment is encouraged and favorable
financing conditions exist.
In addition to its efforts to identify project development and acquisition
opportunities, the Company strives to maximize the profitability of its existing
operating assets and minimize its costs for its utility customers. The Company
believes that achieving and maintaining a low cost of production will be
increasingly important to competing effectively in the rapidly deregulating
energy market.
RECENT DEVELOPMENTS
In October 1998, the Company acquired BGCI's ownership interests in 12
domestic electric generating facilities, which range from 3.3% to 49.0%, and
BGCI's ownership interest in an interstate natural gas pipeline (the "BGCI
Assets"). The acquisition of the BGCI Assets provides the Company with a net
equity interest of approximately 365 megawatts in a diverse electric generating
portfolio that comprises approximately 2,400 megawatts in total electric
generating capacity. The 12 electric generating facilities are located in New
Jersey, New York, Pennsylvania, West Virginia, Massachusetts and Florida. Nine
of the 12 facilities were developed and are managed by U.S. Generating Company,
LLC ("U.S. Gen"), an indirect, wholly-owned subsidiary of PG&E Corporation
("PG&E"), and are owned in part by affiliates of U.S. Gen.
2
<PAGE> 7
In August 1998, the Company acquired an approximate 52% interest in the
800-megawatt, gas-fired Batesville Facility under construction in Batesville,
Mississippi. The Company expects the Batesville Facility, which will be operated
by the Company, to commence commercial operation in June 2000. Electricity
generated by the Batesville Facility will be sold under long-term power purchase
agreements with two investment-grade utilities.
In March 1998, the Company acquired LS Power Corporation's approximate 74%
ownership interests in two electric generating facilities in Whitewater,
Wisconsin and Cottage Grove, Minnesota. Commercial operation of both facilities,
which are 245-megawatt, gas-fired, combined-cycle cogenerating facilities,
commenced in the last half of calendar 1997. Each facility's revenues are
contractually defined pursuant to a long-term power purchase agreement. The
Cottage Grove Facility has a 30-year agreement with Northern States Power
Company and the Whitewater Facility has a 25-year agreement with Wisconsin
Electric Power Company. The Company has assumed the management services
agreements for both facilities.
During the last quarter of calendar 1997 and the first quarter of calendar
1998, the Company's project subsidiaries operating the Portsmouth and Hopewell
Facilities amended their power purchase agreements with Virginia Electric and
Power Company ("Virginia Power"). The principal effect of these amendments was
to convert the power purchase agreements from "must-run" contracts to
dispatchable (i.e., "peaking") contracts that provide Virginia Power the ability
to suspend or reduce purchases of energy from the facilities if Virginia Power
determines that it can operate its system for a designated period more
economically. The amendments also eliminated the regulatory disallowance
provisions in the power purchase agreements.
The amended power purchase agreements are structured so that the Company's
project subsidiaries operating the facilities continue to receive capacity
payments during any period of economic dispatch. Capacity payments cover project
debt service and fixed operating costs, and constitute a substantial portion of
the profit component of the power purchase agreements. Energy payments, which
are reduced as a result of economic dispatch, primarily cover variable operating
and maintenance costs, as well as coal and rail transportation costs. The
amendments represent a positive development for both Virginia Power and the
Company. Even when combined with the cost to Virginia Power of obtaining
electricity from alternative sources, the capacity payments made to the
Company's project subsidiaries still represent a significant reduction from the
rates Virginia Power would have paid for electricity generated by these
facilities had the power purchase agreements not been restructured. Despite the
reduced energy payments resulting from their economic dispatch, the Company
recognizes an increase in cash flows from the two facilities as a result of the
capacity payments established under the amended power purchase agreements.
In December 1997, the Company substantially completed construction of a
248-megawatt, combined-cycle gas-fired electric generating facility (the "Clark
Facility") for Public Utility District Number 1 of Clark County, Washington
("Clark"). The Company has earned $13.8 million in fees related to the
development and construction of the facility. The Company is managing the
operations and maintenance of the Clark Facility.
3
<PAGE> 8
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $220 million in
aggregate principal amount of Exchange Senior Notes for up to an equal amount in
aggregate principal amount of Old Senior Notes. The Exchange Senior Notes will
be obligations of Cogentrix Energy and will be entitled to the benefits of the
Indenture. The form and terms of the Exchange Senior Notes are identical in all
material respects to the form and terms of the Old Senior Notes, except that (i)
the offering of the Exchange Senior Notes has been registered under the
Securities Act, (ii) the Exchange Senior Notes will not be subject to transfer
restrictions and (iii) the Exchange Senior Notes will not be entitled to
registration or other rights under the Registration Agreement (as defined
herein) upon failure by Cogentrix Energy to consummate the Exchange Offer or the
occurrence of certain other events. See "Description of Senior Notes."
Registration Agreement..... The Old Senior Notes were sold by Cogentrix Energy
to the Initial Purchasers (as defined herein)
pursuant to a Purchase Agreement, dated October 15,
1998 (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, Cogentrix Energy and the
Initial Purchasers entered into the Registration
Agreement dated as of October 20, 1998 (the
"Registration Agreement") which, among other
things, grants the holders of the Old Senior Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy certain
obligations of Cogentrix Energy under the
Registration Agreement.
The Exchange Offer......... Cogentrix Energy is offering to exchange $1,000 in
principal amount (and any integral multiple
thereof) of Exchange Senior Notes for each $1,000
in principal amount (and any integral multiple
thereof) of Old Senior Notes validly tendered
pursuant to the Exchange Offer. As of the date
hereof, $220 million in aggregate principal amount
of Old Senior Notes are outstanding. Cogentrix
Energy will issue the Exchange Senior Notes to
tendering holders of Old Senior Notes promptly
after the Expiration Date. Cogentrix Energy has not
entered into any arrangement or understanding with
any person to distribute the Exchange Senior Notes
to be received in the Exchange Offer.
No federal or state regulatory requirements must be
complied with or approval obtained in connection
with the Exchange Offer, other than the
registration requirements under the Securities Act.
Resale..................... Based on existing interpretations of the Securities
Act by the staff of the Commission set forth in
several no-action letters to third parties, and
subject to the immediately following sentence,
Cogentrix Energy believes that Exchange Senior
Notes issued pursuant to the Exchange Offer in
exchange for Old Senior Notes may be offered for
resale, resold and otherwise transferred by any
person receiving such Exchange Senior Notes,
whether or not such person is the holder (other
than any such holder or other person which is (i) a
broker-dealer that receives Exchange Senior Notes
for its own account in exchange for Old Senior
Notes, where such Old Senior Notes were acquired by
such broker-dealer as a result of market-making or
other trading activities, or (ii) an "affiliate" of
Cogentrix Energy within the meaning of Rule 405
under the Securities Act (collectively, "Restricted
Holders")), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) such Exchange
Senior Notes are acquired in the ordinary course of
business of such holder or other person, (ii)
neither such holder nor such other person is
engaged in or intends to engage in a distribution
of such Exchange Senior Notes and
4
<PAGE> 9
(iii) neither such holder nor other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Senior Notes. Holders of Old Senior Notes wishing
to accept the Exchange Offer must represent to
Cogentrix Energy that such conditions have been
met. If any person were to be participating in the
Exchange Offer for the purposes of participating in
a distribution of the Exchange Senior Notes in a
manner not permitted by the Commission's
interpretation, such person (i) will not be able to
rely on the interpretations by the staff of the
Commission set forth in the above-mentioned
no-action letters and (ii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or transfer of the Exchange Senior Notes unless
such sale or transfer is made pursuant to an
exemption from such requirements. Cogentrix Energy
does not intend to seek its own no-action letter
and there is no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Senior Notes as it has in
such no-action letters to third parties. See "The
Exchange Offer -- General" and "Plan of
Distribution." Each broker-dealer that receives
Exchange Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Senior Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Senior Notes
received in exchange for Old Senior Notes where
such Old Senior Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. Cogentrix
Energy has agreed that, for a period of 180 days
after the Registration Statement has been declared
effective by the Commission, it will make this
Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of
Distribution."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998 unless the
Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended. Cogentrix
Energy will accept for exchange any and all Old
Senior Notes that are validly tendered prior to
5:00 p.m., New York City time, on the Expiration
Date.
Accrued Interest on the
Exchange Senior Notes and
Old Senior Notes......... The Exchange Senior Notes will accrue interest from
the last Interest Payment Date on which interest
was paid on the Old Senior Notes surrendered in
exchange therefor, or, if no interest has been paid
on such Old Senior Notes, from October 20, 1998,
the date of issuance (the "Issue Date"). Such
interest will be paid with the first interest
payment of the Exchange Senior Notes. Interest will
not be paid on Old Senior Notes that are accepted
for exchange. Untendered Old Senior Notes that are
not exchanged for Exchange Senior Notes pursuant to
the Exchange Offer will bear interest at a rate of
8.75% per annum after the Expiration Date.
5
<PAGE> 10
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate
in general to proceedings which have been
instituted or laws which have been adopted that
might impair the ability of Cogentrix Energy to
proceed with the Exchange Offer. As of the date of
this Prospectus, none of these events had occurred,
and Cogentrix Energy believes their occurrence to
be unlikely. If any such conditions exist prior to
the Expiration Date, Cogentrix Energy may (a)
refuse to accept any Old Senior Notes and return
all previously tendered Old Senior Notes, (b)
extend the Exchange Offer or (c) waive such
conditions. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Senior Notes........... Each holder of Old Senior Notes wishing to accept
the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Senior Notes to be exchanged and any
other required documentation to the Exchange Agent
(as defined herein) at the address set forth herein
and therein. By executing the Letter of
Transmittal, each holder will represent to
Cogentrix Energy that, among other things, (i) the
Exchange Senior Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Exchange Senior Notes, whether or not such person
is the holder, (ii) neither the holder nor any such
other person is engaged in or intends to engage in
a distribution of the Exchange Senior Notes, (iii)
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Senior Notes and (iv) neither the holder nor any
such other person is an "affiliate" (as defined
under Rule 405 of the Securities Act) of Cogentrix
Energy, or, if the holder or any such other person
is an affiliate, the holder or any such other
person will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable. See "The Exchange
Offer -- Procedures for Tendering."
Following consummation of the Exchange Offer,
holders of Old Senior Notes not tendered as a
general matter will not have any further
registration rights, and the Old Senior Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for the Old Senior Notes could be adversely
affected. See "Risk Factors -- Lack of Public
Market for the Senior Notes" and "-- Consequences
of Failure to Exchange" and "The Exchange
Offer -- Consequences of Failure to Exchange."
Special Procedures for
Beneficial Holders......... Any beneficial holder whose Old Senior Notes are
registered in the name of such beneficial holder's
broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial holder's behalf. If
such beneficial holder wishes to tender on such
beneficial holder's own behalf, such beneficial
holder must, prior to completing and executing the
Letter of Transmittal and delivering such
beneficial holder's Old Senior Notes,
6
<PAGE> 11
either make appropriate arrangements to register
ownership of the Old Senior Notes in such
beneficial holder's name or obtain a properly
completed bond power from the registered holder.
The transfer of record ownership may take
considerable time, and completion of such transfer
prior to the Expiration Date may not be possible.
See "The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures................. Holders of Old Senior Notes who wish to tender
their Old Senior Notes and whose Old Senior Notes
are not immediately available or who cannot deliver
their Old Senior Notes and a properly completed
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
may tender their Old Senior Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date by
furnishing a written or facsimile transmission
notice of withdrawal to the Exchange Agent
containing the information set forth in "The
Exchange Offer -- Withdrawal of Tenders."
Acceptance of Old Senior
Notes and Delivery of
Exchange Senior Notes.... Subject to certain conditions, Cogentrix Energy
will accept for exchange any and all Old Senior
Notes which are properly tendered, and not timely
withdrawn, in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The Exchange Senior Notes issued pursuant to the
Exchange Offer will be delivered promptly after the
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Exchange Agent............. First Union National Bank is serving as exchange
agent (the "Exchange Agent") in connection with the
Exchange Offer. The hand delivery address for the
Exchange Agent is First Union National Bank,
Corporate Trust Department, 1525 West W.T. Harris
Blvd., 3C3, Charlotte, North Carolina 28288-1153,
Attention: Laura Richardson, and the mailing
address of the Exchange Agent is First Union
National Bank, Corporate Trust Department, 1525
West W.T. Harris Blvd., 3C3, Charlotte, North
Carolina 28288-1153, Attention: Laura Richardson.
For information with respect to the Exchange Offer,
contact the Exchange Agent at telephone number
(704) 590-7414 or facsimile number (704) 590-7628.
Effect on Holders of Old
Senior Notes............... Holders of Old Senior Notes who do not tender their
Old Senior Notes in the Exchange Offer will
continue to hold their Old Senior Notes and will be
entitled to all the rights and limitations
applicable thereto under the Indenture. All
untendered, and tendered but unaccepted, Old Senior
Notes will continue to be subject to the
restrictions on transfer provided for in the Old
Senior Notes and the Indenture. To the extent that
Old Senior Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the
Old Senior Notes could be adversely affected. See
"Risk Factors -- Consequences of Failure to
Exchange" and "The Exchange Offer -- Failure to
Exchange."
7
<PAGE> 12
Certain Federal Income Tax
Consequences............. The exchange of Old Senior Notes for Exchange
Senior Notes pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. A holder's holding period for Exchange
Senior Notes will include the holding period for
Old Senior Notes. For a discussion summarizing
certain federal income tax consequences to holders
of the Exchange Senior Notes, see "Certain Federal
Income Tax Consequences."
Use of Proceeds............ Cogentrix Energy will not receive any proceeds from
the Exchange Offer. See "Use of Proceeds."
8
<PAGE> 13
TERMS OF THE EXCHANGE SENIOR NOTES
Securities Offered......... $220,000,000 principal amount of 8.75% Senior Notes
due 2008.
Maturity Date.............. October 15, 2008.
Interest Payment Dates..... April 15 and October 15 of each year, commencing
April 15, 1999.
Ranking.................... The Exchange Senior Notes will be senior unsecured
obligations of Cogentrix Energy and will rank pari
passu with all other senior indebtedness of
Cogentrix Energy. As of June 30, 1998, on a pro
forma basis after giving effect to the sale of the
Old Senior Notes and the application of the
estimated net proceeds therefrom, Cogentrix Energy
had approximately $1.3 billion of indebtedness, of
which amount approximately $917 million represented
indebtedness of subsidiaries to which the Exchange
Senior Notes will be effectively subordinated. In
addition, all of the indebtedness of the
unconsolidated affiliates in which certain
subsidiaries of Cogentrix Energy hold investments
will be effectively senior to the Exchange Senior
Notes. See "Risk Factors -- Subordination Risk
Related to Holding Company Structure" and
"Description of Senior Notes."
Optional Redemption........ The Exchange Senior Notes will be redeemable, in
whole or in part, at any time at the option of
Cogentrix Energy at a redemption price equal to (i)
the then outstanding principal amount of the
Exchange Senior Notes being redeemed plus accrued
and unpaid interest thereon to the date of
redemption plus (ii) a premium equal to the excess
of (a) the present value at the time of redemption
of the principal amount of the Exchange Senior
Notes being redeemed plus any required interest
payments due on the Exchange Senior Notes being
redeemed through Stated Maturity computed using a
discount rate equal to the Treasury Rate plus 50
basis points over (b) the then outstanding
principal amount of the Exchange Senior Notes being
redeemed. See "Description of Senior
Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), each holder
of Exchange Senior Notes shall have the right,
subject to certain conditions, to require Cogentrix
Energy to repurchase such holder's Exchange Senior
Notes at a repurchase price equal to 101% of the
principal amount thereof, plus accrued interest, if
any, to the date of repurchase. See "Description of
Senior Notes -- Certain Covenants -- Repurchase of
Senior Notes Upon a Change of Control" and "Risk
Factors -- Substantial Leverage."
Certain Covenants.......... The Indenture for the Exchange Senior Notes will
restrict, among other things, the ability of
Cogentrix Energy and, in certain instances, its
Subsidiaries (as defined) to (i) incur additional
indebtedness, (ii) pay dividends and make other
distributions, (iii) make certain investments, (iv)
create encumbrances to secure debt, (v) engage in
certain transactions with affiliates, (vi) dispose
of certain assets or (vii) merge or consolidate
with or into, or sell or otherwise transfer their
properties and assets as an entirety to, another
entity. See "Description of Senior Notes."
Change in Covenants When
Senior Notes Rated
Investment Grade......... Following the first date upon which the Exchange
Senior Notes are rated Investment Grade (as
defined), and provided that no Event of Default
9
<PAGE> 14
(as defined) or event which with notice or passage
of time would constitute an Event of Default shall
exist on the Rating Event Date (as defined), the
provisions of certain covenants contained in the
Indenture will no longer be applicable to the
Exchange Senior Notes. Certain covenants regarding
restrictions on transactions with affiliates,
limitations on liens and restrictions on mergers,
consolidations and sales of assets will remain in
effect and a covenant restricting certain
sale/leaseback transactions will become applicable.
In the event that subsequent to the Rating Event
Date an Event of Default or event which with notice
or passage of time would constitute an Event of
Default shall exist with respect to the Exchange
Senior Notes or the Exchange Senior Notes shall be
rated less than Investment Grade, the provisions
and covenants contained in the Indenture at the
time of issuance of the Exchange Senior Notes that
cease to be applicable after the Rating Event Date
will not be reinstated. See "Description of Senior
Notes -- Change in Covenants When Senior Notes are
Rated Investment Grade."
Exchange Offer;
Registration Rights........ Pursuant to the Registration Agreement, Cogentrix
Energy agreed to file, within 90 days after the
Issue Date, a registration statement with respect
to the Exchange Offer and use its best efforts to
have such registration statement declared effective
with 150 days after the Issue Date or consummate
such Exchange Offer within 180 days after the Issue
Date. The Registration Statement of which this
Prospectus is a part constitutes such Exchange
Offer registration statement. Under certain
conditions stated in the Registration Agreement,
Cogentrix Energy has agreed to, at its cost, as
promptly as practicable, file a resale shelf
registration statement (the "Shelf Registration
Statement") covering resales of the Old Senior
Notes or the Exchange Senior Notes, as the case may
be, use its best efforts to cause the Shelf
Registration Statement to be declared effective
under the Securities Act and keep the Shelf
Registration Statement effective until two years
after its effective date or such shorter period
ending when all resales of Old Senior Notes or
Exchange Senior Notes covered by such Shelf
Registration Statement have been made. If Cogentrix
Energy does not comply with certain covenants set
forth in the Registration Agreement, Cogentrix
Energy will be obligated to pay additional interest
to the holders of the Old Senior Notes.
Transfer Restrictions...... Following the Exchange Offer, any Old Senior Notes
not exchanged for Exchange Senior Notes will
continue to be subject to the existing restrictions
on transfers thereof and may not be offered or sold
except pursuant to an exemption from the
registration requirements of the Securities Act.
See "The Exchange Offer -- Consequences of Failure
to Exchange." The Exchange Senior Notes would
generally be freely tradable after the Exchange
Offer. See "The Exchange Offer."
RISK FACTORS
Prior to making an investment in the Exchange Senior Notes, prospective
purchasers should carefully consider the specific matters set forth under "Risk
Factors" as well as the other information and data included, or incorporated by
reference, in this Prospectus.
10
<PAGE> 15
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
The following tables set forth summary consolidated historical and
unaudited pro forma financial information of the Company for the periods
indicated. The Company's summary consolidated historical financial information
was derived from the Company's Consolidated Financial Statements included
elsewhere herein. The summary pro forma consolidated financial information was
derived from the unaudited pro forma consolidated financial information of the
Company and gives effect to the LS Power Acquisition and the BGCI Acquisition as
described under "Unaudited Pro Forma Consolidated Financial Data," as if both
had occurred on July 1, 1996. The information presented below should be read in
conjunction with "Selected Consolidated Historical Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's Consolidated Financial Statements and related
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX-MONTH PRO FORMA PRO FORMA
PERIOD SIX-MONTH PERIODS FISCAL YEAR SIX-MONTH
FISCAL YEARS ENDED JUNE 30, ENDED ENDED JUNE 30, ENDED PERIOD ENDED
------------------------------ DECEMBER 31, ------------------- JUNE 30, DECEMBER 31,
1995 1996 1997 1997(1) 1997 1998 1997 1997
-------- -------- -------- ------------ -------- -------- ----------- ------------
(UNAUDITED)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total operating revenue... $385,102 $410,546 $352,806 $177,946 $171,657 $194,856 $370,327 $208,707
Total operating
expenses................. 303,147 313,407 349,546 132,338 140,851 126,302 350,408 146,529
Operating income.......... 81,955 97,139 3,260 45,608 30,806 68,554 19,919 62,128
Interest expense.......... (59,621) (58,354) (56,328) (25,680) (28,184) (33,085) (81,890) (45,643)
Income (loss) before
income taxes............. 34,510 39,756 (44,710) 20,176 5,861 33,636 (58,871) 14,207
Net income (loss)......... 21,173 23,795 (28,301) 10,703 4,078 19,488 (36,919) 7,095
Ratio of earnings to fixed
charges (unaudited)(2)... 1.6x 1.7x .3x 1.7x 1.2x 2.0x .3x 1.3x
OTHER DATA (UNAUDITED)(3):
Parent EBITDA............. 31,068 34,271 59,854 35,388 5,837 28,086 63,863 45,815
Parent Fixed Charges...... 8,530 8,472 8,222 4,203 4,111 4,295 27,326 13,750
Parent EBITDA/Parent Fixed
Charges.................. 3.6x 4.0x 7.3x 8.4x 1.4x 6.5x 2.3x 3.3x
<CAPTION>
PRO FORMA
SIX-MONTH
PERIOD ENDED
JUNE 30,
1998
------------
(UNAUDITED)
------------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Total operating revenue... $224,782
Total operating
expenses................. 137,543
Operating income.......... 87,239
Interest expense.......... (50,482)
Income (loss) before
income taxes............. 33,692
Net income (loss)......... 19,522
Ratio of earnings to fixed
charges (unaudited)(2)... 1.6x
OTHER DATA (UNAUDITED)(3):
Parent EBITDA............. 38,302
Parent Fixed Charges...... 13,841
Parent EBITDA/Parent Fixed
Charges.................. 2.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF AS OF JUNE 30, 1998
------------------------------ DECEMBER 31, -----------------------
1995 1996 1997 1997 ACTUAL PRO FORMA
-------- -------- -------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities...................... $ 41,540 $ 33,351 $ 84,090 $113,951 $ 31,611 $ 34,366
Total assets........................................ 930,733 921,641 859,828 822,974 1,287,705 1,503,387
Project financing debt(4)........................... 661,891 616,588 591,694 567,705 917,440 917,440
Parent debt(5)...................................... 100,000 100,000 100,000 100,000 130,000 350,000
Total shareholders' equity.......................... 63,618 83,010 49,709 58,298 77,760 77,760
</TABLE>
- ---------------
(1) Effective January 1, 1998, the Company changed its fiscal year to commence
on January 1 and conclude on December 31. The fiscal year previously
commenced each July 1, concluding on June 30 of the following year.
(2) For purposes of this ratio, earnings include income before income taxes and
cumulative effect of change in accounting principle and fixed charges
excluding capitalized interest. Fixed charges include interest, whether
capitalized or expensed, amortization of deferred financing costs and the
interest element of rentals.
(3) Parent EBITDA represents cash flow to Cogentrix Energy prior to debt service
and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of certain subsidiaries' indebtedness. The calculation of pro
forma Parent Fixed Charges includes estimated interest expense on the Senior
Notes, net of the estimated interest income on the net proceeds of the
Offering in excess of (i) the purchase price of the BGCI Acquisition and
related transaction costs, (ii) issuance costs associated with the Offering
and (iii) the settlement costs on an interest rate hedge agreement related
to the Offering. Parent EBITDA is presented here not as a measure of
operating results, but rather as a measure of Cogentrix Energy's ability to
service debt. Parent EBITDA should not be construed as an alternative either
(i) to operating income (determined in accordance with generally accepted
accounting principles) or (ii) to cash flows from operating activities
(determined in accordance with generally accepted accounting principles).
(4) Project financing debt with respect to each of the Company's facilities is
"substantially non-recourse" to Cogentrix Energy and its other project
subsidiaries. For a discussion of the term "substantially non-recourse," see
"Business -- Description of the Company's Facilities -- Project Financing."
(5) Parent debt represents obligations of Cogentrix Energy only and does not
include substantially non-recourse obligations of its project subsidiaries.
11
<PAGE> 16
RISK FACTORS
Prospective purchasers of the Exchange Senior Notes should consider
carefully the following matters as well as the other information contained in
this Prospectus in evaluating an investment in the Exchange Senior Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged as a result of the outstanding indebtedness
of Cogentrix Energy and the substantially non-recourse debt financing of certain
of its project subsidiaries incurred to finance the development of electric
generating facilities. See "Description of Certain Other Indebtedness" for a
description of the Company's $100 million outstanding issue of 8.10% Senior
Notes due 2004 (the "2004 Senior Notes") pursuant to an Indenture dated March
15, 1994 (the "2004 Indenture" and, together with the Indenture, the
"Indentures"). As of June 30, 1998, the Company's total consolidated
indebtedness was approximately $1.0 billion, its total consolidated assets were
approximately $1.3 billion and its total shareholders' equity was approximately
$77.8 million. At the same date on a pro forma basis after giving effect to the
BGCI Acquisition, the offering of the Old Senior Notes and the application of
the estimated net proceeds therefrom, the Company's total consolidated
indebtedness was approximately $1.3 billion, its total consolidated assets were
approximately $1.5 billion and its total shareholders' equity was approximately
$77.8 million. At the same date on a pro forma basis, the Company would have had
a consolidated ratio of total debt (including short term debt) to total
capitalization of approximately 94.2%. See "Capitalization" and "Unaudited Pro
Forma Consolidated Financial Data." However, project financing debt of the
Company's project subsidiaries (aggregating approximately $917 million as of
June 30, 1998) is substantially non-recourse to Cogentrix Energy and its other
project subsidiaries, except in connection with certain transactions where
Cogentrix Energy has agreed to certain limited guarantees and other obligations
with respect to such projects. These limited guarantees and other obligations,
which were given in connection with the refinancing of certain project
subsidiaries' debt facilities, aggregate approximately $51.9 million. In
addition, the Company's indirect subsidiary, Cogentrix, Inc. ("Cogentrix"), has
guaranteed certain project subsidiaries' obligations to the purchasing utility
under power sales agreements. 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. If the Company were required to satisfy all of
these guarantees and other obligations or even one or more of the significant
ones, then such event could have a material adverse impact on the Company's
condition, financial and otherwise, and consequently on the holders of the
Senior Notes. The Indenture under which the Old Senior Notes were issued, and
the Exchange Senior Notes will be issued, will contain provisions that require
Cogentrix Energy, in the event of a Change in Control, to repurchase any Senior
Notes that holders thereof desire to have repurchased. There can be no assurance
that Cogentrix Energy will have the financial resources necessary to purchase
the Senior Notes upon a Change of Control. See "Description of Senior Notes --
Certain Covenants -- Repurchase of Senior Notes Upon a Change of Control."
SUBORDINATION RISK RELATED TO HOLDING COMPANY STRUCTURE
Cogentrix Energy is a development and management company that conducts its
business primarily through its project subsidiaries and other subsidiaries that
hold investments in unconsolidated affiliates. Therefore, claims of the holders
of the indebtedness of Cogentrix Energy, including the Senior Notes and the 2004
Senior Notes, will be effectively subordinated to the indebtedness and other
obligations of the Company's project subsidiaries (and its unconsolidated
affiliates) as well as to the indebtedness and other obligations (including
guarantees) of Cogentrix. See "Business -- Description of the Company's
Facilities -- Project Financing." The ability of the Company to pay principal
of, premium, if any, and interest on the Senior Notes will be dependent upon the
receipt of sufficient funds from its current and future project subsidiaries
(and unconsolidated affiliates) in the form of dividends, fees, interest, loans
or otherwise. Pursuant to existing project finance agreements, the Company's
project subsidiaries (and unconsolidated affiliates) currently have in place
arrangements that restrict their ability to make distributions to the Company in
the form of dividends, management fees, principal, interest, loans or otherwise.
The restrictions in such
12
<PAGE> 17
agreements generally require that, prior to the payment of dividends,
distributions or other transfers, the subsidiary (or unconsolidated affiliate)
proposing to make the distribution must provide for the payment of other
obligations, including operating expenses, debt service and reserves, and must
meet certain debt service coverage ratios. The Indentures permit both current
and future project subsidiaries to enter into such agreements.
The Company's project subsidiaries (and unconsolidated affiliates) are
separate and distinct legal entities and, with the exception of Cogentrix
Delaware Holdings, Inc. (the Company's primary, first-tier subsidiary that has
guaranteed all senior unsecured indebtedness for borrowed money of Cogentrix
Energy), have no obligation, contingent or otherwise, to pay any amounts due on
the Senior Notes or to make any funds available therefor, whether by dividends,
loans or other payments, and do not guarantee the payment of interest on or
principal of the Senior Notes. Any right of Cogentrix Energy to receive any
assets of any of its project subsidiaries (or unconsolidated affiliates) upon
any liquidation or reorganization of Cogentrix Energy (and the consequent right
of the holders of the Senior Notes and the 2004 Senior Notes to participate in
the distribution of, or to realize proceeds from, those assets) will be
effectively subordinated to the claims of any such project subsidiaries' (or
unconsolidated affiliates') creditors (including trade creditors and holders of
debt issued by such project subsidiaries (or unconsolidated affiliates)). As of
June 30, 1998, approximately $917 million of indebtedness of certain of the
Company's project subsidiaries, substantially all of which indebtedness
represents non-recourse project financing secured by the assets of such project
subsidiaries, would be effectively senior to the Senior Notes and the 2004
Senior Notes. In addition, all of the indebtedness of the unconsolidated
affiliates in which certain subsidiaries of Cogentrix Energy hold investments
will be effectively senior to the Senior Notes and the 2004 Senior Notes,
substantially all of which indebtedness represents non-recourse project
financing secured by the assets of such unconsolidated affiliates. As of June
30, 1998, on a pro forma basis giving effect to the BGCI Acquisition, the
Company's pro rata share of the outstanding indebtedness of such unconsolidated
affiliates was approximately $770 million. See "Description of Senior Notes."
UNCERTAINTY OF ACCESS TO CAPITAL FOR FUTURE PROJECTS OR ACQUISITIONS
Any projects the Company may develop in the future and those independent
power projects it may seek to acquire will require substantial capital
investment. The Company's highly leveraged capital structure could limit its
ability to finance the development or acquisition of additional projects by
limiting the amount of capital the Company can borrow at the parent level to
contribute as equity to new project subsidiaries or pay the purchase price of
future acquisitions. While financings have been successfully arranged in
connection with the Company's existing projects, the ability of the Company to
implement its growth strategy is dependent on continued access to capital on
acceptable terms. The Company's ability to arrange financing and the costs of
such capital are dependent on numerous factors, including general economic and
capital market conditions, credit availability from banks and other financial
institutions, investor confidence in the Company and the continued success of
the Company's existing projects.
DEPENDENCE ON CERTAIN UTILITY CUSTOMERS
Each of the Company's operating facilities relies on a power sales
agreement with a single electric utility customer for the majority of its
revenues over the life of the power sales agreement. The failure of a utility
customer to fulfill its contractual obligations to the Company for a prolonged
period of time could have a material adverse impact on the cash flow available
to the Company and, as a result, on the financial position of the Company. The
Company has sought to reduce this risk in part by entering into power sales
agreements with customers of strong credit quality, substantially all of which
have senior debt securities rated investment grade.
RISKS ASSOCIATED WITH CERTAIN PROVISIONS OF POWER SALES AGREEMENTS
Certain power sales agreements of the Company's project subsidiaries and
unconsolidated affiliates permit the purchasing utility to terminate the
agreement or change the payments to the project subsidiary (or unconsolidated
affiliate) under specified circumstances. Certain agreements also permit the
utility to reduce
13
<PAGE> 18
future payments or recover from the project subsidiary (or unconsolidated
affiliate) certain payments previously made in the event that a state utility
commission prohibits the utility from recovering from its customers such
payments made to the project subsidiary (or unconsolidated affiliate) under the
power sales agreement. Some of the Company's power sales agreements contain
regulatory disallowance provisions that provide that the utility will continue
to pay the contract rates at least through the term of the related project
financing debt. Thereafter, the project subsidiary (or unconsolidated affiliate)
recognizes a reduction in payments received under the power sales agreement to
the extent necessary to repay, or the project subsidiary (or unconsolidated
affiliate) is required to repay, to the utility the amount of the accrued
liability of such disallowance with interest. See "Business -- Description of
the Company's Facilities."
In the event a termination or modification of any such power sales
agreement occurred, the affected project subsidiary (or unconsolidated
affiliate) would likely generate reduced revenues or no revenues, possibly
triggering default provisions in the project subsidiary's (or unconsolidated
affiliate's) financing agreements, which might allow the affected lenders to
accelerate such debt and could result in the Company not receiving any cash flow
from that project subsidiary.
GOVERNMENT REGULATION
Environmental Matters
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. See "Business -- Regulation -- Environmental Regulations -- United
States" and "-- International."
Project subsidiaries owning seven of the Company's facilities contract with
ReUse Technology, Inc. ("ReUse"), a wholly-owned subsidiary of the Company
operated as an autonomous business unit, to remove coal ash generated by the
coal-fired plants. ReUse then arranges for the coal ash to be used as structural
fill material or in the manufacture of various products for resale. ReUse's
activities are subject to environmental regulation by federal, state and local
governmental authorities. ReUse has obtained all necessary federal, state and
local permits, licenses and approvals necessary for the conduct of its business.
There can be no assurance, however, that ReUse will be able to maintain or
obtain all necessary permits and approvals in the future. Coal ash is not
currently subject to regulation as a hazardous waste under the Resource
Conservation and Recovery Act or the laws of the states where the Company's
facilities are located. Any change in law subjecting coal ash to regulation as a
hazardous or other restricted waste could have a material adverse impact upon
ReUse's business. ReUse conducts significant testing of coal ash to ensure the
ash complies with all applicable laws. To the extent coal ash becomes subject to
hazardous waste regulation, the Company and ReUse could be liable for costs
associated with remediating any adverse environmental effects of the use of such
hazardous substances.
Energy Regulations
The Company's cogenerating and small power production facility operations
are subject to the provisions of various laws and regulations, including PURPA
and the Public Utility Holding Company Act of 1935, as amended ("PUHCA"). PURPA
provides to qualifying facilities ("QFs") certain exemptions from federal and
state laws and regulations, including organizational, rate and financial
regulation. PUHCA regulates public utility holding companies and their
subsidiaries. The Company is not and will not be subject to regulation as a
holding company under PUHCA as long as the power plants it owns in whole or in
part are
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<PAGE> 19
QFs under PURPA or eligible facilities of exempt wholesale generators ("EWGs")
under PUHCA. QF status is conditioned on meeting certain criteria, and would be
jeopardized, for example, by the loss of a steam customer or reduction of steam
purchases below the amount required by PURPA. See "Business -- Description of
the Company's Facilities." Management believes that, upon the occurrence of any
event that would threaten the QF status of one of the Company's facilities, it
would be able to react in a manner that would avoid the loss of QF status (such
as by replacing the steam customer). In the event the Company were unable to
avoid the loss of such status for one of its facilities, to avoid public utility
holding company status, the Company could apply to the Federal Energy Regulatory
Commission ("FERC") to obtain status as an EWG for the owner of the
non-qualifying facility. EWGs, however, are subject to broad regulation by the
FERC and by state public utility commissions. In addition, loss of QF status may
result in termination of a given project subsidiary's power sales agreement and
a default under such project subsidiary's project financing agreements. See
"Business -- Regulation -- Energy Regulations."
ELECTRIC UTILITY INDUSTRY RESTRUCTURING PROPOSALS
The FERC and many state utility commissions are currently studying a number
of proposals to restructure the electric utility industry in the United States.
Such restructuring would permit utility customers to choose their electric
energy supplier in a competitive electric energy market. The FERC issued a final
rule in April 1996 which requires utilities to offer wholesale customers and
suppliers open access to utility transmission lines, on a comparable basis to
the utilities' own use of the lines. Many utilities have already filed "open
access" tariffs. The utilities contend that they should recover from departing
customers their fixed costs that will be "stranded" by the ability of their
wholesale customers (and perhaps eventually, their retail customers) to choose
new electric energy suppliers. The FERC final rule endorses the recovery of
legitimate and verifiable "stranded costs." These may include the costs
utilities are required to pay under many QF contracts which the utilities view
as excessive when compared with current market prices. Pursuant to that rule,
all utilities are therefore seeking ways to lower these contract prices or
rescind the contracts altogether, out of concern that their shareholders will be
required to bear all or part of such "stranded" costs. Some utilities have
engaged in litigation against QFs to achieve these ends.
In addition, future United States electric rates will likely be deregulated
in a restructured United States electric utility industry and increased
competition may result in lower rates and less profit for United States
electricity sellers. To date, many states have enacted laws and regulations that
will allow residents and businesses the opportunity to choose their electric
energy suppliers. Additionally, numerous bills have been introduced in Congress
which would open the entire United States electric market to competition
sometime between 1998 and 2000. While the Company views deregulation as an
opportunity, the effect of any such restructuring on the Company cannot be
predicted and could have a material adverse effect on the Company.
GENERAL OPERATING RISKS
The operation of a power plant involves many risks, including the breakdown
or failure of electric generating equipment or other equipment or processes,
fuel interruption, and performance below expected levels of output or
efficiency. While the Company's facilities contain certain redundancies and the
Company has obtained insurance to protect against certain of these operating
risks, such protection may not be adequate to cover lost revenues or increased
expenses (including higher maintenance costs). As a result, a facility may be
unable to perform under its power and steam sales agreements and may be unable
to fund principal and interest payments under its project financing agreements.
Further, each facility may depend on a single or limited number of entities to
purchase electricity or thermal energy, to supply water, to supply coal or gas,
to transport coal or gas or to wheel electricity. The failure of a utility
customer, steam host, water supplier, coal or gas transporter or wheeling
utility to fulfill its contractual obligations could have a material adverse
impact on the Company.
The Company operates 10 of the 25 facilities that it owns (entirely or in
part). With respect to the facilities it does not operate, the Company is and
will, unless it takes over the operations itself, continue to be subject to the
risk that the operator of the facility will fail to perform, or will perform its
duties inadequately, and the operations of the facility will be adversely
affected. In most instances in which it does not operate the
15
<PAGE> 20
facility itself, the Company has the right to participate in making, and in some
cases the right to veto, major decisions affecting the operations of the
facility.
PROJECT DEVELOPMENT AND START-UP UNCERTAINTIES
The projects that the Company develops 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, overcome any
local opposition to the development of new projects, obtain site agreements,
fuel supply and ash disposal agreements, construction contracts, steam sales
agreements, licenses and certifications, environmental and other permits and
financing necessary for the successful development of new projects. These risks
may result in the Company's abandonment of projects after having incurred
significant project development expenses.
As with any major industrial construction effort, the construction of an
electric generating facility involves many risks, including material and labor
interruption, work stoppages, labor disputes, weather interferences, unforeseen
engineering, environmental and geological problems and unanticipated cost
overruns. The Company has attempted to reduce its construction-related risks by
using a standardized plant design, negotiating vendor contracts directly and
obtaining construction contracts under which the contractor assumes certain
risks, such as the risk of delays in completion and certain cost overruns. The
Company's construction contracts have typically required the contractor to carry
substantial insurance and to pay liquidated damages in the event of failure of
performance by the contractor. There is a risk, however, that the costs of
delays will exceed negotiated limits on liquidated damages and insurance
coverage or that such delays will be caused by force majeure events, as to which
there may be no liquidated damages or insurance coverage. Furthermore, many
power sales agreements permit the utility customer to terminate the agreement in
the event certain milestones, such as commencing commercial operation of the
project, are not met by specified dates.
The Company is committed to managing construction risks on future projects
to the greatest extent possible. In the event the Company acquires existing
projects or makes only minority investments in projects to be developed, the
Company may be unable to manage such risks as effectively as it has with respect
to its existing projects. The Indentures do not restrict the Company's ability
to make such acquisitions and minority investments.
The commencement of operation of a newly-constructed electric generating
facility involves many risks, including the breakdown or failure of equipment or
processes and performance below expected levels of output or efficiency. New
plants may employ recently developed and technologically complex equipment,
especially in the area of environmental emission control. While insurance is
maintained to protect against certain risks, warranties are obtained for limited
periods, and contractors are obligated to meet certain performance levels, the
proceeds of such insurance, warranties or performance guarantees may not be
adequate to cover lost revenues or increased expenses. As a result, a project
may be unable to fund principal and interest payments under its project
financing agreements and may operate at a loss. The Company has historically
reduced this risk by developing most of its plants around a standardized design,
using proven technology whenever possible, and establishing significant reserve
accounts to protect debt service.
COMPETITION
There are numerous strong and capable competitors in the electric
generating industry, both domestically and internationally, many of whom have
extensive and diversified developmental or operating experience and financial
resources similar to or greater than the Company. In recent years the industry
has been characterized by strong and increasing competition with respect to both
the development of new facilities and the acquisition of existing electric
generating assets, including a trend away from negotiated transactions and
toward competitive bidding. The intensifying competition has contributed in many
areas to a reduction in electricity prices. Combined with the increasing
competition among regulated electric utilities, this reduction in electricity
prices has put pressure on electric utilities to lower their costs, including
the cost of purchased electricity. The restructuring of the electric utility
industry in the United States that is underway is likely to
16
<PAGE> 21
increase competition in the future and may result in lower electricity prices
and less profit for all competitors in the electric generating industry.
RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES
The Company does not currently own or have an interest in any operating
electric generating facilities outside the United States. A component of the
Company's project development strategy is, however, the development of a limited
number of projects on a highly selective basis outside the United States in
countries where demand for power is growing rapidly, private investment is
encouraged and favorable financing conditions exist. Nonetheless, the economic
and political conditions in certain countries where the Company is or could be
exploring development opportunities present risks of permitting, licensing and
construction delays, interruption of business and expropriation that are greater
than those in the United States. The uncertainty of the legal environment in
certain foreign countries in which the Company may develop or acquire projects
could make it more difficult to obtain non-recourse project financing and impair
the Company's ability to enforce its rights under agreements relating to such
projects. Operations in foreign countries also can present currency exchange,
convertibility and repatriation risks. The Company anticipates that it will be
able to reduce the foreign currency risk, where appropriate, by denominating its
contracts in United States dollars (or another stable currency) and using a
variety of instruments, including currency swaps, options and forward contracts.
If available on acceptable terms, the Company may also attempt to obtain
political risk insurance from available sources.
The Company may be limited to holding minority interests in some of the
projects that it develops or acquires outside the United States, due to the size
of the projects as well as local laws and regulations, thus limiting the
Company's ability to control the development, construction and operation of such
projects. The Indentures do not restrict the Company's ability to make such
acquisitions and minority investments.
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
There has previously been no public market for the Old Senior Notes. The
Exchange Senior Notes will constitute a new class of securities with no
established trading market. Although the Exchange Senior Notes are expected to
be eligible for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") market, there can be no assurance as to the
development of a market or liquidity of any market that may develop for the
Exchange Senior Notes, the ability of holders of the Exchange Senior Notes to
sell their Exchange Senior Notes, or the price at which holders would be able to
sell their Exchange Senior Notes. If the Exchange Senior Notes are traded after
their initial issuance, they may trade at a discount from their initial public
offering price depending upon prevailing interest rates, the Company's operating
results, the market for similar securities and other factors. The Company does
not intend to apply for listing of the Exchange Senior Notes on any securities
exchange or the Nasdaq National Market.
The Old Senior Notes have not been registered under the Securities Act or
any state securities laws and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. See "Transfer Restrictions."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Senior Notes who do not exchange their Old Senior Notes for
Exchange Senior Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Senior Notes as set forth in the
legend thereon. Old Senior Notes not exchanged pursuant to the Exchange Offer
will continue to remain outstanding in accordance with their terms. In general,
the Old Senior Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Cogentrix
Energy does not currently anticipate that it will register the Old Senior Notes
under the Securities Act.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Senior Notes pursuant to the terms of, this Exchange Offer,
Cogentrix Energy will have fulfilled a covenant contained in the
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<PAGE> 22
Registration Agreement. Holders of Old Senior Notes who do not tender their Old
Senior Notes in the Exchange Offer will continue to hold such Old Senior Notes
and will be entitled to all the rights and limitations applicable thereto under
the Indenture, except for any such rights under the Registration Agreement that
by their terms terminate or cease to have further effectiveness as a result of
the making of this Exchange Offer. All untendered Old Senior Notes will continue
to be subject to the restrictions on transfer set forth in the Indenture. To the
extent that Old Senior Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered Old Senior Notes could be adversely affected.
See "The Exchange Offer -- Consequences of the Failure to Exchange."
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<PAGE> 23
CAPITALIZATION
The following table sets forth as of June 30, 1998, (i) the actual
consolidated capitalization of the Company and (ii) the pro forma consolidated
capitalization of the Company as adjusted to give effect to the offering of the
Old Senior Notes and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with "Unaudited Pro Forma Consolidated
Financial Data" and the Company's Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
SHORT-TERM DEBT:
Current portion of non-recourse project financing debt.... $ 84,493 $ 84,493
---------- ----------
LONG-TERM DEBT:
Non-recourse project financing debt, net of current
portion................................................ 832,947 832,947
2004 Senior Notes......................................... 100,000 100,000
Corporate Credit Facility(1).............................. 30,000 30,000
Senior Notes.............................................. -- 220,000
---------- ----------
Total long-term debt................................... 962,947 1,182,947
---------- ----------
Total indebtedness................................ 1,047,440 1,267,440
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding.................. 130 130
Accumulated earnings...................................... 77,630 77,630
---------- ----------
Total shareholders' equity............................. 77,760 77,760
---------- ----------
Total capitalization and short-term debt.................. $1,125,200 $1,345,200
========== ==========
</TABLE>
- ---------------
(1) The Company has a credit agreement with Australia and New Zealand
Banking Group Limited, as agent for a group of lending banks (the
"Corporate Credit Facility") which, as amended and restated on October
29, 1998, is a $100 million revolving credit facility providing for
direct advances to, or the issuance of letters of credit for, the
benefit of the Company. Subsequent to June 30, 1998, after repaying
outstanding advances under the Corporate Credit Facility, the Company
used $54 million of the credit availability thereunder to issue a
letter of credit in connection with its investment in the Batesville
Facility. See "Business -- Facility Under Construction." See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Description of Certain Other Indebtedness -- Corporate Credit
Facility."
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<PAGE> 24
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Senior Notes offered hereby. In consideration for issuing the Exchange
Senior Notes as contemplated in this Prospectus, Cogentrix Energy will receive
in exchange Old Senior Notes in like principal amount, the terms of which are
identical to the Exchange Senior Notes. The Old Senior Notes surrendered in
exchange for the Exchange Senior Notes will be retired and canceled and cannot
be reissued. Accordingly, issuance of the Exchange Senior Notes will not result
in any increase in the indebtedness of Cogentrix Energy.
The net proceeds received by the Company from the sale of the Old Senior
Notes (after deducting the original issue discount, the discount to the Initial
Purchasers and estimated expenses) were approximately $214.4 million and were
used to fund the purchase price for the BGCI Acquisition and related transaction
costs, to pay settlement costs for an interest rate hedge agreement related to
the offering of the Old Senior Notes and for general corporate purposes.
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<PAGE> 25
THE EXCHANGE OFFER
GENERAL
The Old Senior Notes were sold by Cogentrix Energy on the Issue Date to
Salomon Smith Barney Inc., Goldman, Sachs & Co. and CIBC Oppenheimer Corp. (the
"Initial Purchasers") pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Senior Notes to "Qualified Institutional Buyers" (as
defined in Rule 144A under the Securities Act), each of whom agreed to comply
with certain transfer restrictions and other conditions, and pursuant to offers
and sales outside the United States to certain persons in reliance on Regulation
S under the Securities Act ("Regulation S"). As a condition to the purchase of
the Old Senior Notes by the Initial Purchasers, Cogentrix Energy entered into
the Registration Agreement with the Initial Purchasers, for the benefit of the
holders, which requires, among other things, that Cogentrix Energy, at its cost,
become obligated to (i) file a registration statement in connection with a
registered exchange offer within 90 days after the Issue Date and (ii) use its
best efforts to cause the Registration Statement relating to such registered
exchange offer to become effective within 150 days after the Issue Date (or file
and cause to become effective a resale shelf registration statement covering
resales of the Old Senior Notes or the Exchange Senior Notes, as the case may
be). Upon the effectiveness of the Registration Statement, Cogentrix Energy will
offer to the holders of the Old Senior Notes the opportunity to exchange their
Old Senior Notes for a like principal amount of Exchange Senior Notes and will
keep the Exchange Offer open for not less than 30 days and not more than 45 days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders.
The Exchange Offer being made hereby, if consummated within the required
time periods, will satisfy Cogentrix Energy's obligations under the Registration
Agreement. This Prospectus, together with the Letter of Transmittal, is being
sent to all such beneficial holders known to Cogentrix Energy. A copy of the
Registration Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, Cogentrix
Energy believes that Exchange Senior Notes issued pursuant to the Exchange Offer
in exchange for Old Senior Notes may be offered for resale, resold and otherwise
transferred by any person who received such Exchange Senior Notes, whether or
not such person is the holder (other than Restricted Holders) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that (i) such Exchange Senior Notes are acquired in the ordinary course
of such holder's or other person's business, (ii) neither such holder nor such
other person is engaged in or intends to engage in any distribution of the
Exchange Senior Notes and (iii) such holders or other persons have no
arrangement or understanding with any person to participate in the distribution
of such Exchange Senior Notes. If any person were to be participating in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Senior Notes in a manner not permitted by the Commission's
interpretation, such person (i) could not rely on the interpretations by the
staff of the Commission set forth in the above-mentioned no-action letters and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. Cogentrix
Energy does not intend to seek its own no-action letter and there is no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Senior Notes as it has in such no-action letters to
third parties.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Cogentrix Energy will accept all Old Senior
Notes properly tendered and not timely withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. After authentication of the Exchange Senior
Notes by the Trustee or authenticating agent, Cogentrix Energy will issue $1,000
in principal amount of Exchange Senior Notes in exchange for $1,000 in principal
amount of outstanding Old Senior Notes accepted in the Exchange Offer. Holders
may tender some or all of their Old Senior Notes pursuant to the Exchange Offer
in denominations of $1,000 and integral multiples thereof.
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<PAGE> 26
Each holder of Old Senior Notes who wishes to exchange Old Senior Notes for
Exchange Senior Notes in the Exchange Offer will be required to represent to
Cogentrix Energy that (i) any Exchange Senior Notes to be received by it are
being acquired in the ordinary course of its business, (ii) it is not engaged
in, and does not intend to engage in, and, at the time of the commencement of
the Exchange Offer, has no arrangement or understanding with any person to
participate in a distribution of such Exchange Senior Notes and (iii) it is not
an "affiliate" as defined in Rule 405 of the Securities Act, or if it is an
affiliate, that it will comply with the registration and prospectus requirements
of the Securities Act to the extent applicable.
Each broker-dealer that receives Exchange Senior Notes for its own account
in exchange for Old Senior Notes, where such Old Senior Notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Senior Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Senior Notes
received in exchange for Old Senior Notes where such Old Senior Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. Cogentrix Energy has agreed that, for a period of 180 days
after consummation of the Exchange Offer, it will make this Prospectus, as it
may be amended or supplemented from time to time, available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The form and terms of the Exchange Senior Notes are identical to the form
and terms of the Old Senior Notes except that (i) the offering of the Exchange
Senior Notes has been registered under the Securities Act, (ii) the Exchange
Senior Notes will not be subject to transfer restrictions and (iii) the Exchange
Senior Notes will not be entitled to registration or other rights under the
Registration Agreement upon failure by Cogentrix Energy to consummate the
Exchange Offer or the occurrence of certain other events. See "Description of
the Senior Notes."
The Exchange Senior Notes will accrue interest from the last Interest
Payment Date on which interest was paid on the Old Senior Notes surrendered in
exchange therefor, or, if no interest has been paid on such Old Senior Notes,
from the Issue Date. Such interest will be paid with the first payment of the
Exchange Senior Notes. Interest will not be paid on Old Senior Notes that are
accepted for exchange. Untendered Old Senior Notes that are not exchanged for
Exchange Senior Notes pursuant to the Exchange Offer will bear interest at a
rate of 8.75% per annum after the Expiration Date.
If any tendered Old Senior Notes are not accepted for exchange because of
an invalid tender or the occurrence of certain conditions set forth herein under
"-- Conditions" without waiver by Cogentrix Energy, certificates for any such
unaccepted Old Senior Notes will be returned, without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Senior Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Senior Notes, pursuant to the Exchange Offer. Cogentrix Energy will pay all
charges and expenses, other than certain applicable taxes in connection with the
Exchange Offer. See "-- Fees and Expenses."
Cogentrix Energy shall be deemed to have accepted validly tendered Old
Senior Notes when, as and if Cogentrix Energy has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Old Senior Notes for the purposes of receiving the Exchange
Senior Notes from Cogentrix Energy and delivering Exchange Senior Notes to such
holders.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless Cogentrix Energy, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
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<PAGE> 27
Cogentrix Energy expressly reserves the right, at any time, or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any of the Old Senior Notes, by giving
oral or written notice to the Exchange Agent and by timely public announcement
thereof, prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date. Such announcement may state that
Cogentrix Energy is extending the Exchange Offer for a specified period of time.
During any such extension, all Old Senior Notes previously tendered will remain
subject to the Exchange Offer unless properly withdrawn.
Cogentrix Energy expressly reserves the right (i) to delay accepting any
Old Senior Notes, to extend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Senior Notes not previously accepted if any of the
conditions set forth herein under "-- Conditions" shall have occurred and shall
not have been waived by Cogentrix Energy (if permitted to be waived by Cogentrix
Energy), by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Senior Notes. Any such delay in acceptance, extension or termination will be
followed as promptly as practicable by public announcement or oral or written
notice thereof to the holders of the Old Senior Notes. If the Exchange Offer is
amended in a manner determined by Cogentrix Energy to constitute a material
change, Cogentrix Energy will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Old Senior Notes of such
amendment.
Without limiting the manner in which Cogentrix Energy may choose to make
public announcement of any extension, amendment or termination of the Exchange
Offer, Cogentrix Energy shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must (i) complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Senior Notes and any other documents required by the Letter of Transmittal to
the Exchange Agent before 5:00 p.m., New York City time, on the Expiration Date
or (ii) comply with the guaranteed delivery procedures described below.
The method of delivery of Old Senior Notes and the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery to the Exchange Agent before 5:00 p.m., New
York City time, on the Expiration Date. No Letter of Transmittal or Old Senior
Notes should be sent to Cogentrix Energy.
If tendered Old Senior Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Senior Notes to be issued in exchange
therefor are to be issued (and any untendered Old Senior Notes are to be
reissued) in the name of the registered holder (which term, for the purposes
described herein, shall include any participant in The Depository Trust Company
("DTC") (also referred to as a "book-entry transfer facility") whose name
appears on a security listing as the owner of Old Senior Notes), the signature
of such signer need not be guaranteed. In any other case, the tendered Old
Senior Notes must be endorsed or accompanied by written instruments of transfer
in form satisfactory to Cogentrix Energy and duly executed by the registered
holder, and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act. If the Exchange Senior Notes and/or Old
Senior Notes not exchanged are to be delivered to an address other than that of
the registered holder appearing on the note register for the Old Senior Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Senior Notes at DTC for the purpose of facilitating
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<PAGE> 28
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Old Senior Notes by causing DTC to transfer such Old Senior Notes into the
Exchange Agent's account with respect to the Old Senior Notes in accordance with
DTC's procedures for such transfer. Although delivery of the Old Senior Notes
may be effected through book-entry transfer into the Exchange Agent's account at
DTC, an appropriate Letter of Transmittal properly completed and duly executed
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the Exchange Agent at
its address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Senior Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Senior Notes are registered and, if possible, the certificate numbers of
the Old Senior Notes to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three business days after the Expiration
Date, the Old Senior Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Senior Notes into the Exchange Agent's account
at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Senior Notes being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), Cogentrix
Energy may, at its option, reject the tender. Copies of the notice of guaranteed
delivery ("Notice of Guaranteed Delivery") which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Senior Notes (or a confirmation of book-entry transfer of
such Old Senior Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Senior Notes in exchange for Old Senior
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Senior Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of Old Senior Notes tendered for exchange and withdrawal of
the tendered Old Senior Notes will be determined by Cogentrix Energy in its sole
discretion, which determination will be final and binding. Cogentrix Energy
reserves the absolute right to reject any and all Old Senior Notes not properly
tendered or any Old Senior Notes Cogentrix Energy's acceptance of which would,
in the opinion of Cogentrix Energy or its counsel, be unlawful. Cogentrix Energy
also reserves the right to waive any defects or irregularities or conditions of
the Exchange Offer as to any particular Old Senior Notes either before or after
the Expiration Date. Cogentrix Energy's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Senior Notes must be
cured within such time as Cogentrix Energy shall determine. None of Cogentrix
Energy, the Exchange Agent or any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Senior
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Senior Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Old Senior Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent to the tendering holders of
Old
24
<PAGE> 29
Senior Notes, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, Cogentrix Energy reserves the right in its sole discretion to
(i) purchase or make offers for any Old Senior Notes that remain outstanding
subsequent to the Expiration Date or, as set forth under "-- Conditions," to
terminate the Exchange Offer in accordance with the terms of the Registration
Agreement and (ii) to the extent permitted by applicable law, purchase Old
Senior Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder of any Old Senior Notes listed therein, such Old Senior
Notes must be endorsed or accompanied by appropriate powers of attorney, in each
case signed as the name of the registered holder or holders appears on the Old
Senior Notes.
If the Letter of Transmittal or any Old Senior Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
Cogentrix Energy, submit evidence satisfactory to Cogentrix Energy of their
authority so to act must be submitted with the Letter of Transmittal.
By tendering, each holder will represent to Cogentrix Energy that, among
other things, (i) the Exchange Senior Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of such holder or
other person, whether or not such person is the holder, (ii) neither such holder
nor such other person is engaged in or intends to engage in a distribution of
the Exchange Senior Notes, (iii) neither such holder or other person has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Senior Notes and (iv) such holder or other person is not an
"affiliate" (as defined under Rule 405 of the Securities Act) of Cogentrix
Energy or, if such holder or other person is such an affiliate, will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
Each broker-dealer that receives Exchange Senior Notes for its own account
in exchange for Old Senior Notes, where such Old Senior Notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Senior Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Senior Notes
received in exchange for Old Senior Notes where such Old Senior Notes were
acquired by such broker-dealer as result of market-making activities or other
trading activities. Cogentrix Energy has agreed that, for a period of 180 days
after consummation of the Exchange Offer, it will make this Prospectus, as it
may be amended or supplemented from time to time, available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Senior Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old Senior Notes to Cogentrix Energy and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Old Senior Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, sell, assign and transfer the Old
Senior Notes and to acquire Exchange Senior Notes issuable upon the exchange of
such tendered Old Senior Notes, and that, when the same are accepted for
exchange, Cogentrix Energy will acquire good, marketable and unencumbered title
to the tendered Old Senior Notes, free and clear of all liens, restrictions,
changes and encumbrances and not subject to any adverse claims or proxies. The
25
<PAGE> 30
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or Cogentrix Energy to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Senior Notes or transfer ownership of such Old Senior Notes on the
account books maintained by a book-entry transfer facility. The Transferor
agrees it will comply with its obligations under the Registration Agreement and
further agrees that acceptance of any tendered Old Senior Notes by Cogentrix
Energy and the issuance of Exchange Senior Notes in exchange therefor shall
constitute performance in full by Cogentrix Energy of certain of its obligations
under the Registration Agreement. All authority conferred by the Transferor will
survive the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
The Transferor certifies that (i) it is not an "affiliate" of Cogentrix
Energy within the meaning of Rule 405 under the Securities Act, (ii) it is
acquiring the Exchange Senior Notes offered hereby in the ordinary course of
such Transferor's business, (iii) it is not engaged in and does not intend to
engage in a distribution of the Exchange Senior Notes and (iv) that such
Transferor has no arrangement with any person to participate in the distribution
of such Exchange Senior Notes. Each Transferor which is a broker-dealer
receiving Exchange Senior Notes for its own account must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Senior
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Exchange
Senior Notes received in exchange for Old Senior Notes where such Old Senior
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Cogentrix Energy will, for a period of
180 days after the Expiration Date, make copies of this Prospectus available to
any broker-dealer for use in connection with any such resale.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Senior Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Old Senior Notes in the Exchange Offer, a written
or facsimile transmission (receipt confirmed by telephone) notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Senior Notes to be withdrawn (the "Depositor"), (ii) identify the Old Senior
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Senior Notes or, in the case of Old Senior Notes transferred
by book-entry transfer, the name and number of the account at DTC to be
credited), (iii) include a statement that such holder is withdrawing his
election to have such Old Senior Notes exchanged, (iv) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Senior Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Senior Notes register the transfer of
such Old Senior Notes into the name of the Depositor withdrawing the tender and
(v) specify the name in which any such Old Senior Notes are to be registered, if
different from that of the Depositor. If the Old Senior Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the book-entry transfer facility
to be credited with the withdrawn Old Senior Notes or otherwise comply with the
book-entry transfer facility procedure. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by Cogentrix Energy, whose determination shall be final and binding
on all parties. Any Old Senior Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no Exchange Senior
Notes will be issued with respect thereto unless the Old Senior Notes so
withdrawn are validly retendered. Any Old Senior Notes which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Senior
Notes may be
26
<PAGE> 31
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Senior Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Senior Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Old Senior Notes tendered by book-entry transfer into the Exchange
Agent's account at the book-entry transfer facility pursuant to the book-entry
transfer procedures described above, such Old Senior Notes will be credited to
an account with such book-entry transfer facility specified by the holder) as
soon as practicable after withdrawal, rejection, of tender or termination of the
Exchange Offer. Properly withdrawn Old Senior Notes may be retendered by
following the procedures described under "-- Procedures for Tendering" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF OLD SENIOR NOTES; DELIVERY OF EXCHANGE SENIOR NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Cogentrix Energy will accept, promptly on the Expiration Date, all Old Senior
Notes properly tendered and will issue the Exchange Senior Notes promptly after
such acceptance. See "-- Conditions" below. For purposes of the Exchange Offer,
Cogentrix Energy shall be deemed to have accepted properly tendered Old Senior
Notes for exchange when, as and if Cogentrix Energy has given oral or written
notice thereof to the Exchange Agent.
For each Old Senior Note accepted for exchange, the holder of such Old
Senior Note will receive an Exchange Senior Note having a principal amount equal
to that of the surrendered Old Senior Note.
In all cases, issuance of Exchange Senior Notes for Old Senior Notes that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Senior Notes
or a timely book-entry confirmation of such Old Senior Notes into the Exchange
Agent's account at the book-entry transfer facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Senior Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Senior Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Senior Notes will be returned without expense to the tendering
holder thereof (or, in the case of Old Senior Notes tendered by book-entry
transfer into the Exchange Agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such
non-exchanged Old Senior Notes will be credited to an account maintained with
such book-entry transfer facility) as promptly as practicable after the
expiration of the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Cogentrix Energy will
not be required to accept for exchange, or exchange, any Exchange Senior Notes
for any Old Senior Notes, and may terminate or amend the Exchange Offer before
the acceptance of any Old Senior Notes for exchange, if the Exchange Offer
violates any applicable law or interpretation by the staff of the Commission.
If Cogentrix Energy determines in its sole discretion that the foregoing
condition exists, Cogentrix Energy may (i) refuse to accept any Old Senior Notes
and return all tendered Old Senior Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Senior Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders who
tendered such Old Senior Notes to withdraw their tendered Old Senior Notes, or
(iii) waive such condition, if permissible, with respect to the Exchange Offer
and accept all properly tendered Old Senior Notes which have not been withdrawn.
If such waiver constitutes a material change to the Exchange Offer, Cogentrix
Energy will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the holders, and Cogentrix Energy will extend the
Exchange Offer as required by applicable law.
27
<PAGE> 32
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Senior Notes
should be directed to the Exchange Agent addressed as follows:
By Registered, Certified or Overnight Mail: Facsimile:
First Union National Bank 704-590-7628
Corporate Trust Department
1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153
Attention: Laura Richardson
By Hand: Telephone Number:
First Union National Bank 704-590-7414
Corporate Trust Department
1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153
Attention: Laura Richardson
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Cogentrix Energy. The principal solicitation for tenders pursuant to
the Exchange Offer is being made by mail. Additional solicitations may be made
by officers and regular employees of Cogentrix Energy and its affiliates in
person, by telephone or facsimile.
Cogentrix Energy has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. Cogentrix Energy, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. Cogentrix Energy may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Old Senior Notes, and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and expenses, will be paid by Cogentrix Energy.
Cogentrix Energy will pay all transfer taxes, if any, applicable to the
exchange of Old Senior Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Senior Notes (or Old Senior Notes for
principal amounts not tendered or accepted for exchange) are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Old Senior Notes tendered, or if tendered Old Senior
Notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Senior Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
28
<PAGE> 33
ACCOUNTING TREATMENT
The Exchange Senior Notes will be recorded at the carrying value of the Old
Senior Notes as reflected in Cogentrix Energy's accounting records on the date
of the exchange. Accordingly, Cogentrix Energy will not recognize any gain or
loss for accounting purposes upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by Cogentrix Energy over the
term of the Exchange Senior Notes under generally accepted accounting
principles.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Senior Notes who do not exchange their Old Senior Notes for
Exchange Senior Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Senior Notes as set forth in the
legend thereon. Old Senior Notes not exchanged pursuant to the Exchange Offer
will continue to remain outstanding in accordance with their terms. In general,
the Old Senior Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Cogentrix
Energy does not currently anticipate that it will register the Old Senior Notes
under the Securities Act.
Participation in the Exchange Offer is voluntary, and holder of Old Senior
Notes should carefully consider whether to participate. Holders of Old Senior
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Senior Notes pursuant to the terms of, this Exchange Offer,
Cogentrix Energy will have fulfilled a covenant contained in the Registration
Agreement. Holders of Old Senior Notes who do not tender their Old Senior Notes
in the Exchange Offer will continue to hold such Old Senior Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except for any such rights under the Registration Agreement that by
their terms terminate or cease to have further effectiveness as a result of the
making of this Exchange Offer. All untendered Old Senior Notes will continue to
be subject to the restrictions on transfer set forth in the Indenture. See
"Transfer Restrictions." To the extent that Old Senior Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Old Senior
Notes could be adversely affected.
Cogentrix Energy may in the future seek to acquire, subject to the terms of
the Indenture, untendered Old Senior Notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise.
Cogentrix Energy has no present plan to acquire any Old Senior Notes which are
not tendered in the Exchange Offer.
29
<PAGE> 34
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain selected consolidated financial
information as of June 30, 1998 and for the six-month periods ended June 30,
1997 and 1998, as of December 31, 1997 and for the six-month periods ended
December 31, 1996 and 1997 and each of the five fiscal years in the period ended
June 30, 1997, which should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The selected consolidated financial information as of and for the six-month
period ended December 31, 1997 and each of the five fiscal 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. The information for the six-month period ended
December 31, 1996, the six-month periods ended June 30, 1997 and 1998 and as of
June 30, 1998 has been derived from the Company's unaudited consolidated
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the consolidated financial position and consolidated results of operations for
these periods. The unaudited interim consolidated results of operations are not
necessarily indicative of the consolidated results of operations for any other
interim period or for any fiscal year as a whole.
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 SIX-MONTH
PERIODS ENDED PERIODS ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------------------- -------------------
1993 1994 1995 1996 1997 1996 1997 1997 1998
-------- -------- -------- -------- -------- ----------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue:
Electric.................. $338,645 $351,892 $357,674 $356,459 $315,203 $162,909 $154,810 $152,294 $146,368
Steam..................... 22,637 22,254 23,320 27,703 26,686 13,284 12,721 13,402 13,705
Lease revenue............. 0 0 0 0 0 0 0 0 12,433
Service revenue under
sales-type capital
leases.................. 0 0 0 0 0 0 0 0 13,252
Income from unconsolidated
investments in power
projects................ 0 0 1,116 3,862 574 348 1,186 226 1,797
Other..................... 1,037 1,939 2,992 22,522 10,343 4,608 9,229 5,735 7,301
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
revenue........... 362,319 376,085 385,102 410,546 352,806 181,149 177,946 171,657 194,856
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Operating costs........... 236,568 239,225 235,006 245,582 204,446 108,348 93,689 96,098 71,196
Cost of services under
sales-type capital
leases.................. 0 0 0 0 0 0 0 0 15,339
General, administrative
and development......... 25,116 26,664 30,499 29,983 39,425 16,017 18,242 23,408 19,152
Depreciation and
amortization............ 28,851 36,290 37,642 37,842 40,047 18,610 20,407 21,345 20,615
Loss on impairment and
cost of removal of
cogeneration
facilities.............. 0 0 0 0 65,628 65,628 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.......... 290,535 302,179 303,147 313,407 349,546 208,603 132,338 140,851 126,302
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 71,784 73,906 81,955 97,139 3,260 (27,454) 45,608 30,806 68,554
</TABLE>
30
<PAGE> 35
<TABLE>
<CAPTION>
SIX-MONTH SIX-MONTH
PERIODS ENDED PERIODS ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------------------- -------------------
1993 1994 1995 1996 1997 1996 1997 1997 1998
-------- -------- -------- -------- -------- ----------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other income (expense):
Interest expense.......... (45,479) (50,736) (59,621) (58,354) (56,328) (28,144) (25,680) (28,184) (33,085)
Investment and other
income.................. 4,110 4,335 8,269 7,478 13,184 7,729 4,334 5,455 3,865
Equity in net income
(loss) of affiliates,
net..................... 0 (650) 8,696 (1,758) (813) (1,088) (1,813) 183 (85)
Minority interests in income
before extraordinary
loss...................... (2,514) (3,089) (4,789) (4,749) (4,013) (1,614) (2,273) (2,399) (5,613)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes, extraordinary gain
(loss) and cumulative
effect of change in
accounting principle...... 27,901 23,766 34,510 39,756 (44,710) (50,571) 20,176 5,861 33,636
Benefit (provision) for
income taxes.............. (11,508) (9,307) (13,337) (15,961) 17,112 18,895 (7,971) (1,783) (13,405)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gain (loss)
and cumulative effect of
change in accounting
principle................. 16,393 14,459 21,173 23,795 (27,598) (31,676) 12,205 4,078 20,231
Extraordinary gain (loss) on
early extinguishment of
debt, net................. 0 3,055 0 0 (703) (703) (1,502) 0 (743)
Cumulative effect of change
in method of accounting
for income taxes.......... 0 (875) 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 16,393 $ 16,639 $ 21,173 $ 23,795 $(28,301) $(32,379) $ 10,703 $ 4,078 $ 19,488
======== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges (unaudited)(1).... 1.5x 1.4x 1.6x 1.7x .3x (.7)x 1.7x 1.2x 2.0x
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF AS OF
---------------------------------------------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------------ -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities....... $ 29,669 $118,218 $ 41,540 $ 33,351 $ 84,090 $113,951 $ 31,611
Total assets......................... 868,369 944,185 930,733 921,641 859,828 822,974 1,287,705
Project financing debt(2)............ 723,435 702,736 661,891 616,588 591,694 567,705 917,440
Parent debt(3)....................... 32,037 100,000 100,000 100,000 100,000 100,000 130,000
Total shareholders' equity........... 33,725 46,560 63,618 83,010 49,709 58,298 77,760
</TABLE>
<TABLE>
<CAPTION>
SIX-MONTH SIX-MONTH
FISCAL YEARS ENDED JUNE 30, PERIOD ENDED PERIOD ENDED
----------------------------------------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED)(4):
Parent EBITDA........................... $24,029 $33,603 $31,068 $34,271 $59,854 $35,388 $28,086
Parent Fixed Charges.................... 3,328 3,261 8,530 8,472 8,222 4,203 4,295
Parent EBITDA/Parent Fixed Charges...... 7.2x 10.3x 3.6x 4.0x 7.3x 8.4x 6.5x
</TABLE>
- ---------------
(1) For purposes of this ratio, earnings include income before taxes,
extraordinary gain (loss) and cumulative effect of change in accounting
principle and fixed charges excluding capitalized interest. Fixed charges
include interest, whether capitalized or expensed, amortization of deferred
financing costs and interest elements of rentals.
(2) Project financing debt with respect to each of the Company's facilities is
"substantially non-recourse" to Cogentrix Energy 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.
(3) Parent debt represents obligations of Cogentrix Energy only and does not
include non-recourse obligations of the Company's project subsidiaries.
(4) Parent EBITDA represents cash flow to Cogentrix Energy prior to debt service
and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of certain subsidiaries' indebtedness. Parent EBITDA is presented
here not as a measure of operating results, but rather as a measure of
Cogentrix Energy's ability to service debt. Parent EBITDA should not be
construed as an alternative either (i) to operating income (determined in
accordance with generally accepted accounting principles) or (ii) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles).
31
<PAGE> 36
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated condensed balance sheet as
of June 30, 1998 gives effect to the following transactions as if such
transactions had occurred on June 30, 1998: (i) the BGCI Acquisition and (ii)
the sale of the Senior Notes and the application of the net proceeds therefrom.
The following unaudited pro forma consolidated condensed statements of
operations for the six-month periods ended June 30, 1998 and December 31, 1997
and for the twelve-month period ended June 30, 1997 give effect to the following
transactions as if such transactions had occurred on July 1, 1996: (i) the LS
Power Acquisition, (ii) the BGCI Acquisition and (iii) the sale of the Senior
Notes and the application of the net proceeds therefrom.
The pro forma consolidated financial data and accompanying notes should be
read in conjunction with the Company's consolidated financial statements and
related notes thereto contained in the Company's Report on Form 10-K for the
six-month transition period ended December 31, 1997. The pro forma adjustments
are based upon available information and certain assumptions that management
believes are reasonable and are described in the notes accompanying the pro
forma consolidated financial data. The pro forma consolidated financial data is
presented for informational purposes only and does not purport to represent what
the Company's consolidated results of operations or financial position would
actually have been had such transactions in fact occurred at such dates, or to
project the Company's consolidated results of operations or financial position
at any future date or for any future period. In the opinion of management, all
adjustments necessary to present fairly such pro forma consolidated financial
data have been made.
References to the "Partnerships" in the notes accompanying the pro forma
consolidated financial data mean Logan Generating Company, L.P., Northampton
Generating Company, L.P., Chambers Cogeneration Limited Partnership and
Scrubgrass Generating Company, L.P., collectively. References to the "Holding
Companies" mean Palm Power Corporation, Hickory Power Corporation, Birch Power
Corporation and Panther Creek Leasing, Inc., collectively. References to "Beale"
mean Beale Generating Company (formerly J. Makowski Company, Inc.). For further
information regarding specific projects that are referenced in the notes, see
"Business -- BGCI Acquisition."
32
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS FOR
THE BGCI THE SALE OF
ACTUAL (1) ACQUISITION SENIOR NOTES PRO FORMA
---------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 31,611 $(191,103)(2) $193,858(7) $ 34,366
Restricted cash........................... 50,840 -- -- 50,840
Accounts receivable....................... 62,247 144(3) -- 62,391
Other current assets...................... 22,519 -- -- 22,519
---------- --------- -------- ----------
Total current assets.............. 167,217 (190,959) 193,858 170,116
PROPERTY, PLANT AND EQUIPMENT, NET.......... 488,186 -- -- 488,186
LAND AND IMPROVEMENTS....................... 2,540 -- -- 2,540
DEFERRED FINANCING, START-UP AND
ORGANIZATION COSTS, NET................... 31,414 -- 4,575(8) 35,989
NET INVESTMENT IN LEASE..................... 497,332 -- -- 497,332
NATURAL GAS RESERVES........................ 1,958 -- -- 1,958
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.... 77,503 183,115(4) -- 260,618
OTHER ASSETS................................ 21,555 25,093(5) -- 46,648
---------- --------- -------- ----------
$1,287,705 $ 17,249 $198,433 $1,503,387
========== ========= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......... $ 84,493 $ -- $ -- $ 84,493
Other current liabilities................. 47,585 -- -- 47,585
---------- --------- -------- ----------
Total current liabilities......... 132,078 -- -- 132,078
LONG-TERM DEBT.............................. 964,820 198,433(9) 1,163,253
DEFERRED INCOME TAXES....................... 32,064 10,663(6) -- 42,727
MINORITY INTERESTS.......................... 56,752 -- -- 56,752
OTHER LONG-TERM LIABILITIES................. 24,231 6,586(3) -- 30,817
---------- --------- -------- ----------
1,209,945 17,249 198,433 1,425,627
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares
authorized; 282,000 shares issued and
outstanding............................ 130 -- -- 130
Accumulated earnings...................... 77,630 -- -- 77,630
---------- --------- -------- ----------
77,760 -- -- 77,760
---------- --------- -------- ----------
$1,287,705.. $ 17,249 $198,433 $1,503,387
========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated condensed balance sheet.
33
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
The Company is accounting for the BGCI Acquisition using the purchase method of
accounting.
(1) This column represents the Company's historical consolidated condensed
balance sheet as of June 30, 1998 which reflects the LS Power Acquisition as
such acquisition was consummated on March 20, 1998.
(2) Represents cash outflows used to fund (i) the BGCI Acquisition purchase
price, which is subject to adjustment either upward or downward based on the
final determination of the "Net Unrestricted Cash Differential" as defined
in the Purchase Agreement, dated as of March 6, 1998, between Cogentrix
Energy and BGCI and (ii) related transaction costs.
(3) Represents the historical assets and liabilities of the Holding Companies,
which hold BGCI's ownership interests in the Indiantown, Morgantown and
Gilberton project partnerships and the undivided lessor interest in Panther
Creek. The Company will acquire 100% of the outstanding common stock of the
Holding Companies in connection with the BGCI Acquisition. Cash balances and
current liability balances as of June 30, 1998 of certain of the Holding
Companies have not been reflected in the accompanying pro forma balance
sheet due to the expected distribution of such cash and satisfaction of such
liabilities prior to consummation of the BGCI Acquisition.
(4) Represents the Company's equity investment in the Partnerships and Beale as
well as equity investments of the Holding Companies. Investments in
affiliates include purchase price premiums or discounts resulting from the
difference between the BGCI Acquisition purchase price inclusive of the
related acquisition costs and the net assets acquired and, in certain
circumstances, related deferred tax effects.
(5) Represents a receivable related to the Company's investment in Cedar Bay and
an investment in a leveraged lease.
(6) Reflects the deferred tax effects of the BGCI Acquisition.
(7) Represents cash proceeds from the sale of $220 million aggregate principal
amount of Senior Notes by Cogentrix Energy, net of (i) the original issue
discount on the Senior Notes, (ii) issuance costs associated with the
offering of the Senior Notes and (iii) settlement costs for an interest rate
hedge agreement related to the offering of the Senior Notes.
(8) Represents issuance costs associated with the Senior Notes.
(9) Represents the issuance of $220 million aggregate principal amount of Senior
Notes by Cogentrix Energy, net of the original issue discount and net of
deferred settlement costs for an interest rate hedge agreement associated
with the Senior Notes.
34
<PAGE> 39
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER COMMON SHARE)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS FOR ADJUSTMENTS FOR
LS POWER BGCI SALE OF
ACTUAL ACQUISITION(1) ACQUISITION SENIOR NOTES PRO FORMA
-------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric............................. $146,368 $ -- $ -- $ -- $146,368
Steam................................ 13,705 -- -- -- 13,705
Lease revenue........................ 12,433 9,793 -- -- 22,226
Service revenue under sales-type
capital leases..................... 13,252 8,561 -- -- 21,813
Income from unconsolidated
investments in power projects...... 1,797 -- 9,725(4) -- 11,522
Other................................ 7,301 1,056 791(5) -- 9,148
-------- ------- ------- ------- --------
194,856 19,410 10,516 -- 224,782
-------- ------- ------- ------- --------
OPERATING EXPENSES:
Fuel expense......................... 38,924 -- -- -- 38,924
Operations and maintenance........... 32,272 149 -- -- 32,421
General, administrative and
development expenses............... 19,152 -- 308(5) -- 19,460
Depreciation and amortization........ 20,615 72 (118)(5) 229(6) 20,798
Cost of services under sales-type
capital leases..................... 15,339 10,601 -- -- 25,940
-------- ------- ------- ------- --------
126,302 10,822 190 229 137,543
-------- ------- ------- ------- --------
OPERATING INCOME....................... 68,554 8,588 10,326 (229) 87,239
OTHER INCOME (EXPENSE):
Interest expense..................... (33,085) (6,790)(2) -- (10,607)(8) (50,482)
Investment and other income, net..... 3,865 (738)(3) 396(5) -- 3,523
Equity in net loss of affiliates,
net................................ (85) -- -- -- (85)
-------- ------- ------- ------- --------
INCOME BEFORE MINORITY INTERESTS IN
INCOME, INCOME TAXES AND
EXTRAORDINARY LOSS................... 39,249 1,060 10,722 (10,836) 40,195
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS................... (5,613) (890) -- -- (6,503)
-------- ------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS................... 33,636 170 10,722 (10,836) 33,692
PROVISION FOR INCOME TAXES............. (13,405) (66) (7) (4,279)(7) 4,323(7) (13,427)
-------- ------- ------- ------- --------
INCOME BEFORE EXTRAORDINARY LOSS....... 20,231 104 6,443 (6,513) 20,265
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, net of
minority interest and income tax
benefit.............................. (743) -- -- -- (743)
-------- ------- ------- ------- --------
NET INCOME............................. $ 19,488 $ 104 $ 6,443 $(6,513) $ 19,522
======== ======= ======= ======= ========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss..... $ 71.74 $ 71.86
Extraordinary loss................... (2.63) (2.63)
-------- --------
$ 69.11 $ 69.23
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 282,000 282,000
======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated condensed statement of operations.
35
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER COMMON SHARE)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS FOR ADJUSTMENTS FOR
LS POWER BGCI SALE OF
ACTUAL ACQUISITION(1) ACQUISITION SENIOR NOTES PRO FORMA
-------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric............................. $154,810 $ -- $ -- $ -- $154,810
Steam................................ 12,721 -- -- -- 12,721
Lease revenue........................ -- 11,844 -- -- 11,844
Service revenue under sales-type
capital leases..................... -- 10,823 -- -- 10,823
Income from unconsolidated
investments in power projects...... 1,186 -- 5,450(4) -- 6,636
Other................................ 9,229 1,419 1,225(5) -- 11,873
-------- ------- ------- ------- --------
177,946 24,086 6,675 -- 208,707
-------- ------- ------- ------- --------
OPERATING EXPENSES:
Fuel expense......................... 60,500 -- -- -- 60,500
Operations and maintenance........... 33,189 799 -- -- 33,988
General, administrative and
development expenses............... 18,242 -- 439(5) -- 18,681
Depreciation and amortization........ 20,407 93 (118)(5) 229(6) 20,611
Cost of services under sales-type
capital leases..................... -- 12,799 -- -- 12,799
-------- ------- ------- ------- --------
132,338 13,691 321 229 146,579
-------- ------- ------- ------- --------
OPERATING INCOME....................... 45,608 10,395 6,354 (229) 62,128
OTHER INCOME (EXPENSE):
Interest expense..................... (25,680) (9,356)(2) -- (10,607)(8) (45,643)
Investment and other income, net..... 4,334 (2,322)(3) 881(5) -- 2,893
Equity in net loss of affiliates,
net................................ (1,813) -- -- -- (1,813)
-------- ------- ------- ------- --------
INCOME BEFORE MINORITY INTERESTS IN
INCOME, INCOME TAXES AND
EXTRAORDINARY LOSS................... 22,449 (1,283) 7,235 (10,836) 17,565
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS................... (2,273) (1,085) -- -- (3,358)
-------- ------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS................... 20,176 (2,368) 7,235 (10,836) 14,207
PROVISION FOR INCOME TAXES............. (7,971) 936(7) (2,886)(7) 4,291(7) (5,610)
-------- ------- ------- ------- --------
INCOME BEFORE EXTRAORDINARY LOSS....... 12,205 (1,432) 4,369 (6,545) 8,597
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, net of
minority interest and income tax
benefit.............................. (1,502) -- -- -- (1,502)
-------- ------- ------- ------- --------
NET INCOME............................. $ 10,703 $(1,432) $ 4,369 $(6,545) $ 7,095
======== ======= ======= ======= ========
EARNINGS PER COMMON SHARE:
Loss before extraordinary loss....... $ 43.28 $ 30.49
Extraordinary loss................... (5.33) (5.33)
-------- --------
$ 37.95 $ 25.16
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 282,000 282,000
======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated condensed statement of operations.
36
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER COMMON SHARE)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS FOR ADJUSTMENTS FOR
LS POWER BGCI SALE OF
ACTUAL ACQUISITION(1) ACQUISITION SENIOR NOTES PRO FORMA
-------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric............................. $315,203 $ -- $ -- $ -- $ 315,203
Steam................................ 26,686 -- -- -- 26,686
Lease revenue........................ -- -- -- -- --
Service revenue under sales-type
capital leases..................... -- -- -- -- --
Income from unconsolidated
investments in power projects...... 574 -- 15,031(4) -- 15,605
Other................................ 10,343 -- 2,490(5) -- 12,833
-------- ------- ------- -------- ---------
352,806 -- 17,521 -- 370,327
-------- ------- ------- -------- ---------
OPERATING EXPENSES:
Fuel expense......................... 131,405 -- -- -- 131,405
Operations and maintenance........... 73,041 -- -- -- 73,041
General, administrative and
development expenses............... 39,425 -- 640(5) -- 40,065
Depreciation and amortization........ 40,047 -- (236)(5) 458(6) 40,269
Cost of services under sales-type
capital leases..................... -- -- -- -- --
Loss on impairment and cost of
removal............................ 65,628 -- -- -- 65,628
-------- ------- ------- -------- ---------
349,546 -- 404 458 350,408
-------- ------- ------- -------- ---------
OPERATING INCOME....................... 3,260 -- 17,117 (458) 19,919
OTHER INCOME (EXPENSE):
Interest expense..................... (56,328) (4,347)(9) -- (21,215)(8) (81,890)
Investment and other income, net..... 13,184 (5,585)(10) 327(5) -- 7,926
Equity in net loss of affiliates,
net................................ (813) -- -- -- (813)
-------- ------- ------- -------- ---------
LOSS BEFORE MINORITY INTERESTS IN
INCOME, INCOME TAXES AND
EXTRAORDINARY LOSS................... (40,697) (9,932) 17,444 (21,673) (54,858)
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS................... (4,013) -- -- -- (4,013)
-------- ------- ------- -------- ---------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS................... (44,710) (9,932) 17,444 (21,673) (58,871)
BENEFIT FOR INCOME TAXES............... 17,112 3,923(7) (6,681)(7) 8,301(7) 22,655
-------- ------- ------- -------- ---------
LOSS BEFORE EXTRAORDINARY LOSS......... (27,598) (6,009) 10,763 (13,372) (36,216)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, net of
minority interest and income tax
benefit.............................. (703) -- -- -- (703)
-------- ------- ------- -------- ---------
NET LOSS............................... $(28,301) $(6,009) $10,763 $(13,372) $ (36,919)
======== ======= ======= ======== =========
EARNINGS PER COMMON SHARE:
Loss before extraordinary loss....... $ (97.87) $ (128.43)
Extraordinary loss................... (2.49) (2.49)
-------- ---------
$(100.36) $ (130.92)
======== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 282,000 282,000
======== =========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated condensed statement of operations.
37
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
The Company is accounting for the BGCI Acquisition using the purchase method of
accounting.
(1) The pro forma adjustments for the LS Power Acquisition consist of (i)
recognition of the operating results of the LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership (the "LS Power Partnerships") for the
respective periods, (ii) the minority partner's interest in the net income
of the LS Power Partnerships for the respective periods, (iii) the
Company's cost of funds utilized to fund the purchase price of the LS Power
Acquisition, (iv) amortization of goodwill resulting from the LS Power
Acquisition and (v) the tax effect of the pro forma adjustments using the
Company's effective tax rate for the respective period. The pro forma
consolidated condensed statement of operations for the six-month period
ended December 31, 1997 and the twelve-month period ended June 30, 1997 do
not give effect to a full period of operating results of the acquired
facilities since the Whitewater Facility and the Cottage Grove Facility did
not commence commercial operations until September 18, 1997 and October 1,
1997, respectively. In addition, the pro forma adjustments for the
six-month period ended December 31, 1997 do not include a gain on
sales-type capital leases recorded for the Whitewater and Cottage Grove
Facilities at their respective commercial operation dates. These gains are
non-recurring items which will not have a continuing impact on the
statement of operations.
(2) Reflects the recognition of interest expense on Cottage Grove and
Whitewater's non-recourse project financing debt in addition to the
recognition of interest expense on the additional borrowings of the Company
used to finance a portion of the LS Power Acquisition purchase price and
related acquisition costs. These additional borrowings included $50,000,000
of indebtedness incurred by the Company under the Corporate Credit Facility
and $20,000,000 of indebtedness incurred under the CVLC Revolving Credit
Facility. Interest expense on the additional borrowings is computed using a
blended interest rate of approximately 6.4%. The Whitewater and Cottage
Grove Facilities capitalized interest costs through the commercial
operation dates of the facilities on September 18, 1997 and October 1,
1997, respectively.
(3) Reflects a reduction in the Company's investment income for the period as a
result of the utilization of cash and marketable securities to fund a
portion of the LS Power Acquisition purchase price and related acquisition
costs, partially offset by other income recognized by Cottage Grove and
Whitewater. The reduction in investment income is computed using an
investment yield of approximately 5.7%.
(4) Represents the Company's equity earnings from (i) the Partnerships, (ii)
Beale and (iii) Indiantown, Gilberton and Morgantown (the equity investees
of the Holding Companies). Equity earnings from affiliates is shown net of
amortization of purchase price premiums or discounts resulting from the
difference between the Company's purchase price inclusive of the related
acquisition costs and the net assets acquired and, in certain
circumstances, related deferred tax effects. These premiums or discounts
will be amortized over the remaining life of the facilities or over the
remaining term of the PPA using July 1, 1996 as the measurement date for
estimated remaining life or remaining term.
(5) Represents operating results of the Holding Companies.
(6) Represents amortization of issuance costs associated with the issuance of
the Senior Notes that are capitalized and amortized over the ten-year life
of the Senior Notes.
(7) Represents the income tax effect of the pro forma adjustments using the
Company's historical effective tax rate for the periods presented.
(8) Represents the recognition of interest expense on the issuance of the
Senior Notes and the amortization of deferred settlement costs on an
interest rate hedge agreement related to the Senior Notes. Interest expense
is only recognized on the portion of the proceeds of the Senior Notes used
to fund the BGCI Acquisition purchase price, related acquisition costs,
issuance costs associated with the Senior Notes and settlement costs for an
interest rate hedge agreement related to the Senior Notes. The settlement
costs related to the interest rate hedge agreement are deferred and
amortized over the term of the Senior Notes.
38
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS -- (CONTINUED)
(9) Reflects the recognition of interest expense on the additional borrowings
of the Company used to fund the LS Power Acquisition purchase price and
related acquisition costs at a blended interest rate of approximately 6.2%.
(See Note 2.)
(10) Reflects a reduction in the Company's investment income for the period as a
result of the utilization of cash and marketable securities to fund a
portion of the LS Power Acquisition purchase price and related acquisition
costs. The reduction in investment income is computed using an investment
yield of approximately 5.3%.
39
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the acquisition, development, ownership, and
operation of electric generating facilities and the sale of electricity and
steam in the United States and selected international markets. At December 31,
1997, the Company owned (entirely or in part) 11 electric generating facilities
having an aggregate generating capacity of 1,140 megawatts. In March 1998, the
Company acquired ownership interests in two gas-fired electric generating
facilities in the Midwest United States having an aggregate generating capacity
of 490 megawatts. In October 1998, the Company acquired BGCI's ownership
interests in 12 electric generating facilities, comprising an aggregate
generating capacity of approximately 2,400 megawatts. As the result of the LS
Power Acquisition and the BGCI Acquisition, the Company's net equity interest in
electric generating facilities in operation is approximately 1,690 megawatts, an
increase from a net equity interest of 850 megawatts in 1994.
Each of the Company's electric generating 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. 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 electric generating facility. Over the last two years, the
Company has negotiated amendments to 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 so that the Company continues to receive capacity
payments during any period of economic dispatch. Capacity payments cover project
debt service and 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 "Business -- Legal Proceedings" herein.
The power sales agreements at seven of the Company's facilities 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. The Company believes, however, that
its project subsidiaries and unconsolidated affiliates will generate sufficient
cash flow to allow them to pay management fees and dividends to Cogentrix Energy
periodically in sufficient amounts to allow Cogentrix Energy to pay all required
debt service on the 2004 Senior Notes and the Senior Notes, fund a significant
portion of the Company's development activities and permit the Company to meet
its other obligations.
The activities of the Company's electric generating facilities 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.
40
<PAGE> 45
The domestic electric generating 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. 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.
RESULTS OF OPERATIONS
Six-Month Period Ended June 30, 1998 as compared to the Six-Month Period Ended
June 30, 1997
Total operating revenues for the six-month period ended June 30, 1998
increased 13.5% to $194.9 million as compared to $171.7 million for the
six-month period ended June 30, 1997. This increase was primarily attributable
to the $25.7 million aggregate amount of lease revenue and service revenue
earned under the power sales agreements for the Cottage Grove and Whitewater
Facilities, interests in which the Company acquired on March 20, 1998. This
increase was partially offset by a decrease in electric revenues resulting from
the restructuring of the Company's power sales agreements on the Portsmouth
Facility in December 1997 and the Hopewell Facility in February 1998 to give the
purchasing utility the right to suspend or reduce purchases of energy from these
facilities. To a lesser extent, the increase in operating revenues for the
six-month period ended June 30, 1998 was partially attributable to an increase
in electric revenues earned by the Richmond and Rocky Mount Facilities as a
result of an increase in megawatt hours sold to the purchasing utility.
Operating costs for the six-month period ended June 30, 1998 decreased 10%
to $86.5 million as compared to $96.1 million for the six-month period ended
June 30, 1997. This decrease resulted primarily from the significant reduction
in operating costs at the Portsmouth and Hopewell Facilities associated with the
restructuring of their power sales agreements. The decrease also related to
decreases in operating costs incurred by ReUse related to third-party
agreements. These decreases in operating costs were mainly offset by cost of
services incurred by the Cottage Grove and Whitewater Facilities. To a lesser
extent, the decreases in operating costs for the six-month period ended June 30,
1998 were also offset by an increase in fuel expense at the Richmond and Rocky
Mount Facilities associated with an increase in megawatt hours sold and an
increase in routine maintenance expense at the Rocky Mount and Richmond
Facilities.
General, administrative and development expenses decreased 18.2% to $19.2
million for the six-month period ended June 30, 1998 as compared to $23.4
million for the six-month period ended June 30, 1997. This decrease was
primarily the result of $10.7 million of expense recognized during the six-month
period ended June 30, 1997 related to the restructuring or terminating of
incentive compensation arrangements for certain employees as well as expenses
incurred related to severance payments to certain executive officers. The
decrease was also due to a general decrease in salary expense during the
six-month period ended June 30, 1998 as a result of a restructuring completed by
the Company in the prior year. These decreases were partially offset by
increases in incentive compensation expense related to an increase in payments
due under the Company's profit sharing plan as a result of the increase in the
Company's profitability for the six-month period ended June 30, 1998. The
Company also recognized expense in the second quarter of 1998 related to the
restructuring of a retirement plan agreement with a former executive officer.
Interest expense increased to $33.1 million for the six-month period ended
June 30, 1998 as compared to $28.2 million for the six-month period ended June
30, 1997. The Company's average long-term debt increased to $860 million, with a
weighted average interest rate of 7.70%, for the six-month period ended June 30,
as compared to average long-term debt of $716 million, with a weighted average
interest rate of 7.87%, for the six-month period ended June 30, 1997. The
increases in interest expense and weighted average debt outstanding are related
to the inclusion of the project finance debt of the Cottage Grove and Whitewater
Facilities and the increase in project finance debt outstanding at the
Portsmouth Facility, which was refinanced in December 1997, and the Hopewell
Facility, which was refinanced in February 1998. The
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<PAGE> 46
increases also related to outstanding borrowings under the Corporate Credit
Facility at the end of the first quarter of 1998, which were incurred to fund a
portion of the LS Power Acquisition. The increases in interest expense discussed
above were partially offset by a decrease in interest expense at several of the
Company's project subsidiaries due to the scheduled amortization of outstanding
project finance debt. The decrease in weighted average interest rate related
primarily to the expiration of an interest rate swap agreement on the Richmond
Facility's project debt in September 1997.
The increase in minority interest in income for the six-month period ended
June 30, 1998 as compared to the six-month period ended June 30, 1997 relates to
the recognition of the minority partner's share of earnings in the Cottage Grove
and Whitewater Facilities and an increase in earnings at the Hopewell Facility
as a result of that facility's restructured power sales agreement.
The extraordinary loss on early extinguishment of debt for the six-month
period ended June 30, 1998 related to the refinancing of the Hopewell Facility's
project debt in January 1998. The loss consisted of a write-off of the deferred
financing costs on the Hopewell Facility's original debt and a swap termination
fee on an interest rate swap agreement hedging the original project debt.
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 Carolina Power &
Light Company ("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 generating 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 electric generating facilities that 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 electric generating facilities 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 a reduction 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 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
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<PAGE> 47
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 projected operating results for all of its facilities in
light of the dramatic market changes taking place in the electric generating
industry. As a result of this analysis, the Company recorded a loss on
impairment of cogenerating 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
was due to the Company's recognition of 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 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 regularly scheduled repayments of principal on 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's recognition of 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 (i) not yet in commercial operation, (ii) had just started
commercial operation or (iii) for the six-month period ended December 31, 1996,
not yet an investment interest of the Company. 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 was 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 decrease in the amount of project
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<PAGE> 48
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 was 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
generating 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 $1.0 million decrease in
electric revenue at the Richmond Facility 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 electric
generating facilities, which was primarily attributable to the Company's sale of
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 was 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, an
increase in operating costs incurred by ReUse related to third-party agreements
and expense incurred by ReUse associated with a payment due to a deceased
officer's beneficiary in fiscal 1997.
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<PAGE> 49
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 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, and a general reduction in
consulting expenses related to development.
During fiscal 1997, the Company undertook an analysis of the projected
operating results for all of its facilities in light of the dramatic market
changes in the electric generating 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 a comparison of 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 cogenerating facilities of $57.3 million
(recorded in fiscal 1997) represented the excess of the net book value of these
cogenerating facilities over their current fair value, determined by discounting
to present value the 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 projected operating results for all of its
facilities 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 projected operating results for its cogenerating 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 was 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 regularly scheduled payments of principal on 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 of an investment (discussed below) during fiscal 1997.
In December 1996, the Company sold its investment in Bolivian Power to
Holdings, pursuant to a cash tender offer which Holdings made for all
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
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<PAGE> 50
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 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.
Fiscal Year Ended June 30, 1996 as compared to Fiscal Year June 30, 1995
Total operating revenues increased $25.4 million (6.6%) in fiscal 1996 as
compared to fiscal 1995. This increase in operating revenues was primarily
attributable to the $7.5 million payment received from the utility purchasing
the electrical output of the Hopewell Facility in connection with such utility's
buydown of the Hopewell Facility's declared capacity from 100 to 88.5 megawatts,
the $5 million fee earned by the Company related to the pre-construction
development phase of an electric generating facility for Clark, and the payment
received by the Company upon the execution in July 1995 of the joint development
agreement with CLP related to the development of the Company's India project.
The increase in operating revenues for 1996 also related to the increase in
megawatt hours sold by the Elizabethtown, Kenansville, Richmond and Rocky Mount
Facilities, the 168% increase in steam revenue at the Hopewell Facility
associated with an increase in steam demand by the industrial host and the
escalation/inflation adjustment provisions in certain power sales agreements.
The increase in revenues for fiscal 1996 was partially offset by a $10.2 million
decrease in electric revenues at the Hopewell Facility related to the
significant, unscheduled maintenance performed at the facility which resulted in
a decrease in megawatt hours delivered to the purchasing utility in fiscal 1996.
Operating costs for fiscal 1996 increased 4.5% to $245.6 million as
compared to $235 million in fiscal 1995. This increase relates primarily to a
significant increase in maintenance costs at the Hopewell Facility related to
the unsecured boiler outages associated with replacing the tubing in all of the
facility boilers. The increase in operating costs also relates to routine
turbine and boiler maintenance performed at the Rocky Mount and Richmond
Facilities. The increases in operating costs were partially offset by
significant decreases in fiscal 1996 in routine maintenance costs at the
Portsmouth, Lumberton and Kenansville Facilities, at which facilities the
Company performed routine turbine and boiler maintenance during fiscal 1995.
General, administrative and development expenses decreased 1.7% to $30.0
million in fiscal 1996 as compared to $30.5 million in fiscal 1995. The decrease
for fiscal 1996 related primarily to a decrease in performance bonuses paid in
fiscal 1996, severance payments accrued in fiscal 1995 related to certain former
participants in the Company's incentive compensation plan and a buyout of an
unrelated long-term consulting agreement in fiscal 1995 related to the Ringgold
Facility. The decrease in general, administrative and development expenses for
fiscal 1996 also related to a general decrease in outside consulting expenses
associated with the Company's international development efforts, which was
partially attributable to the direct development expenses related to the India
project being shared equally with CLP commencing in July 1995. These decreases
were partially offset by an increase in the incentive compensation accrual for
fiscal 1996 due to an increase in net income before taxes, expenses associated
with the Company's deferred compensation
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<PAGE> 51
plan, which commenced in January 1995, and development expenses incurred on a
project in Idaho which commenced development in December 1994.
The 2.1% decrease in interest expense is a result of the decrease in the
weighted average debt outstanding from $782 million in fiscal 1995 to $739
million in fiscal 1996. The decrease in weighted average debt outstanding
related primarily to regularly scheduled repayments of principal on the
Company's project finance debt. The decrease in interest expense was partially
offset by an increased expense associated with an increase in the weighted
average interest rate from 7.62% in fiscal 1995 to 7.89% for fiscal 1996. This
increase in the weighted average interest rate related primarily to a new
interest rate swap agreement on the Portsmouth Facility project debt and an
increase in the interest rate floor on a certain interest rate hedge agreement
on the Richmond Facility project debt.
Investment income decreased 9.6% to $7.5 million for fiscal 1996 as
compared to fiscal 1995. This decrease related primarily to a net loss on the
sale of marketable securities of approximately $900,000 during fiscal 1996. This
decrease in investment income was partially offset by increases in investment
income associated with larger cash and investment balances maintained by the
Company during fiscal 1996 as compared to fiscal 1995.
The decrease in equity in net income of affiliates was related to the $10.7
million gain recognized during fiscal 1995 on the termination of the power sales
agreement between Consumers Power Company and Michigan Cogeneration Partners
Limited Partnership (a joint venture between the Company and Wolverine Energy,
Inc.). This decrease in equity in net income of affiliates was partially offset
by an increase in the equity in net income of affiliates associated with the
equity in net income of the Company's investment in Bolivian Power, which was
acquired in November 1994. The Company recognized approximately $3.9 million in
equity in net income of affiliates during fiscal 1996 related to Bolivian Power,
$2.3 million of which was associated with the gain recognized by Bolivian Power
on the sale of its distribution subsidiaries.
The minority interest in income of joint venture for fiscal 1996 was
similar to that recognized for the same period of fiscal 1995. However, during
fiscal 1996 the Hopewell Facility recognized a significant increase in operating
costs from the unscheduled outages associated with the boiler retubing
maintenance and from the related routine maintenance performed during these
outages. This significant increase in operating costs during fiscal 1996 was
offset by a decrease in fuel expense associated with the Hopewell Facility
operating at lower levels in fiscal 1996 and an increase in revenues associated
with the $7.5 million capacity buydown payment received from the utility
purchasing the electrical output of the Hopewell Facility in fiscal 1996.
The provision for income taxes in fiscal 1996 represented an effective rate
of 40.1% of income before income taxes as compared to an effective rate of 38.6%
of income before income taxes in fiscal 1995. This increase in the effective tax
rate related to the reduced recognition of state net operating loss
carryforwards calculated under the apportionment method in fiscal 1996. A more
complete discussion of income taxes is included in Note 7 of "Notes to
Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the six-month period
ended June 30, 1998 were generated by net income of $19.5 million, increases due
to adjustments for depreciation and amortization of $20.6 million, deferred
income taxes of $6.2 million, a write-off of deferred financing costs of $2.1
million and equity in net income (loss) of unconsolidated affiliates, net of
dividends of $1.7 million, which were partially offset by amortization of
unearned lease income, net of minimum lease payments received of $0.7 million,
minority interests in income, net of dividends, of $18.9 million and a net $14.8
million use of cash reflecting changes in other working capital assets and
liabilities. Cash flow provided by operating activities of $15.7 million,
proceeds from borrowings of $150.4 million, proceeds from the sale of marketable
securities of $42.1 million, and $12.7 million of cash escrows released were
primarily used to acquire interests in facilities of $155.3 million, purchase
property plant and equipment of $2.0 million, make investments in affiliates of
$0.1 million, repay project finance borrowings of $102.6 million, and pay
deferred financing costs of $1.0 million.
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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, a write-off of deferred financing costs of $1.4
million, minority interest in income of joint venture of $0.8 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 $0.7
million, to purchase marketable securities of $0.8 million, to make investments
in a greenhouse facility of $2.7 million, to provide $0.9 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 cogenerating 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.
The principal components of cash flow provided by operating activities for
fiscal year ended June 30, 1995 were generated by net income of $21.2 million,
increases due to adjustments for depreciation and amortization of $37.6 million,
deferred income taxes of $7.7 million, dividends received from unconsolidated
affiliates, net of equity in net income of such affiliates, of $3.8 million and
minority interest in income of joint venture of $3.7 million, net of dividends,
which were partially offset by a net $2.5 million use of cash reflecting changes
in other working capital assets and liabilities. Cash flow provided by operating
activities of $71.5 million, net proceeds from sale of marketable securities of
$1.5 million, proceeds from project finance borrowings of $1.6 million, and
$27.8 million of cash escrows released were primarily used to purchase property,
plant and equipment of $8.2 million, to fund deferred organizational and
financing costs of $0.1 million, to repay project finance borrowings of $42.5
million, to make investments in affiliates of $48.3 million and to pay a
dividends to common shareholders of $3.3 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 or the partnership interest in that project subsidiary. This
type of financing is generally referred to as "project financing." The project
financing
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debt of the Company's subsidiaries and joint ventures (aggregating $917.4
million as of June 30, 1998) is substantially non-recourse to the Company and
its other project subsidiaries, except in connection with certain transactions
where Cogentrix Energy 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 purchasing utility under power sales agreements. 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.
Any projects the Company develops in the future, and those electric
generating facilities 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 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.
As of June 30, 1998, the Company had long-term debt (including the current
portion thereof) of approximately $1 billion. With the exception of the $100
million of 2004 Senior Notes issued in March 1994 and the $30 million
outstanding under the Corporate Credit Facility, substantially all of such
indebtedness is project financing debt, a large portion of which is non-recourse
to the Company. Future annual maturities of long-term debt range from $78.3
million to $87.7 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 periodically in
sufficient amounts to allow Cogentrix Energy to pay all required debt service on
the 2004 Senior Notes and the Senior Notes and to 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.
As of June 30, 1998, the Company had $30 million of advances outstanding
and a $20 million available balance under the Corporate Credit Facility. The $30
million outstanding under the Corporate Credit Facility was utilized to fund a
portion of the purchase price related to the LS Power Acquisition. In July 1998,
the Company repaid the $30 million outstanding balance under the Corporate
Credit Facility with proceeds from borrowings under the CVLC Revolving Credit
Facility and existing corporate cash balances.
On October 29, 1998, the Company amended and restated the Corporate Credit
Facility to provide for direct advances to, or the issuance of letters of credit
for, the benefit of the Company in an amount up to $100 million. The Corporate
Credit Facility is unsecured and imposes covenants on the Company substantially
the same as the covenants contained in the Indentures as well as certain
financial condition covenants. The Company has used approximately $54 million of
the credit availability under the Corporate Credit Facility for the letter of
credit issued in connection with the Batesville Acquisition. See
"Business -- Facility Under Construction." The balance of the commitment under
the Corporate Credit Facility is available, subject to any
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limitations imposed by the covenants contained therein and in the Indentures, to
be drawn upon by the Company to repay other outstanding indebtedness or for
general corporate purposes, including equity investments in new projects or
acquisitions of existing electric generating facilities or those under
development.
In December 1997, the Company substantially completed construction of the
Clark Facility and earned a construction management fee of $4.5 million. In
August 1998, the Company earned an additional $4.3 million, which represents an
additional construction management fee of $0.5 million and the Company's share
($3.8 million) of cost savings in constructing the Clark Facility.
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 the
$40.5 million CVLC Revolving Credit Facility. The CVLC Revolving Credit Facility
is available to be drawn by the project subsidiary owning the Portsmouth
Facility at any time for general corporate purposes, including paying dividends
to Cogentrix Energy. In March 1998, the project subsidiary borrowed $20 million
under the CVLC Revolving Credit Facility and distributed such amount to
Cogentrix Energy for purposes of funding a portion of the purchase price related
to the LS Power Acquisition. In July 1998, the project subsidiary borrowed an
additional $20.5 million under the CVLC Revolving Credit Facility and
distributed such amount to Cogentrix Energy for purposes of paying down the
outstanding balance under the Corporate Credit Facility.
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 the project subsidiary owning and operating the facility, and
extended the final maturity date of the loan by six months. The project
subsidiary transferred substantially all of the additional funds borrowed (net
of transaction costs) to its partners. The distribution received by Cogentrix
Energy related to the refinancing was approximately $16.6 million.
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 is a
245-megawatt gas-fired, combined-cycle cogenerating facility. 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 received a distribution of $15.7 million in April 1998 and expects to
receive a distribution of the remaining $1.0 million in 1998. The purchase price
was funded with the proceeds of the Corporate Credit Facility and corporate cash
balances.
In August 1998, the Company acquired an approximate 52% interest in the
Batesville Facility. The Company has committed to provide an equity contribution
to the project subsidiary of approximately $54 million upon the earliest to
occur of (i) the incurrence of construction costs after all project financing
has been expended, (ii) an event of default under the project subsidiary's
financing arrangements and (iii) June 30, 2001. This equity commitment is
supported by a $54 million letter of credit, which is provided under the
Corporate Credit Facility. The Company expects the Batesville Facility, which
will be operated by the Company, to commence commercial operation in June 2000.
Electricity generated by the Batesville Facility will be sold under long-term
power purchase agreements with two investment-grade utilities.
In October 1998, the Company acquired BGCI's ownership interests in 12
electric generating facilities, comprising a net equity interest of
approximately 365 megawatts, and one interstate natural gas pipeline. The
aggregate acquisition price for the BGCI Acquisition was approximately $189
million. The purchase price was funded with a portion of the proceeds from the
Offering.
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
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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 2004 Indenture 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
general economic conditions, and therefore 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 its risk by entering into contracts with
creditworthy organizations.
YEAR 2000 COMPLIANCE
The Year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data which
includes such date, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures. The Company initiated assessments in 1997
to identify the issues required to be resolved to assure business critical
systems successfully operate upon and beyond the turn of the century. The
assessments include reviewing information technology and systems utilizing
embedded technology. Plans for achieving Year 2000 compliance were finalized
during 1998 and remediation work is underway.
Replacement of the Company's core financial systems with Year 2000
compliant client-server software is virtually complete. The Company expects to
complete the updating of its human resources and internal payroll systems by
June 30, 1999. Investigation, analysis, remediation and contingency planning for
embedded technology at the power generation facilities operated by the Company
is also in process. At the majority of the facilities, the investigation and
analysis of potential Year 2000 issues is nearing completion. The results of the
investigation and analysis to date indicate the majority of the facilities'
operating systems are Year 2000 compliant. For those that have been identified
as non-compliant, the Company has either established a remediation plan or
contingency plan to address the areas of non-compliance. The remediation of
these systems, as well as testing of contingency plans, is expected to be
completed by June 30, 1999. The total capital and operating costs to replace the
Company's core financial systems, update the Company's human resources and
internal payroll systems and bring the operating systems at the plant facilities
fully compliant
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with Year 2000 are currently expected to be approximately $2.8 million, of which
$2.4 million has already been incurred.
The Company is communicating with critical suppliers, vendors, joint
venture partners and major customers to assess their compliance efforts and the
Company's exposure resulting from Year 2000 issues. At this time, the Company
does not expect a major impact from non-compliant Year 2000 suppliers, vendors,
joint venture partners or major customers. In the event that any of the
Company's significant suppliers, vendors, joint venture partners or major
customers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
The Company expects that its business critical systems will be Year 2000
compliant by December 31, 1999, and the Company does not anticipate costs
associated with the Year 2000 issue to have a material impact on the Company's
consolidated results of operations or financial position. Despite management's
current expectations, there can be no assurances that there will not be
interruptions or other limitations of financial and operating systems
functionality or that the Company will not ultimately incur significant
unplanned costs to avoid such interruptions or limitations.
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.
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BUSINESS
INTRODUCTION
The Company is engaged in the business of acquiring, developing, owning and
operating electric generating facilities, principally in the United States. The
Company sells electricity and steam, principally under long-term power purchase
agreements with investment-grade utilities and long-term steam sales agreements
with various industrial hosts. The Company was one of the early participants in
the market for electric power generated by independent power producers that
developed in the United States as a result of the enactment of PURPA. Since its
inception in 1983, the Company has developed substantial expertise in the
development, construction and operation of electric generating facilities. The
Company is one of the largest independent power producers in the United States
based on net ownership of total project megawatts in operation.
The Company currently owns (entirely or in part) a total of 25 facilities
in the United States with an installed capacity of approximately 4,030 megawatts
and has a net equity interest in such facilities of approximately 1,690
megawatts. All of these facilities have been financed through project financing
structures that are "substantially non-recourse" to Cogentrix Energy and to its
other project subsidiaries. The Company developed, constructed and currently
operates 10 of these 25 facilities. A key part of the Company's strategy is the
acquisition of interests in domestic electric generating facilities. The LS
Power Acquisition, completed in March 1998, expanded the Company's operations
into the upper Midwest and diversified its generating base by adding two
gas-fired electric generating facilities to the Company's portfolio of
generating assets. The BGCI Acquisition and the Batesville Acquisition
strengthen the Company's competitive position and further diversify the
Company's operations with regard to fuel source and dependence on any single
project or customer. Upon completion of the construction of the Batesville
Facility, the Company will have ownership interests in a total of 26 domestic
electric generating facilities with an installed capacity of approximately 4,800
megawatts and a net equity interest in such facilities of approximately 2,110
megawatts.
The Company has established a strong record of efficiency and reliability
in operating its facilities, as evidenced by the facilities it operates
averaging 97.4% availability in the twelve-month period ended June 30, 1998,
96.9% availability in fiscal 1997 and 96.4% availability in fiscal 1996. The
Company attributes this strong performance record to the standard design
technology at most of its facilities, the Company's extensive employee training
programs, redundancies in certain components of its facilities, and a
comprehensive program of preventive maintenance at each facility.
POWER MARKET OUTLOOK
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 electric generating 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. The Company's management believes that
these market trends will create significant new business opportunities for an
enterprise like the Company that has demonstrated the ability to construct and
operate efficient, low-cost electric generating facilities.
Regulatory requirements to restructure the United States electric industry
have led to the development of a growing market for the sale of electric
generating assets principally by utilities, but also by independent power
producers and industrial companies. Even when not required to do so by
regulatory pressure to disaggregate by unbundling their products and services,
some utilities' managements have decided for strategic reasons to divest their
companies of some or all of their generating assets and to concentrate on the
transmission and distribution segments of the power supply market. If this trend
continues, it may create investment opportunities for companies such as the
Company. In connection with acquiring any additional
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electric generating assets (or interests therein), the Company expects to hedge
its exposure to electric market price risk by entering into contractual
arrangements with utilities, fuel suppliers and/or power marketers.
The passage of 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 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
- -- EWGs -- that, unlike QFs, are not required to use alternative or renewable
fuels or to have useful thermal energy output. See "-- Regulation -- Energy
Regulations" herein.
STRATEGY
The Company intends to remain among the leaders in the independent power
industry by developing and constructing or acquiring electric generating
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 mid-sized electric generating facilities,
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 strategic partners. The Company 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 acquisition and development activities.
Acquisitions of Domestic Electric Generating Assets
A key part of the Company's strategy is the acquisition of interests in
domestic electric generating assets. The Company intends to capitalize on its
management and technical expertise to identify and target as acquisition
candidates electric generating facilities that have power sales contracts with
electric utilities (or other customers) with significant credit strength. The
Company will also seek to acquire interests in electric generating facilities
that are highly efficient, low-cost energy providers that can take advantage of
opportunities in a rapidly deregulating energy market. In such instances, the
Company expects to hedge its exposure to electric market price risk by entering
into contractual arrangements with utilities, fuel suppliers and/or power
marketers. The Company has significantly expanded and diversified its project
portfolio through the Recent Acquisitions. The Company has increased its net
ownership of total project megawatts in operation by approximately 75% since
December 31, 1997 and substantially diversified its geographic location,
customer base, technology and fuel mix.
"Inside-the-Fence" Project Development
The Company intends to continue its focus on the industrial market for
"inside-the-fence" project opportunities to develop, own, manage and operate
on-site electric generating facilities for large, energy-intensive industrial
customers. Many of these industrial companies are currently operating their own
cogenerating 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
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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 cogenerating facilities with state-of-the-art
technology could readily be employed to replace, or in certain circumstances,
upgrade existing "inside-the-fence" cogenerating facilities.
Greenfield Project Development
The Company intends to pursue domestic development of highly efficient,
low-cost electric generating facilities, concentrating on mid-sized facilities
that use natural gas as fuel. In doing so, the Company expects to hedge its
exposure to electric market price risk by entering into contractual arrangements
with utilities, fuel suppliers and/or power marketers. The Company also intends
to pursue international project development opportunities on a highly selective
basis in countries where demand for power is growing rapidly, private investment
is encouraged and favorable financing conditions exist. In pursuing
opportunities to develop international projects, the Company intends to focus
primarily on the segment of the international market for mid-sized electric
generating facilities. By concentrating on the development of mid-sized
facilities, management believes that the Company will be able to successfully
capitalize on its core business while making relatively smaller equity
investments in international projects.
GREENHOUSE OPERATIONS
The Company has entered into an agreement with 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 four 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
The Company's project subsidiaries currently own (entirely or in part) 25
electric generating facilities in operation. Ten of these facilities are
currently operated by the Company and 12 are currently managed by the Company.
The remaining 13 facilities are operated and managed by an affiliate of the
Company's joint venture partner in each respective 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 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 facility'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 generating (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 facility's net
electrical output and paid on a kilowatt-hour basis or on the facility'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 facility to deliver a
variable amount of electrical output) within limited parameters. The power sales
agreements for substantially all of the Company's facilities are of a type
typically called "fully
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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 generating 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 facility continues to receive capacity
payments (which cover fixed operating costs and debt service requirements and
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 solely produce thermal energy
in the form of hot water for use by commercial greenhouses, all of the Company's
facilities 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 to be 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 by increases in the energy payments received by the project
subsidiary 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.
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 subsidiary'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 in the form of
management fees or dividends or for the payment of subordinated debt service,
where there are subordinated lenders.
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 facility, related facility support agreements, the stock
or partnership interest of certain of the Company's project subsidiaries,
licenses and permits necessary to operate the facility and the cash flow derived
from the facility. In the event of a foreclosure after a default, the Company's
project subsidiary 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 purchase options to a
steam purchaser and to a utility and certain rights of first refusal in favor of
its power and steam purchasers.
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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 Prospectus 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 Indentures permit the incurrence of debt, guarantees and liens jointly
by any future project subsidiaries or joint ventures with respect to the future
development of electric generating facilities. To the extent the Company takes
advantage of these provisions of the Indentures, the project lender (or lenders)
will have recourse to several of the Company's facilities instead of having its
(or their) recourse limited to the facility (or facilities) owned by a single
project subsidiary.
The Company's plants are insured in accordance with covenants in each
project's debt financing agreements. Coverages for each plant include workers'
compensation, commercial general liability, supplemented by primary and excess
umbrella liability, and a master property insurance program including property,
boiler and machinery (at replacement cost) and business interruption.
Operating Arrangements
Unlike many independent power producers who contract with third-party
operators, the Company operates many of its facilities. In such instances, the
Company's project subsidiary employs directly the persons required to operate
the facility it owns or leases. The Company invests in the training of operating
personnel and structures its plant bonus program to reward efficient and
cost-effective operation of the facilities. Executive management of the Company
meets several times a year with the facilities' managers and conducts on-site
facility performance reviews with each facility manager.
The Company provides to the facilities 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.
In addition, the Company serves as a third-party operator for the Clark
Facility under the terms of a two-year operations and maintenance agreement with
Clark.
Ash Removal
Project subsidiaries owning nine of the Company's electric generating
facilities contract with ReUse to remove coal ash generated by such facilities.
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.
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<PAGE> 62
FACILITY UNDER CONSTRUCTION
In August 1998, the Company acquired an approximate 52% interest in the
800-megawatt, gas-fired Batesville Facility under construction in Batesville,
Mississippi. The Company expects the Batesville Facility, which will be operated
by the Company, to commence commercial operation in June 2000. Electricity
generated by the Batesville Facility will be sold under long-term power purchase
agreements with two investment grade utilities.
FACILITIES IN OPERATION AT JUNE 30, 1998
Set forth in the following table and the text that follows the table are
descriptions of the Company's 13 electric generating facilities in operation at
June 30, 1998. The Company developed nine of these facilities, which included
siting, permitting and financing activities. See "-- BGCI Acquisition," for a
description of the BGCI Assets which the Company acquired in October 1998.
Each of the Company's facilities set forth in the table immediately below
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, CP&L and 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 material adverse effect
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. As a result of the Recent
Acquisitions, the Company's operations have become more diverse with regard to
both geography and fuel source and less dependent on any single project or
customer.
<TABLE>
<CAPTION>
COMPANY'S
PERCENT NET EQUITY
PLANT OWNERSHIP INTEREST IN PLANT POWER
PROJECT LOCATION FUEL MEGAWATTS INTEREST MEGAWATTS PURCHASING UTILITY
------- -------- ---- --------- ---------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Elizabethtown Elizabethtown, NC Coal 35 100% 35 CP&L
Lumberton Lumberton, NC Coal 35 100 35 CP&L
Kenansville Kenansville, NC Coal 35 100 35 CP&L
Roxboro Roxboro, NC Coal 60 100 60 CP&L
Southport Southport, NC Coal 120 100 120 CP&L
Hopewell Hopewell, VA Coal 120 50 60 Virginia Power
Portsmouth Portsmouth, VA Coal 120 100 120 Virginia Power
Rocky Mount Rocky Mount, NC Coal 120 100 120 Virginia Power
Ringgold Ringgold, PA Gas 15.5 100 15.5 Pennsylvania
Electric Company
Richmond Richmond, VA Coal 240 100 240 Virginia Power
Birchwood King George, VA Coal 240 50 120 Virginia Power
Cottage Grove Cottage Grove, MN Gas 245 73.2 179.3 Northern States
Power Company
Whitewater Whitewater, WI Gas 245 74.2 181.8 Wisconsin Electric
Power Corporation
</TABLE>
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").
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<PAGE> 63
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 has 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 facilities may operate at a declared capacity of up to
approximately 33 megawatts. Cogentrix, Inc. 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. Guilford Mills,
Inc. purchases steam from the Kenansville Facility for use in its textile
manufacturing plant.
Each of the power sales agreements provides that in the event of a
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 or average energy generated or made available
during any 12-month period falls below 80% of the established contract capacity
or energy level, a special charge will be imposed by CP&L equal to a percentage
of the termination charge described above. 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).
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 sell electricity to CP&L under
separate power sales agreements, each having an initial term expiring in
December 2002. The 60-megawatt Roxboro Facility may operate at a declared
capacity of up to 56 megawatts and the 120-megawatt Southport Facility may
operate at a declared capacity of up to 107 megawatts. Cogentrix, Inc. has
guaranteed the performance of CNC under the CP&L power sales agreements. Collins
& Aikman Corporation purchases process steam for its textile manufacturing
facility from the Roxboro Facility and Archer-Daniels-Midland Company purchases
steam for its pharmaceutical and chemical manufacturing company from the
Southport Facility.
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), (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 and (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.
Hopewell Facility
The Company's Hopewell facility (the "Hopewell Facility"), located in
Hopewell, Virginia, is a 120-megawatt stoker coal-fired cogeneration facility
owned and operated by James River Cogeneration Company ("JRCC"). JRCC is a North
Carolina general partnership, in which a 50% general partnership interest is
owned by a wholly-owned subsidiary of the Company. The remaining 50% is owned by
Capistrano Cogeneration Company, a subsidiary of Edison Mission Energy.
The Hopewell Facility provides declared capacity of up to 92.5 megawatts to
Virginia Power under a power sales agreement which expires in January 2008. The
power sales agreement was amended, effective
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<PAGE> 64
February 1998, 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
Virginia State Corporation Commission to JRCC. 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.
Allied-Signal Corporation purchases steam from the Hopewell Facility.
Portsmouth Facility
The Company's Portsmouth Facility (the "Portsmouth Facility") located in
Portsmouth, Virginia is a 120-megawatt stoker coal-fired cogeneration facility
owned and operated by CVLC. The Portsmouth Facility provides Virginia Power
declared capacity of up to 115 megawatts under a power sales agreement which
expires in June 2008. The power sales agreement was amended, effective December
1997, to provide Virginia Power economic dispatch rights on the Facility and to
eliminate the regulatory disallowance provision in the power sales agreement.
The Portsmouth Facility also sells process steam to Clariant Corporation.
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, then 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.
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 and operated by Cogentrix of Rocky Mount, Inc., a North
Carolina corporation ("CRM"). Under a power sales agreement with North Carolina
Power Company ("NC Power"), a division of Virginia Power, the Rocky Mount
Facility provides declared capacity of 115.5 megawatts of electricity for an
initial term expiring in October 2015. In addition, steam from the Rocky Mount
Facility is sold to Abbott Laboratories.
The power sales agreement provides that in the event of a regulatory
disallowance, CRM would recognize a reduction in payments received under the
power sales agreement after the 18th anniversary of commencement of commercial
operations of the facility to the extent necessary to repay the disallowance to
NC Power with interest. 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 challenging the pass-through of
payments under the power sales agreement, which is deemed meritorious in the
judgment of the lender in consultation with counsel, is made (each a "Regulatory
Disallowance Event"). If a Regulatory Disallowance Event occurs during the
period from 1998 through 2002, then 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, then 100% of
the cash flow from the facility must be deposited to the regulatory disallowance
reserve account until the balance of such account is equal to the amount
required to be funded. The amount required to be funded in such account is an
amount equal to the lesser of (i) projected reduction in cash flows from 2009
through 2013 as a result of the disallowance and (ii) the amount of the debt
outstanding at September 30, 2008.
If the Rocky Mount Facility has forced outage days in any year 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, then 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.
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<PAGE> 65
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 and operated by Cogentrix of Pennsylvania, Inc., a Delaware
corporation ("CPA"). Pennsylvania Electric Company ("Penelec") purchases energy
from the Ringgold Facility under a power sales agreement. 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 $24 million which will be sufficient to
retire all of the outstanding project debt. The buy-back of the power purchase
agreement is subject to the issuance of an order (satisfactory to Penelec) 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 the termination of the Ringgold Facility's
power purchase agreement with Penelec, if it occurs, 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"), under a lease with a ten-year term,
which may be extended with the consent of the Company.
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"). The Richmond Facility provides 209 megawatts
of declared capacity electricity to Virginia Power under two 25-year power sales
agreements which expire in 2017. The Richmond Facility also provides steam to
E. I. DuPont de Nemours & Company for its Spruance plant located in Chesterfield
County, Virginia.
The power sales agreement provides that in the event of a regulatory
disallowance, CR would recognize a reduction in payments received under the
power sales agreement after the 18th anniversary of commencement of commercial
operations of the facility to the extent necessary to repay the disallowance to
Virginia Power with interest.
If the Richmond Facility has forced outage days in any year 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 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.
CR purchased one of the power sales agreements relating to the Richmond
Facility from WV Hydro, Inc. ("WV"). In connection with such purchase and in
consideration of certain consulting arrangements, CR has continuing obligations
to make payments to Clover Development Company ("Clover"), an affiliate of WV,
in an aggregate amount ranging from $250,000 to $750,000, each year through
2003, from excess facility cash flow. If excess facility cash flow for any year
is insufficient to pay the $250,000 minimum amount, the deficiency will be
carried forward and is payable from excess facility cash flow, if any, in future
years. In addition, CR is obligated to pay to Clover an amount ranging from 3 to
3.5 percent of the net proceeds payable to CR upon any sale, disposition or
refinancing of the Richmond Facility after payment of senior and subordinated
project financing debt and expenses.
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<PAGE> 66
Birchwood Facility
Birchwood Power Partners, L.P. ("Birchwood"), a Delaware limited
partnership, owns a 240-megawatt stoker coal-fired cogeneration plant in King
George, Virginia (the "Birchwood Facility"). Cogentrix/ Birchwood Two, L.P., an
indirect, wholly-owned subsidiary of the Company, owns a 50% interest in the
Birchwood Facility. An indirect, wholly-owned subsidiary of The Southern Company
owns the remaining 50% of Birchwood. The 36-acre greenhouse located adjacent to
the Birchwood Facility, which is jointly owned by the partners of Birchwood,
uses steam from the Birchwood Facility. An affiliate of the Company's joint
venture partner, the Southern Company, operates and maintains the Birchwood
Facility.
The Birchwood Facility provides up to 202 megawatts of declared capacity
electricity to Virginia Power under a power sales agreement which expires in
2021. The power sales agreement provides that in the event of a regulatory
disallowance, Birchwood would recognize a reduction in payments received under
the power sales agreement after the 20th anniversary of commencement of
commercial operations of the facility to the extent necessary to repay the
disallowance to Virginia Power with interest.
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 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.
Cottage Grove Facility
LSP-Cottage Grove, L.P., a Delaware limited partnership ("Cottage Grove"),
owns a 245-megawatt combined-cycle, natural gas-fired cogeneration facility in
Cottage Grove, Minnesota (the "Cottage Grove Facility"). A wholly-owned indirect
subsidiary of the Company is the sole general partner of Cottage Grove with a 1%
partnership interest. Another wholly-owned indirect subsidiary of the Company
owns an approximate 72.2% limited partnership interest in Cottage Grove. An
affiliate of Tomen Power Corporation ("Tomen") owns the remaining approximate
26.8% limited partnership interest in Cottage Grove.
The Cottage Grove Facility provides 245 megawatts of declared capacity to
Northern States Power Company ("NSP") measured at summer capacity and 262
megawatts of declared capacity measured at winter conditions under a power sales
agreement which expires in 2027. Capacity payments from NSP are subject to
adjustment on the basis of performance-based factors which reflect the Cottage
Grove Facility's semiannually tested capacity and its rolling 12-month average
and on-peak availability. Capacity payments are also adjusted for transmission
losses or gains relative to a reference plant. The Cottage Grove Facility also
sells steam to Minnesota Mining and Manufacturing Company.
Currently, NSP is permitted full recovery from its customers of payments
made to Cottage Grove under the power sales agreement. The power sales agreement
provides, however, that following the tenth anniversary of the commercial
operation date, if NSP fails to obtain or is denied authorization by any
governmental authority having jurisdiction over NSP's retail rates and charges,
granting it the right to recover from its customers any payments made to Cottage
Grove, under the power sales agreement, any such disallowance will be monitored
in a tracking account and the unpaid balance in the tracking account shall
accrue interest. Within 30 days after Cottage Grove's first mortgage bonds have
been fully retired, NSP may begin reducing payments to Cottage Grove to (i)
ensure the payments are in line with Minnesota Public Utility Commission rates
and (ii) begin amortizing the balance in the tracking account. Should NSP
exercise its right to reduce payments, the maximum reduction is 75% of the
payment otherwise due for the period.
The Company manages and administers Cottage Grove's business with respect
to the Cottage Grove Facility, and provides certain management and
administrative services to the general partner of Cottage Grove. Westinghouse
Operating Services Company, Inc. ("Westinghouse Services") operates the Cottage
Grove Facility.
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<PAGE> 67
Whitewater Facility
LSP-Whitewater Limited Partnership, a Delaware limited partnership
("Whitewater"), owns a 245-megawatt combined-cycle, natural gas-fired
cogeneration facility in Whitewater, Wisconsin (the "Whitewater Facility"). A
wholly-owned indirect subsidiary of the Company is the sole general partner of
Whitewater with a 1% partnership interest. Another wholly-owned indirect
subsidiary of the Company owns an approximate 73.2% limited partnership interest
in Whitewater. An affiliate of Tomen owns the remaining approximate 25.8%
limited partnership interest in Whitewater.
The Whitewater Facility provides approximately 236.5 megawatts of declared
capacity to Wisconsin Electric Power Company ("WEPCO") under a power sales
agreement which expires in 2022. Whitewater may also sell to third parties up to
12 megawatts of electric capacity and any energy which WEPCO does not dispatch.
Capacity payments from WEPCO are subject to adjustment on the basis of
performance-based factors which reflect the Whitewater Facility's semiannual
tested capacity and average and on-peak availability for the preceding contract
year.
Subject to certain limitations, the capacity payments from WEPCO may be
reduced to the extent that WEPCO's senior debt instruments are downgraded by any
two of Standard & Poor's Corporation, Moody's Investors Services, Inc. and Duff
& Phelps as a result of WEPCO's long-term power purchase obligations under the
Whitewater power purchase agreement. So long as Whitewater's first mortgage
bonds are outstanding, the reduction may not exceed the level necessary to cause
Whitewater's debt service coverage ratio to be less than 1.4 in any one month,
with such ratio calculated on a rolling average of the four fiscal quarters
immediately preceding the proposed adjustment. After Whitewater's first mortgage
bonds have been repaid, the reduction may not exceed 50% of the Whitewater
Facility's revenues minus expenses. Reductions precluded by application of the
above limitations are accumulated in a tracking account with interest accruing
at the base or prime lending rate set from time to time by The Chase Manhattan
Bank, N.A. or its successor. Tracking account balances are to be repaid when
possible, subject to the limitations described above, or may be applied to the
price of WEPCO's option to purchase the Whitewater Facility at the expiration of
the Whitewater power sales agreement.
Currently, WEPCO is permitted full recovery from its customers of payments
made to Whitewater under the power sales agreement. The power sales agreement
provides, however, if at any time WEPCO is denied rate recovery from its
customers of any payment to be made to Whitewater under the Whitewater power
sales agreement by an applicable regulatory authority, WEPCO's payments to
Whitewater may be correspondingly reduced, subject to certain limitations. While
Whitewater's first mortgage bonds are outstanding, the capacity payments may be
reduced by the annual regulatory disallowance provided that the reduction may
not cause Whitewater's debt service coverage ratio to be less than 1.4 in any
month calculated on a rolling average of the four fiscal quarters preceding the
proposed adjustment. After Whitewater's first mortgage bonds are repaid,
reductions may not exceed 50% of the Whitewater Facility's revenues minus
expenses. Reductions precluded by these restrictions are accumulated in a
tracking account with repayment subject to the same provisions as for bond
downgrading adjustments discussed above.
The thermal energy generated by the Whitewater Facility is sold in the form
of steam to the University of Wisconsin -- Whitewater under a steam supply
agreement with the Department of Administration of the State of Wisconsin
expiring in 2005 and in the form of hot water to a greenhouse owned by
Whitewater and located adjacent to the Whitewater Facility. FloriCulture, Inc.
("FloriCulture"), an affiliate of Whitewater, has entered into an operational
services agreement pursuant to which FloriCulture provides all services
necessary to produce, market and sell horticulture products and to operate and
maintain the greenhouse facility.
The Company manages and administers Whitewater's business with respect to
the Whitewater Facility, and provides certain management and administrative
services to the general partner of Whitewater. Westinghouse Services operates
the Whitewater Facility.
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BGCI ACQUISITION
In October 1998, the Company acquired the BGCI Assets. Nine of the electric
generating facilities included in the BGCI Assets were developed and are managed
by U.S. Gen and are owned in part by affiliates of U.S. Gen. The acquisition of
the BGCI Assets provides the Company with a net equity interest of approximately
365 megawatts in a diverse generating portfolio that comprises approximately
2,400 megawatts in total generating capacity. The BGCI Assets are located in New
Jersey, New York, Pennsylvania, West Virginia, Massachusetts and Florida.
Set forth in the following table is a brief description of the 12 electric
generating facilities and the 375-mile natural gas transmission line in which
the Company acquired ownership interests.
BGCI ASSETS
<TABLE>
<CAPTION>
PERCENT NET
OWNERSHIP EQUITY INTEREST
PLANT INTEREST IN PLANT
PROJECT LOCATION FUEL MEGAWATTS ACQUIRED MEGAWATTS POWER PURCHASING UTILITY
- ------- -------- ---- --------- --------- --------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Logan Logan Township, NJ Coal 218 49.0% 106.8 Atlantic City Electric
Northampton Northampton County, PA Waste coal 110 49.0 53.9 Metropolitan Edison
Indiantown Martin County, FL Coal 380 10.0 38.0 Florida Power & Light
Carneys Point Carneys Point, NJ Coal 262 10.0 26.2 Atlantic City Electric
Panther Creek Carbon County, PA Waste coal 83 12.2 10.1 Metropolitan Edison
Scrubgrass Township,
Scrubgrass PA Waste coal 85 20.0 17.0 Pennsylvania Electric
Selkirk Albany, NY Gas 396 5.1 20.2 Con Edison & Niagara
Mohawk
Cedar Bay Jacksonville, FL Coal 260 16.0 41.6 Florida Power & Light
Mass Power Springfield, MA Gas 258 3.3 8.5 Boston Edison
Gilberton Frackville, PA Waste coal 82 19.6 16.1 Pennsylvania Power &
Light
Pittsfield Pittsfield, MA Gas 173 10.9 18.9 New England Power
Morgantown Morgantown, WV Coal/Waste 62 15.0 9.3 Monongahela Power
coal
Iroquois Gas Long Island, NY to -- -- 0.5 -- --
Transmission Waddington, NY
System
</TABLE>
The portion of the purchase price allocated by the Company to the first
four BGCI Assets described in the table above represented approximately 74% of
the total purchase price for the BGCI Assets. The text that follows provides a
more detailed description of the first four BGCI Assets described in the table
above.
Logan Facility
Keystone Urban Renewal Limited Partnership, a Delaware limited partnership
("KUR") owns a 218-megawatt pulverized coal-fired cogeneration facility located
on the Delaware River in Logan Township, New Jersey (the "Logan Facility"). KUR
leases the Logan Facility to Logan Generating Company, L.P., a Delaware limited
partnership ("LGC"). Cogentrix/Logan, Inc., an indirect, wholly-owned subsidiary
of the Company, owns a 49% general partnership interest in each of LGC and each
of the partners of KUR. The remaining 1% interest is held by an indirect
subsidiary of BGCI as a limited partnership interest. Pursuant to a put
agreement, BGCI has the right to require the Company to purchase, at fair market
value, the 1% limited partnership interest within the 30-day period following
the date that is 13 months after the closing of the BGCI Acquisition. If BGCI
exercises such put right, the 1% limited partnership interest will automatically
convert to a general partnership interest upon transfer to the Company. An
indirect, wholly-owned subsidiary
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<PAGE> 69
of PG&E is the sole limited partner in each of LGC and the partners of KUR,
owning a 1% limited partnership interest. Such subsidiary also owns a 49%
general partnership interest in each of LGC and each of the partners of KUR.
The Logan Facility, which commenced commercial operation in September 1994,
provides up to 200 megawatts of declared capacity electricity to Atlantic City
Electric Company ("ACE") under a power sales agreement which expires in 2024.
The Logan Facility has the capability to provide up to approximately 15
megawatts of excess capacity and energy to third parties. The thermal energy
generated by the Logan Facility is sold in the form of steam to Solutia, Inc.
If the net deliverable capacity of the Logan Facility falls below 190,000
kilowatts, then LGC must pay liquidated damages to ACE equal to the product of
the deficiency multiplied times the rate that (a) members of the Pennsylvania,
New Jersey, Maryland Power Pool ("PJM") who fail to satisfy their capacity
obligations to PJM must pay to (b) the members of PJM who make up such
deficiency.
U.S. Operating Services Company ("USOSC") operates the Logan Facility
pursuant to an operation and maintenance agreement with initial term expiring in
2004. U.S. Gen provides management services pursuant to a management services
agreement which expires in 2027.
Northampton Facility
Northampton Generating Company, L.P., a Delaware limited partnership
("NGC") owns a 110-megawatt anthracite waste coal-fired electric generating
facility in Northampton County, Pennsylvania (the "Northampton Facility").
Cogentrix/Northampton, Inc., an indirect, wholly-owned subsidiary of the
Company, owns a 49% general partnership interest in NGC. The remaining 1%
interest is held by an indirect subsidiary of BGCI as a limited partnership
interest. Pursuant to a put agreement, BGCI has the right to require the Company
to purchase, at fair market value, the 1% limited partnership interest within
the 30-day period following the date that is 13 months after the closing of the
BGCI Acquisition. If BGCI exercises such put right, the 1% limited partnership
interest will automatically convert to a general partnership interest upon
transfer to the Company. An indirect, wholly-owned subsidiary of PG&E owns an
aggregate 50% equity interest in NGC, which consists of a 48% general
partnership interest and 2% limited partnership interest.
The Northampton Facility, which commenced commercial operation in September
1995, provides electric energy to Metropolitan Edison Company ("Met-Ed")
pursuant to a power sales agreement which expires in 2020. Capacity in excess of
89 megawatts may be sold to third parties, but no energy from the Northampton
Facility may be sold to any entity other than Met-Ed.
The Northampton Facility is not directly interconnected to Met-Ed's
electric system and accordingly requires an electric utility that is
interconnected with Met-Ed's electric system to transmit the Northampton
Facility's output to Med-Ed. Pursuant to a transmission service agreement (which
expires in 2020) with Pennsylvania Power & Light Company ("PP&L"), PP&L
transmits the Northampton Facility's net electric energy to Met-Ed's existing
electric system.
In the event the Northampton Facility's annual average delivery of
electricity for any year following the commercial operation date during on-peak
hours is less than 85% of the Northampton Facility's annual average delivery of
electricity during the on-peak hours for the prior three years, NGC is obligated
to make a penalty payment to Met-Ed. During the first 11 years of the power
sales agreement commencing with the commercial operation date, the penalty
payment will equal the difference between 85% of the annual average on-peak
electricity delivered in the prior three years and the actual on-peak
electricity delivered in the year to which the penalty relates times 3.4c/kWh.
After the eleventh year of the power sales agreement, the penalty payment will
be calculated as above, except that the rate of 3.4c/kWh shall be adjusted
annually according to changes in the Gross Domestic Product Implicit Price
Deflator.
Based on its use of waste coal as its primary fuel source, FERC has
certified the Northampton Facility as a "qualifying small power production
facility" ("QSPPF"). The Northampton Facility produces and sells thermal energy
to Ponderosa Fibers, but thermal sales are not required in order to maintain the
Northampton Facility's status as a QSPPF.
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USOSC operates and maintains the Northampton Facility pursuant to an
operation and maintenance agreement with an initial term expiring in 2020. U.S.
Gen provides management and administration services for the Northampton Facility
pursuant to a management services agreement with an initial term expiring in
2020.
In addition to the partners' original equity contributions to NGC, the
partners of NGC have posted letters of credit or corporate guarantees in an
aggregate amount of $9 million as a standby equity commitment to be used for
certain fuel-related costs, and in the amount of $2.2 million as a standby
equity commitment to be used solely to establish the bank debt service reserve
fund for the exclusive benefit of the banks. In connection with the BGCI
Acquisition, the Company will provide letters of credit or corporate guarantees
for 50% of such standby equity commitments.
Indiantown Facility
Indiantown Cogeneration, L.P., a Delaware limited partnership ("ICLP") owns
a 380-megawatt pulverized coal-fired cogeneration facility located in Martin
County, Florida (the "Indiantown Facility"). An indirect, wholly-owned
subsidiary of PG&E owns a 50% general partnership interest in ICLP, an indirect,
wholly-owned subsidiary of GECC owns a 40% limited partnership interest in ICLP,
and the Company owns a 10% general partnership interest in ICLP. The Indiantown
Facility commenced commercial operation in December 1995. The Indiantown
Facility sells steam to Caulkins Indiantown Citrus Company.
The Indiantown Facility provides 330 megawatts of declared capacity
electricity to Florida Power & Light ("FP&L") under a power sales agreement
which expires in 2025. Capacity payments by FP&L are subject to adjustment on
the basis of the Indiantown Facility's committed capacity, annual capacity
factor and annual on-peak capacity factor.
Currently, FP&L is permitted full recovery from its customers of payments
made to ICLP under the power sales agreement. The power sales agreement contains
a regulatory out provision, which provides that if FP&L at any time is denied
authorization to recover from its customers any payments to be made to ICLP
under the power sales agreement, FP&L may, in its sole discretion, adjust
payments under the power sales agreement to the amount it is authorized to
recover from its customers and may require ICLP to return payments subsequently
disallowed by the regulatory agency. If the obligations of FP&L and ICLP are
materially altered due to the operation of the regulatory out clause, ICLP may
terminate the power sales agreement upon 60 days' notice, and ICLP and FP&L must
in good faith attempt to negotiate a new power sales agreement or any agreement
for transmission of the Indiantown Facility's capacity and energy to another
investor-owned, municipal, or cooperative electric utility interconnected with
FP&L in Florida.
USOSC provides operation and maintenance services for the Indiantown
Facility pursuant to an operating agreement which expires in 2025. U.S. Gen
manages and administers ICLP's business with respect to the Indiantown Facility
pursuant to a management service agreement which expires in 2029.
Carneys Point Facility
Chambers Cogeneration Limited Partnership ("CCLP"), a Delaware limited
partnership, owns a 262-megawatt pulverized coal-fired cogeneration facility
located within the grounds of the DuPont Chamber Works ("DuPont"), a chemical
complex in Carneys Point, New Jersey (the "Carneys Point Facility"). CCLP leases
the Carneys Point Facility to Carneys Point Generating Company, a partnership of
wholly-owned subsidiaries of U.S. Gen. Lease payments are structured to equal
project cash flow and the lessee derives no net cash flow or benefit from the
lease. The Company owns a 10% general partnership interest in CCLP. The other
general partner in CCLP is an indirect, wholly-owned subsidiary of PG&E with a
50% general partnership interest. The sole limited partner in CCLP is an
indirect, wholly-owned subsidiary of General Electric Capital Corporation with a
40% limited partnership interest.
The Carneys Point Facility commenced commercial operation in March 1994.
The Carneys Point Facility provides ACE with 187.6 megawatts in the summer
months and 173.2 megawatts in the winter months (an annual average of 180.4
megawatts) on a dispatchable basis. If the actual available capacity falls
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below 95% of the respective capacity requirement for such periods, CCLP must
make a deficiency payment to ACE until actual capacity for such period reaches
95% of the respective capacity requirements for such period.
Under an energy services agreement, CCLP sells steam and up to 40 megawatts
of electricity to DuPont. The Carneys Point Facility has the capability to sell
an average of approximately 30 megawatts of excess capacity and energy to third
parties.
USOSC operates the Carneys Point Facility under an operation and
maintenance agreement with an initial term expiring in 2004. U.S. Gen provides
management services for the Carneys Point Facility pursuant to a management
services agreement with a term expiring in 2018.
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>
FISCAL YEAR ENDED
JUNE 30, SIX-MONTH
-------------------- PERIOD ENDED
1995 1996 1997 DECEMBER 31, 1997
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
CP&L........................................... 34% 33% 25% 22%
Virginia Power................................. 57 55 62 63
</TABLE>
As a result of the Recent Acquisitions, the Company's operations will
become more diverse with regard to both geography and fuel source and less
dependent on any single project or customer. For the year ended December 31,
1997, on a pro forma basis after giving effect to the LS Power Acquisition and
the BGCI Acquisition, CP&L and Virginia Power would have accounted for 13% and
45%, respectively, of the Company's operating revenues (including the Company's
pro rata share of revenues of the unconsolidated affiliates in which certain
subsidiaries of Cogentrix Energy hold investments).
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 electric generating facilities. 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 plants 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 power plant
operates 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 electric generating 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
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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.
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. Owners of the Birchwood Facility
and the Logan Facility, each of which is a QF, have also been determined to be
EWGs.
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. 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 generating
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
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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.
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 typically 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. In addition, the Logan Facility has filed its rates
with the FERC and obtained authorization to sell all of its power pursuant to
those rates.
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 generating 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.
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Retail access programs may provide the Company with additional
opportunities to provide power from the Company's projects to industrial users
or power marketers. In addition, in light of the states' approaches to "stranded
investment" costs, the Company does not believe retail access programs will have
a material adverse effect on the Company's existing contracts.
TRANSMISSION AND WHEELING. Under the FPA, the FERC regulates the rates,
terms and conditions for electricity transmission in interstate commerce. The
FERC's authority under the FPA to require electric utilities to provide
transmission service to QFs and EWGs was significantly expanded by the Energy
Policy Act. 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 power 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
facilities 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
("SO(2)") "allowance." All non-exempt facilities over 25 megawatts that emit
SO(2) (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
SO(2). The 1990 Amendments exempt from the SO(2) 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
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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
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 facilities 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 NO(x) 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 the OTAG's recommendations for
reductions in NO(x) emissions. If more stringent NO(x) 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 NO(x) 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, enhancing administrative civil penalties, and
adding a citizen suit provision. These enforcement provisions also include
enhanced monitoring,
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recordkeeping and reporting requirements for existing and new facilities. On
February 13, 1997, the EPA issued a regulation providing for the use of "any
credible evidence or information" in lieu of, or in addition to, the test
methods prescribed by regulation to determine the compliance status of permitted
sources of air pollution. This rule may effectively make emission limits
previously established for many air pollution sources, including the Company's,
more stringent. On March 10, 1997, a number of utilities filed a petition for
review of the EPA regulations in the U.S. Court of Appeals for the District of
Columbia Circuit.
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 National Pollutant Discharge
Elimination System 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 under Section 313 of the Emergency Planning and Community
Right-to-Know Act to include electric utilities. The Company's operating
facilities 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
generating 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.
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EMPLOYEES
At June 30, 1998, the Company employed 389 people, none of whom is covered
by a collective bargaining agreement.
PROPERTIES
In addition to the Company's properties listed and described in the section
entitled "Business -- Facilities in Operation," 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 Relationships and Related Transactions -- Leases and Real
Property."
The Company also leases office space in Prince George, Virginia; Portland,
Oregon; Singapore; Bangalore, India; Mangalore, India; New Delhi, India; and Sao
Paulo, Brazil.
The Company believes that its facilities and properties have been
satisfactorily maintained, are in good condition, and are suitable for the
Company's operations.
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. and an affiliate
("James River"). Coal was supplied to the Southport Facility until November 1997
(when the contract term expired) by Coastal Coal Sales, Inc. ("Coastal"). The
coal sales agreements for the ELK Facilities provide for the sale and purchase
of the coal requirements of those facilities through September 2001.
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 through 2002.
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 are 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 instituted an action against CECC in the
United States District Court for the Eastern District of Kentucky claiming
breach of contract and fraud in the inducement based on the reduction in coal
requirements at the ELK Facilities. In this complaint, James River sought
specific performance and, in the alternative, an unspecified amount of damages.
In April 1998, after the case was transferred to the United States District
Court for the Western District of North Carolina, the fraud in the inducement
claim was dismissed by the court with prejudice.
The contract with James River contains an arbitration provision requiring
contract disputes to be submitted to arbitration in Charlotte, North Carolina.
After the Company filed a motion to compel arbitration of the contract claim,
James River consented to, and filed a demand for, arbitration of the claim. The
parties are currently preparing for the arbitration proceeding, which will be
held in Charlotte, North Carolina.
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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 coal
requirements at the Southport Facility. In October 1997, a three-member panel of
arbitrators ruled in favor of CNC, denying any recovery to Coastal.
ANR Coal Company, L.L.C. ("ANR"), as successor to Coastal, subsequently
challenged the ruling in CNC's favor in the United States District Court for the
Western District of North Carolina on grounds of arbitrator partiality. In April
1998, the court issued an order vacating the ruling of the arbitration panel and
directing that a new arbitration be conducted. The Company, which is appealing
the court's decision to the United States Court of Appeals for the Fourth
Circuit, believes that the ruling of the arbitration panel in its favor will be
upheld on appeal. The court has scheduled oral arguments in this appeal for the
first week in December 1998.
Arch Dispute (Portsmouth Facility)
In February 1998, Arch filed a complaint against CVLC in the United States
District Court for the Southern District of West Virginia alleging breach of
contract and seeking a determination that CVLC is obligated to purchase
approximately 360,000 tons of coal per year, breached the coal sales agreement
by wrongfully reducing its requirements of coal, and violated a duty of good
faith and fair dealing owed to Arch. In the alternative, Arch seeks damages for
CVLC's failure to purchase such quantities of coal. This agreement also contains
an arbitration clause that requires any disputes between the parties to be
resolved by arbitration in Charlotte, North Carolina. In June 1998, the District
Court issued an order staying the litigation proceeding pending arbitration of
the issues raised in the complaint filed by Arch. The parties are currently
preparing for the arbitration proceeding, which will be held in Charlotte, North
Carolina.
In view of the unambiguous provisions of the coal sales agreement that
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, 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 and otherwise continue to perform under the agreement as required.
Summary of Coal Purchase Agreement Disputes
Management believes that the ruling in CNC's favor by the panel of
arbitrators will be upheld on appeal, and, as to the James River and Arch legal
proceedings, that there is no basis for certain claims and there are meritorious
defenses as to the remainder. The Company intends to vigorously contest the
claims of James River, Arch and 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 these proceedings, in the judgment of
management, will not have a material adverse impact on the Company's
consolidated results of operations or financial position.
Other Routine Litigation
In addition to the litigation described above, 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Cogentrix Energy 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......................... 42 Vice Chairman, Chief Executive Officer and Director
Mark F. Miller......................... 44 President, Chief Operating Officer and Director
James E. Lewis......................... 35 Executive Vice President and Director
Dennis W. Alexander.................... 52 Group Senior Vice President, General Counsel,
Secretary and Director
James R. Pagano........................ 38 Group Senior Vice President -- Chief Financial Officer
Betty G. Lewis......................... 69 Director
Robert W. Lewis........................ 45 Director
W. E. "Bill" Garrett................... 68 Director
John A. Tillinghast.................... 71 Director
</TABLE>
GEORGE T. LEWIS, JR., the founder of Cogentrix, has been Chairman of the
Board and a Director of Cogentrix Energy since its formation in 1993 and Chief
Executive Officer of Cogentrix Energy 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 Cogentrix Energy 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 Cogentrix Energy in May 1997. Prior to joining Cogentrix Energy, 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 Energy. From 1980 to 1982, he was an Associate with
the law firm of Dolack, Hansler.
JAMES E. LEWIS has been Executive Vice President and a Director of
Cogentrix Energy since its formation, prior to which he was Executive Vice
President of Cogentrix since November 1992 and a Director
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<PAGE> 80
of Cogentrix since 1988. From 1991 to 1992, he was Senior Vice President of
Operations responsible for the daily operations of Cogentrix'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 Portsmouth Facility. James 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 Cogentrix Energy in February 1994.
Immediately prior to joining Cogentrix Energy, 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.
JAMES R. PAGANO has been Group Senior Vice President -- Chief Financial
Officer of Cogentrix Energy since May 1997, prior to which he was Senior Vice
President -- Project Finance since February 1995 and Vice President -- Project
Finance since Cogentrix Energy'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.
BETTY G. LEWIS has been a Director of Cogentrix Energy since September
1994. Betty Lewis is the spouse of George T. Lewis, Jr.
ROBERT W. LEWIS has been a Director of Cogentrix Energy 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.
W. E. "BILL" GARRETT has been a Director of Cogentrix Energy 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 Cogentrix Energy on March 19,
1998, filling a position left vacant since the death of former board member T.
Louis Austin, Jr. last year. Mr. Tillinghast served from 1994 to April 1998 as
President, Chairman and CEO of Great Bay Power Corporation, a public utility in
Dover, New Hampshire, and since April 1998 has continued to serve as Chairman.
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
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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 and Director of the
Edison Electric Institute. Mr. Tillinghast is a Fellow of the American Society
of Mechanical Engineers, a registered professional engineer in nine states and a
holder of two U.S. and seven foreign patents.
EXECUTIVE COMPENSATION
The following table sets forth information for the calendar year ended
December 31, 1997 and for each of the two fiscal years in the period 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 June 30, 1997 565,317 695,824 1,261,141 929,829
Chief Executive 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 June 30, 1997 194,498 180,000 374,498 28,912
President June 30, 1996 155,243 137,367 292,610 17,570
and Chief Financial
Officer
Dennis W. Alexander........ December 31, 1997 284,086 175,033 459,119 21,845
Group Senior Vice June 30, 1997 272,068 70,000 342,068 21,472
President June 30, 1996 220,946 198,840 419,786 15,332
and General Counsel
</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 35 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."
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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 were 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 the fiscal year ended June 30, 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 for each fiscal year at least equal to
the base salary for the
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immediately preceding fiscal year. 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.
The employment agreement is terminable upon notice given by the Company in
the event a majority of the board of directors terminates Mr. Lewis' 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 of $618,000,
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's employment.
The Company has the right to terminate Mr. Alexander's employment 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
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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 consulting agreements with Messrs. Garrett and
Tillinghast each of which provides for payment of $15,000 annually for
consulting services to be rendered to the Company.
While Robert W. Lewis was employed as an executive officer, Cogentrix
entered into a non-qualified incentive compensation agreement with him 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.
PRINCIPAL STOCKHOLDERS
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.
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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 2004
Senior Notes 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 Indentures and the covenants of the Corporate
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 their
facilities. Each of the partners in ELP is a member of the Company's board of
directors. David J. Lewis, James E. Lewis and George T. Lewis, Jr. are also
executive officers of the Company. Total rent paid by the Company to ELP under
such equipment leases was $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 fiscal 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 such shareholders was
$140,000 in the case of George T. Lewis, Jr., and the outstanding balance of the
loan to Mr. Lewis at December 31, 1997 was $28,000.
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 "Management -- Executive Compensation,"
"Management -- Compensation Pursuant to Incentive Compensation Plans -- Facility
Cash Flow Incentive Compensation Agreements" and "Management -- Directors'
Compensation and Consulting Agreements."
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SHAREHOLDER STOCK TRANSFER AGREEMENT
In August 1994, George T. Lewis, Jr. entered into an agreement with Betty
G. Lewis ("Ms. Lewis") providing for, among other things, the transfer by George
T. Lewis, Jr. of a portion of his shares of the Company's common stock to Ms.
Lewis. In accordance with the agreement, if Ms. Lewis desires to transfer or
otherwise dispose of any of her shares of common stock of the Company, she must
first offer to sell them to the Company at a price equal to a bona fide offer
from an unrelated party. Any shares, the offer of sale of which is not accepted
by the Company after receipt of the written offer, must be offered by Ms. Lewis
at the same price to the other shareholders, who have the right to purchase such
shares on a pro rata basis determined in accordance with the then current stock
ownership of those shareholders. In the event neither the Company nor the other
shareholders notify Ms. Lewis of its or their intention to purchase her shares
within 15 days after receipt of the written offer, Ms. Lewis shall have the
right for 90 days thereafter to consummate the sale of her shares with the
unrelated party who provided the bona fide offer.
DESCRIPTION OF SENIOR NOTES
GENERAL
The Exchange Senior Notes will be issued, and the Old Senior Notes were
issued, by Cogentrix Energy, under the Indenture. References to the Senior Notes
include the Old Senior Notes and the Exchange Senior Notes, respectively, unless
the context indicates otherwise. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular Sections or defined terms of the Indenture are
referred to, such Sections or defined terms shall be incorporated herein by
reference. A summary of certain defined terms used in the Indenture and referred
to in the following summary description of the Senior Notes is set forth below
under "-- Certain Definitions."
The Senior Notes are senior, unsecured obligations of Cogentrix Energy,
rank pari passu with all other senior indebtedness of Cogentrix Energy, and are
initially limited to $220 million aggregate principal amount and mature on
October 15, 2008. Cogentrix Energy has the right, however, to issue up to $200
million aggregate principal amount of additional Senior Notes under the
Indenture. Such additional Senior Notes shall have the same terms, including,
without limitation, the same interest rates and interest payment dates, as the
Senior Notes offered hereby. Any such additional Senior Notes issued from time
to time by Cogentrix Energy shall constitute a part of the same series as the
Senior Notes offered hereby. In addition, the Indenture does not limit the
amount of additional securities that may be issued thereunder, and securities
may be issued thereunder from time to time in one or more series.
Principal of and premium, if any, on the Senior Notes is payable, and the
Senior Notes may be exchanged or transferred, at the office or agency of
Cogentrix Energy in Charlotte, North Carolina. The Senior Notes may be presented
at the office of the agent of the Trustee in the Borough of Manhattan, The City
of New York, for forwarding to the Trustee. Interest on the Senior Notes at the
annual rate set forth on the cover page hereof will accrue from the date of
original issuance, is payable semiannually in arrears on April 15 and October 15
of each year, commencing April 15, 1999, to the Holders thereof at the close of
business on the preceding April 1 and October 1, respectively, and, unless other
arrangements are made, will be paid by checks mailed to such Holders; provided
that all payments with respect to Senior Notes the Holders of which have given
wire transfer instructions to the Company and its paying agent prior to the
applicable record date for such payment will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof; provided further that all payments of principal, premium, if any, and
interest with respect to the Senior Notes represented by one or more permanent
global notes registered in the name of or held by DTC or its nominee will be
made by wire transfer of immediately available funds to DTC or its nominee as
the registered owner thereof. See "-- The Global Notes." Interest on overdue
principal and (to the extent permitted by applicable law) on overdue
installments of interest shall accrue at a rate of 1% in
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excess of the rate per annum borne by the Senior Notes. Interest on the Senior
Notes shall be computed on the basis of a 360-day year consisting of twelve
30-day months.
The Senior Notes will be issued without coupons and in fully registered
form only in denominations of $1,000 and integral multiples thereof. No service
charge shall be payable for any registration of transfer or exchange of Senior
Notes, but Cogentrix Energy may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Cogentrix Energy currently complies with the informational reporting
requirements of Sections 13 and 15(d) under the Exchange Act and, in accordance
therewith, files certain reports and other information with the Commission. See
"Available Information." In addition, if at any time Sections 13 and 15(d) do
not apply to Cogentrix Energy, Cogentrix Energy is required by the Indenture to
file such reports and information with the Trustee and the Commission, and mail
such reports and information to Senior Noteholders at their registered
addresses, for so long as any Senior Notes remain outstanding.
OPTIONAL REDEMPTION
The Senior Notes may be redeemed in whole or in part at Cogentrix Energy's
option at any time prior to maturity, upon not less than 30 nor more than 60
days' prior notice, at a redemption price equal to (i) the then outstanding
principal amount of the Senior Notes being redeemed plus accrued and unpaid
interest thereon to the date of redemption plus (ii) a premium equal to the
excess of (A) the present value at the time of redemption of the principal
amount of the Senior Notes being redeemed plus any required interest payments
due on the Senior Notes being redeemed through Stated Maturity computed using a
discount rate equal to the Treasury Rate plus 50 basis points over (B) the then
outstanding principal amount of the Senior Notes being redeemed.
RANKING
The Senior Notes are general, unsecured senior obligations of Cogentrix
Energy and rank pari passu with all other senior indebtedness of Cogentrix
Energy. As of June 30, 1998, on a pro forma basis after giving effect to the
issuance of the Senior Notes and the application of the estimated net proceeds
thereof, the Company had approximately $1.3 billion of indebtedness, of which
amount approximately $917 million represented indebtedness of project
subsidiaries to which the Senior Notes are effectively subordinated. In
addition, all of the indebtedness of the unconsolidated affiliates in which
certain subsidiaries of Cogentrix Energy hold investments are effectively senior
to the Senior Notes.
CERTAIN COVENANTS
The Indenture contains certain covenants, including the ones summarized
below, which covenants will, subject to the provisions described under
"-- Changes in Covenants When Senior Notes are Rated Investment Grade," be
applicable (unless waived or amended) so long as any of the Senior Notes are
outstanding.
Limitation on Debt
Cogentrix Energy shall not Incur any Debt, including Acquisition Debt,
unless, after giving effect to the Incurrence of such Debt and the receipt and
application of the proceeds therefrom, the Fixed Charge Ratio of Cogentrix
Energy would be equal to or greater than 2.0 to 1.
Notwithstanding the foregoing, Cogentrix Energy may Incur each and all of
the following: (i) Debt issued in exchange for, or the proceeds of which are
used to refinance, outstanding Senior Notes or other Debt of Cogentrix Energy in
an amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so exchanged or
refinanced (plus accrued interest and fees and expenses related to such exchange
or refinancing), the amount so exchanged or refinanced being equal to the lesser
of (x) the principal amount or involuntary liquidation preference of the Debt so
exchanged or refinanced and (y) if the Debt being
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exchanged or refinanced was issued with an original issue discount, the accreted
value thereof (as determined in accordance with GAAP) at the time of such
refinancing; provided that such Debt of Cogentrix Energy will rank pari passu
with or expressly subordinated in right of payment to the Senior Notes and the
Average Life of the new Debt shall be equal to or greater than the Average Life
of the Debt to be exchanged or refinanced; (ii) Debt of Cogentrix Energy to any
of its Subsidiaries and to any Joint Ventures in which Cogentrix Energy is a
direct or indirect partner, shareholder, member or other participant if such
Debt of Cogentrix Energy is expressly subordinated in right of payment to the
Senior Notes; provided that any transfer of such Debt by a Subsidiary or a Joint
Venture (other than to another Subsidiary or Joint Venture) will be deemed to be
an Incurrence of Debt; (iii) Debt issued under or in respect of Permitted
Working Capital Facilities; (iv) Debt in an aggregate principal amount not to
exceed $10 million at any one time outstanding; (v) Debt in respect of Currency
Protection Agreements or Interest Rate Protection Agreements; and (vi) Debt
outstanding as of the date of original issuance of the Senior Notes.
For purposes of determining any particular amount of Debt under this
covenant, Guarantees of, or obligations with respect to letters of credit
supporting, Debt otherwise included in the determination of such particular
amount shall not be included. For purposes of determining compliance with this
covenant, in the event that an item of Debt meets the criteria of more than one
of the types of Debt described in the above clauses, Cogentrix Energy, in its
sole discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses.
Limitation on Subsidiary Debt
Cogentrix Energy shall not permit any Subsidiary to Incur, assume or
otherwise cause or suffer to exist, directly or indirectly, any Debt.
Notwithstanding the foregoing, each and all of the following Debt may be
Incurred by a Subsidiary: (i) Debt outstanding as of the date of the original
issuance of the Senior Notes; (ii) Debt owed by a Subsidiary to Cogentrix
Energy; (iii) Debt Incurred to finance the development, acquisition,
construction or operation of a Power Generation Facility in which such
Subsidiary has a direct or indirect interest; provided that such Debt shall be
permitted under this clause (iii) only to the extent of the amount thereof which
is Non-Recourse to Cogentrix Energy and is Non-Recourse to any other Subsidiary
with a direct or indirect interest in any other Power Generation Facility; (iv)
Debt issued in exchange for, or the proceeds of which are used to refinance,
outstanding Debt of such Subsidiary otherwise permitted under the Indenture in
an amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so exchanged or
refinanced (plus accrued interest and fees and expenses related to such exchange
or refinancing), the amount so exchanged or refinanced being equal to the lesser
of (x) the principal amount or involuntary liquidation preference of the Debt so
exchanged or refinanced and (y) if the Debt being exchanged or refinanced was
issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such refinancing; provided
that (A) the new Debt shall be Non-Recourse to Cogentrix Energy to no lesser
extent than the Debt to be exchanged or refinanced, (B) the new Debt shall be
Non-Recourse to any other Subsidiary with a direct or indirect interest in any
other Power Generation Facility to no lesser extent than the Debt to be
exchanged or refinanced, (C) the Average Life of the new Debt shall be equal to
or greater than the Average Life of the Debt to be exchanged or refinanced; (v)
Debt issued in exchange for, or the proceeds of which are used to refinance,
outstanding Debt of such Subsidiary otherwise permitted under the Indenture in
an amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) in excess of the amount so exchanged or refinanced
(plus accrued interest and fees and expenses related to such exchange or
refinancing); provided that (A) the new Debt shall be Non-Recourse to Cogentrix
Energy to no lesser extent than the Debt to be exchanged or refinanced, (B) the
new Debt shall be Non-Recourse to any other Subsidiary with a direct or indirect
interest in any other Power Generation Facility to no lesser extent than the
Debt to be exchanged or refinanced, (C) the Average Life of the new Debt shall
be equal to or greater than the Average Life of the Debt to be exchanged or
refinanced; provided further that, after giving effect to the incurrence of such
new Debt and the retirement of the Debt to be exchanged or
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refinanced, the Fixed Charge Ratio of Cogentrix Energy would be equal to or
greater than 2.0 to 1; (vi) Debt issued in exchange for, or the proceeds of
which are used to refinance, outstanding Debt which is not Non-Recourse to the
Company or to any other Subsidiary in an amount (or if such new Debt provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration or acceleration thereof, with an original issue price) not to
exceed the amount so exchanged or refinanced (plus accrued interest and fees and
expenses related to such exchange or refinancing), the amount so exchanged or
refinanced being equal to the lesser of (x) the principal amount of the Debt so
exchanged or refinanced and (y) if the Debt being so exchanged or refinanced was
issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such refinancing; provided
that the Average Life of the new Debt shall be equal to or greater than the
Average Life of the Debt to be exchanged or refinanced; (vii) Debt Incurred to
support the performance obligations of a Subsidiary engaged in providing
construction management or operating services to a Power Generation Facility;
provided that such Debt shall be permitted under this clause (vii) only to the
extent of the amount thereof which is Non-Recourse to Cogentrix Energy and is
Non-Recourse to any other Subsidiary with a direct or indirect interest in any
other Power Generation Facility; (viii) Debt of a Subsidiary, provided that
after giving effect to the incurrence of such new Debt and the retirement of any
Debt to be exchanged or refinanced, the Fixed Charge Ratio of Cogentrix Energy
would be equal to or greater than 2.0 to 1; (ix) Debt Incurred by a Person prior
to the time: (A) such Person became a Subsidiary of Cogentrix Energy; (B) such
Person merges with or into a Subsidiary of Cogentrix Energy; or (C) another
Subsidiary of the Company merges with or into such Person (in a transaction in
which such Person becomes a Subsidiary of Cogentrix Energy); provided that,
giving effect to such transaction, such Debt could have been Incurred at the
time of such merger or acquisition by Cogentrix Energy pursuant to the covenant
described in the first paragraph of "Limitation on Debt" above or by the
Subsidiary pursuant to either of the covenants described in clauses (iii) or
(iv) of this paragraph; (x) Debt Incurred by a Subsidiary of which at least 80%
of each class of Common Stock is owned, directly or indirectly, by Cogentrix
Energy, to another Subsidiary of which at least 80% of each class of Common
Stock is owned, directly or indirectly, by Cogentrix Energy; and (xi) Debt
issued by Cogentrix Delaware Holdings, Inc. under or in respect of Permitted
Working Capital Facilities.
For purposes of determining any particular amount of Debt under this
covenant, Guarantees of, or obligations with respect to letters of credit
supporting, Debt otherwise included in the determination of such particular
amount shall not be included. For purposes of determining compliance with this
covenant, in the event that an item of Debt meets the criteria of more than one
of the types of Debt described in the above clauses, Cogentrix Energy, in its
sole discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses.
Limitation on Restricted Payments
Cogentrix Energy will not, and will not permit any Subsidiary to, directly
or indirectly, make any Restricted Payment after the date of the original
issuance of the Senior Notes if at the time of such Restricted Payment and after
giving effect thereto: (a) an Event of Default or an event that, after the
giving of notice or lapse of time or both, would become an Event of Default,
shall have occurred and be continuing; (b) Cogentrix Energy could not Incur at
least $1 of Debt under the covenant described in the first paragraph of
"Limitation on Debt" above; (c) the aggregate amount of all Restricted Payments
made by Cogentrix Energy and its Subsidiaries (the amount so made, if other than
in cash, to be determined in good faith by the Board of Directors, as evidenced
by a Board resolution) after the date of original issuance of the Senior Notes
shall exceed the sum (without duplication) of: (i) $25 million plus 50% of the
Net Income of Cogentrix Energy and its consolidated Subsidiaries for the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter during which the Senior Notes are issued and ending on the last day of
the fiscal quarter immediately prior to the date of such calculation; provided
that if Net Income for such period is less than zero, then minus 100% of the
amount of such net loss; plus (ii) the aggregate net proceeds (including the
fair market value of proceeds other than cash, as determined in good faith by
the Board of Directors) received by Cogentrix Energy from and after the date of
original issuance of the Senior Notes from the issuance and sale (other than to
a Subsidiary) of its Capital Stock (excluding Redeemable Stock, but including
Capital Stock other than Redeemable Stock issued upon conversion of, or in
exchange for, Redeemable Stock or
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securities other than its Capital Stock), and warrants, options and rights to
purchase its Capital Stock (other than Redeemable Stock), but excluding the net
proceeds from the issuance, sale, exchange, conversion or other disposition of
its Capital Stock convertible (whether at the option of Cogentrix Energy or the
holder thereof or upon the happening of any event) into (x) any security other
than its Capital Stock or (y) its Redeemable Stock; plus (iii) the net reduction
in Investments of the type specified in clause (iv) of the definition of
Restricted Payment resulting from payments of interest on Debt, dividends,
repayments of loans or advances, or other transfers of assets to Cogentrix
Energy or other Person that made the original Investment from the Person in
which such Investment was made; provided that such payment shall not exceed the
amount of the original Investment; plus (iv) any amount previously included as a
Restricted Payment on account of an obligation by Cogentrix Energy or any
Subsidiary to make a Restricted Payment which has not actually been made by
Cogentrix Energy or any Subsidiary and which is no longer required to be made by
Cogentrix Energy or any Subsidiary; provided that the foregoing clause (c) shall
not prevent the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been paid on the date of its declaration
without violation of the provisions of the "Limitation on Restricted Payments"
covenant.
Restricted Payments are defined in the Indenture to exclude Permitted
Payments which include Permitted Investments. See "Certain Definitions" below.
Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries
Cogentrix Energy will not, and will not permit any Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to (a)
pay dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Subsidiary owned by Cogentrix Energy or any other
Subsidiary, (b) make payments in respect of any Debt owed to Cogentrix Energy or
any other Subsidiary of Cogentrix Energy, (c) make loans or advances to
Cogentrix Energy or any other Subsidiary of the Company or (d) transfer any of
its Property to Cogentrix Energy or any other Subsidiary, other than those
encumbrances and restrictions created or existing (i) on the date of the
original issuance of the Senior Notes, (ii) pursuant to the Indenture, (iii) in
connection with the Incurrence of any Debt permitted under the covenant
described in clauses (iii) and (vii) of the second paragraph of "Limitation on
Subsidiary Debt" above; provided that the President or the Chief Financial
Officer of Cogentrix Energy determines in good faith, as evidenced by an
Officers' Certificate, that such encumbrances or restrictions are required in
order to effect such financing and are not materially more restrictive, taken as
a whole, on the ability of the applicable Subsidiary to make the payments,
distributions, loans, advances or transfers referred to in clauses (a) through
(d) above than encumbrances and restrictions, taken as a whole, customarily
accepted (or, in the absence of any industry custom, reasonably acceptable) in
comparable transactions, (iv) in connection with the execution and delivery of
an electric power or thermal energy purchase contract to which such Subsidiary
is the supplying party or other contracts with customers, suppliers and
contractors to which such Subsidiary is a party and where such Subsidiary is
engaged, directly or indirectly, in the development, construction, acquisition
or operation of a Power Generation Facility; provided that the President or the
Chief Financial Officer of Cogentrix Energy determines in good faith, as
evidenced by an Officers' Certificate, that such encumbrances or restrictions
are required in order to effect such contracts and are not materially more
restrictive, taken as a whole, on the ability of the applicable Subsidiary to
make the payments, distributions, loans, advances or transfers referred to in
clauses (a) through (d) above than encumbrances and restrictions, taken as a
whole, customarily accepted (or, in the absence of any industry custom,
reasonably acceptable) in comparable transactions, (v) in connection with any
Debt of a Person outstanding when such Person becomes a Subsidiary permitted
under the covenant described in clause (ix) of the second paragraph of
"Limitation on Subsidiary Debt" above; provided that such encumbrance or
restriction was not Incurred in contemplation of such Subsidiary becoming a
Subsidiary, (vi) in connection with the Incurrence of any Debt permitted under
clause (iv), (v), (vi), (viii) or (to the extent not covered by (iii) above)
(iii) of the covenant described in the second paragraph of "Limitation on
Subsidiary Debt" above; provided that the President or the Chief Financial
Officer of Cogentrix Energy determines in good faith, as evidenced by an
Officers' Certificate, that such encumbrances or restrictions taken as a whole
are not materially more restrictive on the ability of the applicable Subsidiary
to make the payments, distributions, loans, advances or transfers referred to in
clauses (a) through (d) above than those, taken as a whole,
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customarily accepted (or, in the absence of any industry custom, reasonably
acceptable) in comparable financing transactions of the same nature as the Debt
being Incurred, and (vii) customary non-assignment provisions in leases or other
contracts entered into in the ordinary course of business of Cogentrix Energy or
any Subsidiary and (viii) any restrictions imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of any Subsidiary or Joint Venture that apply pending
the closing of such sale or disposition.
Restrictions on Dispositions
Subject to the provisions of "Restrictions on Mergers, Consolidations and
Sales of Assets" below, Cogentrix Energy will not make and will not permit any
of its Subsidiaries to make any Asset Disposition unless Cogentrix Energy (or
the Subsidiary, as the case may be) receives consideration at the time of each
such Asset Disposition at least equal to the fair market value of the securities
or assets sold or otherwise disposed of (determined in good faith by the Board
of Directors, as evidenced by a Board resolution); and first, the Net Cash
Proceeds of such Asset Disposition are applied within 90 days from the later of
the date of such Asset Disposition or the receipt of Net Cash Proceeds related
thereto, to the payment of the principal of and premium, if any, and interest on
any Senior Debt of Cogentrix Energy (including to cash collateralize letters of
credit) if required by the terms, of any Senior Debt and, in connection with any
such payment, any related loan commitment, standby facility or the like shall be
permanently reduced in an amount equal to the principal amount so repaid;
second, to the extent such Net Cash Proceeds are not required by the terms of
the Senior Debt to be applied in accordance with the foregoing or, if after
being so applied there remain Net Cash Proceeds, then at Cogentrix Energy's
election, such Net Cash Proceeds are either (A) applied to the permanent
repayment, prepayment or purchase of other senior indebtedness or invested in
the business or businesses of Cogentrix Energy or any of its Subsidiaries;
provided that such Net Cash Proceeds are applied within 365 days from the later
of the date of such Asset Disposition or the receipt of the Net Cash Proceeds
related thereto or (B) in the case of any Asset Disposition by a Subsidiary,
applied to the payment of any Debt (or as otherwise required under the terms of
such Debt) of such Subsidiary or any Wholly-Owned Subsidiary (other than Debt
owed to Cogentrix Energy or another Subsidiary), and in connection with any such
payment, any related loan commitment, standby facility or the like shall be
permanently reduced by an amount equal to the principal amount so repaid;
provided that such Net Cash Proceeds are so applied within the 365-day period
referred to in clause (A) above; and third, to the extent of any Net Cash
Proceeds from Asset Dispositions that are not applied as provided in clause
first or second above, the balance of such Net Cash Proceeds shall be applied to
make a tender offer to purchase any outstanding 2004 Senior Notes pursuant and
subject to the conditions of the 2004 Indenture at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
purchase date. Any Net Cash Proceeds from Asset Dispositions that are not
applied as provided in clauses first, second and third above shall constitute
"Excess Proceeds." In the event the Company or any Subsidiary shall receive any
Excess Proceeds, such Excess Proceeds shall be applied in the manner described
below to make a tender offer to purchase the then outstanding Senior Notes.
To the extent that any or all of the Net Cash Proceeds of any Foreign Asset
Disposition is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Cash Proceeds so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Subsidiary so long, but only so long, as the
applicable local law will not permit repatriation to the United States
(Cogentrix Energy will agree to promptly take or cause the applicable Subsidiary
to promptly take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Cash Proceeds
is permitted under the applicable local law, such repatriation shall be promptly
effected and such repatriated Net Cash Proceeds will be applied in the manner
set forth in this provision as if such Asset Disposition had occurred on the
date of such repatriation.
To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Cash Proceeds of any Foreign Asset
Disposition would have a material adverse tax consequence to Cogentrix Energy,
the Net Cash Proceeds so affected may be retained outside of the United States
by the applicable Subsidiary for so long as such material adverse tax
consequence would continue.
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In the event of an Asset Disposition that requires the purchase of Senior
Notes pursuant to the covenant described in the last sentence of the first
paragraph of "Restrictions on Dispositions" above, Cogentrix Energy will be
required to make an offer to all holders of the Senior Notes to purchase the
maximum principal amount of Senior Notes (the "Offer") to which the Asset
Disposition offer applies that may be purchased out of the Excess Proceeds at an
offering price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase in accordance with
the procedures set forth in the Indenture. If the aggregate purchase price of
the Senior Notes tendered pursuant to the Offer is less than the Excess
Proceeds, Cogentrix Energy may use the remaining Excess Proceeds for general
corporate purposes. If the aggregate purchase price of the Senior Notes tendered
pursuant to the Offer exceeds the amount of Excess Proceeds, Cogentrix Energy
shall purchase tendered Senior Notes on a pro rata basis. Cogentrix Energy will
not be required to make an Offer if the Excess Proceeds available therefor are
less than $10 million (which lesser amounts will be carried forward and
cumulated for each 36 consecutive month period for purposes of determining
whether an Offer is required with respect to any Excess Proceeds of any
subsequent Asset Dispositions). Any lesser amounts so carried forward and
cumulated need not be segregated or reserved and may be used for general
corporate purposes.
Cogentrix Energy will make such required Offer by mailing to each Holder,
within 30 days from the receipt of any Excess Proceeds, a written notice
specifying the purchase date, which shall be not less than 10 days nor more than
60 days after the date of such notice (the "Purchase Date") and shall contain
certain information concerning the business of Cogentrix Energy which Cogentrix
Energy believes in good faith will enable the Holders to make an informed
decision. Holders electing to have their Senior Notes purchased will be required
to surrender such Senior Notes at least one Business Day prior to the Purchase
Date.
In the event Cogentrix Energy is unable to purchase Senior Notes from
Holders in an Offer because of provisions of applicable law, Cogentrix Energy
need not make an Offer.
Cogentrix Energy will comply with all applicable tender offer rules,
including without limitation Rule 14e-1 under the Exchange Act, in connection
with an Offer under the provisions of the covenant described in "Restrictions on
Dispositions."
Limitations on Transactions with Affiliates
Cogentrix Energy will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction after the date of the
original issuance of the Senior Notes (including, without limitation, the sale,
purchase or lease of any assets or properties or the rendering of any services)
involving aggregate consideration with respect to such transaction in excess of
$2 million with any Affiliate or holder of 5% or more of any class of Capital
Stock of Cogentrix Energy except for transactions (including, subject to the
covenant described in the first paragraph of "Limitation on Restricted Payments"
above, any loans or advances by or to, or guarantee on behalf of, any Affiliate
or holder) made in good faith the terms of which are fair and reasonable to
Cogentrix Energy or such Subsidiary, as the case may be, and are at least as
favorable as the terms which could be obtained by Cogentrix Energy or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis with Persons who are not such a holder or Affiliate; provided
that if such transaction is approved by a majority of the members of the Board
of Directors of Cogentrix Energy (including a majority of Cogentrix Energy's
independent directors) and the related resolutions of the Board of Directors
specifically state that such directors have found the transaction to be on terms
which are fair and reasonable to Cogentrix Energy or any of its Subsidiaries and
on terms which are at least as favorable as the terms which could be obtained on
an arm's-length basis with Persons who are not such a holder or Affiliate, then
such transaction shall be presumed to be on such terms; and provided further
that with respect to the purchase or disposition of assets of Cogentrix Energy
or any of its Subsidiaries having a net book value in excess of $10 million, in
addition to such approval of its Board of Directors, Cogentrix Energy shall
obtain a written opinion of an Independent Financial Advisor stating that the
terms of such transaction are fair to Cogentrix Energy or its Subsidiary, as the
case may be, from a financial point of view; and provided further that the
fairness, reasonableness and arm's-length nature of the terms of any transaction
which is part of a series of related transactions may be determined on the basis
of the terms of the series of related transactions taken as a whole. This
covenant shall not apply to (a) transactions between Cogentrix Energy or any of
its
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Subsidiaries and any employee of Cogentrix Energy or any of its Subsidiaries
(who is not a holder of 5% or more of any class of Capital Stock of Cogentrix
Energy, or a member of such holder's immediate family) that are approved by the
Board of Directors or any committee of the Board of Directors consisting of
Cogentrix Energy's independent directors, (b) the payment of reasonable and
customary regular fees to directors of Cogentrix Energy or a Subsidiary of
Cogentrix Energy (including directors who are employees), (c) any transaction
between Cogentrix Energy and any of its Subsidiaries or between any of its
Subsidiaries, (d) any Permitted Payment and any Restricted Payment not otherwise
prohibited by the covenant described in "Limitations on Restricted Payments"
above or (e) equipment and real property lease transactions with and loans to
ELP outstanding on the date of the Indenture, indebtedness of the shareholders
of Cogentrix Energy outstanding on the date of the Indenture and the agreements
with George T. Lewis, Jr., David J. Lewis and Robert W. Lewis.
Limitations on Liens
Cogentrix Energy may not Incur any Debt which is secured, directly or
indirectly, with, nor will Cogentrix Energy grant or cause or suffer to exist, a
Lien on the Property of Cogentrix Energy now owned or hereafter acquired unless
contemporaneous therewith or prior thereto the Senior Notes are equally and
ratably secured except for (a) any such Debt secured by Liens existing on the
assets of any entity at the time such assets are acquired by the Company,
whether by merger, consolidation, purchase of assets or otherwise; provided that
such Liens (x) are not created, incurred or assumed in contemplation of such
assets being acquired by Cogentrix Energy and (y) do not extend to any other
Property of Cogentrix Energy; (b) any other Debt required to be equally and
ratably secured as a result of the Incurrence of such Debt; (c) Liens on
Cogentrix Energy's interest in Subsidiaries and Joint Ventures in which
Cogentrix Energy is a partner, shareholder, member or other participant, which
Liens are granted in good faith in connection with the acquisition of such
assets or as part of the financing of a Power Generation Facility; provided that
the President or Chief Financial Officer of Cogentrix Energy determines in good
faith, as evidenced by an Officers' Certificate that such Liens are required in
order to effect such financing and are not materially more restrictive, taken as
a whole, than Liens, taken as a whole, customarily accepted (or in the absence
of any industry custom, reasonably acceptable) in substantially Non-Recourse
project financing; (d) Liens on the stock or partnership interests of
Subsidiaries and interests in Joint Ventures in which Cogentrix Energy directly
or indirectly becomes a partner, shareholder, member or other participant, which
Liens are granted in good faith as part of a project financing or the
development of a project; provided that the President or Chief Financial Officer
of Cogentrix Energy determines in good faith, as evidenced by an Officers'
Certificate, that such Liens are required in order to effect such transaction
and are not materially more restrictive, taken as a whole, than Liens, taken as
a whole, customarily accepted (or in the absence of industry custom, reasonably
acceptable) in substantially Non-Recourse project financing; (e) Liens existing
on the date of the original issuance of the Senior Notes; (f) purchase money
Liens incurred to secure Debt incurred by Cogentrix Energy as permitted by the
"Limitation on Debt" covenant, which Debt finances the purchase price of
Property acquired in the ordinary course of business, and which Liens will not
cover any property other than that being purchased, improved or constructed; (g)
Liens on any assets of Cogentrix Energy securing up to $50 million in
obligations pursuant to Permitted Working Capital Facilities and any Guarantees
thereof; (h) Liens incurred in connection with Capitalized Lease Obligations
incurred by Cogentrix Energy as permitted by the "Limitation on Debt" covenant;
(i) Liens in respect of extensions, renewals, refunding or refinancing of any
Debt secured by the Liens referred to in clauses (a), (b), (c), (d), (e), (f),
(g) or (h) above, provided that the Liens in connection with such renewal,
extension, refunding or refinancing shall be limited to all or part of the
specific Property which was subject to the original Lien; (j) any Lien arising
by reason of (A) any judgment, decree or order or any court, so long as such
Lien is being contested in good faith and is adequately bonded, and any
appropriate legal proceedings which may have been duly initiated for the review
of such judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired,
(B) taxes not yet delinquent or which are being contested in good faith, (C)
security for payment of worker's compensation or other insurance, (D) security
for the performance of tenders, contracts (other than contracts for the payment
of money) or leases, (E) deposits to secure public or statutory obligations, or
to secure permitted contracts for the purchase or sale
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of any currency entered into in the ordinary course of business, (F) operation
of law in favor of carriers, warehousemen, landlords, mechanics, materialman,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof,
(G) easements, rights-of-way, zoning and similar covenants and restrictions and
other similar encumbrances or title defects which, in the aggregate, are not
material, and which do not in any case materially detract from the value of the
Property subject thereto or materially interfere with the ordinary conduct of
the business of Cogentrix Energy or (H) leases and subleases of real property
which do not interfere with the ordinary conduct of the business of Cogentrix
Energy, and which are made on customary and usual terms applicable to similar
properties; or (k) Liens in addition to the foregoing, provided that the amount
of the obligations secured by such Liens does not exceed in the aggregate $1
million.
Repurchase of Senior Notes Upon a Change of Control
Upon a Change of Control, each Holder of the Senior Notes shall have the
right to require that Cogentrix Energy repurchase such Holder's Senior Notes at
a repurchase price in cash equal to 101% of the principal amount thereof plus
accrued interest, if any, to the date of repurchase. A Change of Control shall
not be deemed to have occurred if, after giving effect thereto, the Senior Notes
are rated BB+ or better by Standard & Poor's Corporation and Ba1 or better by
Moody's Investors Service, Inc.
The Change of Control provisions may not be waived by the Trustee or by the
Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not necessarily
afford protection to Holders, including protection against an adverse effect on
the value of the Senior Notes, in the event that the Company or its Subsidiaries
Incur additional Debt, whether through recapitalizations or otherwise.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require Cogentrix
Energy to repurchase such Holder's Senior Notes at a repurchase price in cash
equal to 101% of the principal amount thereof plus accrued interest, if any, to
the date of repurchase (the "Change of Control Offer"); (2) the circumstances
and relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); (3) the repurchase date (which shall
be a Business Day and be not earlier than 30 days or later than 60 days from the
date such notice is mailed) (the "Repurchase Date"); (4) that interest on any
Senior Note not tendered will continue to accrue; (5) that interest on any
Senior Note accepted for payment pursuant to the Change of Control Offer shall
cease to accrue after the Repurchase Date; (6) that Holders electing to have a
Senior Note purchased pursuant to a Change of Control Offer will be required to
surrender the Senior Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Note completed, to the paying agent at
the address specified in the notice prior to the close of business on the
Repurchase Date; (7) that Holders will be entitled to withdraw their election if
the paying agent receives, not later than the close of business on the third
Business Day (or such shorter periods as may be required by applicable law)
preceding the Repurchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Senior
Notes the Holder delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Senior Notes purchased; and (8) that
Holders which elect to have their Senior Notes purchased only in part will be
issued new Senior Notes in a principal amount equal to the unpurchased portion
of the Senior Notes surrendered.
On the Business Day preceding the Repurchase Date, Cogentrix Energy shall
(i) accept for payment Senior Notes or portions thereof tendered pursuant to the
Change of Control, (ii) deposit with the Trustee money sufficient to pay the
purchase price of all Senior Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Senior Notes so accepted
together with an Officers' Certificate identifying the Senior Notes or portions
thereof tendered to Cogentrix Energy. The Trustee shall promptly mail to the
Holders of the Senior Notes so accepted payment in an amount equal to the
purchase price, and promptly authenticate and mail to such Holders a new Senior
Note in a principal amount equal to any
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unpurchased portion of the Senior Notes surrendered. Cogentrix Energy will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Repurchase Date.
Cogentrix Energy will comply with all applicable tender offer rules,
including without limitation Rule 14e-1 under the Exchange Act, in connection
with a Change of Control Offer.
RESTRICTIONS ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
Cogentrix Energy may not consolidate with, merge with or into, or transfer
all or substantially all of its assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions), to any Person
unless: (i) Cogentrix Energy shall be the continuing Person, or the Person (if
other than Cogentrix Energy) formed by such consolidation or into which
Cogentrix Energy is merged or to which properties and assets of Cogentrix Energy
are transferred shall be a corporation organized and existing under the laws of
the U.S. or any State thereof or the District of Columbia and shall expressly
assume in writing all the obligations of Cogentrix Energy under the Indenture
and the Senior Notes; (ii) immediately after giving effect to such transaction,
no Event of Default or event or condition which through the giving of notice or
lapse of time or both would become an Event of Default shall have occurred and
be continuing; (iii) the Net Worth of Cogentrix Energy or the surviving entity,
as the case may be, on a pro forma basis after giving effect to such
transaction, is not less than the Net Worth of Cogentrix Energy immediately
prior to such transaction; and (iv) immediately after giving effect to such
transaction on a pro forma basis, Cogentrix Energy or the surviving entity would
be able to Incur at least $1 of Debt under the first paragraph of the
"Limitation on Debt" covenant described above. Notwithstanding the foregoing,
clause (iv) of this covenant shall not prohibit a transaction, the principal
purpose of which is (as determined in good faith by the Board of Directors and
evidenced by a Board resolution) to change the state of incorporation of
Cogentrix Energy, if such transaction does not have as one of its purposes the
evasion of the limitations imposed by the covenant described in this paragraph.
CHANGE IN COVENANTS WHEN SENIOR NOTES ARE RATED INVESTMENT GRADE
Following the first date upon which the Senior Notes are rated Investment
Grade (the "Rating Event Date"), and provided that no Event of Default or event
which with notice or passage of time would constitute an Event of Default shall
exist on the Rating Event Date, the provisions and covenants described under
"Certain Covenants" above (other than "-- Limitations on Transactions with
Affiliates" and "-- Limitations on Liens") and clause (iv) under "Restrictions
on Mergers, Consolidations and Sales of Assets" will no longer be applicable to
the Senior Notes. In addition to the covenants and provisions that will remain
applicable, the covenant described below under "Limitations on Sale/Leaseback
Transactions" will also be applicable. There can be no assurance that a Rating
Event Date will occur or, if one occurs, that the Senior Notes will continue to
be rated Investment Grade. In the event that subsequent to the Rating Event Date
an Event of Default or event which with notice or passage of time would
constitute an Event of Default shall exist with respect to the Senior Notes or
the Senior Notes shall thereafter be rated less than Investment Grade, the
provisions and covenants contained in the Indenture at the time of issuance of
the Senior Notes that cease to be applicable after the Rating Event Date will
not be reinstated.
Limitations on Sale/Leaseback Transactions
The Indenture provides that, following the Rating Event Date, so long as
any of the Senior Notes remain outstanding, neither Cogentrix Energy nor any
Subsidiary shall enter into any arrangement with any Person providing for the
leasing by Cogentrix Energy or a Subsidiary of any assets which have been or are
to be sold or transferred by Cogentrix Energy or such Subsidiary to such Person
(a "Sale/Leaseback Transaction") unless: (i) such transaction involves a lease
for a term, including renewals, of not more than three years; (ii) such
transaction is between Cogentrix Energy or a Subsidiary, on the one hand, and a
Subsidiary of Cogentrix Energy on the other hand; (iii) Cogentrix Energy would
be entitled to incur Debt secured by a Lien on the assets or property involved
in such transaction at least equal in amount to the Attributable Debt with
respect to such Sale/Leaseback Transaction, without equally and ratably securing
the Senior Notes, pursuant to "-- Limitations on Liens" above; or (iv) Cogentrix
Energy (or the Subsidiary, as the case may be) receives
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consideration at the time of each such Sale/Leaseback Transaction at least equal
to the fair market value of the property sold or otherwise disposed of
(determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board resolution) and Cogentrix Energy or a Subsidiary within
365 days following the later of the date of such Sale/Leaseback Transaction or
the receipt of Net Cash Proceeds related thereto, regardless of whether such
sale or transfer may have been made by Cogentrix Energy or such Subsidiary, as
the case may be, applies, in the case of a sale or transfer for cash, an amount
equal to the Net Cash Proceeds thereof and, in the case of a sale or transfer
otherwise than for cash, an amount equal to the fair value of the assets so
leased at the time of entering into such arrangement (as determined by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
resolution) to (a) the retirement of Indebtedness of Cogentrix Energy or any
Subsidiary owed to a Person other than an Affiliate of Cogentrix Energy or (b)
investment in properties or assets that will be used in the business of
Cogentrix Energy or a Subsidiary, as the case may be, existing on the date that
the Senior Notes are issued or in businesses reasonably related thereto.
To the extent that any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction is prohibited or delayed by applicable local law from
being repatriated to the United States, the portion of such Net Cash Proceeds so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Subsidiary so long, but only so long, as the
applicable local law will not permit repatriation to the United States
(Cogentrix Energy will agree to promptly take or cause the applicable Subsidiary
to promptly take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Cash Proceeds
is permitted under the applicable local law, such repatriation shall be promptly
effected and such repatriated Net Cash Proceeds will be applied in the manner
set forth in this provision as if such Sale/Leaseback Transaction had occurred
on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction would have a material adverse tax consequence to
Cogentrix Energy, the Net Cash Proceeds so affected need not be repatriated to
the United States by the applicable Subsidiary for so long as such material
adverse tax consequence would continue.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Cogentrix Energy and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Senior Notes, to modify the
Indenture or any supplemental indenture or the rights of the Holders of the
Senior Notes except that no such modification shall (i) extend the final
maturity of any of the Senior Notes or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
amount payable on redemption thereof, or impair or affect the right of any
Holder to institute suit for the payment thereof or make any change in the
covenant regarding a Change of Control without the consent of the Holder of each
of the Senior Notes so affected, or (ii) reduce the percentage of outstanding
Senior Notes, the consent of the Holders of which is required for any such
modification, without the consent of the Holders of all outstanding Senior
Notes.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default as to
the payment of principal, the Change of Control purchase price or premium, if
any, when due on any Senior Note; (ii) default as to the payment of interest on
any Senior Note 30 days after payment is due; (iii) default on any other Debt of
Cogentrix Energy or any Significant Subsidiary if either (x) such default
results from failure to pay principal of such Debt in excess of $10 million at
final maturity of such Debt, or (y) as a result of such default, the maturity of
such Debt has been accelerated, so that the same shall be or becomes due and
payable prior to the date on which the same would otherwise have become due and
payable and such acceleration shall not be rescinded or annulled within 30 days,
and the principal amount of such Debt, together with the principal amount of any
other Debt of Cogentrix Energy or any Significant Subsidiary in default, or the
maturity of which has been accelerated, aggregates $10 million or more; provided
that such default shall not be an Event of Default if such Debt is Debt of a
Significant Subsidiary, is Non-Recourse to Cogentrix Energy in respect of
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the amounts not paid or due upon acceleration and Cogentrix Energy could, at the
time of default, Incur at least $1 of Debt under the covenant described in the
first paragraph of "Limitation on Debt" above, (iv) default in the performance,
or breach, of any other of the covenants or agreements contained in the
Indenture and the Senior Notes and such failure continues for 30 days after
written notice is given to Cogentrix Energy by the Trustee or the Holders of at
least 25% in principal amount of the outstanding Senior Notes, as provided in
the Indenture, (v) the entry by a court of one or more judgments or orders
against Cogentrix Energy or any Significant Subsidiary for the payment of money
which in the aggregate exceeds $3 million (excluding the amount thereof covered
by insurance or by a bond written by third parties) and which judgments or
orders have not been vacated, discharged or satisfied or stayed pending appeal
within 30 days from the entry thereof; provided, that such a judgment or order
shall not be an Event of Default if such judgment or order is against a
Significant Subsidiary and does not require any payment by Cogentrix Energy and
Cogentrix Energy could, at the expiration of the applicable 30 day period, Incur
at least $1 of Debt under the covenant described in the first paragraph of
"Limitation on Debt" above; and (vi) certain events involving bankruptcy,
insolvency or reorganization of Cogentrix Energy.
The Indenture provides that the Trustee may withhold notice to the Holders
of any default (except in payment of principal of, premium, if any, the Change
of Control purchase price or interest, on the Senior Notes) if the Trustee
considers it in the interest of Holders to do so.
The Indenture provides that if an Event of Default (other than an event of
bankruptcy, insolvency or reorganization of Cogentrix Energy) shall have
occurred and be continuing, either the Trustee or the Holders of not less than
25% in principal amount of the outstanding Senior Notes may declare the
principal of all Senior Notes to be due and payable immediately, but upon
certain conditions such declaration may be annulled and past defaults (except,
unless theretofore cured, a default in payment of principal of, or Change of
Control purchase price or premium, if any, or interest on the Senior Notes) may
be waived by the Holders of a majority in principal amount of the then
outstanding Senior Notes. If an Event of Default due to the bankruptcy,
insolvency or reorganization of Cogentrix Energy occurs, all unpaid principal,
premium, if any, and interest will become immediately due and payable.
The Holders of a majority in principal amount of the then outstanding
Senior Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee under the
Indenture with respect to the Senior Notes, subject to certain limitations
specified in the Indenture; provided that the Holders of Senior Notes shall have
offered to the Trustee reasonable indemnity against expenses and liabilities.
The Indenture requires the annual filing by Cogentrix Energy with the Trustee of
a written statement as to compliance with the principal covenants contained in
the Indenture.
DEFEASANCE
Defeasance and Discharge
The Indenture provides that Cogentrix Energy will be deemed to have paid
and will be discharged from any and all obligations in respect of the Senior
Notes, on the 123rd day after the deposit referred to below has been made, and
the provisions of the Indenture will cease to be applicable with respect to the
Senior Notes (except for, among other matters, certain obligations to register
the transfer or exchange of the Senior Notes, to replace stolen, lost or
mutilated Senior Notes, to maintain paying agencies and to hold monies for
payment in trust) if, among other things, (A) Cogentrix Energy has deposited
with the Trustee, in trust, money and/or U.S. Government Obligations that
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Senior Notes, on the Stated
Maturity of such payments in accordance with the terms of the Indenture and the
Senior Notes, (B) Cogentrix Energy has delivered to the Trustee (i) either (x)
an Opinion of Counsel to the effect that Holders will not recognize income, gain
or loss for federal income tax purposes as a result of Cogentrix Energy's
exercise of its option under the "Defeasance" provision of the Indenture and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge had not occurred, which Opinion of Counsel must be based upon a
ruling of the Internal Revenue Service to the same effect or a
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change in applicable federal income tax law or related treasury regulations
after the date of the Indenture or (y) a ruling directed to the Trustee received
from the Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which Cogentrix Energy is a
party or by which Cogentrix Energy is bound, and (D) if at such time the Senior
Notes are listed on a national securities exchange, Cogentrix Energy has
delivered to the Trustee an Opinion of Counsel to the effect that the Senior
Notes will not be delisted as a result of such deposit, defeasance and
discharge.
Defeasance of Certain Covenants and Certain Events of Default
The Indenture further provides that the provisions of the Indenture will
cease to be applicable with respect to the covenant described in clauses (iii)
and (iv) under "Restrictions on Mergers, Consolidations and Sales of Assets" and
all the covenants described herein under "Certain Covenants" and "Changes in
Covenants When Senior Notes are Rated Investment Grade," clause (iv) under
"Events of Default" with respect to such covenants and with respect to clauses
(iii) and (iv) under "Restrictions on Mergers, Consolidations and Sales of
Assets," and clauses (iii) and (v) under "Events of Default" shall be deemed not
to be Events of Default under the Indenture upon the deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations that through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Senior Notes, on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Senior Notes, the
satisfaction of the provisions described in clauses (B)(ii), (C), and (D) of the
preceding paragraph and the delivery by Cogentrix Energy to the Trustee of an
Opinion of Counsel to the effect that, among other things, the Holders of the
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default
If Cogentrix Energy exercises its option to omit compliance with certain
covenants and provisions of the Indenture with respect to the Senior Notes as
described in the immediately preceding paragraph and the Senior Notes are
declared due and payable because of the occurrence of an Event of Default that
remains applicable, the amount of money and/or U.S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Senior
Notes at the time of their Stated Maturity, but may not be sufficient to pay
amounts due on the Senior Notes at the time of acceleration resulting from such
Event of Default. However, Cogentrix Energy shall remain liable for such
payments.
THE TRUSTEE
First Union National Bank is the Trustee under the Indenture.
GOVERNING LAW
The Indenture and the Senior Notes are governed by, and construed in
accordance with, the law of the State of New York.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Senior Notes will be issued, and
the Old Senior Notes were issued, in fully registered form without interest
coupons. Old Senior Notes sold in offshore transactions in reliance on
Regulation S were initially represented by one global note, in definitive, fully
registered form without interest coupons (the "Regulation S Global Note") and
was deposited with the Trustee as custodian for DTC and registered in the name
of a nominee of DTC for the accounts of Morgan Guaranty Trust Company of New
York, Brussels Office, as operator of the Euroclear System ("Euroclear"), and
Cedel Bank, S.A. ("Cedel"). On or prior to the 40th day after the Issue Date,
beneficial interests in the Regulation S Global Note may be held only through
Euroclear or Cedel, unless delivery is made through the applicable Restricted
Global Note (as defined below) or IAI Global Note (as defined below) in
accordance with the certification requirements described below. Beginning 40
days after the Issue Date (but not earlier), transfers of beneficial interests
in a Regulation S Global Note will not be subject to any restrictions on
transfer or certification requirements.
Old Senior Notes sold in reliance on Rule 144A were initially represented
by one permanent global note in definitive, fully registered form without
interest coupons (the "Restricted Global Note" and, together with the Regulation
S Global Note and the IAI Global Note, the "Global Notes") and was deposited
with the Trustee as custodian for DTC and registered in the name of a nominee of
DTC. The Global Notes are subject to certain restrictions on transfer, and will
bear the legend regarding such restrictions, set forth under "Notice to
Investors." Beneficial interests in a Global Note may be transferred to a Person
who takes delivery in the form of a beneficial interest in a Restricted Global
Note only upon receipt by the Trustee of a written certification (substantially
in the form provided in Exhibit B to the Indenture) to the effect that such
transfer is being made in accordance with Rule 144A or to an Institutional
Accredited Investor (as defined herein) in a transaction exempt from the
registration requirements of the Securities Act and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction. Beneficial interests in a Global Note may be transferred inside
the United States to an Institutional Accredited Investor that (i) is acquiring
such securities for its own account or for the account of an Institutional
Accredited Investor for investment purposes and not with a view to, or for offer
or sale in connection with, any distribution in violation of the Securities Act
and (ii) prior to such transfer, furnishes to Cogentrix Energy a letter
substantially in the form of Exhibit D to the Indenture. Beneficial interests in
a Global Note may be transferred to a Person who takes delivery in form of an
interest in a Regulation S Global Note (whether before or after the 40th day
after the Issue Date, with respect to transfers of beneficial interests in a
Restricted Global Note or IAI Global Note), only upon receipt by Cogentrix
Energy of a written certification from the transferor to the effect that such
transfer is being made in accordance with Rule 903 or 904 of Regulation S. Any
beneficial interest in one of the Global Notes that is transferred to a Person
who takes delivery in the form of an interest in another Global Note will, upon
transfer, cease to be an interest in such Global Note and become an interest in
the other Global Note and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Global Note for as long as it remains such an interest.
Except in the limited circumstances described below under "-- The Global Notes,"
owners of beneficial interests in Global Notes will not be entitled to receive
physical delivery of individual notes in registered form without coupons
("Certificated Notes"). The Old Senior Notes were not issuable, and the Exchange
Senior Notes will not be issuable, in bearer form.
Old Senior Notes transferred to Institutional Accredited Investors who are
not Qualified Institutional Buyers were represented by one permanent global note
in definitive, fully registered form without interest coupons (the "IAI Global
Note").
The Exchange Senior Notes exchanged for Old Senior Notes represented by any
of the Global Notes will continue to be represented by such respective Global
Note unless the beneficial holders thereof request otherwise.
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THE GLOBAL NOTES
Upon the issuance of each Regulation S Global Note, Restricted Global Note
and IAI Global Note, DTC or the custodian credited, on its internal system, the
respective principal amount of the individual beneficial interest represented by
such Global Note to the accounts of Persons who have accounts with such
depository. Such accounts initially were designated by or on behalf of the
Initial Purchasers. Ownership of beneficial interests in a Global Note will be
limited to Persons who have accounts with DTC ("participants") or Persons who
hold interests through participants. Ownership of beneficial interests in the
Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified Institutional Buyers
and Institutional Accredited Investors may hold their interests in the
Restricted Global Note and IAI Global Note, respectively, directly through DTC
if they are participants in such system, or indirectly through organizations
which are participants in such system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such systems.
Beginning 40 days after the Issue Date (but not earlier), investors may also
hold such interests through organizations other than Euroclear and Cedel that
are participants in the DTC system. Cedel and Euroclear will hold interests in a
Regulation S Global Note on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Senior Notes represented by such Global Note for all
purposes under the Indenture and the Senior Notes. Unless DTC notifies Cogentrix
Energy that it is unwilling or unable to continue as depository for a Global
Note, or ceases to be a "Clearing Agency" registered under the Exchange Act,
owners of beneficial interests in a Global Note will not be entitled to have any
portions of such Global Note registered in their names, will not receive or be
entitled to receive physical delivery of Senior Notes in individual definitive
form and will not be considered the owners or holders of the Global Note (or any
Senior Notes represented thereby) under the Indenture or the Senior Notes. In
addition, no beneficial owner of an interest in a Global Note will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture and, if applicable, those of
Euroclear and Cedel.
Payments of the principal of, and interest on, the Global Notes will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither Cogentrix Energy, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficiary ownership interests.
Cogentrix Energy expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. Cogentrix Energy also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in next-day funds. If a Holder
requires physical delivery of a Certificated Note for any reason, including to
sell Senior Notes to Persons in states which require such delivery of such
Senior Notes or to pledge such Senior Notes, such Holder must transfer its
interest in the Global Note in accordance with the normal procedures of DTC and
the procedures set forth in the Indenture. Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Cogentrix Energy understands that DTC will take any action permitted to be
taken by a Holder including the presentation of Senior Notes for exchange) only
at the direction of one or more participants to whose
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account the DTC interests in the Global Notes is credited and only in respect of
such portion of the aggregate principal amount of Senior Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Notes which it will distribute to its participants and which,
if representing interests in the Restricted Global Note or IAI Global Note, will
bear the legend as set forth under the heading "Notice to Investors."
Cogentrix Energy understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Bank Law, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interest in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither Cogentrix Energy nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depository for
the Global Notes and a successor depository is not appointed by Cogentrix within
90 days, Cogentrix will issue Certificated Notes in exchange for the Global
Notes which, in the case of Senior Notes issued in exchange for a Restricted
Global Note or IAI Global Note, will bear the legend referred to under the
heading "Transfer Restrictions."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definitions of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Acquisition Debt" is defined to mean Debt of any Person existing at the
time such Person became a Subsidiary of Cogentrix Energy (or such Person is
merged into Cogentrix Energy or one of its Subsidiaries) or assumed in
connection with the acquisition of assets from any such Person (other than
assets acquired in the ordinary course of business), including Debt Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary of
Cogentrix Energy (but excluding Debt of such Person which is extinguished,
retired or repaid in connection with such Person becoming a Subsidiary of
Cogentrix Energy).
"Adjusted Consolidated Net Income" is defined to mean for any period, for
any Person the aggregate Net Income (or loss) of such Person and its
consolidated Subsidiaries for such period determined in conformity with GAAP
plus the Net Income of any Subsidiary of such Person for prior periods to the
extent such Net Income is actually paid in cash to such Person during such
period plus the Net Income of such Person (other than a Subsidiary thereof) in
which any third Person has a joint interest for prior periods to the extent such
Net Income is actually paid in cash to such Person during such period; provided
that the following items shall be excluded in computing Adjusted Consolidated
Net Income (without duplication): (i) the Net Income (or loss) of such Person
(other than a Subsidiary thereof) in which any third Person has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid in cash to such Person during such period by such Person in which
the joint interest is held, which dividends and distributions shall be included
in such computation; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be
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made pursuant to the covenant described in clause (c)(i) or (c)(ii) of the first
paragraph of "Limitations on Restricted Payments" above (and in such case,
except to the extent includable pursuant to clause (i) above), the Net Income
(if positive) of such Person accrued prior to the date it becomes a Subsidiary
of any other Person or is merged into or consolidated with such other Person or
any of its Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by such other Person or any of its Subsidiaries;
(iii) the Net Income of any Subsidiary of such Person, except to the extent that
(A) such Net Income (if positive) is actually paid in cash to such Person during
such period and (B) such Net Income (if negative) is actually paid in cash to
such Subsidiary during such period; (iv) any gains or losses (on an after-tax
basis) attributable to Asset Sales; (v) the cumulative effect of a change in
accounting principle; and (vi) any amounts paid or accrued as dividends on
Preferred Stock of such Person or Preferred Stock of any Subsidiary of such
Person.
"Affiliate" of any Person is defined to mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) an investment by Cogentrix
Energy or any of its Subsidiaries in any other Person pursuant to which such
Person shall become a Subsidiary of Cogentrix Energy or any of its Subsidiaries
or shall be merged into or consolidated with Cogentrix Energy or any of its
Subsidiaries or (ii) an acquisition by Cogentrix Energy or any of its
Subsidiaries of the Property of any Person other than Cogentrix Energy or any of
its Subsidiaries that constitutes substantially all of an operating unit or
business of such Person.
"Asset Disposition" is defined to mean, with respect to any Person, any
sale, transfer, conveyance, lease or other disposition (including by way of
merger, consolidation or sale-leaseback) by such Person or any of its
Subsidiaries to any Person (other than to such Person or a Subsidiary of such
Person and other than in the ordinary course of business) of (i) any Property of
such Person or any of its Subsidiaries or (ii) any shares of Capital Stock of
such Person's Subsidiaries. For purposes of this definition, any disposition in
connection with directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall not constitute an Asset Disposition. In
addition, the term "Asset Disposition" shall not include (i) any sale, transfer,
conveyance, lease or other disposition of the Capital Stock or assets of
Subsidiaries pursuant to the terms of any power sales agreements or steam sales
agreements to which such Subsidiaries are parties on the date of the original
issuance of the Senior Notes or pursuant to the terms of any power sales
agreements or steam sales agreements to which such Subsidiaries become a party
after such date if the Board of Directors determines in good faith (evidenced by
a Board resolution) that such provisions are necessary in order to effect such
agreements and are reasonable, (ii) any sale, transfer, conveyance, lease or
other disposition of assets governed by the "Restrictions on Mergers,
Consolidations and Sales of Assets" covenant described above, (iii) the sale,
transfer, conveyance, lease or other disposition of the Capital Stock or assets
of the following: (A) Cogentrix of Pennsylvania, Inc.; and (B) ReUse Technology,
Inc. and (iv) any transaction or series of related transactions consisting of
the sale, transfer, conveyance, lease or other disposition of Capital Stock or
assets with a fair market value aggregating less than $5 million. The term
"Asset Disposition" also shall not include (i) the grant of a Lien by any Person
in any assets or shares of Capital Stock securing a borrowing by, or contractual
performance obligation of, such Person or any Subsidiary of such Person or any
Joint Venture in which such Person has an interest, which Lien is not prohibited
under the covenant described in "Limitations on Liens" above or the exercise of
remedies thereunder or (ii) a sale-leaseback transaction involving substantially
all of the assets of a Power Generation Facility where a Subsidiary of Cogentrix
Energy sells the Power Generation Facility to a Person in exchange for the
assumption by that Person of the Debt financing the Power Generation Facility
and the Subsidiary leases the Power Generation Facility from such Person.
"Asset Sale" is defined to mean the sale or other disposition by Cogentrix
Energy or any of its Subsidiaries (other than to Cogentrix Energy or another
Subsidiary of Cogentrix Energy) of (i) all or
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substantially all of the Capital Stock of any Subsidiary of Cogentrix Energy or
(ii) all or substantially all of the Property that constitutes an operating unit
or business of Cogentrix Energy or any of its Subsidiaries.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as of
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with GAAP) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Attributable Value" means, as to a Capitalized Lease Obligation under
which any Person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear on
the face of a balance sheet of such Person in accordance with GAAP.
"Average Life" is defined to mean, at any date of determination with
respect to any Debt security or Preferred Stock, the quotient obtained by
dividing (i) the sum of the product of (A) the number of years from such date of
determination to the dates of each successive scheduled principal or involuntary
liquidation value payment of such Debt security or Preferred Stock,
respectively, multiplied by (B) the amount of such principal or involuntary
liquidation value payment by (ii) the sum of all such principal or involuntary
liquidation value payments.
"Board of Directors" is defined to mean either the Board of Directors of
Cogentrix Energy or any committee of such Board duly authorized to act on behalf
of such Board.
"Business Day" is defined to mean a day which in the city (or in any of the
cities, if more than one) where amounts are payable in respect of the Senior
Notes is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of, or interests in (however designated), the
equity of such Person which is outstanding or issued on or after the date of the
Indenture, including, without limitation, all Common Stock and Preferred Stock
and partnership and joint venture interests of such Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any Property of which the discounted present value of the rental obligations
of such Person as lessee, in conformity with GAAP, is required to be capitalized
on the balance sheet of such Person.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Debt represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty
"Change of Control" is defined to mean the occurrence of one or more of the
following events:
(i) prior to the initial Public Equity Offering Consummation Date, any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, or has the absolute power to direct the vote of,
with respect to the election of directors of Cogentrix Energy, shares of
Capital Stock entitled to cast more than the greater of (x) 35% or (y) the
Original Group Percentage of the votes entitled to be cast with respect to
the election of directors of Cogentrix Energy. The "Original Group
Percentage" shall mean, as of any date of determination, the percentage of
the votes entitled to be cast with respect to the election of directors of
the Company, by the Permitted Holders and by persons who have agreed to
vote as directed by the Permitted Holders with respect to the election of
such directors;
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(ii) subsequent to the initial Public Equity Offering Consummation
Date, any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above), directly or indirectly,
of more than 35% of the total voting power of the Voting Stock of Cogentrix
Energy; provided, however, that the Permitted Holders "beneficially own"
(as so defined), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of Cogentrix
Energy than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (ii),
any person shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation"), if such person "beneficially owns" (as so
defined), directly or indirectly, more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation); or
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors (together with any new
directors elected by such Board of Directors or nominated for election by
the shareholders of Cogentrix Energy by a vote of at least a majority of
the directors of Cogentrix Energy then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred if one or more of the above events occur or circumstances exist
and, after giving effect thereto, the Senior Notes are rated Ba1 or better by
Moody's Investors Service, Inc. and BB+ or better by Standard & Poor's
Corporation.
"Common Stock" is defined to mean with respect to any Person, Capital Stock
of such Person that does not rank prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus (i) income taxes,
excluding income taxes (either positive or negative) attributable to
extraordinary and nonrecurring gains or losses or Asset Sales, all determined on
a consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, (ii) Consolidated Fixed Charges, (iii) depreciation and
amortization expense, all determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP, (iv) all other non-cash
items reducing Adjusted Consolidated Net Income for such period, all determined
on a consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP and (v) the aggregate amount actually received in cash by
such Person during such period relating to non-cash items increasing Adjusted
Consolidated Net Income for prior periods, and less (i) all non-cash items
increasing Adjusted Consolidated Net Income during such period and (ii) the
aggregate amount actually paid in cash by such Person during such period
relating to non-cash items reducing Adjusted Consolidated Net Income for prior
periods; provided that depreciation and amortization expense of any Subsidiary
of such Person and any other non-cash item of any Subsidiary of such Person that
reduces Adjusted Consolidated Net Income shall be excluded (without duplication)
in computing Consolidated EBITDA, except to the extent that the positive cash
flow associated with such depreciation and amortization expense and other
non-cash items is actually distributed in cash to such Person during such
period.
"Consolidated Fixed Charges" of any Person is defined to mean, for any
period, the aggregate of (i) Consolidated Interest Expense, (ii) the interest
component of Capitalized Leases, determined on a consolidated basis for such
Person and its consolidated Subsidiaries in accordance with GAAP excluding any
interest component of Capitalized Leases in respect of that portion of a
Capitalized Lease Obligation of a
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Subsidiary that is Non-Recourse to such Person and (iii) cash and noncash
dividends due (whether or not declared) on the Preferred Stock of any Subsidiary
of such Person and any Redeemable Stock of such Person.
"Consolidated Interest Expense" of any Person is defined to mean, for any
period, the aggregate interest expense in respect of Debt (including
amortization or original issue discount and non-cash interest payments or
accruals) of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Agreements and any amounts paid during such period in respect of such interest
expense, commissions, discounts, other fees and charges that have been
capitalized; provided that Consolidated Interest Expense of Cogentrix Energy
shall not include any interest expense (including all commissions, discounts,
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs associated with Interest Rate Agreements) in
respect of that portion of Debt of a Subsidiary of Cogentrix Energy that is
Non-Recourse to Cogentrix Energy; and provided further that Consolidated
Interest Expense of Cogentrix Energy in respect of a Guarantee by Cogentrix
Energy of Debt of a Subsidiary shall be equal to the commissions, discounts,
other fees and charges that would be due with respect to a hypothetical letter
of credit issued under a bank credit agreement that can be drawn by the
beneficiary thereof in the amount of the Debt so guaranteed if (i) Cogentrix
Energy is not actually making directly or indirectly interest payments on such
Debt and (ii) GAAP does not require Cogentrix Energy on an unconsolidated basis
to record such Debt as a liability of Cogentrix Energy.
"Consolidated Total Assets" is defined to mean, with respect to any Person
at any time, the total assets of such Person and its consolidated Subsidiaries
at such time determined in conformity with GAAP.
"Currency Protection Agreement" is defined to mean with respect to any
Person any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in currency values to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of the
Indenture or becomes a party or a beneficiary thereafter.
"Debt" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or bankers' acceptance or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred purchase price of property or
services, except Trade Payables, (v) the Attributable Value of all obligations
of such Person as lessee under Capitalized Leases, (vi) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; provided that, for purposes of determining the amount of
any Debt of the type described in this clause, if recourse with respect to such
Debt is limited to such asset, the amount of such Debt shall be limited to the
lesser of the fair market value of such asset or the amount of such Debt, (vii)
all Debt of others Guaranteed by such Person to the extent such Debt is
Guaranteed by such Person, (viii) all Redeemable Stock valued at the greater of
its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends and (ix) to the extent not otherwise included in this definition, all
obligations of such Person under Currency Protection Agreements and Interest
Rate Protection Agreements.
"Excess Cash Flow" of any Person for any period is defined to mean
Consolidated EBITDA less Consolidated Fixed Charges less any income taxes
actually paid during such period.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of any Person for the Reference
Period immediately prior to the date of the transaction giving rise to the need
to calculate the Fixed Charge Ratio (the "Transaction Date") to (ii) the
aggregate Consolidated Fixed Charges of such Person during such Reference
Period; provided that for purposes of such computation, in calculating
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom shall be assumed to have occurred on the
first day of the Reference Period, (2) Asset Sales and Asset Acquisitions which
occur during the Reference Period or subsequent to the Reference Period and
prior
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to the Transaction Date (but including any Asset Acquisition to be made with the
Debt Incurred pursuant to (1) above) shall be assumed to have occurred on the
first day of the Reference Period, (3) the Incurrence of any Debt during the
Reference Period or subsequent to the Reference Period and prior to the
Transaction Date and the application of the proceeds therefrom shall be assumed
to have occurred on the first day of such Reference Period, (4) Consolidated
Interest Expense attributable to any Debt (whether existing or being Incurred)
computed on a pro forma basis and bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period unless such Person or any of its
Subsidiaries is a party to an Interest Rate Protection Agreement (which shall
remain in effect for the twelve month period after the Transaction Date) which
has the effect of fixing the interest rate on the date of computation, in which
case such rate (whether higher or lower) shall be used and (5) there shall be
excluded from Consolidated Fixed Charges any Consolidated Fixed Charges related
to any amount of Debt which was outstanding during and subsequent to the
Reference Period but is not outstanding on the Transaction Date, except for
Consolidated Fixed Charges actually incurred with respect to Debt borrowed (as
adjusted pursuant to clause (4)) (x) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
Transaction Date or (y) pursuant to the covenant described in clause (iii) in
the second paragraph of "Limitation on Debt" above. For the purpose of making
this computation, Asset Sales and Asset Acquisitions which have been made by any
Person which has become a Subsidiary of Cogentrix Energy or been merged with or
into Cogentrix Energy or any Subsidiary of Cogentrix Energy during the Reference
Period, or subsequent to the Reference Period and prior to the Transaction Date
shall be calculated on a pro forma basis (including all of the calculations
referred to in clauses (1) through (5) above assuming such Asset Sales or Asset
Acquisitions occurred on the first day of the Reference Period).
"Foreign Asset Disposition" means an Asset Disposition in respect of the
Capital Stock or assets of a Foreign Subsidiary or a Foreign Joint Venture to
the extent that the proceeds of such Asset Disposition are received by a Person
subject in respect of such proceeds to the tax laws of a jurisdiction other than
the United States of America or any State thereof or the District of Columbia.
"Foreign Joint Venture" means a Joint Venture organized under the laws of a
jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
"Foreign Sale/Leaseback Transaction" means a Sale/Leaseback Transaction in
respect of the Capital Stock or assets of a Foreign Subsidiary or a Foreign
Joint Venture to the extent that the proceeds of such Sale/Leaseback Transaction
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.
"Foreign Subsidiary" means a Subsidiary that is organized under the laws of
a jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
"GAAP" is defined to mean generally accepted accounting principles in the
U.S. as in effect as of the date of the Indenture applied on a basis consistent
with the principles, methods, procedures and practices employed in the
preparation of Cogentrix Energy's audited financial statements, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, or to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
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"Holder", "holder of Senior Notes", "Senior Noteholder" and other similar
terms are defined to mean the registered holder of any Senior Note.
"Incur" is defined to mean with respect to any Debt, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such Debt;
provided that neither the accrual of interest (whether such interest is payable
in cash or kind) nor the accretion of original issue discount shall be
considered an Incurrence of Debt.
"Independent Financial Advisor" is defined to mean a nationally recognized
investment banking firm (i) which does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in Cogentrix Energy and (ii) which, in the sole judgment of the Board
of Directors, is otherwise independent and qualified to perform the task for
which such firm is being engaged.
"Interest Rate Protection Agreement" is defined to mean, with respect to
any Person, any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement designed to protect such
Person or any of its Subsidiaries against fluctuations in interest rates to or
under which such Person or any of its Subsidiaries is a party or a beneficiary
on the date of the Indenture or becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly, or other transfer of
assets to, such Person.
"Investment Grade" is defined to mean, with respect to the Senior Notes, a
rating of Baa3 or better by Moody's Investors Service, Inc. and a rating of BBB-
or better by Standard & Poor's Corporation.
"Joint Venture" is defined to mean a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that, as to any such arrangement in corporate form, such corporation
shall not, as to any Person of which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a party.
"Lien" is defined to mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property; provided, however, that the term "Lien" shall not mean any
easements, rights-of-way, restrictions and other similar encumbrances and
encumbrances consisting of zoning restrictions, leases, subleases, licenses,
sublicenses, restrictions on the use of property or defects in the title
thereto. For purposes of the Indenture, Cogentrix Energy shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Net Cash Proceeds" from an Asset Disposition or a Sale/Leaseback
Transaction is defined to mean cash payments received (including any cash
payments received by way of a payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received (including
any cash received upon sale or disposition of such note or receivable),
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property disposed
of in such Asset Disposition or Sale/Leaseback Transaction, as the case may be,
or received in any other noncash form) therefrom, in each case, net of all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred or payable, and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP (i) as a consequence of such
Asset Disposition or Sale/Leaseback Transaction, as the case may be, (ii) as a
result of the repayment of any Debt in any jurisdiction other than the
jurisdiction where the Property disposed of was located or (iii) as a result of
any repatriation to the U.S. of any proceeds of such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, and in each case net of a
reasonable reserve for the after-tax-cost of any indemnification payments (fixed
and contingent) attributable to seller's indemnities to the purchaser undertaken
by Cogentrix Energy or any of its Subsidiaries in connection with such Asset
Disposition or Sale/Leaseback Transaction, as the case may be, (but excluding
any payments, which by the terms of the indemnities will not, under any
circumstances, be made prior to the Stated Maturity of the Senior Notes), and
net of all payments made on any Debt which is secured by such Property, in
accordance with the terms of any Lien upon or with respect to such Property or
which must by its terms or by
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applicable law be repaid out of the proceeds from such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, and net of all distributions and
other payments made to holders of minority interests in Subsidiaries or Joint
Ventures as a result of such Asset Disposition or Sale/Leaseback Transaction, as
the case may be.
"Net Income" of any Person for any period is defined to mean the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"Net Worth" of any Person is defined to mean, as of any date the aggregate
of capital, surplus and retained earnings (including any cumulative translation
adjustment) of such Person and its consolidated Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its consolidated Subsidiaries
prepared as of such date in accordance with GAAP.
"Non-Recourse" to a Person as applied to any Debt (or portion thereof) is
defined to mean that such Person is not, directly or indirectly, liable to make
any payments with respect to such Debt (or portion thereof), that no Guarantee
of such Debt (or portion thereof) has been made by such Person other than a
Guarantee limited in recourse to the Capital Stock of the Person incurring such
Debt (or any shareholder, partner, member or participant of such Person) and
that such Debt (or portion thereof) is not secured by a Lien on any asset of
such Person other than the Capital Stock of the Person incurring such Debt (or
any shareholder, partner, member or participant of such Person) or of the Person
whose obligations were Guaranteed, provided that for purposes of this definition
the status of a Subsidiary as a general partner of a partnership or Joint
Venture shall not, without more, cause such Person to be, directly or
indirectly, liable to make payments with respect to such Debt or constitute a
Guarantee of such Debt for purposes of determining whether Debt is Non-Recourse,
and provided further that none of the following shall cause any Debt to fail to
be Non-Recourse: the incurrence of Debt, Guarantees or Liens jointly by (i)
Cogentrix Eastern Carolina Corporation and Cogentrix of North Carolina, Inc. (or
a successor to the merger or other combination of such entities) with respect to
the cogeneration facilities located at Elizabethtown, Kenansville, Lumberton,
Southport and Roxboro, North Carolina; (ii) Cogentrix Virginia Leasing
Corporation and James River Cogeneration Company (or a successor to the merger
or other combination of such entities) with respect to the cogeneration
facilities located at Portsmouth and Hopewell, Virginia; and (iii) Subsidiaries
or Joint Ventures in which Cogentrix Energy or one of its Subsidiaries is a
partner, shareholder, member or other participant, which become such after the
date of the Indenture, incurred thereafter with respect to the future
development or acquisition of multiple Power Generation Facilities.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors or any Vice Chairman of the Board of
Directors or the President or any Vice President or by the Chief Financial
Officer or the Secretary or any Assistant Secretary of Cogentrix Energy and
delivered to the Trustee. Each such certificate shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in the Indenture
if and to the extent required thereby.
"Opinion of Counsel" is defined to mean an opinion in writing signed by
legal counsel satisfactory to the Trustee, who may be an employee of or counsel
to Cogentrix Energy. Each such opinion shall comply with Section 314 of the
Trust Indenture Act and include the statements provided for in the Indenture, if
and to the extent required thereby.
"Permitted Holders" is defined to mean George T. Lewis, Jr., Betty G.
Lewis, Robert W. Lewis, David J. Lewis, James E. Lewis (collectively, the
"Current Holders"), members of the immediate families of the Current Holders,
trusts for the benefit of the Current Holders or members of the immediate
families of the Current Holders, and a non-profit corporation or foundation
controlled by any of the Permitted Holders. Members of a Person's "immediate
family" shall mean such Person's parents, brothers, sisters, spouse and lineal
descendants.
"Permitted Investment" is defined to mean any Investment of the type
specified in clause (iv) of the definition of Restricted Payment which is made
directly or indirectly by the Company and its Subsidiaries; provided that the
Person in which the Investment is made is (a) a Subsidiary which, directly or
indirectly, is
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or will be engaged in the development, construction, marketing, management,
acquisition, ownership or operation of a Power Generation Facility or (b) a
Joint Venture; provided further, that, in the case of an Investment in a Joint
Venture, (i) at the time such Investment is made, Cogentrix Energy could Incur
at least $1 of Debt under the covenant described in "Limitation on Debt" above;
(ii) at the time such Investment is made, no Event of Default or event that,
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing; and (iii) such Investment is in
a Joint Venture which, directly or indirectly, is or will be engaged in the
development, construction, marketing, management, acquisition, ownership or
operation of a Power Generation Facility.
"Permitted Payments" is defined to mean with respect to Cogentrix Energy or
any of its Subsidiaries (i) any dividend on shares of Capital Stock payable (or
to the extent paid) solely in shares of Capital Stock (other than Redeemable
Stock) or in options, warrants or other rights to purchase Capital Stock (other
than Redeemable Stock); (ii) any dividend or other distribution payable to
Cogentrix Energy by any of its Subsidiaries or by a Subsidiary to a Wholly-Owned
Subsidiary; (iii) the repurchase or other acquisition or retirement for value of
any shares of Cogentrix Energy's Capital Stock, or any option, warrant or other
right to purchase shares of Cogentrix Energy's Capital Stock with additional
shares of, or out of the proceeds of a substantially contemporaneous issuance
of, Capital Stock other than Redeemable Stock (unless the redemption provisions
of such Redeemable Stock prohibit the redemption thereof prior to the date on
which the Capital Stock to be acquired or retired was by its terms required to
be redeemed); (iv) any defeasance, redemption, repurchase or other acquisition
for value of any Debt which by its terms ranks subordinate in right of payment
to the Senior Notes with the proceeds from the issuance of (x) Debt which is
also subordinate to the Senior Notes at least to the extent and in the manner as
the Debt to be defeased, redeemed, repurchased or otherwise acquired is
subordinate in right of payment to the Senior Notes; provided that such
subordinated Debt provides for no payments of principal by way of sinking fund,
mandatory redemption or otherwise (including defeasance) by Cogentrix Energy
(including, without limitation, at the option of the holder thereof other than
an option given to a holder pursuant to an "asset disposition" or a "change of
control" covenant which is no more favorable to the holders of such Debt than
the provisions contained in the "Asset Disposition" or the "Change of Control"
covenant described above and such Debt provides that the Company will not
repurchase such Debt pursuant to such provisions prior to Cogentrix Energy's
repurchase of the Senior Notes required to be repurchased by Cogentrix Energy
pursuant to the "Change of Control" or the "Asset Disposition" covenant
described above) prior to, or in an amount greater than, any Stated Maturity of
the Debt being replaced and the proceeds of such subordinated Debt are utilized
for such purpose within 45 days of issuance or (y) Capital Stock (other than
Redeemable Stock); (v) in respect of any actual payment on account of an
Investment (other than a Permitted Investment) which is not fixed in amount at
the time when made, the amount determined by the Board of Directors to be a
Restricted Payment on the date such Investment was originally deemed to have
been made (the "Original Restricted Payment Charge") plus an amount equal to the
interest on a hypothetical investment in a principal amount equal to the
Original Restricted Payment Charge assuming interest at a rate of 7% per annum
compounded annually for a period beginning on the date the Investment was
originally deemed to have been made and ending with respect to any portion of
the Original Restricted Payment Charge actually paid on the date of actual
payment less any actual payments previously made on account of such Investment;
provided that the Permitted Payment under this clause (v) shall in no event
exceed the payment actually made; (vi) any amount required to be paid with
respect to an obligation outstanding on the date of the original issuance of the
Senior Notes or (vii) a Permitted Investment.
"Permitted Working Capital Facilities" is defined to mean one or more
credit agreements providing for the extension of credit to Cogentrix Energy
and/or its Subsidiary Cogentrix Delaware Holdings, Inc. for working capital
purposes in an aggregate principal amount at any one time outstanding not to
exceed $125 million, provided, however, that such limit shall not apply
following the Rating Event Date.
"Person" is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Power Generation Facility" is defined to mean an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management and, to the extent such
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facilities are in existence on the date of original issuance of the Senior Notes
or are required by contract or applicable law, rule or regulation, facilities
that use thermal energy from a cogeneration facility), and its or their related
electric power transmission, fuel supply and fuel transportation facilities,
together with its or their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management or operation of the foregoing, as well as other
contractual arrangements with customers, suppliers and contractors.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of preferred or preference stock of such Person
which is outstanding or issued on or after the date of original issuance of the
Senior Notes.
"Property" of any Person is defined to mean all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person under
GAAP.
"Public Equity Offering" means a public offering (registered under the
Securities Act of 1933) of Common Stock of Cogentrix Energy made after the date
of original issuance of the Senior Notes.
"Public Equity Offering Consummation Date" means the date on which
Cogentrix Energy receives any proceeds from a Public Equity Offering.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Senior Notes, (ii) redeemable at the option
of the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Senior Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Debt having a
scheduled maturity prior to the Stated Maturity of the Senior Notes; provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require Cogentrix Energy
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
disposition" or a "change of control" occurring prior to the Stated Maturity of
the Senior Notes shall not constitute Redeemable Stock if the "asset sale" or
"change of control" provision applicable to such Capital Stock is no more
favorable to the holders of such Capital Stock than the provisions contained in
the covenants described in "Restrictions on Dispositions" and "Change of
Control" above and such Capital Stock specifically provides that Cogentrix
Energy will not repurchase or redeem any such Capital Stock pursuant to such
provisions prior to Cogentrix Energy's repurchase of the Senior Notes required
to be repurchased by Cogentrix Energy under the covenants described in
"Restrictions on Dispositions" and "Change of Control" above.
"Reference Period" is defined to mean the four complete fiscal quarters for
which financial information is available preceding the date of a transaction
giving rise to the need to make a financial calculation.
"Restricted Payment" is defined to mean, with respect to any Person, (i)
any dividend or other distribution on any shares of such Person's Capital Stock;
(ii) any payment on account of the purchase, redemption, retirement or
acquisition for value of such Person's Capital Stock; (iii) any defeasance,
redemption, repurchase or other acquisition or retirement for value prior to the
Stated Maturity of any Debt ranked subordinate in right of payment to the Senior
Notes; and (iv) any Investment made in an Affiliate (other than Cogentrix Energy
or Delaware Holdings). Notwithstanding the foregoing, "Restricted Payment" shall
not include any Permitted Payment.
"Senior Debt" is defined to mean the principal of and interest on all Debt
of Cogentrix Energy whether created, Incurred or assumed before, on or after the
date of original issuance of the Senior Notes (other than the Senior Notes);
provided that Senior Debt shall not include (i) Debt that, when Incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, was Non-Recourse to Cogentrix Energy, (ii) Debt of Cogentrix Energy to any
Affiliate and (iii) any Debt of Cogentrix Energy which by the terms of the
instrument creating or evidencing the same is specifically designated as not
being senior in right of payment to the Senior Notes.
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"Significant Subsidiary" of a Person is defined to mean, as of any date,
any Subsidiary, or two or more Subsidiaries taken together in the event of a
cross-collateralization of such multiple Subsidiaries' Debt, which has two or
more of the following attributes: (i) it contributes 20% or more of such
Person's Excess Cash Flow for its most recently completed fiscal quarter or (ii)
it contributed 15% or more of Net Income before tax of such Person and its
consolidated Subsidiaries for such Person's most recently completed fiscal
quarter or (iii) it constituted 20% or more of Consolidated Total Assets of such
Person at the end of such Person's most recently completed fiscal quarter.
"Stated Maturity" is defined to mean, with respect to any debt security or
any installment of interest thereon, the date specified in such debt security as
the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation or other entity of which a majority of the Capital Stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) that
has become publicly available at least two business days prior to the date fixed
for redemption (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining years to Stated Maturity of the Senior Notes; provided that if the
number of years to Stated Maturity of the Senior Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given except that if the average life to Stated Maturity of the Senior Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"U.S. Government Obligations" is defined to mean securities which are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the U.S.,
which, in either case are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors (or persons fulfilling similar responsibilities) of such Person.
"Wholly-Owned Subsidiary" is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Capital Stock or other ownership
interests in such Subsidiary having ordinary voting power to elect the entire
board of directors or entire group of other persons performing similar functions
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly, by one or more
Wholly-Owned Subsidiaries of such Person's Wholly-Owned Subsidiaries, by such
Person.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
THE 2004 SENIOR NOTES
On March 15, 1994, the Company issued $100 million aggregate principal
amount of 2004 Senior Notes in an underwritten public offering. The 2004 Senior
Notes are unsecured obligations of the Company and will rank pari passu with the
Senior Notes offered hereby.
The 2004 Senior Notes bear interest at a rate of 8.10% per annum payable
semiannually on March 15 and September 15 of each year and mature on March 15,
2004. They are redeemable at any time at the option of the Company at a
redemption price equal to (i) the then outstanding principal amount of the 2004
Senior Notes plus accrued and unpaid interest thereon to the date of redemption
plus (ii) a premium equal to the excess of (A) the present value at the time of
redemption of the principal amount of the 2004 Senior Notes plus any required
interest payments due on the 2004 Senior Notes through Stated Maturity (as
defined) computed using a discount rate equal to the Treasury Rate (as defined)
plus 50 basis points over (B) the then outstanding principal amount of the 2004
Senior Notes. Upon a Change of Control (as defined), each holder of 2004 Senior
Notes will have the right to require the Company to repurchase such 2004 Senior
Notes at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued interest, if any, to the date of repurchase. The 2004
Indenture contains covenants that are substantially the same as the covenants
contained in the Indenture and which, among other things, limit (i) the
incurrence of additional debt by the Company and its subsidiaries, (ii) the
payment of dividends on and redemptions of capital stock by the Company and its
subsidiaries, (iii) the use of proceeds from the sale of assets and subsidiary
stock, (iv) transactions with affiliates, (v) the incurrence of liens, (vi) sale
and leaseback transactions and (vii) consolidations, mergers and certain
transfers of assets.
The foregoing summary describes certain provisions of the 2004 Indenture
and the 2004 Senior Notes. A copy of the 2004 Indenture is available upon
request made to the Company or any of the Initial Purchasers. The foregoing
summary does not purport to be complete and is subject to and is qualified in
its entirety by reference to the 2004 Indenture and the form of 2004 Senior
Notes.
CORPORATE CREDIT FACILITY
The Corporate Credit Facility is a revolving credit facility that provides
for direct advances to, or the issuance of letters of credit for, the benefit of
the Company in an amount up to $100 million. The Corporate Credit Facility is
unsecured and imposes covenants on the Company substantially the same as the
covenants contained in the Indentures as well as certain financial condition
covenants. The Company has used approximately $54 million of the credit
availability under the Corporate Credit Facility for the letter of credit issued
in connection with the acquisition of the Company's interest in the Batesville
Facility. See "Business -- Facility under Construction." The balance of the
commitment under the Corporate Credit Facility is available, subject to any
limitations imposed by the covenants contained therein and in the Indentures, to
be drawn upon by the Company to repay other outstanding indebtedness or for
general corporate purposes, including equity investments in new projects or
acquisitions of existing electric generating facilities or those under
development.
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TRANSFER RESTRICTIONS
Unless and until an Old Senior Note is exchanged for an Exchange Senior
Note pursuant to the Exchange Offer, it will bear the following legend on the
face thereof,
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF THIS
NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF
WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $250,000, AN
OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASERS
FROM IT OF THIS NOTE OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion set forth in this summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and
proposed Treasury regulations thereunder ("Treasury Regulations"), and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change (possibly on a retroactive
basis). Legislative, judicial or administrative changes or interpretations may
be forthcoming that could affect the tax consequences to holders of Old Senior
Notes and Exchange Senior Notes.
This summary is for general information only and does not purport to
address all of the federal income tax consequences that may be applicable to a
holder of Old Senior Notes or Exchange Senior Notes. The tax treatment of a
holder of Old Senior Notes or Exchange Senior Notes may vary depending on its
particular situation. For example, certain holders, including individual
retirement and other tax-deferred accounts, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
individuals who are not citizens or residents of the United States, may be
subject to special rules not discussed
109
<PAGE> 114
below. In addition, this discussion addresses the tax consequences to the
initial holders of the Old Senior Notes and not the tax consequences to
subsequent transferees of the Old Senior Notes or Exchange Senior Notes.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES SET FORTH BELOW AND ANY OTHER FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD SENIOR NOTES FOR EXCHANGE SENIOR
NOTES AND OF HOLDING AND DISPOSING OF THE OLD SENIOR NOTES AND EXCHANGE SENIOR
NOTES.
EXCHANGE OFFER
Under Section 1001 of the Code modifications in debt instruments may in
certain cases be deemed to constitute a taxable exchange of the existing debt
instrument for a new debt instrument. The Internal Revenue Service (the "IRS")
has issued Regulations providing rules for determining when a modification of a
debt instrument constitutes a taxable exchange. Because the terms of the
Exchange Senior Notes are identical to the terms of the Old Senior Notes (except
that the Exchange Senior Notes will not contain terms with respect to transfer
restrictions), each Exchange Senior Note will be viewed as a continuation of the
corresponding Old Senior Note, the issuance of the Exchange Senior Note will be
disregarded for federal income tax purposes, and a holder exchanging an Old
Senior Note for an Exchange Senior Note (as well as a non-exchanging holder)
will not recognize any gain or loss as a result of the exchange (or the
Registered Exchange Offer).
STATED INTEREST
A holder of an Old Senior Note or an Exchange Senior Note will be required
to report as income for federal income tax purposes interest earned on an Old
Senior Note or an Exchange Senior Note in accordance with the holder's method of
tax accounting. A holder of an Old Senior Note or an Exchange Senior Note using
the accrual method of accounting for tax purposes is, as a general rule,
required to include interest in ordinary income as such interest accrues, while
a cash basis holder must include interest income when cash payments are received
(or made available for receipt) by such holder.
ORIGINAL ISSUE DISCOUNT
Because the Old Senior Notes were issued with original issue discount
("OID") within the meaning of Sections 1272 and 1273 of the Code and the
pertinent Treasury Regulations, holders of the Old Senior Notes and Exchange
Senior Notes generally will be required to include such OID in gross income as
it accrues. The total amount of OID with respect to each Old Senior Note or
Exchange Senior Note is the excess of its "stated redemption price at maturity"
over its "issue price". The "issue price" of the Old Senior Notes and Exchange
Senior Notes was 99.518% of the aggregate principal amount of Old Senior Notes
and Exchange Senior Notes outstanding which was the first price at which a
substantial amount of Old Senior Notes were sold. The "stated redemption price
at maturity" of the Old Senior Notes or Exchange Senior Notes is the sum of all
payments provided by the Old Senior Notes or Exchange Senior Notes other than
"qualified stated interest" payments. The term "qualified stated interest"
generally means stated interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. A holder of an Old Senior Note or an Exchange Senior Note is
required to include the OID in income for federal income tax purposes as it
accrues under a "constant yield method" regardless of such holder's method of
accounting for tax purposes. The Company will furnish to the IRS and to record
holders of the Old Senior Notes and the Exchange Senior Notes information with
respect to the OID accruing during the calendar year (as well as interest paid
during that year).
SALE, EXCHANGE, OR REDEMPTION OF AN OLD SENIOR NOTE OR AN EXCHANGE SENIOR NOTE
Upon the sale, exchange (other than pursuant to the Exchange Offer as
discussed above), or redemption of an Old Senior Note or an Exchange Senior
Note, a holder will recognize taxable gain or loss equal to the difference
between (i) the amount of cash and the fair market value of property received
(other than amounts received attributable to interest not previously taken into
account, which amount will be treated as interest received), and (ii) the
holder's adjusted tax basis in the Old Senior Note or Exchange Senior Note. A
holder's
110
<PAGE> 115
adjusted tax basis in an Old Senior Note or Exchange Senior Note generally will
equal the cost of the Old Senior Note or Exchange Senior Note to the holder,
increased by the amount of any OID previously included in income by the holder
with respect to the Old Senior Note or Exchange Senior Note and reduced by any
payments previously received by the holder with respect to the Old Senior Note
or Exchange Senior Note, other than qualified stated interest payments, and by
any premium amortization deductions previously claimed by the holder. Provided
that the Old Senior Note or Exchange Senior Note is a capital asset in the hands
of the holder and has been held for more than one year, any gain or loss
recognized by the holder will generally be a long-term capital gain or loss.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of an Old Senior Note or an
Exchange Senior Note may be subject to a backup withholding at the rate of 31%
on interest paid on the Old Senior Note or Exchange Senior Note or on any cash
payment with respect to the sale or redemption of the Old Senior Note or
Exchange Senior Note unless (i) such holder is a corporation or comes under
certain other exempt categories and when required demonstrates this fact or (ii)
such holder provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules in the Treasury
Regulations.
The Company will report to the holders of the Old Senior Notes and Exchange
Senior Notes and to the IRS the amount of any "reportable payments" for each
calendar year and the amount of tax withheld, if any, with respect to payments
on the Old Senior Notes and Exchange Senior Notes.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the holder's federal income tax liability, provided
that the required information in furnished to the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED
TO BE, LEGAL OR TAX ADVICE WITH RESPECT TO THE CONSEQUENCES OF THE EXCHANGE,
OWNERSHIP, AND DISPOSITION OF THE OLD SENIOR NOTES AND EXCHANGE SENIOR NOTES
(INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX
LAWS).
111
<PAGE> 116
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Senior Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Senior Notes received
in exchange for Old Senior Notes where such Old Senior Notes were acquired as a
result of market-making activities or other trading activities. Cogentrix Energy
has agreed that it will make this Prospectus, as it may be amended or
supplemented from time to time, available to any broker-dealer for use in
connection with any such resale for a period of 180 days from the date of this
Prospectus, or such shorter period as will terminate when all Old Senior Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for Exchange Senior
Notes and resold by such broker-dealers.
Cogentrix Energy will not receive any proceeds from any sale of Exchange
Senior Notes by broker-dealers. Exchange Senior Notes received by broker-dealers
for their own accounts pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market or, in
negotiated transactions or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Senior Notes. Any broker-dealer that resells
Exchange Senior Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Senior Notes may be deemed to be an "Underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Senior Notes and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Old Senior Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for Exchange Senior Notes and resold by such
broker-dealers, Cogentrix Energy will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal.
Cogentrix Energy has agreed to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Senior Notes offered hereby will be passed
upon for the Company by Moore & Van Allen, PLLC, Charlotte, North Carolina.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1997 and June 30, 1997 and 1996 and for the six-month period ended December 31,
1997 and for each of the three fiscal years in the period ended June 30, 1997
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report appearing herein.
The financial statements of LSP-Cottage Grove L.P. and LSP-Whitewater
Limited Partnership as of December 31, 1997 and for the year then ended included
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
The financial statements of LSP-Cottage Grove L.P. and LSP-Whitewater
Limited Partnership as of December 31, 1996 and for each of the two fiscal years
in the period ended December 31, 1996 included in this Prospectus have been
audited by KPMG Peat Marwick LLP, independent public accountants, as stated in
their report appearing herein.
112
<PAGE> 117
The combined financial statements of Logan Generating Company, L.P.,
Keystone Urban Renewal Limited Partnership, Northampton Generating Company, L.
P. and its subsidiaries, Chambers Cogeneration Limited Partnership and
Scrubgrass Generating Company, L.P. and its subsidiaries as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report appearing herein.
The combined financial statements of Birch Power Corporation, Cedar Power
Corporation, Hickory Power Corporation, Palm Power Corporation and Panther Creek
Leasing, Inc. as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The combined financial statements of Indiantown Cogeneration, L.P. and
Cedar Bay Generating, L.P. as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997 included in this Prospectus
have been audited by Arthur Andersen, LLP, independent public accountants, as
stated in their report appearing herein.
The consolidated financial statements of J. Makowski Company, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been audited by Arthur
Andersen, LLP, independent public accountants, as stated in their report
appearing herein.
The combined financial statements of Selkirk Cogen Partners, LP and Mass
Power as of December 31, 1997 and 1996 and for each of the three fiscal years in
the period ended December 31, 1997 included in this Prospectus have been audited
by Arthur Andersen, LLP, independent public accountants, as stated in their
report appearing herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Cogentrix Energy's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, its Transition Report on Form 10-K for the six-month period ended
December 31, 1997, its Quarterly Reports on Form 10-Q for the quarterly period
ended March 31, 1998 and the quarterly period ended June 30, 1998, its Current
Reports on Form 8-K filed January 12, 1998, March 10, 1998 and March 23, 1998,
April 6, 1998, September 4, 1998 and November 4, 1998 and its Current Reports on
Form 8-K/A filed June 2, 1998 and November 12, 1998 have been filed by Cogentrix
Energy with the Commission and are incorporated herein by reference.
All documents filed by Cogentrix Energy with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of any offering of Senior Notes made by this Prospectus
shall be deemed to be incorporated by reference into this Prospectus and to be a
part of this Prospectus from the respective dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement or document so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents described above
that are incorporated by reference herein other than exhibits to such documents
which are not specifically incorporated by reference in such documents. Written
or telephone requests should be directed to: Cogentrix Energy, Inc., 9405
Arrowpoint Boulevard, Charlotte, North Carolina 28273, telephone number (704)
525-3800.
113
<PAGE> 118
INDEX TO
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets at June 30, 1998 (unaudited),
December 31, 1997, June 30, 1997 and June 30, 1996........ F-4
Consolidated Statements of Operations for the Six-Month
Periods Ended June 30, 1998 (unaudited) and 1997
(unaudited), the Six-Month Periods Ended December 31, 1997
and 1996 (unaudited), and the Years Ended June 30, 1997,
1996 and 1995............................................. F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Six-Month Period Ended June 30, 1998 (unaudited),
the Six-Month Period Ended December 31, 1997, and the
Years Ended June 30, 1997, 1996 and 1995.................. F-6
Consolidated Statements of Cash Flows for the Six-Month
Periods Ended June 30, 1998 (unaudited) and 1997
(unaudited), the Six-Month Periods Ended December 31, 1997
and 1996 (unaudited), and the Years Ended June 30, 1997,
1996 and 1995............................................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 119
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.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 20, 1998
F-2
<PAGE> 120
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 (not presented separately herein). 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
F-3
<PAGE> 121
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997, AND JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1998 1997 1997 1996
----------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 31,611 $ 71,833 $ 62,596 $ 33,351
Restricted cash........................................... 50,840 27,742 30,888 42,203
Marketable securities..................................... 0 42,118 21,494 0
Restricted investments.................................... 0 0 20,000 0
Accounts receivable....................................... 62,247 49,781 57,880 57,331
Inventories............................................... 18,054 15,210 15,723 19,086
Other current assets...................................... 4,465 2,465 5,779 2,883
---------- -------- -------- --------
Total current assets............................... 167,217 209,149 214,360 154,854
NET INVESTMENT IN LEASES.................................... 497,332 0 0 0
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation: June 30, 1998, $206,961; December 31, 1997,
$188,227; June 30, 1997, $169,761; June 30, 1996,
$156,215.................................................. 488,186 496,589 514,449 604,491
LAND AND IMPROVEMENTS....................................... 2,540 2,540 2,540 2,424
DEFERRED FINANCING, START-UP AND ORGANIZATION COSTS, net of
accumulated amortization: June 30, 1998, $13,681; December
31, 1997, $16,592; June 30, 1997, $17,509; June 30, 1996,
$19,653................................................... 31,414 21,085 22,601 25,105
RESTRICTED INVESTMENTS...................................... 0 0 0 63,695
NATURAL GAS RESERVES........................................ 1,958 2,384 2,829 3,611
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.................... 77,503 79,072 84,599 56,028
OTHER ASSETS................................................ 21,555 12,155 18,450 11,433
---------- -------- -------- --------
$1,287,705 $822,974 $859,828 $921,641
========== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 84,493 $ 74,680 $ 62,370 $ 48,416
Accounts payable.......................................... 27,734 13,755 22,147 21,453
Accrued compensation...................................... 4,290 4,923 12,290 4,393
Accrued interest payable.................................. 3,491 2,935 3,308 4,063
Accrued dividends payable................................. 0 2,140 5,000 4,759
Other accrued liabilities................................. 12,070 8,182 13,040 8,816
---------- -------- -------- --------
Total current liabilities.......................... 132,078 106,615 118,155 91,900
LONG-TERM DEBT.............................................. 964,820 595,112 631,624 670,900
DEFERRED INCOME TAXES....................................... 32,064 25,872 23,074 46,971
MINORITY INTERESTS.......................................... 56,752 15,131 14,354 22,044
OTHER LONG-TERM LIABILITIES................................. 24,231 21,946 22,912 6,816
---------- -------- -------- --------
1,209,945 764,676 810,119 838,631
---------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding................... 130 130 130 130
Net unrealized gain on available for sale securities...... 0 26 0 0
Accumulated earnings...................................... 77,630 58,142 49,579 82,880
---------- -------- -------- --------
77,760 58,298 49,709 83,010
---------- -------- -------- --------
$1,287,705 $822,974 $859,828 $921,641
========== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-4
<PAGE> 122
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED),
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 SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, YEAR ENDED JUNE 30,
------------------------- ---------------------- ------------------------------
1998 1997 1997 1996 1997 1996 1995
----------- ----------- -------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Electric................................ $146,368 $152,294 $154,810 $162,909 $315,203 $356,459 $357,674
Steam................................... 13,705 13,402 12,721 13,284 26,686 27,703 23,320
Lease revenue........................... 12,433 0 0 0 0 0 0
Service revenue under sales-type capital
leases................................ 13,252 0 0 0 0 0 0
Income from unconsolidated investments
in power projects..................... 1,797 226 1,186 348 574 3,862 1,116
Other................................... 7,301 5,735 9,229 4,608 10,343 22,522 2,992
-------- -------- -------- -------- -------- -------- --------
194,856 171,657 177,946 181,149 352,806 410,546 385,102
-------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Fuel expense............................ 38,924 60,055 60,500 71,350 131,405 171,310 168,184
Operations and maintenance.............. 32,272 36,043 33,189 36,998 73,041 74,272 66,822
Cost of services under sales-type
capital leases........................ 15,339 0 0 0 0 0 0
General, administrative and development
expenses.............................. 19,152 23,408 18,242 16,017 39,425 29,983 30,499
Depreciation and amortization........... 20,615 21,345 20,407 18,610 40,047 37,842 37,642
Loss on impairment and cost of removal
of cogeneration facilities............ 0 0 0 65,628 65,628 0 0
-------- -------- -------- -------- -------- -------- --------
126,302 140,851 132,338 208,603 349,546 313,407 303,147
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)................... 68,554 30,806 45,608 (27,454) 3,260 97,139 81,955
OTHER INCOME (EXPENSE):
Interest expense........................ (33,085) (28,184) (25,680) (28,144) (56,328) (58,354) (59,621)
Investment and other income............. 3,865 5,455 4,334 7,729 13,184 7,478 8,269
Equity in net income (loss) of
unconsolidated affiliates, net........ (85) 183 (1,813) (1,088) (813) (1,758) 8,696
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS IN
INCOME, INCOME TAXES AND EXTRAORDINARY
LOSS.................................... 39,249 8,260 22,449 (48,957) (40,697) 44,505 39,299
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS...................... (5,613) (2,399) (2,273) (1,614) (4,013) (4,749) (4,789)
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS...................... 33,636 5,861 20,176 (50,571) (44,710) 39,756 34,510
BENEFIT (PROVISION) FOR INCOME TAXES...... (13,405) (1,783) (7,971) 18,895 17,112 (15,961) (13,337)
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS... 20,231 4,078 12,205 (31,676) (27,598) 23,795 21,173
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and
income tax benefit...................... (743) 0 (1,502) (703) (703) 0 0
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ 19,488 $ 4,078 $ 10,703 $(32,379) $(28,301) $ 23,795 $ 21,173
======== ======== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary
loss.................................. $ 71.74 $ 14.46 $ 43.28 $(112.32) $ (97.87) $ 84.38 $ 75.08
Extraordinary loss...................... (2.63) 0.00 (5.33) (2.49) (2.49) 0.00 0.00
-------- -------- -------- -------- -------- -------- --------
$ 69.11 $ 14.46 $ 37.95 $(114.81) $(100.36) $ 84.38 $ 75.08
======== ======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................. 282,000 282,000 282,000 282,000 282,000 282,000 282,000
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE> 123
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED), 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 gain on available for sale
securities, net of deferred income tax
provision 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
Net unrealized loss on available for sale
securities, net of deferred income tax
benefit of $14.......................... 0 (26) 0 (26)
Net income (unaudited).................... 0 0 19,488 19,488
---- ----- -------- --------
Balance, June 30, 1998 (unaudited)........ $130 $ 0 $ 77,630 $ 77,760
==== ===== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE> 124
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED),
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 SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, YEAR ENDED JUNE 30,
------------------------- ---------------------- ------------------------------
1998 1997 1997 1996 1997 1996 1995
----------- ----------- -------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 19,488 $ 4,078 $ 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........... 20,615 21,345 20,407 18,610 40,047 37,842 37,642
Loss on impairment and cost of removal
of cogeneration facilities............ 0 0 0 65,628 65,628 0 0
Deferred income taxes................... 6,192 295 4,628 (24,192) (27,585) 8,569 7,718
Extraordinary loss on early
extinguishment of debt, non-cash
portion............................... 2,145 0 1,395 1,173 1,173 0 0
Minority interests in income, net of
dividends............................. (18,909) 1,158 777 (8,848) (7,690) 3,407 3,680
Gain on sale of investment in Bolivian
Power................................. 0 0 (3,243) (3,137) 0 0
Equity in net (income) loss of
unconsolidated affiliates............. 1,716 (409) 627 740 239 (2,104) (11,057)
Dividends received from unconsolidated
affiliates............................ 0 0 8,491 288 7,152 617 14,853
Loss on sale of securities, net......... 0 0 0 0 0 890 0
Minimum lease payments received......... 11,742 0 0 0 0 0 0
Amortization of unearned lease income... (12,433) 0 0 0 0 0 0
Decrease (increase) in accounts
receivable............................ (2,939) (4,662) 8,099 4,113 (549) (795) (1,313)
Decrease (increase) in inventories...... (787) 3,041 958 718 4,145 667 317
Increase (decrease) in accounts
payable............................... (1,989) (1,098) (8,392) 1,792 (61) 1,628 (2,708)
Increase (decrease) in accrued
liabilities........................... (6,348) 13,097 (12,598) (1,731) 12,121 3,809 585
Decrease (increase) in other............ (2,827) (1,565) 6,710 (550) 866 141 564
--------- -------- -------- -------- -------- -------- --------
Net cash flows provided by operating
activities.............................. 15,666 35,280 41,805 22,119 64,048 78,466 71,454
--------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment
additions............................. (1,994) (1,788) (732) (837) (2,956) (1,555) (8,171)
Decrease (increase) in marketable
securities............................ 42,118 22,201 (834) 0 22,201 (12,456) 1,506
Investments in affiliates............... (146) (50,807) (3,591) (750) (58,222) (6,516) (48,323)
Acquisition of Facilities, net of cash
acquired.............................. (155,324) 0 0 0 0 0 0
Proceeds from sale of investment in
Bolivian Power, net................... 0 0 25,504 25,398 0 0
Decrease (increase) in restricted
cash.................................. 12,716 (1,614) 3,146 12,929 11,315 (8,190) (4,157)
--------- -------- -------- -------- -------- -------- --------
Net cash flows provided by (used in)
investing activities.................... (102,630) (32,008) (2,011) 36,846 (2,264) (28,717) (59,145)
--------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable and long-term
debt.................................. 150,400 2,612 62,728 67,750 70,661 406 1,622
Repayments of notes payable and
long-term debt........................ (102,640) (32,017) (86,761) (63,535) (95,552) (46,642) (42,513)
Increase in deferred financing costs.... (1,018) (459) (1,524) (2,584) (2,889) 0 (93)
Common stock dividends paid............. 0 0 (5,000) (4,759) (4,759) (4,235) (3,328)
--------- -------- -------- -------- -------- -------- --------
Net cash flows (used in) provided by
financing activities.................... 46,742 (29,864) (30,557) (3,128) (32,539) (50,471) (44,312)
--------- -------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (40,222) (26,592) 9,237 55,837 29,245 (722) (32,003)
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 71,833 89,188 62,596 33,351 33,351 34,073 66,076
--------- -------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.... $ 31,611 $ 62,596 $ 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.
F-7
<PAGE> 125
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 1,140 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.
Information presented as of June 30, 1998 and for the six-month periods
ended June 30, 1998 and 1997 and the six-month period ended December 31, 1996 is
unaudited. In the opinion of management however, such information reflects all
adjustments, which consist of normal recurring adjustments necessary to present
fairly the financial position of the Company as of June 30, 1998 and the results
of operations and cash flows for the six-month periods ended June 30, 1998 and
1997 and the six-month period ended December 31, 1996. The results of operations
for these interim periods are not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole.
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.
F-8
<PAGE> 126
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<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.
F-9
<PAGE> 127
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-10
<PAGE> 128
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-11
<PAGE> 129
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bolivian Power as of December 31, 1996 and 1995 and for the years ended December
31, 1996, 1995 and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................................... $ 72,550 $ 54,686
Noncurrent assets.................................... 81,211 93,849
-------- --------
Total assets................................. $153,761 $148,535
======== ========
Current liabilities.................................. $ 12,818 $ 12,237
Noncurrent liabilities............................... 15,036 20,138
Shareholders' equity................................. 125,907 116,160
-------- --------
$153,761 $148,535
======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues................................... $ 20,009 $ 52,874 $ 45,969
Operating income (loss).............................. (4,159) 6,929 5,848
Net income........................................... 8,434 7,963 7,712
</TABLE>
Birchwood Power Partners, L.P.
In December 1994, the Company acquired a 50% interest in Birchwood Power
Partners, L.P. ("Birchwood Power"), a partnership formed to construct and own a
240-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 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
F-12
<PAGE> 130
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Partners' capital.................................... 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, 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
F-13
<PAGE> 131
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 31, JUNE 30, JUNE 30,
1997 1997 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:
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
F-14
<PAGE> 132
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-15
<PAGE> 133
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES
The project debt on the Elizabethtown, Lumberton and Kenansville
Facilities, which consisted of a senior loan with a syndicate of banks and a
subordinated credit facility with a financial institution, was refinanced in
September 1996 with the proceeds of a $39 million senior credit facility and
$5.5 million capital contribution by the Company. The senior credit facility
accrues interest at an annual rate equal to the applicable LIBOR rate, as chosen
by the Company, plus .875% through September 1997 and 1% thereafter (6.94% 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
F-16
<PAGE> 134
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-17
<PAGE> 135
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 31, JUNE 30, JUNE 30,
1997 1997 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>
F-18
<PAGE> 136
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 31, JUNE 30, JUNE 30,
1997 1997 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>
F-19
<PAGE> 137
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-20
<PAGE> 138
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-21
<PAGE> 139
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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.
F-22
<PAGE> 140
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-23
<PAGE> 141
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
F-24
<PAGE> 142
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
BGCI ACQUISITION
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. ("BGCI") to acquire an ownership interest in 12 electric
generating facilities, comprising a net equity interest of approximately 365
megawatts, and one interstate natural gas pipeline in the United States (the
"BGCI Acquisition"). The closing of the BGCI 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.
In connection with the BGCI 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 BGCI 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 to hedge against fluctuations in interest
rates prior to the completion of the debt offering.
15. CLOSING OF THE BGCI ACQUISITION (UNAUDITED)
On October 20, 1998, the Company consummated the BGCI Acquisition. The
total consideration paid for the BGCI Acquisition was approximately $189 million
and is subject to adjustment either upward or downward based on the final
determination of the "Net Unrestricted Cash Differential" as defined in the
purchase agreement with BGCI. The Company financed the BGCI Acquisition with net
proceeds from the issuance of $220 million of unsecured 8.75% senior notes due
2008 in a Rule 144A offering.
F-25
<PAGE> 143
INDEX TO
HISTORICAL FINANCIAL STATEMENTS OF RECENT ACQUISITIONS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
LS POWER ACQUISITION
I. LSP-Cottage Grove, L.P.
Financial Statements as of June 30, 1998 (unaudited),
December 31, 1997 and 1996 and for the Six-Month Periods
Ended June 30, 1998 (unaudited) and 1997 (unaudited) and for
the Years Ended December 31, 1997, 1996, and 1995........... F-27
II. LSP-Whitewater Limited Partnership
Financial Statements as of June 30, 1998 (unaudited),
December 31, 1997 and 1996 and for the Six-Month Periods
Ended June 30, 1998 (unaudited) and 1997 (unaudited) and for
the Years Ended December 31, 1997, 1996 and 1995............ F-42
BGCI ACQUISITION
I. Logan Generating Company, L.P., Keystone Urban Renewal
Limited Partnership, Northampton Generating Company L.P. and
Subsidiaries, Chambers Cogeneration Limited Partnership, and
Scrubgrass Generating Company, L.P. and Subsidiaries
Combined Financial Statements as of June 30, 1998
(unaudited), December 31, 1997 and 1996 and for the
Six-Month Periods Ended June 30, 1998 (unaudited) and 1997
(unaudited) and for the Years Ended December 31, 1997, 1996
and 1995.................................................... F-58
II. Birch Power Corporation, Cedar Power Corporation, Hickory
Power Corporation, Palm Power Corporation, and Panther Creek
Leasing, Inc.
Combined Financial Statements as of June 30, 1998
(unaudited), December 31, 1997 and 1996 and for the
Six-Month Period Ended June 30, 1998 (unaudited) and for the
Years Ended December 31, 1997, 1996 and 1995................ F-82
III. Indiantown Cogeneration, L.P., Cedar Bay Generating Company,
L.P.
Combined Financial Statements as of June 30, 1998
(unaudited), December 31, 1997 and 1996 and for the
Six-Month Periods Ended June 30, 1998 (unaudited) and 1997
(unaudited) and for the Years Ended December 31, 1997, 1996
and 1995.................................................... F-95
IV. J. Makowski Company, Inc.
Consolidated Financial Statements as of June 30, 1998
(unaudited), December 31, 1997 and 1996 and for the
Six-Month Periods Ended June 30, 1998 (unaudited) and 1997
(unaudited) and for the Years Ended December 31, 1997, 1996
and 1995.................................................... F-114
V. Selkirk Cogen Partners L.P., Mass Power
Combined Financial Statements as of June 30, 1998
(unaudited), December 31, 1997 and 1996 and for the Six
Months Ended June 30, 1998 (unaudited) and 1997 (unaudited)
and for the Years Ended December 31, 1997, 1996 and 1995.... F-134
</TABLE>
F-26
<PAGE> 144
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P.
(a Delaware limited partnership) as of December 31, 1997 and the related
statements of income, changes in partners' capital, and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
F-27
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P.
as of December 31, 1996, and the related statements of income, changes in
partners' capital and cash flows for each of the years in the two-year period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-28
<PAGE> 146
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 275 $ 8,816 $ 103
Restricted cash......................................... 14,092 11,475 28,108
Accounts receivable -- trade............................ 5,317 4,598 0
Accounts receivable -- other............................ -- 3,012 0
Fuel inventories........................................ 845 1,869 0
Spare parts inventories................................. 317 443 0
Other current assets.................................... 95 53 0
-------- -------- --------
Total current assets............................ 20,941 30,266 28,211
-------- -------- --------
Net investment in lease (Notes 2 and 6)................... 234,783 234,034 0
Construction in process................................... 0 0 125,597
Debt issuance and financing costs, net of accumulated
amortization of $736 (unaudited), $605 and $348......... 6,386 6,517 6,774
Investment in unconsolidated affiliate.................... 1 1 1
-------- -------- --------
Total assets.................................... $262,111 $270,818 $160,583
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................ $ 7,092 $ 8,360 $ 5,582
Accrued expenses........................................ 1,094 72 0
-------- -------- --------
Total current liabilities....................... 8,186 8,432 5,582
First Mortgage Bonds payable.............................. 155,000 155,000 155,000
-------- -------- --------
Total liabilities............................... 163,186 163,432 160,582
Commitments and contingencies (Note 11)
Partners' capital......................................... 98,925 107,386 1
-------- -------- --------
Total liabilities and partners' capital......... $262,111 $270,818 $160,583
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-29
<PAGE> 147
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- -----------------------------
1998 1997 1997 1996 1995
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Lease revenue....................... $10,553 $ 0 $ 5,265 $ 0 $ 0
Service revenue..................... 9,020 0 4,879 0 0
Other............................... 2,078 0 594 0 0
------- ------- ------- ------- -------
21,651 0 10,738 0 0
------- ------- ------- ------- -------
Operating expenses:
Cost of services.................... 12,018 0 5,851 0 0
------- ------- ------- ------- -------
Operating income...................... 9,633 0 4,887 0 0
Non-operating income (expense):
Gain on sales-type capital lease.... 0 0 87,056 0 0
Interest expense.................... (6,174) 0 (3,087) 0 0
Interest income..................... 608 0 362 0 0
------- ------- ------- ------- -------
Net income............................ $ 4,067 $ 0 $89,218 $ 0 $ 0
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE> 148
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
-------------- ------- --------
<S> <C> <C> <C>
Capital contributions at inception.......................... $ 1 $ 0 $ 1
-------- ---- --------
Balance, December 31, 1995 and 1996......................... 1 0 1
Capital contributions....................................... 18,167 0 18,167
Net income.................................................. 88,326 892 89,218
-------- ---- --------
Balance, December 31, 1997.................................. 106,494 892 107,386
Partner distributions....................................... (12,486) (42) (12,528)
Net income.................................................. 4,027 40 4,067
-------- ---- --------
Balance, June 30, 1998 (unaudited).......................... $ 98,035 $890 $ 98,925
======== ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE> 149
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- --------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................. $ 4,067 $ 0 $ 89,218 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease........... 0 0 (87,056) 0 0
Amortization of unearned lease income...... (10,553) 0 (5,265) 0 0
Amortization of debt issuance and financing
costs.................................... 131 0 66 0 0
Minimum lease payments received............ 9,804 0 4,866 0 0
(Increase) decrease in accounts
receivable -- trade...................... 2,293 0 (4,598) 0 0
(Increase) decrease in fuel inventories.... 1,024 0 (1,648) 0 0
(Increase) decrease in spare parts
inventories.............................. 126 0 (134) 0 0
Increase in other current assets........... (42) 0 (53) 0 0
Increase (decrease) in accounts payable.... (1,268) 0 2,032 0 0
Increase in accrued expenses............... 1,022 0 72 0 0
-------- -------- --------- -------- ---------
Cash provided by (used in) operating
activities................................. 6,604 0 (2,500) 0 0
-------- -------- --------- -------- ---------
Cash Flows from Investing Activities:
Acquisition of land and improvements....... 0 0 0 0 (97)
Payments on construction in process........ 0 (18,025) (24,771) (87,157) (40,289)
Investments held by Trustee................ 0 (18,167) (18,167) 0 (155,000)
Investments drawn.......................... 0 18,026 35,984 87,358 47,410
Investment in Funding...................... 0 0 0 0 (1)
Increase in restricted cash................ (2,617) 0 0 0 0
-------- -------- --------- -------- ---------
Cash provided by (used in) investing
activities................................. (2,617) (18,166) (6,954) 201 (147,977)
-------- -------- --------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs.......... 0 0 0 (153) (6,969)
Proceeds from First Mortgage Bonds......... 0 0 0 0 155,000
Capital contributions...................... 0 18,167 18,167 0 0
Partner distributions...................... (12,528) 0 0 0 0
-------- -------- --------- -------- ---------
Cash provided by (used in) financing
activities................................. (12,528) 18,167 18,167 (153) 148,031
-------- -------- --------- -------- ---------
Increase (decrease) in cash and cash
equivalents................................ (8,541) 1 8,713 48 54
Cash and cash equivalents, beginning of
period..................................... 8,816 103 103 55 1
-------- -------- --------- -------- ---------
Cash and cash equivalents, end of period..... $ 275 $ 104 $ 8,816 $ 103 $ 55
======== ======== ========= ======== =========
RECONCILIATION OF CHANGES IN CONSTRUCTION IN
PROCESS
Decrease (increase) in total construction in
process.................................... 0 $(19,475) $ 125,499 $(82,877) $ (42,622)
Construction in process sold in lease
transaction................................ 0 0 (146,481) 0 0
Amortization of debt issuance and financing
costs...................................... 0 126 191 239 109
Interest income on investments held by
Trustee.................................... 0 (806) (1,184) (4,163) (3,713)
Increase in accounts receivable -- other..... 0 0 (3,012) 0 0
Decrease (increase) in other current
assets..................................... 0 0 0 13 (13)
Increase in fuel inventories................. 0 0 (221) 0 0
Increase in spare parts inventories.......... 0 0 (309) 0 0
Increase (decrease) in accounts payable...... 0 2,130 746 (369) 5,950
-------- -------- --------- -------- ---------
Payments on construction in process.......... $ 0 $(18,025) $ (24,771) $(87,157) $ (40,289)
======== ======== ========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year....... $ 12,085 $ 12,085 $ 6,043
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE> 150
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Cottage Grove, L.P. (the "Partnership") is a Delaware limited
partnership that was formed on December 14, 1993 to develop, finance, construct
and own a gas fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Cottage Grove, Minnesota (the
"Facility"). Construction and start-up of the Facility was substantially
completed and commercial operation commenced October 1, 1997 (the "Commercial
Operations Date"). As of December 31, 1997, the 1% general partner of the
Partnership was LSP-Cottage Grove, Inc., a wholly owned subsidiary of Granite
Power Partners, L.P., a Delaware limited partnership ("Granite"). Granite and
TPC Cottage Grove, Inc., a Delaware corporation ("TPC"), were the sole limited
partners of the Partnership, owning approximately 72% and 27% limited
partnership interests, respectively. The general partner of Granite is LS Power
Corporation ("LS Power"), a Delaware corporation. See Note 15 for discussion of
a change in ownership which occurred on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose funding corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $155 million of First Mortgage Bonds issued simultaneously by the
Partnership.
All of the electric capacity and energy generated by the Facility is sold
to Northern States Power Company ("NSP" or, as the context requires, the
"Utility") under a 30-year power purchase agreement (the "Power Purchase
Agreement"). The thermal energy generated by the Facility is sold in the form of
steam to Minnesota Mining and Manufacturing Company ("3M" or, as the context
requires, the "Steam Purchaser") under a 30-year thermal energy sales agreement
(the "Steam Supply Agreement").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1998 and for the periods ended June
30, 1998 and 1997 are unaudited and are presented pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying financial statements reflect all adjustments (which
are of normal recurring nature) necessary to present fairly the financial
position and results of operations and cash flows for the interim periods, but
are not necessarily indicative of the results of operations for a full fiscal
year.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted Investments represent overnight repurchase obligations secured
by U.S. Treasury notes. These investments are carried at cost, which
approximated market at December 31, 1997 and 1996. Amounts held by the trustee
under the trust indenture for the First Mortgage Bonds (the "Trustee") in
accounts designated for debt service, major maintenance and construction, which
might otherwise be considered cash equivalents, are treated as restricted
investments.
F-33
<PAGE> 151
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 11 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
"sales-type" capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs were included in the historical cost basis of the
Facility. All interest costs subsequent to the Commercial Operations Date have
been charged to expense. As of December 31, 1996, capitalized interest including
amortization of debt issuance and financing costs was $10,600,000, ($10,251,000,
before amortization).
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and other financing costs are deferred and amortized over the
term of the related debt. Amortization of deferred financing costs was
capitalized as part of construction in process prior to commercial operations
and is included in interest expense subsequent to commercial operations in the
accompanying financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $6,328,000 and $5,582,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease using
the effective interest rate method as well as contingent rentals that result
from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchaser.
F-34
<PAGE> 152
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
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
Partnership effective January 1, 1998. The Partnership 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
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE -- OTHER
Accounts Receivable-Other represents amounts due from Westinghouse Electric
Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility by May 31, 1997. Such liquidated damages and extension fees were
capitalized as a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Natural Gas................................................. $1,490 $0
Fuel Oil.................................................... 379 0
------ --
$1,869 $0
====== ==
</TABLE>
Natural Gas is stated at weighted average cost and fuel oil is stated at
cost based on the first-in first-out method.
F-35
<PAGE> 153
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Overnight repurchase obligations............................ $19,908 $28,108
Less: Unrestricted accounts................................. (8,433) 0
------- -------
Restricted accounts......................................... $11,475 $28,108
======= =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease................................... $ 567,415
Unearned Income on Lease.................................... (333,381)
---------
Net Investment in Lease..................................... $ 234,034
=========
</TABLE>
Gross investment in lease represents total capacity payments receivable
over the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 19,609
1999........................................................ 20,175
2000........................................................ 21,140
2001........................................................ 21,058
2002........................................................ 22,109
Thereafter.................................................. 463,324
--------
Total............................................. $567,415
========
</TABLE>
F-36
<PAGE> 154
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED INCEPTION (JUNE 23, 1995)
DECEMBER 31,1997 DECEMBER 31, 1996 TO DECEMBER 31, 1995
------------------ ------------------ -------------------------
<S> <C> <C> <C>
Interest income....................... $25,886 $25,886 $12,943
Interest expense...................... 25,886 25,886 12,943
------- ------- -------
Net income............................ $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
1997 AND 1996
-------------
<S> <C>
Current assets.............................................. $ 1
Investment in First Mortgage Bonds.......................... 332,000
--------
Total assets...................................... $332,001
========
Senior Secured Bonds payable................................ $332,000
Stockholders' equity........................................ 1
--------
Total liabilities and stockholders' equity........ $332,001
========
</TABLE>
8. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds").......................... $ 49,278
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds")...................... 105,722
--------
$155,000
========
</TABLE>
On June 30, 1995, the Partnership issued and sold $155,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets of
the Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning
F-37
<PAGE> 155
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
on December 30, 2010 for the 2016 Bonds. Collective future maturities of the
First Mortgage Bonds as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 0
1999........................................................ 0
2000........................................................ 1,084
2001........................................................ 1,547
2002........................................................ 2,129
Thereafter.................................................. 150,240
--------
$155,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
9. CREDIT AGREEMENT
The Partnership has a Credit Agreement which provides for working capital
loans of up to $3,000,000 and letter of credit commitments of up to $5,500,000.
The interest rate for loans made under the Credit Agreement is based upon
various short-term indices at the Partnership's option and is determined
separately for each draw. These commitments expire on June 30, 2000. The Credit
Agreement includes commitment fees, payable quarterly in arrears, ranging from
.25% to .375% on the daily average unused amount of the commitment until the
Credit Agreement is terminated. For all periods through December 31, 1997, no
working capital loans had been issued under the Credit Agreement. In October
1997, a $500,000 letter of credit, in favor of NSP pursuant to the Power
Purchase Agreement, was issued under the Credit Agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (NSP) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments held by Trustee, accounts payable and
accrued expenses approximate fair value. The fair value of the Partnership's
First Mortgage Bonds at December 31, 1997, is $14,181,000 higher than the
historical carrying value of $155,000,000. At December 31, 1996, the fair value
of the Partnership's First Mortgage Bonds approximated carrying value.
11. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $107 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under the Power Purchase
Agreement with NSP, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $1,333,000 and
$5,073,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $3,012,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $267,000 and delay liquidated damages of $2,745,000 (see Note
3).
F-38
<PAGE> 156
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase all of the electric capacity made available to it and
all associated energy which the Utility chooses to dispatch from the Facility
beginning on the Commercial Operations Date. Payments by the Utility to the
Partnership under the Power Purchase Agreement consist of capacity payments and
energy payments which fluctuate based upon published indices and/or a fixed
schedule.
THERMAL ENERGY SALES
The Steam Supply Agreement obligates the Partnership to supply all of the
Steam Purchaser's steam requirements up to a maximum of 664 million pounds of
steam annually at a rate not to exceed 190,000 pounds per hour when the
Facility's cogeneration process is operating and 160,000 pounds per hour when
the steam is generated by the Facility's auxiliary boilers.
GAS SUPPLY
The Partnership has 20-year gas supply contracts with two fuel suppliers to
provide 100% of the Facility's natural gas requirements. The gas supply
contracts each provide for the sale of up to 17,060 MMBtu per day of gas to the
Partnership. The price paid by the Partnership under the gas supply contracts
fluctuates based upon published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has various gas transportation agreements with fuel
transportation companies which provide for delivery of gas to the Facility. The
price paid by the Partnership under the gas transportation contracts fluctuate
based on published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and maintenance
agreement with Westinghouse Operating Services Company, Inc. ("Westinghouse
Services"). Under the terms of the operations and maintenance agreement, the
Partnership is required to pay Westinghouse Services an annual management fee of
$350,000 as well as reimbursement of payroll, fringe benefits, insurance and
certain subcontractor costs and a bonus based on a targeted plant performance.
If targeted plant performance is not attained, Westinghouse Services is required
to pay a performance penalty to the Partnership. The management fee is adjusted
annually based on certain published indices. The term of the operations and
maintenance agreement extends for an initial period of seven years (through
October, 2004). The Partnership has the option to extend the term of the
agreement for two additional seven-year terms, provided that the Partnership and
Westinghouse Services mutually agree in writing as to the terms of such
extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based on published indices) payable for 12 years.
F-39
<PAGE> 157
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Partnership 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 financial position or results of
operations of the Partnership.
12. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, a single operator to
perform the operation and maintenance of its Facility, and a single steam
purchaser for purchases of thermal energy. In addition, the Partnership has
contracted with two gas companies to supply the gas requirements of the
Facility, and has contracted with a single interstate gas transporter to
transport gas. Any material breach by any one of these parties of their
respective obligations to the Partnership could affect the ability of the
Partnership to make payments under its First Mortgage Bonds. In addition,
bankruptcy or insolvency of certain other parties or defaults by such parties
relative to their contractual or regulatory obligations could adversely affect
the ability of the Partnership to make payments under its First Mortgage Bonds.
If an agreement were to be terminated due to a breach of such agreement, the
Partnership's ability to enter into a substitute agreement having substantially
equivalent terms and conditions, or with an equally creditworthy third party, is
uncertain.
13. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally
of site development costs, engineering fees, legal fees, permitting costs,
interest and LS Power employee costs, were incurred by Granite. At June 30,
1995, the Partnership paid development fees and reimbursed certain costs
totaling approximately $11,730,000 to Granite. These payments were capitalized
and included in construction in process.
LS Power provided certain management services to the Partnership pursuant
to management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Cottage Grove Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,406,000,
$1,391,000 and $515,000 during the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997 and 1996, the Partnership recorded accounts
payable to LS Power of approximately $231,000 and $57,000, respectively. See
Note 15 for discussion of assignment of the management services agreements which
occurred on March 20, 1998.
14. PARTNERS' CAPITAL
In 1997, TPC contributed $18,167,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 27% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
F-40
<PAGE> 158
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENT -- CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid America, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly -- owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of LSP Cottage Grove, Inc., and
all of the Sellers' limited partnership interest in the Partnership to the
Purchasers. As a result, Cogentrix Cottage Grove, LLC, a wholly-owned subsidiary
of CMA, acquired all of the capital stock of LSP-Cottage Grove, Inc., the 1%
general partner of the Partnership, as well as a 72.22% limited partnership
interest in the Partnership for a combined total ownership interest of 73.22% in
the Partnership.
On the same date that the wholly-owned indirect subsidiaries of Cogentrix
Energy identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
services agreements between LS Power and each of LSP-Cottage Grove, Inc. and the
Partnership.
F-41
<PAGE> 159
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership (a Delaware limited partnership) as of December 31, 1997 and the
related statements of income, changes in partners' capital, and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Whitewater Limited
Partnership as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
F-42
<PAGE> 160
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership as of December 31, 1996 and the related statements of income,
changes in partners' capital and cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Whitewater Limited
Partnership as of December 31, 1996 and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-43
<PAGE> 161
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 952 $ 7,749 $ 101
Restricted cash......................................... 13,431 13,752 34,415
Accounts receivable -- trade............................ 5,694 4,983 0
Accounts receivable -- other............................ 0 2,195 0
Fuel inventories........................................ 280 1,361 0
Spare parts inventories................................. 604 432 0
Other current assets.................................... 785 682 1
-------- -------- --------
Total current assets............................ 21,746 31,154 34,517
-------- -------- --------
Net investment in lease (Notes 2 and 6)................... 262,549 262,072 0
Construction in process................................... 0 0 149,232
Greenhouse facility, net.................................. 8,304 8,281 0
Debt issuance and finance costs, net of accumulated
amortization of $749 (unaudited), $616 and $355......... 6,474 6,607 6,868
Investment in unconsolidated affiliate.................... 1 1 1
-------- -------- --------
Total assets.................................... $299,074 $308,115 $190,618
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................ $ 7,421 $ 11,492 $ 13,617
Accrued expenses........................................ 1,703 64 0
-------- -------- --------
Total current liabilities....................... 9,124 11,556 13,617
First Mortgage Bonds payable.............................. 177,000 177,000 177,000
-------- -------- --------
Total liabilities............................... 186,124 188,556 190,617
Commitments and contingencies (Note 12)
Partners' capital......................................... 112,950 119,559 1
-------- -------- --------
Total liabilities and partners' capital......... $299,074 $308,115 $190,618
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-44
<PAGE> 162
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, DECEMBER 31,
-------------------------- -----------------------
1998 1997 1997 1996 1995
----------- ----------- ------- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Lease revenue............................ $11,673 $ 0 $ 6,579 $ 0 $ 0
Service revenue.......................... 12,793 0 5,944 0 0
Other.................................... 1,107 0 825 0 0
------- ---- ------- ---- ----
25,573 0 13,348 0 0
------- ---- ------- ---- ----
Operating expenses:
Cost of services......................... 14,320 0 6,948 0 0
Greenhouse operating expenses............ 0 0 799 0 0
------- ---- ------- ---- ----
14,320 0 7,747 0 0
------- ---- ------- ---- ----
Operating income........................... 11,253 0 5,601 0 0
Non-operating income (expense):
Gain on sales-type capital lease......... 0 0 97,042 0 0
Interest expense......................... (7,034) 0 (4,024) 0 0
Interest income.......................... 545 0 383 0 0
------- ---- ------- ---- ----
Net income................................. $ 4,764 $ 0 $99,002 $ 0 $ 0
======= ==== ======= ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-45
<PAGE> 163
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
-------------- ------- --------
<S> <C> <C> <C>
Capital contributions at inception.......................... $ 1 $ 0 $ 1
-------- ---- --------
Balance, December 31, 1995 and 1996......................... 1 0 1
Capital contributions....................................... 20,556 0 20,556
Net income.................................................. 98,012 990 99,002
-------- ---- --------
Balance, December 31, 1997.................................. 118,569 990 119,559
Partner distributions....................................... (11,332) (41) (11,373)
Net income.................................................. 4,717 47 4,764
-------- ---- --------
Balance, June 30, 1998 (unaudited).......................... $111,954 $996 $112,950
======== ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-46
<PAGE> 164
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................... $ 4,764 $ 0 $ 99,002 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease........... 0 0 (97,042) 0 0
Amortization of unearned lease income...... (11,673) 0 (6,579) 0 0
Amortization of debt issuance and finance
costs.................................... 133 0 76 0 0
Minimum lease payments received............ 11,196 0 6,247 0 0
Depreciation............................... 199 0 112 0 0
(Increase) decrease in accounts
receivable -- trade...................... 1,484 0 (4,983) 0 0
(Increase) decrease in fuel inventories.... 1,081 0 (984) 0 0
Increase in spare parts inventories........ (172) 0 (136) 0 0
Increase in other current assets........... (103) 0 (682) 0 0
Increase (decrease) in accounts payable.... (4,071) 0 2,865 0 0
Increase in accrued expenses............... 1,639 0 64 0 0
-------- -------- --------- -------- ---------
Net cash provided by (used in)
operating activities................ 4,477 0 (2,040) 0 0
-------- -------- --------- -------- ---------
Cash Flows from Investing Activities:
Sales (acquisition) of land and
improvements............................... 0 0 939 (146) (3,394)
Payments on construction in process.......... 0 (24,557) (33,847) (96,746) (43,983)
Investments held by Trustee.................. 0 (20,556) (20,556) 0 (177,000)
Investments drawn............................ 0 24,904 42,596 97,075 54,518
Investment in Funding........................ 0 0 0 0 (1)
Purchases of equipment....................... (222) 0 0 0 0
Decrease in restricted cash.................. 321 0 0 0 0
-------- -------- --------- -------- ---------
Net cash provided by (used in)
investing activities................ 99 (20,209) (10,868) 183 (169,860)
-------- -------- --------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs............ 0 0 0 (153) (7,070)
Proceeds from First Mortgage Bonds........... 0 0 0 0 177,000
Capital contributions........................ 0 20,556 20,556 0 0
Partner distributions........................ (11,373) 0 0 0 0
-------- -------- --------- -------- ---------
Net cash provided by (used in)
financing activities................ (11,373) 20,556 20,556 (153) 169,930
-------- -------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. (6,797) 347 7,648 30 70
Cash and cash equivalents, beginning of year... 7,749 101 101 71 1
-------- -------- --------- -------- ---------
Cash and cash equivalents, end of year......... $ 952 $ 448 $ 7,749 $ 101 $ 71
======== ======== ========= ======== =========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in
process.................................... $ 0 $(18,031) $ 145,694 $(99,555) $ (46,139)
Construction in process sold in lease
transaction................................ 0 0 (170,493) 0 0
Amortization of debt issuance and financing
costs...................................... 0 128 185 244 111
Increase in accounts receivable -- other..... 0 0 (2,195) 0 0
Interest income on investments held by
Trustee.................................... 0 (866) (1,375) (4,802) (4,206)
Increase in fuel inventories................. 0 0 (378) 0 0
Increase in spare parts inventories.......... 0 0 (296) 0 0
Decrease in other current assets............. 0 1 1 0 1
Increase (decrease) in accounts payable...... 0 (5,789) (4,990) 7,367 6,250
-------- -------- --------- -------- ---------
Payments on construction in process.......... $ 0 $(24,557) $ (33,847) $(96,746) $ (43,983)
======== ======== ========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year....... $ 13,801 $ 13,801 $ 6,900
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-47
<PAGE> 165
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Whitewater Limited Partnership (the "Partnership") is a Delaware
limited partnership that was formed on December 14, 1993 to develop, finance,
construct and own a gas-fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Whitewater, Wisconsin (the "Facility").
Construction and start-up of the Facility was substantially completed and
commercial operation commenced September 18, 1997 (the "Commercial Operations
Date"). As of December 31, 1997, the 1% general partner of the Partnership was
LSP-Whitewater I, Inc., a wholly owned subsidiary of Granite Power Partners,
L.P., a Delaware limited partnership ("Granite"). Granite and TPC Whitewater,
Inc., a Delaware corporation ("TPC"), were the sole limited partners of the
Partnership, owning approximately 73% and 26% limited partnership interests,
respectively. The general partner of Granite is LS Power Corporation ("LS
Power"), a Delaware corporation. See Note 16 for discussion of a change in
ownership which occurred on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose Delaware corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas-fired cogeneration facility located in Cottage Grove, Minnesota (the
"Cottage Grove Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $177 million of First Mortgage Bonds issued simultaneously by the
Partnership.
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
which is not dispatched by WEPCO. The thermal energy generated by the Facility
is provided in the form of steam to the University of Wisconsin-Whitewater under
a steam supply agreement expiring on June 30, 2005 and in the form of hot water
to a greenhouse (the "Greenhouse") owned by the Partnership (collectively, the
"Steam Purchasers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1998 and for the periods ended June
30, 1998 and 1997 are unaudited and are presented pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying financial statements reflect all adjustments (which
are of normal recurring nature) necessary to present fairly the financial
position and results of operations and cash flows for the interim periods, but
are not necessarily indicative of the results of operations for a full fiscal
year.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted investments represent overnight repurchase obligations secured
by U.S. Treasury notes. These investments are carried at cost, which
approximated market at December 31, 1997 and 1996. Amounts held by the trustee
under the trust indenture for the First Mortgage Bonds (the "Trustee") in
accounts designated for debt service, major maintenance and construction, which
might otherwise be considered cash equivalents, are treated as restricted
investments.
F-48
<PAGE> 166
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 12 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
sales type capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs related to the Facility were included in the
historical cost basis of the Facility. All interest costs subsequent to the
Commercial Operations Date have been charged to expense. As of December 31,
1996, capitalized interest including amortization of debt issuance and financing
costs was $12,048,000 ($11,694,000, before amortization).
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is computed
using the straight-line method over 25 years and 10 years, respectively (see
Note 7).
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and financing costs are deferred and amortized over the term
of the related debt. Amortization of deferred financing costs was capitalized as
part of construction in process prior to commercial operations and is included
in interest expense subsequent to commercial operations in the accompanying
financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $8,632,000 and $13,617,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease using
the effective interest rate method as well as contingent rentals that result
from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchasers.
F-49
<PAGE> 167
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties, as well
as sales of horticultural products produced by the Partnership's Greenhouse
Facility.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchasers.
GREENHOUSE OPERATING EXPENSES
Greenhouse operating expenses include all operating costs specifically
related to greenhouse activities including depreciation on the Greenhouse
Facility.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
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
Partnership effective January 1, 1998. The Partnership 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
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE -- OTHER
Accounts Receivable -- Other represents amounts due from Westinghouse
Electric Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility
F-50
<PAGE> 168
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
by May 31, 1997. Such liquidated damages and extension fees were capitalized as
a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Natural Gas................................................. $ 983 $0
Fuel Oil.................................................... 378 0
------ --
$1,361 $0
====== ==
</TABLE>
Natural gas inventory is stated at weighted average cost and fuel oil
inventory is stated at cost based on the first-in first-out method.
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Overnight repurchase obligations............................ $21,070 $34,415
Less: Unrestricted accounts................................. (7,318) 0
------- -------
Restricted accounts......................................... $13,752 $34,415
======= =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sale-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 8.93%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease................................... $615,489
Unearned Income on Lease.................................... (353,417)
--------
Net Investment in Lease..................................... $262,072
========
</TABLE>
Gross investment in lease represents total capacity payments receivable
over the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
F-51
<PAGE> 169
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 22,392
1999........................................................ 22,944
2000........................................................ 24,036
2001........................................................ 24,132
2002........................................................ 25,140
Thereafter.................................................. 496,845
--------
Total............................................. $615,489
========
</TABLE>
7. GREENHOUSE FACILITY
Greenhouse Facility consists of (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Building.................................................... $7,488
Equipment................................................... 905
------
8,393
Less: Accumulated Depreciation.............................. (112)
------
$8,281
======
</TABLE>
Building and equipment comprise the cost of the Greenhouse under a turnkey
construction contract inclusive of change orders and interest capitalized during
the construction period.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR INCEPTION
ENDED ENDED (JUNE 23, 1995)
DECEMBER 31, 1997 DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- ----------------- --------------------
<S> <C> <C> <C>
Interest income..................... $25,886 $25,886 $12,943
Interest expense.................... 25,886 25,886 12,943
------- ------- -------
Net income.......................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
F-52
<PAGE> 170
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
1997 AND 1996
-------------
<S> <C>
Current assets.............................................. $ 1
Investment in First Mortgage Bonds.......................... 332,000
--------
Total assets...................................... $332,001
========
Senior Secured Bonds payable................................ $332,000
Stockholders' equity........................................ 1
--------
Total liabilities and stockholders' equity........ $332,001
========
</TABLE>
9. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds due June 30, 2010 ("2010
Bonds")................................................... $ 56,273
8.08% First Mortgage Bonds due December 30, 2016 ("2016
Bonds")................................................... 120,727
--------
$177,000
========
</TABLE>
On June 30, 1995, the Partnership issued and sold $177,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets of
the Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
Collective future maturities of the First Mortgage Bonds as of December 31,
1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 0
1999........................................................ 0
2000........................................................ 1,239
2001........................................................ 1,767
2002........................................................ 2,430
Thereafter.................................................. 171,564
--------
$177,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
10. CREDIT AGREEMENT
The Partnership has entered into a Credit Agreement which provides for
working capital loans of up to $3,000,000 and letter of credit commitments of up
to $5,000,000. The interest rate for loans made under the Credit Agreement is
based upon various short-term indices at the Partnership's option and is
determined separately for each draw. These commitments expire on June 30, 2000.
The Credit Agreement includes commitment fees, payable quarterly in arrears,
ranging from .25% to .375% on the daily average unused amount of the commitment
until the Credit Agreement is terminated. There were no letters of credit
F-53
<PAGE> 171
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
outstanding under the Credit Agreement at December 31, 1997 and 1996. For all
periods through December 31, 1997, no working capital loans had been made to the
Partnership under the Credit Agreement.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (WEPCO) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments, accounts payable and accrued expenses
approximate fair value. The fair value of the Partnership's First Mortgage Bonds
at December 31, 1997, is $16,194,000 higher than the historical carrying value
of $177,000,000. At December 31, 1996, the fair value of the Partnership's First
Mortgage Bonds approximated carrying value.
12. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $115 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under its Power Purchase
Agreement with WEPCO, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $110,000 and
$4,539,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $2,195,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $35,000 and delay liquidated damages of $2,160,000 (see Note
3).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase the electric capacity made available to it up to 236.5
megawatts and associated energy which the Utility chooses to dispatch from the
Facility beginning on the Commercial Operations Date. Payments by the Utility to
the Partnership under the Power Purchase Agreement consist of capacity payments
and energy payments which fluctuate based upon published indices and/or a fixed
schedule.
In accordance with the Power Purchase Agreement, the Partnership was
responsible for reimbursing the Utility for the actual increased costs of
capacity and energy acquired to replace the capacity and energy, which were to
be provided by the Facility. The Partnership's obligation to reimburse the
Utility for these "Replacement Power" costs began on June 23, 1997 and continued
through September 17, 1997. The Partnership had an obligation for Replacement
Power costs if the Utility's actual costs of capacity and energy exceeded the
amounts, which would have been paid to the Partnership under the Power Purchase
Agreement. For the period from June 23, 1997 through September 17, 1997, the
Partnership was required to pay the Utility approximately $3,300,000 for
Replacement Power costs. The Partnership has recorded remaining accounts payable
to the Utility of $2,060,000 at December 31, 1997 for Replacement Power in the
accompanying balance sheet.
THERMAL ENERGY SALES
The Partnership has a thermal energy sales agreement with the Department of
Administration of the State of Wisconsin ("DOA") which provides for the
Partnership to supply the steam requirements of UWW (the "Thermal Energy
Agreement"). The initial term of the agreement runs through June 30, 2005. The
DOA has the option to extend the agreement for up to four extension periods of
four years each. The Thermal Energy Agreement obligates the Partnership to
supply all of UWW's steam requirements up to a maximum of 350 million pounds of
steam annually at a rate not to exceed 100,000 pounds per hour.
F-54
<PAGE> 172
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GAS SUPPLY
The Partnership has 20-year gas supply agreements with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts provide for the sale of up to 11,855 MMBtu per day of gas to the
Partnership. The price paid by the Partnership to the fuel suppliers under the
gas supply contracts fluctuate based on published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has entered into various gas transportation agreements with
fuel transportation companies which provide for delivery of gas to the Facility.
The price paid by the Partnership under the gas transportation contracts
fluctuate based upon published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and maintenance
agreement with Westinghouse Operating Services Company, Inc. ("Westinghouse
Services"). Under the terms of the operations and maintenance agreement, the
Partnership is required to pay Westinghouse Services an annual management fee of
$350,000, reimbursement of payroll, fringe benefits, insurance, and certain
subcontractor costs and a bonus based on target plant performance. If targeted
plant performance is not attained, Westinghouse Services is required to pay a
performance penalty to the Partnership. The management fee is adjusted annually
based on certain published indices. The term of the operations and maintenance
agreement extends for an initial period of seven years (through September,
2004). The Partnership has the option to extend the term of the agreement for
two additional seven-year terms, provided that the Partnership and Westinghouse
Services mutually agree in writing as to the terms of such extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based upon published indices) payable for 12 years.
GREENHOUSE
Construction of the Greenhouse was substantially complete on June 2, 1997.
The Partnership has an operational services agreement with Floriculture, Inc.
("Floriculture"), an affiliate of the Partnership, which operates the Greenhouse
for the benefit of the Partnership. Under the terms of the operational services
agreement, Floriculture is required to provide all the services to produce,
market, and sell horticulture products and maintain the Greenhouse. As
compensation for its services Floriculture is reimbursed on a monthly basis for
its approved costs in connection with conducting the Greenhouse business and
operating the Greenhouse, and will receive an annual management fee equal to 12%
of the Partnership's net profit from the operation of the Greenhouse. The term
of the operational services agreement will expire on May 31, 2002. For the year
ended December 31, 1997, Floriculture received payments pursuant to the
operations services agreement of approximately $669,000. The Partnership has
recorded accounts payable to Floriculture of approximately $197,000 at December
31, 1997.
F-55
<PAGE> 173
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Partnership 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 financial position or results of
operations of the Partnership.
13. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, and a single operator
to perform the operation and maintenance of its Facility. In addition, the
Partnership has contracted with two gas companies to supply the gas requirements
of the Facility, and has contracted with a single interstate gas transporter to
transport gas. Any material breach by any one of these parties of their
respective obligations to the Partnership could affect the ability of the
Partnership to make payments under its First Mortgage Bonds. In addition,
bankruptcy or insolvency of certain other parties or defaults by such parties
relative to their contractual or regulatory obligations could adversely affect
the ability of the Partnership to make payments under its First Mortgage Bonds.
If an agreement were to be terminated due to a breach of such agreement, the
Partnership's ability to enter into a substitute agreement having substantially
equivalent terms and conditions, or with an equally creditworthy third party, is
uncertain.
14. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally
of site acquisition and development costs, engineering fees, legal fees,
permitting costs, interest and LS Power employee and office costs, were incurred
by Granite. At June 30, 1995, the Partnership paid development fees and
reimbursed certain costs totaling approximately $12,160,000 to Granite. These
payments were capitalized and included in construction in process.
LS Power provided certain management services to the Partnership pursuant
to management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Whitewater Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,534,000,
$1,392,000 and $544,000 during the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997 and 1996, the Partnership recorded accounts
payable to LS Power of approximately $235,000 and $53,000, respectively. See
Note 16 for discussion of assignment of the management services agreements which
occurred on March 20, 1998.
15. PARTNERS' CAPITAL
In 1997, TPC, contributed $20,556,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 26% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
F-56
<PAGE> 174
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENT -- CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid American, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly-owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of Floriculture, Inc.
("Floriculture") and LSP-Whitewater I, Inc., as well as all of the Sellers'
limited partnership interest in the Partnership to the Purchasers. As a result,
CMA acquired all of the capital stock of Floriculture, and Cogentrix Whitewater,
LLC, a wholly-owned subsidiary of CMA, acquired all of the capital stock of
LSP-Whitewater I, Inc., the 1% general partner of the Partnership, as well as a
73.17% limited partnership interest in the Partnership for a combined total
ownership interest of 74.17% in the Partnership.
On the same date that the indirect subsidiaries of Cogentrix Energy
identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
service agreements between LS Power and LSP-Whitewater, Inc. and the
Partnership.
F-57
<PAGE> 175
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Logan Generating Company, L.P.,
Keystone Urban Renewal Limited Partnership,
Northampton Generating Company, L.P.,
Chambers Cogeneration Limited Partnership, and
Scrubgrass Generating Company, L.P.:
We have audited the accompanying combined balance sheets of Logan
Generating Company, L.P. (a Delaware limited partnership), Keystone Urban
Renewal Limited Partnership (a Delaware limited partnership), Northampton
Generating Company, L.P. (a Delaware limited partnership) and subsidiaries,
Chambers Cogeneration Limited Partnership (a Delaware limited partnership) and
Scrubgrass Generating Company, L.P. (a Delaware limited partnership) and
subsidiaries as of December 31, 1997 and 1996, and the related combined
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Logan Generating Company,
L.P., Keystone Urban Renewal Limited Partnership, Northampton Generating
Company, L.P. and subsidiaries, Chambers Cogeneration Limited Partnership and
Scrubgrass Generating Company, L.P. and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 15, 1998
F-58
<PAGE> 176
LOGAN GENERATING COMPANY, L.P.
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES
CHAMBERS COGENERATION LIMITED PARTNERSHIP
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
AS OF JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 13,325 $ 8,559 $ 3,459
Restricted cash........................................ 2,103 4,171 4,539
Accounts receivable.................................... 29,908 28,735 27,138
Notes and loans receivable -- current portion.......... -- 912 385
Fuel inventory......................................... 8,152 7,603 7,691
Prepaid expenses and other............................. 8,022 3,332 4,651
---------- ---------- ----------
Total current assets........................... 61,510 53,312 47,863
INVESTMENTS HELD BY TRUSTEE.............................. 28,414 25,509 29,469
RESTRICTED CASH.......................................... -- 1,208 31,792
NET INVESTMENT IN LEASE.................................. 230,101 228,936 226,228
LAND AND EASEMENTS....................................... 15,646 15,646 15,646
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $112,177 (unaudited), $106,282 and
$76,376, respectively.................................. 1,176,082 1,192,523 1,216,839
LONG-TERM NOTES RECEIVABLE............................... 2,864 4,400 2,312
DEFERRED FINANCING COSTS, net of accumulated amortization
of $17,482 (unaudited), $13,706 and $10,531,
respectively........................................... 20,446 21,347 22,365
OTHER CAPITALIZABLE COSTS, net of accumulated
amortization of $11,991 and $8,970, respectively....... -- 490 654
OTHER LONG-TERM ASSETS................................... 225 463 445
---------- ---------- ----------
$1,535,288 $1,543,834 $1,593,613
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt...................... $ 29,476 $ 35,262 $ 40,366
Accounts payable....................................... 7,509 6,537 7,688
Interest payable....................................... 12,049 10,743 11,517
Accrued liabilities.................................... 10,632 9,263 6,125
---------- ---------- ----------
Total current liabilities...................... 59,666 61,805 65,696
MAJOR MAINTENANCE RESERVE................................ 6,590 5,682 4,024
LONG-TERM DEBT........................................... 1,198,101 1,209,802 1,226,723
---------- ---------- ----------
Total liabilities.............................. 1,264,357 1,277,289 1,296,443
PARTNERS' CAPITAL........................................ 270,931 266,545 297,170
---------- ---------- ----------
$1,535,288 $1,543,834 $1,593,613
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-59
<PAGE> 177
LOGAN GENERATING COMPANY, L.P.
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES
CHAMBERS COGENERATION LIMITED PARTNERSHIP
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric capacity and capacity
bonus............................. $ 50,261 $ 50,304 $101,001 $100,112 $ 94,683
Electric energy revenue.............. 60,917 59,337 117,015 113,243 76,420
Steam revenue........................ 4,673 5,238 9,423 9,318 9,662
Interest rate mode agreement......... 15,636 15,314 30,628 31,336 33,719
Lease revenues....................... 8,287 8,212 16,172 17,151 18,474
Other revenue........................ 5,839 576 2,374 2,205 --
-------- -------- -------- -------- --------
145,613 138,981 276,613 273,365 232,958
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Fuel and ash......................... 30,817 31,350 63,957 62,675 52,686
Operating and maintenance............ 22,004 15,662 35,246 33,059 26,149
General and administrative........... 2,776 3,334 5,248 6,116 4,189
Insurance and taxes.................. 3,473 3,474 7,136 7,749 7,229
Depreciation and amortization........ 16,540 15,429 30,176 37,667 32,725
-------- -------- -------- -------- --------
75,610 69,249 141,763 147,266 122,978
-------- -------- -------- -------- --------
OPERATING INCOME....................... 70,003 69,732 134,850 126,099 109,980
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense..................... (42,669) (45,572) (96,362) (97,702) (85,798)
Other................................ (1,658) 1,048 3,124 3,805 4,361
-------- -------- -------- -------- --------
(44,327) (44,524) (93,238) (93,897) (81,437)
-------- -------- -------- -------- --------
NET INCOME BEFORE INCOME TAXES......... 25,676 25,208 41,612 32,202 28,543
BENEFIT (PROVISION) FOR INCOME TAXES... -- -- 42 (41) --
-------- -------- -------- -------- --------
NET INCOME............................. $ 25,676 $ 25,208 $ 41,654 $ 32,161 $ 28,543
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-60
<PAGE> 178
LOGAN GENERATING COMPANY, L.P.
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES
CHAMBERS COGENERATION LIMITED PARTNERSHIP
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
PARTNERS' CAPITAL, DECEMBER 31, 1994........................ $245,421
Capital contributions..................................... 15,658
Net income................................................ 28,543
--------
PARTNERS' CAPITAL, DECEMBER 31, 1995........................ 289,622
Capital distributions..................................... (24,613)
Net income................................................ 32,161
--------
PARTNERS' CAPITAL, DECEMBER 31, 1996........................ 297,170
Capital distributions..................................... (72,279)
Net income................................................ 41,654
--------
PARTNERS' CAPITAL, DECEMBER 31, 1997........................ 266,545
Capital distributions..................................... (21,290)
Net income................................................ 25,676
--------
PARTNERS' CAPITAL, JUNE 30, 1998 (UNAUDITED)................ $270,931
========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-61
<PAGE> 179
LOGAN GENERATING COMPANY, L.P.
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES
CHAMBERS COGENERATION LIMITED PARTNERSHIP
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- -------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 25,676 $ 25,208 $ 41,654 $ 32,161 $ 28,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 16,615 16,486 33,342 40,510 33,465
Amortization of unearned lease income......... (9,382) (8,169) (18,384) (17,888) (17,855)
Decrease in restricted cash................... (838) -- 83 763 3,332
(Increase) decrease in accounts receivable.... 10,296 8,378 14,179 14,578 (3,947)
Decrease (increase) in fuel inventory......... (549) (1,131) 88 (1,450) 1,153
Decrease (increase) in deposits............... (4) (3) (18) (133) 2,265
Decrease (increase) in prepaid expenses....... (1,904) (8,211) 1,319 (464) (1,058)
Increase in notes receivable.................. (553) 349 (2,615) (1,068) (20)
Increase (decrease) in accounts payable and
other accrued liabilities................... 2,340 6,509 1,987 (4,005) 2,215
Increase in major maintenance reserve......... 908 (516) 84 1,556 2,396
Increase (decrease) in interest payable....... 1,306 (479) 800 (472) 844
-------- -------- -------- -------- ---------
Net cash provided by operating
activities............................. 43,911 38,421 72,519 64,088 51,333
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investment held by trustee.......... -- (528) 3,960 2,643 27,123
Payment for construction in progress, including
capitalized interest.......................... -- -- -- -- (32,991)
Additions to property, plant and equipment...... (1,493) (1,019) (5,597) (2,720) (74,541)
Adjustments to property, plant and equipment.... -- -- -- 120 --
-------- -------- -------- -------- ---------
Net cash (used in) provided by investing
activities............................. (1,493) (1,547) (1,637) 43 (80,409)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in restricted cash for
financing..................................... 1,208 28,672 30,869 (4,801) (7,930)
Decrease (increase) in deferred financing
costs......................................... -- (163) (2,347) 14 (2,547)
Proceeds from long-term debt.................... -- 2,191 19,775 8,662 415,496
Repayment of long-term debt..................... (17,488) (11,226) (41,800) (41,630) (396,086)
Increase in other equity........................ (82) (82) -- -- --
Capital (distributions) contributions........... (21,290) (47,526) (72,279) (24,613) 15,658
-------- -------- -------- -------- ---------
Net cash (used in) provided by financing
activities............................. (37,652) (28,134) (65,782) (62,368) 24,591
-------- -------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 4,766 8,740 5,100 1,763 (4,485)
CASH AND CASH EQUIVALENTS, beginning of year...... 8,559 3,459 3,459 1,696 6,181
-------- -------- -------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year............ $ 13,325 $ 12,199 $ 8,559 $ 3,459 $ 1,696
======== ======== ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 89,398 $ 91,951 $ 96,249
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-62
<PAGE> 180
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION AND BUSINESS
LOGAN GENERATING COMPANY, L.P.
Logan Generating Company, L.P. ("Logan"), formerly Keystone Energy Service
Company, L.P., is a Delaware limited partnership formed on October 4, 1991. The
general partners of Logan are Aspen Power Corporation ("Aspen"), a Delaware
corporation and a wholly owned subsidiary of Bechtel Generating Company, Inc.
("BGCI") and Eagle Power Corporation ("Eagle"), a California corporation and a
wholly-owned subsidiary of PG&E Generating Company ("PGC"). Eagle is also a
limited partner of Logan.
PGC will transfer its entire ownership interest in Eagle to U.S. Generating
Company, LLC ("USGenLLC") pending approval by the Federal Energy Regulatory
Commission ("FERC"). The transfer will be retroactive to December 31, 1997.
The net operating profits and losses of Logan are allocated to Aspen and
Eagle (collectively, the "Logan Partners") based on the following ownership
percentages:
<TABLE>
<S> <C>
GENERAL PARTNERS:
Aspen..................................................... 50%
Eagle..................................................... 49%
LIMITED PARTNER:
Eagle..................................................... 1%
</TABLE>
All distributions other than liquidating distributions will be made based
on the Logan Partners' percentage interests as shown above, in accordance with
the project documents and at such times and in such amounts as the Board of
Control of Logan determines.
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP
Keystone Urban Renewal Limited Partnership ("Urban") is a Delaware limited
partnership formed on September 13, 1991. The general partner of Urban is
Keystone Cogeneration Company Limited Partnership ("Keystone"), a Delaware
limited partnership whose general partners are Aspen (50%) and Eagle (49%), and
whose limited partner is Eagle (1%). The limited partner of Urban is Granite
Generating Company, L.P. ("Granite"), a Delaware limited partnership whose
general partners are Aspen (50%) and Eagle (49%), and whose limited partner is
Eagle (1%).
The operating profits and losses of Urban are allocated to Keystone and
Granite based on the following ownership percentages:
<TABLE>
<S> <C>
GENERAL PARTNER:
Keystone.................................................. 99%
LIMITED PARTNER:
Granite................................................... 1%
</TABLE>
All distributions other than liquidating distributions will be made based
on the percentage interests as shown above, in accordance with the project
documents and at such times and in such amounts as the general partner
determines.
F-63
<PAGE> 181
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Logan and Urban (collectively, the "Logan Partnerships") were formed to
develop, construct, own and operate a 217 megawatt ("mw") pulverized coal-fired
cogeneration station (the "Logan Project") in the Township of Logan, New Jersey.
Urban holds title to the land upon which the Logan Project is situated as well
as the Logan Project itself. Logan leases the Logan Project from Urban pursuant
to a facilities lease agreement dated April 1, 1992. The lease commenced on the
first funding date of the Logan Project's construction, and will terminate upon
1) the merger of the Logan Partnerships, 2) mutual consent between the Logan
Partnerships and the Township of Logan, or 3) final payment of the Logan
Partnerships' obligations incurred to finance the Logan Project. The Logan
Project is designed to produce electricity for sale to Atlantic City Electric
Company ("ACEC") and process steam for sale to Monsanto Chemical Company
("Monsanto") for use in its industrial operations. Logan assigned the Monsanto
steam and electricity sales agreement to ACEC effective September 24, 1996. The
Logan Project entered commercial operations and achieved final completion in
1994.
NORTHAMPTON GENERATING COMPANY, L.P.
Northampton Generating Company, L. P. ("Northampton") is a Delaware limited
partnership formed on July 2, 1991. The partners are Jaeger Power Corporation
("Jaeger"), a wholly-owned indirect subsidiary of USGenLLC and Poplar Power
Corporation ("Poplar"), a wholly-owned subsidiary of BGCI.
Northampton was formed to construct, own and operate a 98 mw anthracite
waste coal-fired electric generating project (the "Northampton Project") located
in Northampton, Pennsylvania. The Northampton Project is designed to produce
electricity for sale to Metropolitan Edison Company. The Northampton Project
also sells a minimum of 104 million pounds per year of process steam to an
unrelated third party for use in its industrial operations.
The net operating profits and losses of Northampton are allocated to Jaeger
and Poplar (collectively, the "Northampton Partners") based on the following
ownership percentages:
<TABLE>
<S> <C>
Jaeger...................................................... 50%
Poplar...................................................... 50%
</TABLE>
All distributions other than liquidating distributions will be made based
on the Northampton Partners' percentage interests as shown above, in accordance
with the Northampton Project documents and at such times and in such amounts as
the Board of Control of the partnership determines. The Northampton Partners
have entered into equity commitment agreements which require funding up to
$11,225,000 for certain Northampton Project conditions defined in the
Northampton Project documents.
Northampton Fuel Supply Company, Inc. (the "Fuel Company") is a
wholly-owned subsidiary of Northampton. The Fuel Company was formed to (1)
obtain, hold or dispose of culm, silt, tailings or other fuel components for the
Northampton Project, (2) to build, construct, own or lease, operate, maintain,
repair, replace or refurbish facilities, equipment, systems, components, parts,
supplies or other materials necessary to obtain, handle or process or prepare
such fuel components, and (3) to provide such fuel components to Northampton or
any other owner or operator of the Northampton Project.
Northampton Water Company, Inc. (the "Water Company") is a wholly-owned
subsidiary of Northampton. The Water Company was formed to own, lease or
otherwise acquire certain rights and interests and to perform certain
obligations relating to the water supply for the Northampton Project.
F-64
<PAGE> 182
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CHAMBERS COGENERATION LIMITED PARTNERSHIP
Chambers Cogeneration Limited Partnership ("Chambers") is a Delaware
limited partnership formed on August 17, 1988. The general partners of Chambers
are Peregrine Power Corporation ("Peregrine"), a California corporation and a
wholly-owned indirect subsidiary of USGenLLC, and Maple Power Corporation
("Maple"), a Delaware corporation and a subsidiary of BGCI. TIFD III-T, Inc.
("TIFD"), a wholly-owned subsidiary of General Electric Capital Corporation
("GECC"), is a limited partner. Chambers is not to continue in existence beyond
December 31, 2028.
Chambers was formed to construct, own and operate a 262 mw coal-fired
cogeneration station (the "Chambers Project") at DuPont's Chambers Works
chemical complex near Carneys Point, New Jersey. The Chambers Project is
designed to produce electricity for sale to ACEC, and electricity and process
steam for sale to E.I. DuPont de Nemours & Company ("DuPont") for use in its
industrial operations. The Chambers Project entered commercial operations and
achieved final completion in 1994.
Chambers is managed by U.S. Generating Company ("USGen") pursuant to a
Management Services Agreement (the "MSA"). The Facility is operated by U.S.
Operating Services Company ("USOSC") pursuant to an Operation and Maintenance
Agreement (the "O&M Agreement"). USGen and USOSC are general partnerships
originally formed between affiliates of PG&E Enterprises and Bechtel
Enterprises. On September 19, 1997, USGen and USOSC each separately redeemed
Bechtel Enterprises' interests in USGen and USOSC so that PG&E Enterprises now
indirectly owns all of the interests in USGen and USOSC. This will not affect
USGen's obligations under the MSA or USOSC's obligations under the O&M
Agreement. In addition, on September 19,1997, Peregrine purchased one-third of
Maple's interest in Chambers, which represents a 5% ownership interest.
The net income and losses of Chambers are allocated to Peregrine, Maple and
TIFD (collectively, the "Chambers Partners") based on the following ownership
percentages.
<TABLE>
<CAPTION>
POST PRE
9/20/97 9/20/97
------- -------
<S> <C> <C>
Peregrine................................................ 50% 45%
Maple.................................................... 10% 15%
TIFD..................................................... 40% 40%
</TABLE>
All distributions other than liquidating distributions are made based on
the Chambers Partners' percentage interests as shown above, in accordance with
the Chambers Project documents and at such times and in such amounts as the
Board of Control of Chambers determines.
SCRUBGRASS GENERATING COMPANY, L.P.
Scrubgrass Generating Company, L.P. ("Scrubgrass") is a Delaware limited
partnership formed on December 1, 1990. The general partners of Scrubgrass are
Falcon Power Corporation ("Falcon"), a California corporation and a wholly-owned
indirect subsidiary of USGenLLC; Scrubgrass Power Corporation ("SPC"), a
Pennsylvania corporation and a wholly-owned subsidiary of Falcon; and Pine Power
Leasing, Inc. ("Pine"), a Delaware corporation and a wholly-owned subsidiary of
BGCI. Falcon is also a limited partner in Scrubgrass. DCC Project Finance Four,
Inc. ("DCC"), a Delaware corporation and a wholly-owned subsidiary of Dana
Commercial Credit Corporation, was admitted as a limited partner after acquiring
a portion of Falcon's interest in Scrubgrass. Scrubgrass is not to continue in
existence after December 31, 2030.
F-65
<PAGE> 183
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The purpose of Scrubgrass is to participate in the developing, financing,
engineering, construction, ownership, operation, maintenance, and leasing of a
waste coal-fired 87 mw (net) electrical generating facility located in Venango
County, Pennsylvania (the "Scrubgrass Project"). The Scrubgrass Project
commenced commercial operations in 1993, and Scrubgrass entered into a lease
agreement with Buzzard Power Corporation ("Buzzard"), a wholly-owned subsidiary
of Environmental Power Corporation ("EPC"), effective June 17, 1994. (See Note
4).
Scrubgrass formed two subsidiaries: Clearfield Properties, Inc.
("Clearfield"), for the purpose of purchasing a 175-acre site in Clearfield
County, Pennsylvania, and acquiring access to certain coal fines material, and
Leechburg Properties, Inc. ("Leechburg"), for the purpose of acquiring access
rights to certain waste coal sites.
The net operating profits and losses of Scrubgrass are allocated to Falcon,
SPC, Pine, and DCC (collectively, the "Scrubgrass Partners") based on the
following sharing ratios, in accordance with the amended partnership agreement:
<TABLE>
<S> <C>
GENERAL PARTNERS:
Falcon.................................................... 24.63%
SPC....................................................... 24.87%
Pine...................................................... 20.00%
LIMITED PARTNERS:
Falcon.................................................... 0.50%
DCC....................................................... 30.00%
</TABLE>
Distributions are made pursuant to the amended partnership agreement.
Generally, distributions of basic rent (contractually scheduled payments in the
lease) are made in accordance with the Scrubgrass Partners' sharing ratios as
shown above, and distributions of additional rent (variable based on Buzzard's
monthly distributable residual operating cash) are to be 20 percent to Pine and
80 percent to Falcon. During 1996, as a result of the expiration of the bond
interest rate swap (see Note 3), Falcon began sharing a portion of its
additional rent with DCC based on a formula of the lesser of 10 percent of the
Falcon distribution or 4 percent of the savings differential between bond
interest calculated at 6.5 percent per annum and the actual monthly all-in cost
of the bonds including actual interest, the cost of credit support and
remarketing fees payable by Scrubgrass.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRESENTATION
The accompanying financial statements of Logan, Urban, Northampton,
Chambers, and Scrubgrass (collectively, the "Partnerships") are presented on a
combined basis due to the common management of the underlying projects of the
Partnerships. All inter-partnership transactions have been eliminated in
combination.
The accompanying combined financial statements were prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
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
F-66
<PAGE> 184
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
INTERIM FINANCIAL STATEMENTS
Information presented as of June 30, 1998 and for the six-month periods
ended June 30, 1998 and 1997 is unaudited. In the opinion of management,
however, such information reflects all adjustments, which consist of normal
recurring adjustments necessary to present fairly the financial position of the
combined entities as of June 30, 1998 and the results of their operations and
cash flows for the six-month periods ended June 30, 1998 and 1997. The results
of operations for these interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the years as a
whole.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash equivalents include
short-term investments with original maturities of three months or less.
RESTRICTED CASH
Restricted cash includes cash and cash equivalent amounts, as defined
above, which are restricted under the terms of certain of the Partnerships'
agreements. Restricted cash includes amounts restricted for debt service, major
maintenance, subordinated operations and maintenance costs, and amounts escrowed
with the Township of Logan and Logan Municipal Utilities Authority. Restricted
cash amounts held for long-term use are classified as non-current assets.
FUEL INVENTORY
Fuel inventory is stated at the lower of cost or market using the average
cost method.
PREPAID EXPENSES
Prepaid expenses include $358,101 and $540,644 of prepaid insurance
expenses related to property damage and other general liability policies,
$1,751,573 and $2,436,563 of advance funding for expenses related to operations
and maintenance, $57,500 and $60,597 of prepaid agency and bond rating fees,
$886,582 and $343,511 in prepaid fuel and ash site development costs, $132,418
and $978,300 in future relocation reserves, and $145,933 and $292,025 in other
prepaid expenses at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which consist primarily of the projects, are
recorded at actual cost. The projects are depreciated on a straight-line basis
over 35 years. As of January 1, 1997, two of the Partnerships prospectively
revised their calculation of depreciation to include a residual value on the
projects approximating 25 percent of the gross project costs. This change
increased net income for 1997 by approximately $7.9 million.
Other property, plant and equipment are depreciated on a straight-line
basis over the estimated remaining economic or service lives of the respective
assets (ranging from 5 to 10 years). Routine maintenance and repairs are charged
to expense as incurred.
F-67
<PAGE> 185
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE ACCOUNTING
The lease described in Note 4 meets the criteria for a "sales-type" capital
lease. Accordingly, the investment in lease, unearned lease income, and lease
revenues are accounted for in conformity with Statement of Financial Accounting
Standards No. 13, "Accounting for Leases" ("SFAS 13").
RIGHT TO FUEL INVENTORY
Scrubgrass amortizes the right to remove fuel from their fee property
located in Clearfield County over the estimated minimum life of available waste
fuel fines using the straight-line method. For the years ended December 31,
1997, 1996 and 1995, $161,000 of annual amortization related to these costs has
been included in amortization in the accompanying combined statements of
operations.
ORGANIZATION COSTS
The Partnerships amortize organization costs over the life of the projects
using the straight-line method. Annual amortization of these costs has been
included in amortization expense in the accompanying combined statements of
operations.
DEFERRED FINANCING COSTS
Financing costs, consisting primarily of the costs incurred to obtain
project financing, are deferred and amortized using the effective interest rate
method over the term of financing. Financing costs related to the Debt Service
Reserve Letter of Credit (see Note 3) were capitalized and accrued in 1995.
Actual total costs were less than estimated; accordingly, deferred financing
costs were reduced by $175,750 in 1996. Deferred financing costs incurred to
obtain the Bond Letter of Credit, the Working Capital Loan commitment and the
Debt Service Loan commitment are amortized on a straight-line basis over the
term of the related commitment, which is not materially different from the
effective interest rate method.
MAJOR MAINTENANCE RESERVE
The major maintenance reserve represents an accrual for anticipated
expenditures for scheduled significant maintenance of the projects. The accrual
is recognized ratably over the maintenance cycle of the related equipment.
INTEREST INCOME
In 1995, interest income included a $513,966 gain related to the sale of
zero coupon bonds.
INCOME TAXES
Under current law, no Federal or state income taxes are paid directly by
the Partnerships. All items of income and expense of the Partnerships are
allocable to and reportable by the partners in their respective income tax
returns. Accordingly, no provision is made in the accompanying combined
financial statements for Federal or state income taxes. Income taxes reported on
the accompanying combined financial statements are Federal and State income
taxes paid or accrued by Clearfield and Leechburg.
F-68
<PAGE> 186
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. BONDS AND LOANS PAYABLE
The following represents the total amounts of bonds and notes payable for
the Partnerships. All bonds and loans payable are secured by the assets of the
projects or the real estate covered by ground leases.
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY ("NJEDA") BONDS
The NJEDA issued and sold $190,000,000 of its Exempt Facility Revenue Bonds
(the "Bonds") in order to finance a portion of the costs of constructing and
equipping both the Logan and Chambers Projects. The issuance of the Bonds was
made pursuant to an Indenture of Trust, which named First Fidelity, N.A. and
Citibank, N.A., respectively, as the bond trustees. The proceeds were lent to
the Partnerships pursuant to the NJEDA Authority Loan Agreement. The Bonds,
which are secured by an irrevocable letter of credit, provide for interest at
variable rates. The weighted-average interest rates on the Bonds were 3.59% and
3.40% at December 31, 1997 and 1996, respectively.
RESOURCE RECOVERY REVENUE BONDS
In 1994, in order to finance a portion of the costs of constructing and
equipping the Northampton Project and the culm facility, Northampton issued and
sold $205 million of Resource Recovery Revenue Bonds through the Pennsylvania
Economic Development Financing Authority. The bonds were issued in three series
and feature maturity dates ranging from January 1, 2007 to January 1, 2021 and
interest rates ranging from 6.40% to 6.95%.
VIDA BONDS
In order to finance a portion of the costs of constructing and equipping
the Scrubgrass Project, the Venango Industrial Development Authority ("VIDA")
issued and sold $135,600,000 of its resource recovery revenue bonds (Series 1990
A and B, and Series 1993 -- Scrubgrass Project). For the years ended December
31, 1997, 1996 and 1995, tax exempt interest was incurred on the outstanding
bonds at an average rate of 3.68 percent, 3.72 percent and 4.00 percent,
respectively.
CREDIT AND REIMBURSEMENT AGREEMENTS
Pursuant to the Third Amended and Restated Reimbursement and Loan Agreement
(the "Reimbursement and Loan Agreement") dated as of November 1, 1995, the Logan
Partnerships entered into a financing facility with a group of banks (the
"Senior Lenders"). Funding from the financing facility is drawn on Union Bank of
Switzerland, New York ("UBS"), as the agent for the Senior Lenders. The
financing facility provides for a construction/term loan, a bond letter of
credit, a debt service reserve letter of credit and a working capital loan. The
Reimbursement and Loan Agreement is secured by the Logan Project.
On January 1, 1994, in order to finance a portion of the costs of
constructing and equipping the Northampton Project and the culm facility,
Northampton entered into a Credit and Reimbursement Agreement with a group of
banks (the "Northampton Banks") wherein the Northampton Banks would provide
Northampton with a financing facility. Funding from the financing facility is
drawn on ABN AMRO Bank N. V., as the agent for the Northampton Banks.
In order to finance a portion of the costs of constructing and equipping
the Chambers Project, Chambers entered into a credit agreement (the "Original
Credit Agreement") in 1991 with a group of banks (the
F-69
<PAGE> 187
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
"Chambers Banks"), wherein the Chambers Banks provided Chambers with a financing
facility. Funding from the financing facility was drawn on Swiss Bank
Corporation, New York ("Swiss Bank") as the agent for the Chambers Banks. The
financing facility provided for a construction loan commitment, which was
converted to a term loan commitment in 1994 (the "Chambers Conversion Date"), a
supplemental loan commitment and a letter of credit commitment.
On June 9, 1997 the Original Credit Agreement was amended (the "Amendment")
and restated (the "Amended and Restated Credit Agreement"). The Amendment
replaced Swiss Bank Corporation, New York with ING (U.S.) Capital Corporation
("ING") as the agent bank. The Amendment increased the amount of the debt by
$7,939,750, extended the maturity of the debt five years from 2009 to 2014, and
consolidated the term loans (the "Term Loans").
Chambers incurred $3,759,664 in financing costs in conjunction with the
Amended and Restated Credit Agreement. Of this total, $2,346,219 representing
creditor bank fees (including creditor legal costs) was capitalized as deferred
financing costs and is being amortized using the effective interest rate method
over the term of the debt as prescribed in EITF 96-19. The remainder was
expensed as required by EITF 96-19.
In order to finance a portion of the costs of constructing and equipping
the Scrubgrass Project, Scrubgrass entered into the Reimbursement and Loan
Agreement (the "Original RLA") with a group of banks (the "Scrubgrass Banks"),
wherein the Scrubgrass Banks would provide Scrubgrass with various financing
facilities. Funding from the financing facilities was initially drawn on
National Westminster Bank, PLC, New York ("NatWest"), as the Agent for the
Scrubgrass Banks. In December 1995, Scrubgrass entered into the Amended and
Restated Reimbursement and Loan Agreement (the "New RLA") which provided a new
term loan facility of $12,000,000.
On May 22, 1997, Scrubgrass entered into an agreement to amend the New RLA
which restructured the Debt Service Loan Commitment of $6,000,000. As defined in
the New RLA, an applicable margin is added to the base component of interest
rates for each type of loan under each of the loan facilities provided in the
New RLA. The applicable margins consist of a Eurodollar and a base component and
range from 1.50% to 1.75% over the term of the New RLA.
CONSTRUCTION AND TERM LOANS
The Logan term loan commitment was entered into on January 24, 1995 (the
"Logan Conversion Date") and was drawn to repay the outstanding balance on the
construction loan. The interest rate on the term loan is based upon various
short-term indices at the Logan Partnerships' option and may be changed
periodically, also at the Logan Partnerships' option.
Upon the construction loan maturity date of September 22, 1995 (the
"Construction Loan Maturity Date"), the Term Loan commitment was made available
to Northampton and was drawn upon to repay the Construction Loan.
The interest rate is based upon various short-term indices at Northampton's
option and may be changed periodically, also at Northampton's option. It is
calculated as set forth in the Credit and Reimbursement Agreement. For the three
years ending September 30, 1998, interest is either (1) the base rate, which
approximates the prime rate of interest plus a margin of 0.750 percent, (2) the
London Interbank Offering Rate ("LIBOR") plus a margin of 1.500 percent, or (3)
the CD rate plus a margin of 1.625 percent. At December 31, 1997 and 1996, the
Term Loan interest rate was 7.44 and 7.32 percent respectively.
F-70
<PAGE> 188
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The original Chambers term loan was drawn in 1994 to repay the construction
loan and the supplemental loan was drawn in late 1994 to fund additional
construction costs. An additional term loan amount of $7,939,750 was drawn in
1997. The June 1997 Amendment combined the three outstanding loan facilities
into one term loan facility ("Term Loan"). The interest on the Term Loan is
based upon various short-term rates at Chamber's option and may be changed
periodically, also at Chamber's option, within certain limitations as set forth
in the Amendment.
The term loan commitment became available to Scrubgrass on June 30, 1994
(the "Scrubgrass Conversion Date") and was drawn to repay the construction loan.
Principal repayments, based on percentages of the outstanding balance ranging
from 0.100 percent to 1.617 percent, will be due monthly between July 1995 and
January 2006 according to an amortization schedule provided in the New RLA. Type
and term for each loan under the facility is determined at Scrubgrass's option.
The interest is determined as set forth in the New RLA and is either the
Eurodollar rate plus the applicable margin, or a base rate, which is the higher
of the Agent's prime rate or the federal funds rate, plus the applicable margin.
BOND LETTER OF CREDIT
In order to support certain payments of the NJEDA bonds, the Logan
Partnerships requested the Senior Lenders to issue an irrevocable letter of
credit. The committed amount of the letter of credit is reduced in the same
amounts as the related bond principal is repaid. The expiration date may be
extended for one-year periods, annually, at the sole discretion of the Senior
Lenders.
Draws upon the letter of credit are to be used for the payment of principal
or interest on the bonds and are to be made only when funds are not available or
adequate from the debt service fund or the bond redemption fund, as established
in the Bond Indenture of Trust dated April 1, 1992. The Logan Partnerships do
not expect a draw on the letter of credit. If any draws are made, however,
interest is calculated at a default rate that approximates the prime rate of
interest plus a margin of 2.0 percent. If there is any balance outstanding on
the letter of credit, the Logan Partnerships also have the option of drawing on
a liquidity commitment and a refunding notes commitment by the Senior Lenders.
Interest on these draws is based on various short-term interest rates as chosen
by the Logan Partnerships, plus an applicable margin. The refunding notes are
used to repay the liquidity notes. The refunding notes are to be repaid
according to amortization schedules set forth in the Reimbursement and Loan
Agreement, with final payment on September 30, 2009.
In order to support certain payments of its NJEDA bonds, Chambers requested
the Chambers Banks to issue an irrevocable letter of credit. Interest is
calculated at a base rate which approximates the prime rate of interest plus 2.0
percent and is payable upon demand. The letter of credit secures the NJEDA
bonds. The letter of credit currently expires June 9, 2007. Upon request of
Chambers, the expiration date of the letter of credit may be extended at the
sole discretion of the Chambers Banks.
In order to support principal and interest payments on the VIDA bonds,
NatWest has issued an irrevocable letter of credit to Scrubgrass. In 1995,
Credit Lyonnais became the Agent, replacing NatWest. Interest on the drawn
portion is calculated as a base rate that approximates the prime rate of
interest plus an additional margin as defined in the New RLA.
F-71
<PAGE> 189
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TERM LETTER OF CREDIT
At the beginning of commercial operations on August 28, 1995 (the
"Commercial Operation Date"), Northampton established an irrevocable letter of
credit with a full commitment amount available up to $66.6 million and a stated
amount, at the Commercial Operation Date of $7.154 million, determined pursuant
to the Power Purchase Agreement. This letter of credit secures the balance in a
suspense account, which balance is determined by factoring projected energy
deliveries for each generation year (the anniversary of the Commercial Operation
Date) by the excess of the contract energy sales rate over a projected rate. The
suspense account and the letter of credit will be provided until the balance in
the suspense account becomes a negative amount or until the end of the sixteenth
generation year, whichever occurs earlier. If at the end of the sixteenth year a
positive balance remains, Northampton will pay the utility the amount of the
balance. In accordance with the terms of the Power Purchase Agreement, the
stated amount of the term letter of credit was increased to $36,582,155 in
January of 1997, and $36,983,156 in January of 1998. No draws were made against
the term letter of credit during 1997 or 1996.
DEBT SERVICE RESERVE LETTERS OF CREDIT
In order to release $15,624,000 from a debt service reserve, the Logan
Partnerships requested the Senior Lenders to consent to and issue a $20,000,000
letter of credit in its stead. The Senior Lenders consented and the letter of
credit was integrated into the existing financing structure, creating the
Reimbursement and Loan Agreement. The funds released were used to pay amounts
due the construction contractor, costs to achieve the letter of credit and
distributions to the Partners. The initial expiration date was November 15,
2000, with an annual provision of extending the five-year term at the sole
discretion of the providers of the letter of credit. The letter of credit
currently expires November 15, 2002.
In accordance with Chambers' Amended and Restated Credit Agreement, the
$25,000,000 debt service reserve account was replaced with a $22,750,000 letter
of credit issued by the Chambers Banks. Interest on any outstanding balance is
payable quarterly and is calculated based on various short-term rates selected
by Chambers for each draw. The letter of credit currently expires June 9, 2004.
Upon request of Chambers, the expiration date of the letter of credit may be
extended at the sole discretion of the Chambers Banks.
In order to fund general debt service, the Banks have provided Scrubgrass
with a debt service loan commitment. The commitment of $6,303,000 under the
Original RLA has been reduced to $6,000,000 under the New RLA. On May 22, 1997,
Scrubgrass entered into an agreement to amend the New RLA which restructured the
debt service loan commitment of $6,000,000. Credit Lyonnais assumed from NatWest
a debt service (Series A/B) loan commitment of $3,000,000. At December 31, 1997
Scrubgrass and Buzzard had drawn $3,000,000 on this commitment. This amount has
been included as a debt service loan receivable in the accompanying combined
balance sheets.
The debt service (Series A) principal of this loan commitment must be
reduced in increments of $600,000 every six months beginning on or before July
1, 1998 and ending on or before July 3, 2000. Principal reductions of the Credit
Lyonnais debt service (Series A) loan will result in an increase in the
outstanding commitment value of the Credit Lyonnais debt service (Series B) loan
until it becomes a $3,000,000 commitment on or before July 3, 2000. The
$3,000,000 debt service (Series B) loan commitment balance remained with
NatWest. Type and term for each loan under the facility is determined at
Scrubgrass's option. The interest is determined as set forth in the New RLA and
is either the Eurodollar rate plus the applicable
F-72
<PAGE> 190
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
margin, or a base rate, which is the higher of the Agent's prime rate or the
federal funds rate, plus the applicable margin.
WORKING CAPITAL LOANS
A working capital loan commitment provides up to $9,500,000 for the
seasonal working capital requirements of the Logan Project. The Logan
Partnerships are required to pay down the loan to zero for a minimum of one week
per year. Interest on any outstanding balance is payable quarterly and is
calculated based on various short-term indices at the Logan Partnerships' option
and is determined separately for each draw.
A working capital loan commitment ("Working Capital Loan") provided for the
initial working capital requirements of the Northampton Project. The interest
rate is based upon various short-term indices at Northampton's option and is
determined separately for each draw. On the Construction Loan Maturity Date, the
working capital loan commitment was increased by $3 million and extends for a
period of four years from the Construction Loan Maturity Date. No draws were
made against the working capital loan commitment during 1997 and 1996.
The Chambers' Amended and Restated Credit Agreement provides for a working
capital loan commitment from the Chambers Banks of up to $5,000,000 to fund
operation and maintenance expense requirements of the Project. Chambers is
required to repay and maintain a zero balance for a minimum of one week per
year. Interest on any outstanding balance is payable quarterly and is calculated
based on various short-term rates selected by Chambers, for each draw. The full
amount of the principal is due at the earlier of June 9, 2004 or on the date on
which all loans under the Amended and Restated Credit Agreement are due in full.
Pursuant to the New RLA, the working capital loan provides for seasonal
working capital requirements of the lessee, occurring after the Conversion Date.
The Chambers Banks agreed to make a portion of the working capital facility
available to fund net startup costs prior to the Conversion Date; $1,600,000 of
proceeds from the new term loan were used to repay these borrowings. Type and
term for each working capital loan under the New RLA is determined at
Scrubgrass's option. The interest is either the Eurodollar rate plus the
applicable margin, or a base rate, which is the higher of the Agent's prime rate
or the federal funds rate, plus the applicable margin.
Pursuant to the New RLA, the core component was set at $2,000,000. The
outstanding loan balance is required to be paid down to the core level for 20
consecutive days each calendar year. A commitment fee of 0.125 percent was
applied to the undrawn loan commitment through December 31, 1995.
In 1994, Scrubgrass entered into a lessee working capital loan agreement
with Buzzard whereby Scrubgrass is to provide Buzzard with funds for seasonal
working capital requirements with regard to the Scrubgrass Project. The terms
and conditions set forth in this agreement are consistent with those above for
Scrubgrass's working capital loan facility with the Scrubgrass Banks. The
commitment extends to any undrawn amounts on Scrubgrass's working capital loan
as described above. Pursuant to the New RLA, the lessee working capital loan
agreement was amended to maintain consistency with the terms of Scrubgrass's
working capital loan facility. At December 31, 1997 and 1996, Buzzard had drawn
$2,311,666 and $2,696,143, respectively, on this commitment. These amounts have
been included as a note receivable in the accompanying combined balance sheets.
F-73
<PAGE> 191
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNIOR LOAN AGREEMENT
On November 1, 1993, in order to finance a portion of the costs of
constructing and equipping the Logan Project, the Logan Partnerships
renegotiated a junior loan agreement (the "Junior Loan Agreement") with Foster
Wheeler Energy Corporation (the "Junior Lender") in the amount of $4,800,000. No
cash was advanced to the Logan Partnerships by the Junior Lender. The advances
were made by deferring the final $4,800,000 payment due to the Junior Lender
from BPC under the construction subcontract between the Junior Lender and BPC.
In addition, accrued interest of $143,205 was added to the principal outstanding
at the Conversion Date. Interest is due quarterly at the rate equal to the
Treasury rate, as defined, plus 4.95 percent. Principal payments are due
quarterly between March 31, 1996 and December 31, 2009, according to an
amortization schedule provided in the Junior Loan Agreement.
TRANSMISSION LINE INTERCONNECTION LETTER OF CREDIT
At Funded Closing, which occurred on February 1, 1994, Northampton provided
an irrevocable letter of credit in the amount of $100,000 pursuant to the
Transmission Service Agreement. This letter of credit secures Northampton's
obligation to reimburse the utility owning the transmission line for any
improvements, changes or repairs to its regional transmission system that are
necessitated by the interconnection of the Project to the system. The
transmission line interconnection letter of credit will be maintained throughout
the term of the Transmission Service Agreement, which extends until 25 years
from the Commercial Operation Date.
CONTRACT LETTER OF CREDIT
In order to support obligations of Scrubgrass pursuant to the power sales
agreement with Pennsylvania Electric Company ("Penelec"), the Scrubgrass Banks
have provided Scrubgrass with a contract letter of credit commitment. At
December 31, 1997 and 1996, the contract letter of credit had a stated value of
$7,410,000 and $10,700,000, respectively. The letter of credit was issued to
Penelec during 1993, and it will be drawn only if liquidated damages are due to
Penelec. Repayment of any draw is due immediately, at a default rate that
approximates the prime rate of interest plus 2.00 percent. Effective January 1,
1997, Amendment Number One to the New RLA assigned all of Credit Lyonnais's
rights and obligations as contract letter of credit issuer to Landesbank
Hessen-Thuringen Girozentrale Bank ("Helaba"). The stated amount of the contract
letter of credit was reduced to $4,100,000 by Helaba on January 1, 1998, as
required by Penelec under the power sales agreement.
F-74
<PAGE> 192
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
VENDOR LOANS
Vendor loans at December 31, 1997 and 1996, which were entered into at
lease commencement and subsequently restructured in December 1995, are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
To USGen, $900,000 with interest payable at eight percent,
payable in forty-eight equal monthly installments of
principal and interest, commencing January 1996........... $504,413 $ 718,337
To USGen, $429,000 with interest payable at eight percent,
payable in two annual installments of principal and
interest, commencing January 1997......................... 157,610 429,000
To EPC, $452,000 with interest payable at eight percent,
principal and interest payable on demand, commencing
January 1996.............................................. 85,190 121,319
-------- ----------
Total............................................. $747,213 $1,268,656
======== ==========
</TABLE>
Payment of principal and interest on these loans is subordinated to the
VIDA bonds and the loans under the New RLA.
NOTE AND MORTGAGE PAYABLE
On December 22, 1993, in order to finance the purchase of several waste
fuel sites, the Fuel Company entered into a $6 million Promissory Note and
Purchase Money Mortgage with unrelated third parties.
FUTURE MINIMUM PAYMENTS
Future minimum principal payments at December 31, 1997, required by the
debt instruments outstanding are as follows (in thousands):
<TABLE>
<S> <C>
1998..................................................... $ 35,262
1999..................................................... 39,187
2000..................................................... 45,731
2001..................................................... 50,511
2002..................................................... 53,511
Thereafter............................................... 1,020,862
----------
Total.......................................... $1,245,064
==========
</TABLE>
INTEREST RATE SWAP AGREEMENTS
The Partnerships have entered into a total of sixteen interest rate swap
agreements, with an aggregate notional balance of $349,574,000, to manage
interest costs and the risk associated with changing interest rates. The
agreements have effectively converted the variable rate tax-exempt bond debt
into fixed rate debt, as they require the Partnerships to pay fixed rates under
the agreements and receive variable rate-based payments in return. Total swap
interest cost was $10,329,241, $10,924,438 and $8,867,209 in 1997, 1996 and
1995, respectively. Refer to Note 8 for fair value information related to the
swap agreements.
F-75
<PAGE> 193
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Counterparties to the interest rate swap agreements are major financial
institutions. While the Partnerships may be exposed to credit losses in the
event of nonperformance by these counterparties, they do not anticipate losses.
4. LEASE AND SUBLEASE AGREEMENTS
GENERAL
Certain of the Partnerships have long-term lease agreements with third
parties for the use of land and equipment and for certain other services. These
leases have initial terms expiring between October 1999 and July 2020. Future
minimum lease payments under these lease agreements are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 1,208
1999........................................................ 1,218
2000........................................................ 1,079
2001........................................................ 836
2002........................................................ 639
Thereafter.................................................. 13,903
-------
Total............................................. $18,883
=======
</TABLE>
PROJECT LEASE
Buzzard agreed to lease the Scrubgrass Project facility and sublease the
project site from Scrubgrass (the "Lease") for a term of 22 years with a renewal
option for an additional three years. The residual value of the property at the
end of the lease term is $0. Estimated minimum lease payments over the term
(including the renewal period) of the Lease as of December 31, 1997 are as
follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 16,602
1999........................................................ 16,857
2000........................................................ 17,581
2001........................................................ 17,317
2002........................................................ 18,673
Thereafter.................................................. 414,489
--------
Total............................................. $501,519
========
</TABLE>
The implicit rate in the Lease is 8.34 percent. The components of the net
investment in lease at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Gross investment in lease................................... $501,519
Unearned income............................................. (272,583)
--------
Net investment in lease................................... $228,936
========
</TABLE>
F-76
<PAGE> 194
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. SUPPLY AGREEMENTS
COAL SUPPLY
Certain of the Partnerships have long-term coal supply agreements with
third parties to supply the coal requirements of the respective electric
generating facilities. These contracts have initial terms of 20 years and do not
require the Partnerships to purchase any minimum quantities. Prices under the
agreements are either nominated on a periodic basis based on expected dispatch
or increase periodically based on price index formulas as defined in the
respective agreements.
LIME SUPPLY
Certain of the Partnerships have long-term lime purchase agreements with
third parties to supply the lime requirements of the respective electric
generating facilities. These agreements have contract periods ranging from 10 to
25 years. One of the agreements requires the purchase of a minimum of 1,500 tons
of limestone per year, at an initial delivered cost of $76 per ton. Prices under
the agreements generally increase based on price index formulas as defined in
the respective agreements.
OTHER
Certain of the Partnerships have long-term agreements for ash management
services with third parties. These contracts have terms ranging from 15 to 20
years and prices under the agreements generally increase annually based on price
index formulas as defined in the respective agreements.
6. SALES AGREEMENTS
POWER PURCHASE AGREEMENTS
Each of the Partnerships has a long-term power purchase agreement with a
public utility for sales of the respective electric generating facilities' power
output. These agreements have contract terms ranging from 25 to 30 years and
generally provide for both capacity and energy payments. Prices paid by the
utilities generally escalate annually based on formulas contained in the
respective agreements. One of the Partnerships has entered into a cost-based
dispatch agreement with its purchasing utility with a guaranteed minimum
dispatch level. Another of the Partnerships has entered into an excess capacity
and energy sales agreement with its purchasing utility under which the pricing
of capacity and energy is negotiated at market prices.
STEAM AND ELECTRICITY SALES AGREEMENTS
Certain of the Partnerships have steam and electric sales agreements with
third parties which have contract terms ranging from 15 to 30 years. Prices
under the agreements are generally adjusted periodically based on formulas
contained in the respective agreements.
OTHER
One of the Partnerships has a 25-year contract with a public utility to
provide for the transmission of that facility's electrical output to the
ultimate purchasing utility under the power purchase agreement.
F-77
<PAGE> 195
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS
CONSTRUCTION CONTRACT
Urban and Northampton entered into separate turnkey construction contracts
with Bechtel Power Corporation ("BPC"), an affiliate of BGCI, for the design,
engineering, procurement, construction, start-up and testing of their respective
projects. The Urban contract provided for certain bonuses and fees in addition
to the fixed price for the plant. The contract also provided BPC a 50 percent
share in net profits, as defined in the contract, from the sale of any excess
energy entered into within 2 years of final acceptance, December 19, 1994, for
the lesser of the initial term of the excess power sales agreement or 5 years.
This provision applies to the Excess Capacity and Energy Sales Agreements
described in Note 6. Logan incurred $13,727, $60,234 and $41,079 of expense in
1997, 1996 and 1995, which is included in other accrued liabilities in the
accompanying combined balance sheets, related to this provision of the contract.
Construction of the Northampton Project commenced in October 1993.
Substantial completion occurred on August 26, 1995 and final completion on
December 22, 1995. All construction contract payments including retainage have
been made as of December 31, 1996. A warranty claim receivable to BGCI for items
totaling $61,120 is outstanding as of December 31, 1997 and is included in
accounts receivable in the accompanying combined balance sheets.
MANAGEMENT SERVICES AGREEMENT
The Partnerships have separate management services agreements with USGen, a
wholly owned indirect subsidiary of USGenLLC. The agreement provides for USGen
to provide day-to-day management and administration of the Partnerships'
business relating to the projects. The agreement will continue for 33 years from
commencement for Logan, 25 years from commencement for Northampton, and until
either party terminates the agreement for Chambers. Compensation to USGen under
the agreements includes an annual base fee totalling approximately $1,200,000,
escalated annually, wages and benefits for employees working on behalf of the
Partnerships and other costs directly related to the Partnerships. Total
payments to USGen were $4,951,578, $5,345,169 and $4,648,625 in 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Partnerships owed USGen
$658,539 and $779,884, respectively, which is included in accounts payable in
the accompanying combined balance sheets.
OPERATIONS AND MAINTENANCE AGREEMENT
The Partnerships have separate operations and maintenance agreements with
USOSC, a wholly owned indirect subsidiary of USGenLLC, for operations and
maintenance of the Projects during construction and for 10 to 25 years after
substantial completion of construction of the Projects. Thereafter, the
agreement will be automatically renewed for periods of 5 years for the three of
the Projects until terminated by either party with at least 6 to 12 months
notice. Compensation to USOSC includes the reimbursement of direct and indirect
operational expenses, a base fee totaling $2,115,900 per year, additional fees
based on targeted plant performance, safety bonuses of up to approximately
$425,000 per year and an employee incentive bonus. These fees are adjusted
annually by a measure of inflation as defined in the agreement. If targeted
plant performance is not reached, USOSC will pay liquidated damages to the
Partnership. Total payments to USOSC were $24,390,226, $25,514,646 and
$19,848,237 in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996,
the Partnerships owed USOSC $2,777,214 and $2,964,606, respectively, which are
F-78
<PAGE> 196
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
included in other accrued liabilities in the accompanying combined balance
sheets. At December 31, 1997, $446,000 had been advanced to USOSC and is
included in prepaid expenses.
POWER BROKERING/MARKETING AGREEMENT
The Partnerships of Logan and Chambers have a power brokering/marketing
agreement with PG&E ET. The agreement provides for PG&E ET to provide certain
services to the Partnerships related to the sale of capacity and energy as well
as other power-related services, including but not limited to spinning reserves,
operating reserves and emission allowances from the Partnerships to various
electric utilities and other entities. The agreements both commenced on April 7,
1995 and shall expire automatically three years from the commencement date;
provided, however, that either party may terminate the agreement upon 60 days'
prior written notice to the other party. Compensation to PG&E ET is negotiated
on a deal-by-deal basis. Payments of $0, $67,341 and $69,830 were made to PG&E
ET in 1997, 1996 and 1995, respectively. Payments of $3,969,879, $2,956,473 and
$0 were received from PG&E ET in 1997, 1996 and 1995, respectively. At December
31, 1997 and 1996, PG&E ET owed the Partnerships $352,769 and $380,718,
respectively, which is included in accounts receivable in the accompanying
combined balance sheets.
LEASE AGREEMENT
Chambers has a lease agreement with Carneys Point Generating Company, L.P.
("CPGC"), which is owned 50% by Topaz Power Corporation and 50% by Garnet Power
Corporation, both subsidiaries of USGen. CPGC agreed to lease the plant and
sublease the site from Chambers. In addition, certain contracts and agreements
related to Chambers are assigned to CPGC by Chambers. The lease commenced upon
the Chambers Conversion Date pertaining to the Credit Agreement for a period of
24 years.
WASTE DISPOSAL AGREEMENT
In December 1993, Northampton entered into a Waste Disposal Agreement with
the Fuel Company. Under the terms of the agreement, the Partnership will dispose
of anthracite coal refuse material which the Fuel Company will make available to
Northampton from waste coal sites leased and owned by the Fuel Company.
Northampton will supply ash to the Fuel Company for use in the reclamation of
the waste coal sites and ash disposal areas. The Fuel Company presently has
access to waste coal supplies sufficient to supply approximately 17.8 years of
waste coal to Northampton. Northampton is required to reimburse the Fuel Company
for all expenses incurred in the excavation, handling and loading of the waste
coal and in the unloading and handling of ash. During 1997, 1996 and 1995, this
reimbursement amounted to $8,686,684, $9,276,824 and $1,923,560, respectively.
FUEL SERVICES AGREEMENT
The Fuel Company entered into a Fuel Services Agreement with USOSC
effective January 1, 1996. The agreement is effective for five years from the
agreement date. At the sole discretion of the Fuel Company, the agreement may be
extended for up to two additional 10 year terms. Under the terms of the
agreement, USOSC will staff and operate the fuel, ash and silt sites and manage
the operation and maintenance of the culm facility. Compensation to USOSC
includes the reimbursement of direct and indirect operational expenses. In
addition, a base fee of $250,000 is paid annually. If targeted plant performance
for each operating year based on fuel recoveries is reached, a recovery earned
fee shall be paid by the Fuel Company to USOSC.
F-79
<PAGE> 197
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Liquidated damages shall be paid by USOSC to the Fuel Company if the targeted
fuel recoveries are not met. Similarly, if targeted cost incentives are met, an
earned fee shall be paid by the Fuel Company to USOSC. If not met, liquidated
damages shall be incurred by USOSC. The cost incentive fee or related liquidated
damages were not effective for 1996 and were not incurred in 1997. Payment of
the base fee, earned fees, and discretionary fees are subordinated to debt
service on the Project. During 1997, 1996 and 1995, $3,032,351, $2,210,991 and
$0, respectively, in cost reimbursement and fees was incurred and is included in
fuel inventory in the accompanying consolidated balance sheets and fuel expense
in the accompanying consolidated statements of operations. At December 31, 1997,
$103,400 had been advanced to USOSC and is carried as a prepaid expense on the
accompanying combined balance sheets.
In December 1993, the Fuel Company entered into a fuel services agreement
with an unrelated third party, which was replaced by the agreement described
above. During 1995, $2,507,181 in cost reimbursements and fees was capitalized
as part of the Fuel Company cost of construction. Cost reimbursement and fees of
$1,349,822 incurred during the 4th quarter of 1995 are included in fuel expense
in the accompanying combined statement of operations.
EXCESS CAPACITY SALES AGREEMENT
In June 1996, Northampton entered into an excess capacity sales agreement
with PG&E ET. The sales agreement became effective June 1, 1996 and is to extend
through May 31, 1998. The agreement states that Northampton will supply to PG&E
ET an amount of installed capacity up to 24mw. During 1997, 1996 and 1995,
$229,950, $94,050 and $0, respectively, was received from PG&E ET under the
provisions of the agreement.
INTERCOMPANY LOAN
During the period from July through September 1995, Scrubgrass received
$375,028 of equity rents from Buzzard. These funds were restricted pending
release by the Scrubgrass Banks, which occurred during December 1995. Scrubgrass
borrowed $375,028 from USOSC during 1995 to fund scheduled distributions to the
Partners. Pursuant to an agreement between USOSC, Scrubgrass and the Agent,
restricted cash of this amount was paid directly to USOSC in January 1996.
CONSULTING AND OTHER SERVICES
In 1996 and 1995, respectively, Chambers incurred and recorded expenses for
consulting and other services in the amount of $228 and $6,068 from BGCI and
$28,352 and $15,073 from Bechtel Power Corporation, an affiliate of BGCI. No
such expenses were incurred in 1997.
Northampton entered into a services agreement with BGCI to provide
management, administrative, procurement, environmental and financial services to
the Partnership. Compensation to BGCI includes reimbursement for personnel and
other direct costs as defined in the agreement. Payments for 1997, 1996 and 1995
were $416,993, $408,770 and $61,581, respectively, and are included in general
and administrative expenses in the accompanying combined statement of
operations. At December 31, 1997 and 1996, the Partnership owed BGCI $33,750 and
$91,719 respectively, which is included in other accrued liabilities in the
accompanying combined balance sheet.
F-80
<PAGE> 198
LOGAN GENERATING COMPANY, L.P.,
KEYSTONE URBAN RENEWAL LIMITED PARTNERSHIP,
NORTHAMPTON GENERATING COMPANY, L.P. AND SUBSIDIARIES,
CHAMBERS COGENERATION LIMITED PARTNERSHIP
AND
SCRUBGRASS GENERATING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Partnerships' cash and cash equivalents,
restricted cash, accounts receivable, prepaid expenses, accounts payable,
interest payable, accrued financing and acquisition costs, working capital loan
and other accrued liabilities approximate fair value because of the short
maturities of these instruments.
The carrying amounts of the Partnerships' bonds payable, term loan payable
and junior loan payable are equal to their fair value because of the variable
nature of the interest obligations thereon. The fair value of the vendor loans
approximates their carrying value because market rates of interest approximate
the actual rates on these loans. The fair value on other long-term debt is
estimated based on currently quoted market prices for similar types of borrowing
arrangements and is also considered to approximate its carrying value.
The fair value of interest rate swap agreements, which are not carried on
the accompanying combined balance sheets, is estimated by determining the
difference between the fixed payments on the agreements and what the fixed
payments would be based on current market fixed rates for the appropriate
maturity, then calculating the present value of that difference for the
remaining terms of the agreements at current fixed market rates. The estimated
fair value of the interest rate swap agreements is a liability of approximately
$18.1 million and $27.4 million, respectively, at December 31, 1997 and 1996.
F-81
<PAGE> 199
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Bechtel Enterprises, Inc.
San Francisco, California
We have audited the accompanying combined balance sheets of Birch Power
Corporation, Cedar Power Corporation, Hickory Power Corporation, Palm Power
Corporation, and Panther Creek Leasing, Inc. (collectively, the "Entities") as
of December 31, 1997 and 1996 and the related combined statements of operations,
stockholder's equity, and cash flows for the years ended December 31, 1997,
1996, and 1995. These financial statements are the responsibility of the
Entities' management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Gilberton Power Company; Cedar Bay Generating Company, L.P.;
Morgantown Energy Associates (a partnership); or Indiantown Cogeneration, L.P.
(collectively, the "Investees"). The Entities' combined investment in the
Investees was $23,583,000 and $29,895,000 at December 31, 1997 and 1996,
respectively. The Entities' combined equity income (loss) in the Investees was
$801,000, $394,000 and $(2,216,000) for the years ended December 31, 1997, 1996,
and 1995, respectively. The financial statements of the Investees were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for the Investees, is based solely
on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Birch Power
Corporation, Cedar Power Corporation, Hickory Power Corporation, Palm Power
Corporation, and Panther Creek Leasing, Inc. as of December 31, 1997 and 1996,
and the combined results of their operations and their combined cash flows for
the years ended December 31, 1997, 1996, and 1995 in conformity with generally
accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
June 8, 1998
F-82
<PAGE> 200
REPORT OF INDEPENDENT AUDITORS
Board of Control
Gilberton Power Company
We have audited the balance sheets of Gilberton Power Company as of
December 31, 1997 and 1996, and the related statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1997 (not presented separately herein). 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gilberton Power Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Harrisburg, Pennsylvania
January 16, 1998
F-83
<PAGE> 201
INDEPENDENT AUDITORS' REPORT
To the Partners of Morgantown Energy Associates:
We have audited the balance sheets of Morgantown Energy Associates (a
"Partnership") as of December 31, 1997 and 1996, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 1997 (not presented separately herein). These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgantown Energy Associates at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
February 25, 1998
F-84
<PAGE> 202
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
COMBINED BALANCE SHEETS
AS OF JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 2,174 $ 23,268 $ 6,593
Accounts and notes receivable from investees.... 18,283 17,088 17,732
-------- -------- --------
Total current assets.................... 20,457 40,356 24,325
Equity in investees............................... 21,718 23,583 29,895
Investment in leveraged lease..................... 18,541 18,831 31,036
-------- -------- --------
Total assets............................ $ 60,716 $ 82,770 $ 85,256
======== ======== ========
LIABILITIES
Current liabilities:
Accounts payable................................ $ 286 $ 242 $ 106
Accrued expenses................................ 670 588 633
Income taxes payable............................ 3,784 4,009 399
-------- -------- --------
Total current liabilities............... 4,740 4,839 1,138
Unearned and deferred income...................... 6,586 7,120 13,575
Deferred income taxes............................. 20,863 19,462 20,088
Minority interest................................. 14,892 15,010 17,217
-------- -------- --------
Total liabilities....................... 47,081 46,431 52,018
-------- -------- --------
Commitments and contingencies (Note 7)
STOCKHOLDER'S EQUITY
Common stock...................................... 50 50 50
Additional paid-in capital........................ 24,815 48,379 48,379
Accumulated deficit............................... (11,230) (12,090) (15,191)
-------- -------- --------
Total stockholder's equity.............. 13,635 36,339 33,238
-------- -------- --------
Total liabilities and stockholder's
equity........................... $ 60,716 $ 82,770 $ 85,256
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-85
<PAGE> 203
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX-MONTH PERIOD -----------------------------
ENDED JUNE 30, 1998 1997 1996 1995
------------------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating income:
Income (loss) from investees................ $ 1,077 $ 801 $ 394 $(2,216)
Income from leveraged lease................. 534 1,885 2,018 2,201
Service revenue from investees.............. 472 1,081 954 407
------- ------- ------- -------
2,083 3,767 3,366 392
------- ------- ------- -------
Operating expenses:
General and administrative expenses......... 165 373 323 337
Service costs............................... 307 755 604 269
------- ------- ------- -------
472 1,128 927 606
------- ------- ------- -------
Net operating income (loss)......... 1,611 2,639 2,439 (214)
Other income (expense):
Gain on partial sale of equity in
investees................................ -- 2,721 -- --
Loss on partial sale of investment in
leveraged lease.......................... -- (1,919) -- --
Interest from investees, net................ 1,590 3,397 2,616 3,664
Other income (expenses)..................... 8 (81) (62) (213)
------- ------- ------- -------
Income before minority interest............... 3,209 6,757 4,993 3,237
Minority share in loss........................ 57 238 218 329
------- ------- ------- -------
Income before income taxes.................... 3,266 6,995 5,211 3,566
Provision for income taxes.................... (2,406) (3,894) (1,338) (4,021)
------- ------- ------- -------
Net income (loss)................... $ 860 $ 3,101 $ 3,873 $ (455)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-86
<PAGE> 204
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995...................... $50 $48,379 $ (9,865) $38,564
Net loss...................................... -- -- (455) (455)
--- ------- -------- -------
Balance, December 31, 1995.................... 50 48,379 (10,320) 38,109
Net income.................................... -- -- 3,873 3,873
Common stock dividends........................ -- -- (8,744) (8,744)
--- ------- -------- -------
Balance, December 31, 1996.................... 50 48,379 (15,191) 33,238
Net income.................................... -- -- 3,101 3,101
--- ------- -------- -------
Balance, December 31, 1997.................... $50 $48,379 $(12,090) $36,339
Net income (Unaudited)........................ -- -- 860 860
Reduction of additional paid-in capital
(Unaudited)................................. -- (23,564) -- (23,564)
--- ------- -------- -------
Balance, June 30, 1998........................ $50 $24,815 $(11,230) $13,635
=== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE> 205
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------
1998 1997 1996 1995
----------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 860 $ 3,101 $ 3,873 $ (455)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority share of losses......................... (57) (238) (218) (329)
Deferred income taxes............................ 1,401 (626) 300 4,587
Equity in net income (loss) of investees......... (1,077) (801) (394) 2,216
Income from leveraged lease...................... (534) (1,885) (2,018) (2,201)
Leveraged lease payment received................. 290 115 133 1,219
Gain on partial sale of equity in investees...... -- (2,721) -- --
Loss on partial sale of investment in leveraged
lease.......................................... -- 1,919 -- --
Dividends received from investees................ 2,942 4,831 5,972 3,834
Decrease (increase) in accounts and notes
receivable from investees...................... (1,195) 644 (2,239) (2,206)
Increase in accounts payable..................... 44 136 93 12
Increase (decrease) in accrued liabilities....... 82 (45) 200 225
Increase (decrease) in income taxes payable...... (225) 3,610 455 (1,168)
-------- ------- ------- --------
Net cash flows provided by operating
activities................................ 2,531 8,040 6,157 5,734
-------- ------- ------- --------
Cash flows from investing activities:
Additional investment in investees.................. -- (23) (24) (16,811)
Proceeds from partial sale of equity in investees... -- 5,027 -- --
Proceeds from partial sale of investment in
leveraged lease.................................. -- 5,600 -- --
Proceeds from sale of equipment..................... -- -- -- 2,022
-------- ------- ------- --------
Net cash flows provided by (used in)
investing activities...................... -- 10,604 (24) (14,789)
-------- ------- ------- --------
Cash flows from financing activities:
Common stock dividends paid......................... -- -- (8,744) --
Reduction of additional paid-in capital............. (23,564) -- -- --
Partial redemption of minority interest............. (61) (1,969) -- --
-------- ------- ------- --------
Net cash flows used in financing
activities................................ (23,625) (1,969) (8,744) --
-------- ------- ------- --------
Net increase (decrease) in cash............. (21,094) 16,675 (2,611) (9,055)
Cash at beginning of period........................... 23,268 6,593 9,204 18,259
-------- ------- ------- --------
Cash at end of period................................. $ 2,174 $23,268 $ 6,593 $ 9,204
======== ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for taxes................. $ 1,229 $ 910 $ 583 $ 602
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<PAGE> 206
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. NATURE OF BUSINESS
The accompanying combined financial statements of Birch Power Corporation,
Cedar Power Corporation, Hickory Power Corporation, Palm Power Corporation, and
Panther Creek Leasing, Inc. (collectively, the Entities) represent a combination
of these five Entities which are each wholly-owned subsidiaries of Bechtel
Enterprises, Inc. (Parent). Four of these entities hold interests in power
plants through equity investments in investees and one holds an interest in a
leveraged lease of a power plant through a partnership investment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Information presented as of June 30, 1998 and for the six-month period then
ended is unaudited. In the opinion of management, however, such information
reflects all adjustments, which consist of normal recurring adjustments
necessary to present fairly the financial position of the Entities as of June
30, 1998 and the results of operations and cash flows for the six-month period
then ended. The results of operations for this interim period is not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
EQUITY IN INVESTEES
Equity in investees are investments in investees which own or derive
revenues from power projects. The investees are accounted for on the equity
basis due to the Entities' ability to exercise significant influence over them.
Each Entity's share of income or loss from equity in investees is included in
operating revenues in the combined statements of operations.
INCOME TAXES
The Entities were included in the consolidated federal income tax return of
Bechtel Group, Inc. (BGI) in 1996 and 1995 and Bechtel Generating Company, Inc.
(BGCI) in 1997. It is the policy of BGI and BGCI to allocate their consolidated
current income tax liability to each profitable company in the group on the
basis of the ratio of each profitable company's current income tax liability to
the total consolidated current income tax liability, except for companies with
separate tax-sharing agreements. No current tax benefit is allocated to loss
companies of the consolidated group other than companies with separate tax
sharing agreements with BGI in 1996 and 1995 and BGCI in 1997.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred taxes are
calculated based on provisions of enacted tax law.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F-89
<PAGE> 207
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
nonowner changes in equity. This statement will be adopted for the Entities
effective January 1, 1998. The Entities' management believes this pronouncement
will not have a material effect on the financial statements.
3. EQUITY IN INVESTEES
The following table summarizes each Entity's percentage equity in investees
as of December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ENTITY AFFILIATE 1997 1996 1995
- ------ --------- ---- ---- ----
<S> <C> <C> <C> <C>
Birch Power Corporation Gilberton Power Company 19% 19% 19%
Cedar Power Corporation Cedar Bay Generating Company,
L.P. 16 16 16
Hickory Power Corporation Morgantown Energy Associates
(a partnership) 15 15 15
Palm Power Corporation Indiantown Cogeneration, L.P. 10 12 12
</TABLE>
In September 1997, Palm Power Corporation decreased its ownership from 12%
to 10% of its equity in Indiantown Cogeneration, L.P. for $5,027 with a gain of
$2,721.
The following table presents summarized financial information for the above
four Investees in which the Entities hold interests:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Balance sheet data:
Current assets............................................ $ 95,341 $ 108,830
Noncurrent assets......................................... 1,401,621 1,441,600
---------- ----------
Total assets...................................... $1,496,962 $1,550,430
========== ==========
Current liabilities....................................... $ 104,538 $ 99,947
Noncurrent liabilities.................................... 1,209,134 1,242,895
Partners' equity.......................................... 183,290 207,588
---------- ----------
Total liabilities and partners' equity............ $1,496,962 $1,550,430
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statement of operations data:
Operating revenues................................... $367,311 $362,857 $199,300
Net income (loss).................................... 12,363 7,160 (11,675)
The Entities' share of net income (loss)............. 801 394 (2,216)
</TABLE>
F-90
<PAGE> 208
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT IN LEVERAGED LEASE
Panther Creek Leasing, Inc. (Panther) is the lessor in a leveraged lease
agreement entered into in 1993 under which a power plant having an estimated
economic life of 20 years was leased for a term of 19.5 years. Panther's equity
investment represented 21 percent of the purchase price; the remaining 79
percent was furnished by third-party financing in the form of long-term debt
that provides for no recourse against Panther and is collateralized by a first
lien on the property. At the end of the lease term, the power plant will be
turned back to Panther. The residual value at that time is estimated to be 20
percent of the cost.
Panther's net investment in the leveraged lease is composed of the
following elements at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Rentals receivable (net of principal and interest on the
nonrecourse debt)......................................... $13,441 $ 22,186
Estimated residual value of leased assets................... 5,390 8,850
Less: Unearned and deferred income.......................... (7,120) (13,575)
------- --------
Investment in leveraged lease............................... 11,711 17,461
Less: Deferred taxes........................................ (4,917) (8,580)
------- --------
Net investment in leveraged lease........................... $ 6,794 $ 8,881
======= ========
</TABLE>
In December 1997, Panther sold 39.1% of its investment in the leveraged
lease for $5,600 at a loss of $1,919.
5. COMMON STOCK
The Common stock of the Entities at December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
PAR VALUE ISSUED AND
PER SHARE AUTHORIZED OUTSTANDING
--------- ---------- -----------
<S> <C> <C> <C>
Birch Power Corporation................................. $1.00 100,000 10,000
Cedar Power Corporation................................. $1.00 10,000 10,000
Hickory Power Corporation............................... $1.00 10,000 10,000
Palm Power Corporation.................................. $1.00 10,000 10,000
Panther Creek Leasing, Inc.............................. $1.00 10,000 10,000
</TABLE>
F-91
<PAGE> 209
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 1997, 1996,
and 1995 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $4,239 $ 815 $ (893)
State..................................................... 281 223 327
------ ------ ------
4,520 1,038 (566)
------ ------ ------
Deferred:
Federal................................................... (626) 300 4,587
------ ------ ------
$3,894 $1,338 $4,021
====== ====== ======
</TABLE>
Reconciliations between the federal statutory income tax rate and the
Entities' combined effective tax rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory
rate..................... $2,448 35.0% $1,824 35.0% $1,248 35.0%
State income taxes, net of
federal tax effect....... 186 2.7 118 2.2 194 5.4
Effect of consolidated tax
allocation............... 1,311 18.7 (471) (9.0) 2,813 78.9
Other...................... (51) (0.7) (133) (2.5) (234) (6.5)
------ ----- ------ ----- ------ -----
Effective tax rate......... $3,894 55.7% $1,338 25.7% $4,021 112.8%
====== ===== ====== ===== ====== =====
</TABLE>
Significant components of the Entities' net deferred tax liability as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax liability:
Tax loss from investees................................... $(19,019) $(15,906)
Leveraged lease........................................... (4,917) (8,580)
Other..................................................... (29) --
-------- --------
(23,965) (24,486)
-------- --------
Deferred tax asset:
Net operating losses...................................... 4,503 4,301
Other..................................................... -- 97
-------- --------
4,503 4,398
-------- --------
Net deferred tax liability.................................. $(19,462) $(20,088)
======== ========
</TABLE>
F-92
<PAGE> 210
BIRCH POWER CORPORATION, CEDAR POWER CORPORATION,
HICKORY POWER CORPORATION, PALM POWER CORPORATION,
AND PANTHER CREEK LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
LINE OF CREDIT
An associate of the Parent has made available to the Entities a total
revolving credit facility of $125,000 at December 31, 1997 against which the
Entities had no borrowings. An associated company has guaranteed the credit
facility which requires the associated company to maintain a minimum level of
stockholder's equity.
GUARANTEES AND LETTERS OF CREDIT
Letters of credit of $762 were outstanding at December 31, 1997.
At December 31, 1997, the Entities have committed to contribute to certain
investee Entities capital of $2,012, all of which is contingent upon certain
conditions. The aforementioned capital contributions are secured by letters of
credit or collateral of the Parent and the associated company.
TAX CREDITS
The Internal Revenue Service (IRS) has issued a technical advice memorandum
disallowing energy tax credits taken by the partners of Gilberton Power Company
(GPC). GPC is appealing this decision and believes it will prevail. An
unsuccessful appeal could nullify the Birch Limited Partnership (BLP) sharing
ratio change which occurred on April 1, 1993. As a result, Birch Power
Corporation could take a charge to pre-tax book income and owe cash to its BLP
partner, ESI Energy Inc. The maximum potential liability is approximately $1,200
through 1997. This estimate does not include interest or any other charges.
F-93
<PAGE> 211
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Indiantown Cogeneration, L.P. and
Cedar Bay Generating Company, L.P.:
We have audited the accompanying combined balance sheets of Indiantown
Cogeneration, L.P. (a Delaware limited partnership) and Cedar Bay Generating
Company, L.P. (a Delaware limited partnership) as of December 31, 1997 and 1996,
and the related combined statements of operations, changes in partners' capital
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Indiantown Cogeneration,
L.P. and Cedar Bay Generating Company, L.P. as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
January 19, 1998
F-94
<PAGE> 212
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
COMBINED BALANCE SHEETS
AS OF JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 2,517 $ 3,342 $ 407
Restricted cash........................................ 7,282 8,584 18,501
Accounts receivable.................................... 27,448 27,276 28,191
Inventories............................................ 2,471 1,675 3,784
Prepaid expenses....................................... 2,198 1,861 1,717
Investments held by Trustee, including restricted funds
of $2,747 (unaudited), $2,765 and $3,673,
respectively........................................ 2,539 13,009 18,750
---------- ---------- ----------
Total current assets........................... 44,455 55,747 71,350
INVESTMENTS HELD BY TRUSTEE, restricted funds............ 13,767 13,501 13,001
DEPOSITS................................................. 70 65 60
LAND..................................................... 8,582 8,582 8,579
PROPERTY, PLANT & EQUIPMENT, net of accumulated
depreciation of $99,230 (unaudited), $84,614 and
$55,084, respectively.................................. 1,100,991 1,114,688 1,141,711
FUEL RESERVE............................................. 2,397 3,141 3,592
DEFERRED FINANCING COSTS, net of accumulated amortization
of $51,065 (unaudited), $49,875 and $47,342,
respectively........................................... 31,180 32,370 34,903
---------- ---------- ----------
$1,201,442 $1,228,094 $1,273,196
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt...................... $ 18,715 $ 20,052 $ 16,278
Current portion of lease payable....................... 277 267 248
Accounts payable and accrued liabilities............... 23,717 22,255 24,417
Accrued interest....................................... 2,319 2,337 12,180
---------- ---------- ----------
Total current liabilities...................... 45,028 44,911 53,123
LONG-TERM DEBT:
Interest payable....................................... 35,648 29,703 18,088
Bonds and notes payable................................ 992,631 1,001,234 1,021,286
Retainage payable...................................... 20,000 20,000 20,000
Lease payable -- railcars.............................. 4,730 4,871 5,138
---------- ---------- ----------
Total long-term debt........................... 1,053,009 1,055,808 1,064,512
---------- ---------- ----------
Total liabilities.............................. 1,098,037 1,100,719 1,117,635
PARTNERS' CAPITAL........................................ 103,405 127,375 155,561
---------- ---------- ----------
$1,201,442 $1,228,094 $1,273,196
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-95
<PAGE> 213
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30, FISCAL YEAR ENDED DECEMBER 31,
------------------------- ------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric capacity and capacity
bonus............................. $104,005 $103,476 $206,762 $198,489 $ 83,019
Electric energy revenue.............. 30,755 29,741 68,988 73,068 31,100
Steam revenue........................ 7,823 7,879 15,774 15,355 14,695
-------- -------- -------- -------- --------
142,583 141,096 291,524 286,912 128,814
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Fuel and ash......................... 41,243 41,672 92,485 95,958 51,390
Operating and maintenance............ 17,670 17,068 39,334 32,356 16,484
General and administrative........... 7,867 7,325 13,581 14,483 11,998
Insurance and taxes.................. 3,361 3,418 6,705 7,483 222
Depreciation and amortization........ 15,518 13,223 31,201 34,872 15,433
-------- -------- -------- -------- --------
85,659 82,706 183,306 185,152 95,527
-------- -------- -------- -------- --------
OPERATING INCOME....................... 56,924 58,390 108,218 101,760 33,287
OTHER INCOME (EXPENSE):
Interest expense..................... (55,633) (56,137) (111,867) (112,674) (54,332)
Other................................ 1,220 1,797 3,543 5,636 3,390
-------- -------- -------- -------- --------
(54,413) (54,340) (108,324) (107,038) (50,942)
-------- -------- -------- -------- --------
NET INCOME (LOSS)...................... $ 2,511 $ 4,050 $ (106) $ (5,278) $(17,655)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-96
<PAGE> 214
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
PARTNERS' CAPITAL, DECEMBER 31, 1994........................ $ 74,889
Capital contributions..................................... 140,000
Net loss.................................................. (17,655)
--------
PARTNERS' CAPITAL, DECEMBER 31, 1995........................ 197,234
Capital distributions..................................... (36,395)
Net loss.................................................. (5,278)
--------
PARTNERS' CAPITAL, DECEMBER 31, 1996........................ 155,561
Capital distributions..................................... (28,080)
Net loss.................................................. (106)
--------
PARTNERS' CAPITAL, DECEMBER 31, 1997........................ 127,375
Capital distributions..................................... (26,481)
Net Income................................................ 2,511
--------
PARTNERS' CAPITAL, JUNE 30, 1998 (UNAUDITED)................ $103,405
========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-97
<PAGE> 215
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30, FISCAL YEAR ENDED DECEMBER 31,
------------------------- -------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ 2,511 $ 4,050 $ (106) $ (5,278) $ (17,655)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............... 15,809 14,250 32,063 35,747 15,445
Decrease (increase) in restricted cash...... 1,302 9,057 9,917 (2,553) 5,566
Decrease (increase) in accounts
receivable............................... (171) 549 915 (7,186) (5,553)
Decrease (increase) in fuel inventory and
reserves................................. (52) 1,647 2,560 (1,743) 3,440
(Increase) decrease in deposits and other
prepaid expenses......................... (343) (539) (149) 1,017 (32)
Increase (decrease) in accounts payable,
other accrued liabilities, and accrued
interest................................. 7,431 (5,965) (389) 695 12,035
-------- -------- -------- -------- ---------
Net cash provided by operating
activities............................. 26,487 23,049 44,811 20,699 13,246
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investment held by trustee.......... 10,205 3,007 5,241 40,001 33,218
Cash paid for construction in progress.......... (434) -- -- -- (167,448)
Additions to property, plant and equipment...... (489) (1,580) (2,511) (12,411) (5,144)
Sale of property, plant and equipment........... -- -- -- -- 7,882
Decrease in retainage payable................... -- -- -- -- (11,946)
-------- -------- -------- -------- ---------
Net cash provided by (used in) investing
activities............................. 9,282 1,427 2,730 27,590 (143,438)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred financing costs............ -- -- -- -- (5,287)
Proceeds from long-term debt.................... -- -- -- -- 142,045
Repayment of long-term debt..................... (9,982) (8,093) (16,278) (14,200) (145,838)
Decrease in lease payable -- railcars........... (131) (122) (248) (231) --
Capital contributions........................... -- -- -- -- 140,000
Capital distributions........................... (26,481) (16,278) (28,080) (36,395) --
-------- -------- -------- -------- ---------
Net cash (used in) provided by
financing.............................. (36,594) (24,493) (44,606) (50,826) 130,920
-------- -------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................ (825) (17) 2,935 (2,537) 728
CASH AND CASH EQUIVALENTS, beginning of period.... 3,342 407 407 2,944 2,216
-------- -------- -------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 2,517 $ 390 $ 3,342 $ 407 $ 2,944
======== ======== ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........................ $107,338 $ 99,184 $ 105,723
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-98
<PAGE> 216
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
INDIANTOWN COGENERATION, L.P.
Indiantown Cogeneration, L.P. ("Indiantown") is a special purpose Delaware
limited partnership formed on October 4, 1991. The general partners are Toyan
Enterprises ("Toyan"), a California corporation and a wholly-owned special
purpose indirect subsidiary of U.S. Generating Company LLC ("USGenLLC"), and
Palm Power Corporation ("Palm"), a Delaware corporation and a special purpose
indirect subsidiary of Bechtel Enterprises, Inc. ("BEn"). The sole limited
partner is TIFD III-Y, Inc. ("TIFD"), a special purpose indirect subsidiary of
General Electric Capital Corporation ("GECC"). During 1994, Indiantown formed
its sole, wholly owned subsidiary, Indiantown Cogeneration Funding Corporation
("ICL Funding"), to act as agent for, and co-issuer with, Indiantown in
accordance with the 1994 bond offering discussed in Note 5. ICL Funding has no
separate operations and has only $100 in assets and capitalization.
Indiantown was formed to develop, construct, and operate a 330 megawatt
(net) pulverized coal-fired cogeneration facility (the "Facility") located on
approximately 240 acres in southwestern Martin County, Florida. The Facility was
designed to produce electricity for sale to Florida Power & Light Company
("FP&L") in accordance with the Power Purchase Agreement discussed in Note 7.
The Facility also supplies steam to Caulkins Indiantown Citrus Co. ("Caulkins")
for its plant located near the Facility in accordance with the Energy Services
Agreement discussed in Note 7.
Indiantown was in the development stage through December 21, 1995 and
commenced commercial operations on December 22, 1995 (the "Commercial Operation
Date"). Indiantown's continued existence is dependent on its ability to sustain
successful operations. Management of Indiantown is of the opinion that its
assets are realizable at their current carrying value.
Indiantown is managed by U.S. Generating Company ("USGen") pursuant to a
Management Services Agreement (the "MSA"). The Facility is operated by U.S.
Operating Services Company ("USOSC") pursuant to an Operation and Maintenance
Agreement (the "O&M Agreement"). USGen and USOSC are general partnerships
originally formed between affiliates of PG&E Enterprises and Bechtel
Enterprises. On September 19, 1997, USGen and USOSC each separately redeemed
Bechtel Enterprises' interests in USGen and USOSC so that PG&E Enterprises
through USGenLLC now indirectly owns all of the interests in USGen and USOSC.
This will not affect USGen's obligations under the MSA or USOSC's obligations
under the O&M Agreement. In addition, on September 19, 1997, Toyan purchased
16.67% of Palm's interest in Indiantown, which represents a 2% ownership
interest in the partnership.
The net profits and losses of Indiantown are allocated to Toyan, Palm and
TIFD (collectively, the "Indiantown Partners") based on the following ownership
percentages:
<TABLE>
<CAPTION>
FROM SEPTEMBER 20, 1997 UNTIL SEPTEMBER 20, 1997
----------------------- ------------------------
<S> <C> <C>
Toyan............................... 50% 48%
Palm................................ 10% 12%
TIFD................................ 40% 40%
</TABLE>
All distributions other than liquidating distributions will be made based
on the Indiantown Partners' percentage interest as shown above, in accordance
with the project documents and at such times and in such amounts as the Board of
Control of Indiantown determines. The Indiantown Partners contributed, pursuant
to an equity commitment agreement, approximately $140,000,000 of equity when
commercial operation commenced in December 1995.
F-99
<PAGE> 217
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CEDAR BAY GENERATING COMPANY, L.P.
Cedar Bay Generating Company, L.P. ("Cedar Bay") is a Delaware limited
partnership formed on April 2, 1993. The general partners of Cedar Bay are Cedar
Bay Cogeneration, Inc. ("CBCI"), a California corporation and special purpose
indirect subsidiary of PG&E Enterprises ("PG&EE"), and Cedar II Power
Corporation ("Cedar II"), a Delaware corporation and special purpose indirect
subsidiary of BEn. CBCI is also the limited partner of Cedar Bay.
Cedar Bay was formed to construct, own and operate a 250 megawatt power
plant (the "Project") located in Jacksonville, Florida. The Project produces
electricity for sale to FP&L. The Project sells a minimum of 3,328 million
pounds per year of process steam to Stone Container Corporation ("Stone"),
formerly Seminole Kraft, an unrelated third party, for use in its industrial
operations.
Cedar Bay has incurred significant net losses during the three years ended
December 31, 1997. The Project is experiencing positive operating cash flow from
operations but the level of the operating cash flow is not sufficient to pay
full debt service. When Cedar Bay was formed, it was anticipated that there
would be recurring net losses (declining over time) until 2005. The reduction of
future net losses is the result of gradually increasing rates under the Power
Purchase Agreement discussed in Note 7 with FP&L and the related reduction of
interest expense due to the pay-down of the bonds and notes payable. The amount
of the current net losses has also been impacted negatively by the underpayment
of capacity payments by FP&L. Management believes that capacity payments are
significantly understated as a result of FP&L's breach of the PPA. Cedar Bay has
filed suit against FP&L to recover these additional payments and for declaratory
(future) relief. However, until Cedar Bay obtains substantial discovery from
FP&L concerning the dispatch of its system, it is not possible to precisely
compute the damages claimed (see Note 8). No revenue has been recorded for
disputed capacity payments. Cedar Bay's current projections show that, due to
the increasing energy rates and the decrease in debt service, positive net
earnings will occur in 2003. Cedar Bay's ability to meet its financial
obligations is dependent on its ability to sustain successful operations and the
successful resolution of its litigation with FP&L.
The net operating profits and losses of Cedar Bay are allocated to CBCI and
Cedar II (collectively, the "Cedar Bay Partners") based on the following
ownership percentages:
<TABLE>
<S> <C>
CBCI........................................................ 80%
Cedar II.................................................... 20%
</TABLE>
All distributions other than liquidating distributions will be made based
on the Cedar Bay Partners' percentage interest as shown above, in accordance
with the project documents and at such times and in such amounts as the Board of
Control of Cedar Bay determines.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The accompanying financial statements of Indiantown and Cedar Bay,
(collectively the "Partnerships"), are presented on a combined basis due to the
common management of the operating facilities of the Partnerships.
The accompanying combined financial statements were prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
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.
F-100
<PAGE> 218
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The combined financial statements as of June 30, 1998 and for the periods
ended June 30, 1998 and 1997 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the accompanying combined financial statements reflect all
adjustments (which are of normal recurring nature) necessary to present fairly
the financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations for a
full fiscal year.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash equivalents include
short-term investments with original maturities of three months or less.
RESTRICTED CASH
Restricted cash, which consists of cash and cash equivalent amounts as
defined above, includes amounts restricted for use in operations and for capital
expenditures.
FUEL INVENTORY
Coal and lime inventories are stated at the lower of cost or market using
the average cost method.
PREPAID EXPENSES
Prepaid expenses of approximately $1,500,000 as of December 31, 1997,
include $968,000 for operation and maintenance funding, $427,000 for insurance
costs related to property damage and other general liability policies and
$97,000 for prepayments of the annual administrative fees for the letters of
credit and for the trustee.
Prepaid expenses of approximately $1,356,000 as of December 31, 1996,
include $363,000 for operation and maintenance funding, $871,000 for insurance
costs related to property damage and other liability policies and $121,000 for
prepayments of the annual administrative fees for the letters of credit and for
the trustee.
DEPOSITS
Deposits are stated at cost plus accrued interest and include amounts
required under certain of Indiantown's agreements, as described in Note 4, and
approximately $168,000 for Cedar Bay utility deposits, as of December 31, 1997
and 1996.
INVESTMENTS HELD BY TRUSTEE
Investments held by the trustee represent bond and equity proceeds held by
a bond trustee/disbursement agent and are carried at cost which approximates
market. All funds are invested in either Nations Treasury Fund-Class A or other
permitted investments for longer periods. The proceeds include $12,501,000 of
restricted tax-exempt debt service reserve to be held long term, as required by
the financing documents.
Indiantown maintains restricted investments covering a portion of debt
principal and interest payable, as required by the financing documents. These
investments are classified as current assets in the accompanying combined
balance sheets. A qualifying facility ("QF") reserve of $1 million is also held
long term (see Note 5).
F-101
<PAGE> 219
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is being depreciated
over its useful life, estimated to be 35 years, using the straight-line method.
As of January 1, 1997, Indiantown prospectively revised its calculation of
depreciation to include a residual value on its Facility approximating 25
percent of the gross Facility costs. This charge increased net income for 1997
by approximately $4.5 million.
Other property, plant and equipment are depreciated on a straight-line
basis over the estimated economic or service lives of the respective assets
(ranging from 5 to 7 years). Routine maintenance and repairs are charged to
expense as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121, which was adopted by the Partnerships as of January 1, 1996,
establishes criteria for recognizing and measuring impairment losses when
recover of recorded long-lived asset values is uncertain. The adoption of this
pronouncement did not have an impact on the Partnerships' combined financial
condition or results of operations in 1997 or 1996.
FUEL RESERVE
The fuel reserve, carried at cost, represents an approximate thirty-day
supply of coal held for emergency purposes.
DEFERRED FINANCING COSTS
Financing costs, consisting primarily of the costs incurred to obtain
project financing, are deferred and amortized using the effective interest rate
method over the term of the related permanent financing.
MAJOR MAINTENANCE RESERVE
The major maintenance reserve represents an accrual for anticipated
expenditures for scheduled significant maintenance of the projects. The expense
is recognized ratably over the maintenance cycle of the related equipment. The
major maintenance reserve was $865,000 and $1,455,000 at December 31, 1997 and
1996, respectively and is included in accounts payable and accrued liabilities
in the accompanying combined balance sheets.
INCOME TAXES
Under current law, no Federal or state income taxes are paid directly by
the Partnerships. All items of income and expense of the Partnerships are
allocable to and reportable by the Partners in their respective income tax
returns. Accordingly, no provision is made in the accompanying combined
financial statements for Federal or state income taxes.
RECLASSIFICATIONS
Certain 1995 and 1996 balances have been reclassified to conform to the
current year presentation.
3. DETAIL OF PARTNERS' CAPITAL
The detail of Partners' capital as reflected in the accompanying combined
balance sheets as of December 31, 1997 and 1996 is as follows (dollars in
thousands).
F-102
<PAGE> 220
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
INDIANTOWN:
Toyan Enterprises................................. $ 53,063 $ 55,775
Palm Power Corporation............................ 10,613 13,943
TIFD III-Y, Inc................................... 42,450 46,479
-------- --------
Total................................... $106,126 $116,197
CEDAR BAY:
Cedar Bay Cogeneration, Inc....................... $ 16,999 $ 31,491
Cedar II Power Corporation........................ 4,250 7,873
-------- --------
Total................................... 21,249 39,364
-------- --------
Total Partners' Capital................. $127,375 $155,561
======== ========
</TABLE>
4. DEPOSITS
In 1991, in accordance with a contract between Indiantown and Martin
County, Indiantown provided Martin County with a security deposit in the amount
of $149,000 to secure installation and maintenance of required landscaping
materials. This amount is included in current assets as of December 31, 1997 and
1996. The landscaping has been completed and Indiantown has applied to Martin
County for a return of funds in excess of the required deposit as security for
the first year maintenance.
In 1991, in accordance with the Planned Unit Development Zoning Agreement
between Indiantown and Martin County, Indiantown deposited $1,000,000 in trust
with the Board of County Commissioners of Martin County (the "PUD Trustee").
Income from this trust will be used solely for projects benefiting the community
of Indiantown. On July 23, 2025, the PUD Trustee is required to return the
deposit to Indiantown. As of December 31, 1997 and 1996, estimated present
values of this deposit of $65,000 and $60,000, respectively, are included in
deposits in the accompanying combined balance sheets. The remaining balance is
included in deferred financing costs.
5. BONDS AND NOTES PAYABLE
FIRST MORTGAGE BONDS
Indiantown and ICL Funding jointly issued $505,000,000 of First Mortgage
Bonds (the "First Mortgage Bonds") in a public issuance registered with the
Securities and Exchange Commission. Proceeds from the issuance were used to
repay outstanding balances of $273,513,000 on a prior construction loan and to
complete the Facility. The First Mortgage Bonds are secured by a lien on and
security interest in substantially all of the assets of Indiantown. The First
Mortgage Bonds were issued in 10 separate series with interest rates ranging
from 7.38 to 9.77 percent and with maturities ranging from 1996 to 2020.
Interest is payable semi-annually on June 15 and December 15 of each year and
commenced on June 15, 1995. Interest expense related to the First Mortgage Bonds
was $46,800,091, $47,456,604 and $47,513,881 in 1997, 1996 and 1995,
respectively.
TAX EXEMPT FACILITY REVENUE BONDS
Indiantown invested the proceeds from the issuance of $113,000,000 of
Series 1992A and 1992B Industrial Development Revenue Bonds (the "1992 Bonds")
through the Martin County Industrial Development Authority (the "MCIDA") in an
investment portfolio with Fidelity Investments Institutional Services Company.
On November 22, 1994, Indiantown refunded the 1992 Bonds with proceeds from the
issuance of $113,000,000 Series 1994A and of $12,010,000 Series 1994B Tax Exempt
Facility Refunding Revenue Bonds
F-103
<PAGE> 221
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
which were issued on December 20, 1994 (the Series 1994A Bonds and the Series
1994B Bonds, collectively, the "1994 Tax Exempt Bonds").
The 1994 Tax Exempt Bonds were issued by the MCIDA pursuant to an Amended
and Restated Indenture of Trust between the MCIDA and NationsBank of Florida,
N.A. (succeeded by The Bank of New York Trust Company of Florida, N.A.) as
trustee (the "Trustee"). Proceeds from the 1994 Tax Exempt Bonds were loaned to
Indiantown pursuant to the MCIDA Amended and Restated Authority Loan Agreement
dated as of November 1, 1994 (the "Authority Loan"). The Authority Loan is
secured by a lien on and a security interest in substantially all of the assets
of Indiantown. The 1994 Tax Exempt Bonds, which mature December 15, 2025, carry
fixed interest rates of 7.875 percent and 8.05 percent for Series 1994A and
1994B, respectively. Total interest paid related to the 1994 Tax Exempt Bonds
was $9,865,555 for each of the years ended December 31, 1997 and 1996 and
$10,939,752 for the year ended December 31, 1995. The Tax Exempt Bonds and the
First Mortgage Bonds are equal in seniority.
SENIOR PROJECT DEBT
Cedar Bay's Senior Project Debt consists of borrowings from a syndicate of
banks led by Banque Paribas as agent (the "Bank Lenders") and a group of
institutions (the "Institutional Lenders") (collectively, the "Senior Lenders").
Senior Project Debt advances funded by the Bank Lenders are accruing interest at
the London Interbank Offered Rate ("LIBOR") plus 1.50 percent or a Federal Funds
rate plus 0.50 percent. Senior project debt advances funded by the Institutional
Lenders are accruing interest at a fixed rate of approximately 12.14 percent.
Debt due Bank Lenders will be repaid as scheduled quarterly payments
through the year 2009. Debt due Institutional Lenders is scheduled to be repaid
in quarterly installments throughout the year 2013. Prepayments are permitted.
Collateral for the Senior Project Debt consists of the plant and related
facilities and all agreements relating to the operation of the Cedar Bay
Project. The Senior Project Debt also requires maintenance of certain negative
and affirmative covenants.
Cedar Bay pays a commitment fee of 0.5 percent per annum until completion
on the undisbursed portion of the Bank Lenders' commitment. In addition, Cedar
Bay shall pay to the agent a fee of $100,000 per annum, adjusted for inflation.
SUBORDINATED PROJECT DEBT
Cedar Bay's Subordinated Project Debt commitments have been assigned to,
and assumed by, Gray Hawk Power Corporation ("GHPC"), a special purpose indirect
subsidiary of PG&EE, and Cedar I Power Corporation ("Cedar I"), a special
purpose indirect subsidiary of BEn, and the terms of such commitments have been
modified. The principal amount of this debt commenced bearing interest on
January 1, 1994, and bears interest at an annual rate of 15.6 percent thereafter
until the principal amount of such loans is paid in full. The unpaid
subordinated interest accrues interest at the prime commercial lending rate
announced by The Chase Manhattan Bank plus 3 percentage points. Interest on the
Subordinated Project Debt is to be paid at the time cash becomes available to
Cedar Bay. Management does not anticipate a positive cash flow sufficient to
repay the balance of accrued interest outstanding as of December 31, 1997 within
the next twelve months. Accordingly, this amount is classified as a noncurrent
liability in the accompanying combined balance sheets. The Subordinated Project
Debt is scheduled to be repaid by the year 2019.
Future minimum lease payments related to outstanding First Mortgage Bonds,
1994 Tax Exempt Bonds, Senior Project Debt, and Subordinated Project Debt at
December 31, 1997 are as follows (in thousands).
F-104
<PAGE> 222
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
1998............................................. $ 20,052
1999............................................. 17,362
2000............................................. 7,928
2001............................................. 13,045
2002............................................. 11,666
Thereafter....................................... 951,233
----------
Total.................................. $1,021,286
==========
</TABLE>
EQUITY LOAN
In 1994, with proceeds from the issuance of the First Mortgage Bonds, an
equity loan in the amount of $139,000,000 was paid in full and Indiantown and
TIFD entered into an Amended and Restated Equity Loan Agreement (the "Equity
Loan Agreement") for a maximum loan of $139,000,000 to be drawn at Indiantown's
request, incorporating the same terms as the original loan. As of the Commercial
Operation Date, the maximum amount of the loan had been drawn and was
outstanding. This loan was repaid with an equity contribution on December 26,
1995, as discussed below. Indiantown paid $2,813,357 in interest and $2,561,428
in commitment fees during 1995. No such interest or fees related to this loan
were paid in 1997 or 1996.
EQUITY CONTRIBUTION AGREEMENT
Pursuant to an Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD and NationsBank of Florida, N.A. (succeeded by The Bank of New York
Trust Company of Florida, N.A.), the Indiantown Partners contributed
approximately $140,000,000 of equity on December 26, 1995. Proceeds were used to
repay the $139,000,000 outstanding under the Equity Loan Agreement. The
remaining $1,000,000 was deposited with the Trustee according to the
disbursement agreement among Indiantown, the Trustee and the other lenders and
is included in current investments held by trustee in the accompanying combined
balance sheet as of December 31, 1997 and 1996.
REVOLVING CREDIT AGREEMENT
The Revolving Credit Agreement provides for the availability of funds for
the working capital requirements of the Indiantown Facility. It has a term of
seven years from November 1, 1994, subject to extension at the discretion of the
banks party thereto. The interest rate is based upon various short-term indices
chosen at Indiantown's option and is determined separately for each draw. This
credit facility includes commitment fees, to be paid quarterly, of .375 percent
on the unborrowed portion. The face amount of the original working capital
letter of credit was increased in November 1994 from $10 million to $15 million.
Under the original and new working capital credit facilities, Indiantown paid
$57,031, $57,187 and $57,031 in commitment fees in 1997, 1996 and 1995,
respectively. At December 31, 1997 and 1996, no draws for working capital had
been made to Indiantown under the Revolving Credit Agreement.
TERMINATION FEE LETTER OF CREDIT
On or before the Commercial Operation Date, Indiantown was required to
provide FP&L with a letter of credit equal to the total termination fee as
defined in the Power Purchase Agreement in each year not to exceed $50,000,000.
Pursuant to the terms of the Letter of Credit and Reimbursement Agreement,
Indiantown obtained a commitment for the issuance of this letter of credit. At
the Commercial Operation Date, this letter of credit replaced the completion
letter of credit outlined below. The initial amount of $13,000,000 was issued
for the first year of operations and increased to $23,000,000 in January of
1997. During
F-105
<PAGE> 223
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1997, 1996 and 1995 no draws were made on this letter of credit. Commitment fees
of $572,819 and $509,395 were paid on this letter of credit in 1997 and 1996,
respectively.
Cedar Bay has provided FP&L with a letter of credit in the amount of $10
million. The total letter of credit facility is $20 million. FP&L may draw on
this letter of credit in the event a termination fee is due and owed under the
terms of the Power Purchase Agreement (see Note 7).
FP&L COMPLETION LETTER OF CREDIT
At financial closing in October 1992, Indiantown provided to FP&L a letter
of credit in the amount of $9,000,000 pursuant to the Power Purchase Agreement.
This letter of credit was terminated in 1994 and a new one was issued with
essentially the same terms. The Power Purchase Agreement (see Note 7) requires
that Indiantown pay FP&L for each day beyond December 1, 1995, that the Facility
did not achieve commercial operation. Because the commercial operation date did
not occur before December 1, 1995, commencing December 1, 1995 and until
December 22, 1995, FP&L was entitled to draw on the letter of credit in the
amount of $750,000 per calendar month pro-rated for a partial month. In lieu of
drawing on the letter of credit, Indiantown paid FP&L $508,065 in delay damages
on December 22, 1995. Upon issuance of the above Termination Fee Letter of
Credit, the FP&L Completion Letter of Credit was terminated. Commitment fees of
$102,656 were paid on this letter of credit in 1995.
FP&L QF LETTER OF CREDIT
Within 60 days after the Commercial Operation Date, Indiantown was required
to provide a letter of credit for use in the event of a loss of QF status under
the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The initial amount
was $500,000 increasing by $500,000 per agreement year to a maximum of
$5,000,000. Pursuant to the terms of the Letter of Credit and Reimbursement
Agreement, Indiantown obtained a commitment for the issuance of this letter of
credit. The amount will be used by Indiantown as necessary to maintain or
reinstate the Facility's qualifying facility status. Indiantown may, in lieu of
a letter of credit, make regular cash deposits to a dedicated account in amounts
totaling $500,000 per agreement year to a maximum of $5,000,000. In February
1996, Indiantown established a QF account with the trustee. The balance in this
account at December 31, 1997 and 1996, was $1,000,000 and $500,000,
respectively, and is included in noncurrent, restricted investments held by
trustee in the accompanying combined balance sheets.
STEAM HOST LETTER OF CREDIT
At financial closing in October 1992, Indiantown provided Caulkins a letter
of credit in the amount of $10,000,000 pursuant to the Energy Services Agreement
(see Note 7). This letter of credit was terminated in 1994 and a new one was
issued with essentially the same terms. In the event of a default under the
Energy Services Agreement (see Note 7), Indiantown is required to pay liquidated
damages in the amount of $10,000,000. Failure by Indiantown to pay the damages
within 30 days allows the steam host to draw on the letter of credit for the
amount of damages suffered by Caulkins. As of December 31, 1997, 1996 and 1995,
no draws had been made on this letter of credit. Commitment fees of $60,833 were
paid relating to this letter of credit in each of 1997, 1996 and 1995.
DEBT SERVICE RESERVE LETTER OF CREDIT
On November 22, 1994, Indiantown also entered into a debt service reserve
letter of credit and reimbursement agreement with Banque Nationale de Paris
pursuant to which a debt service reserve letter of credit in the amount of
approximately $60 million was issued. Such agreement has a rolling term of five
years subject to extension at the discretion of the banks party thereto.
Drawings on the debt service reserve letter of credit are available to pay
principal and interest on the First Mortgage Bonds, the 1994 Tax-Exempt Bonds
F-106
<PAGE> 224
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and interest on any loans created by drawings on such debt service reserve
letter of credit. Cash and other investments held in the debt service reserve
account will be drawn on prior to any drawings on the debt service reserve
letter of credit. As of December 31, 1997, 1996 and 1995, no draws had been made
on this letter of credit. Commitment fees of $875,496 and $835,435 were paid on
this letter of credit in 1997 and 1996, respectively.
Cedar Bay has issued a letter of credit in favor of Wilmington Trust
Company ("Wilmington Trust"), the trustee, in the amount of $10 million. If, at
any time, funds available are insufficient to pay all amounts required to be
paid to the Senior Lenders, Wilmington Trust shall make a drawing under the debt
service letter of credit. Any payment under the letter of credit converts to a
debt service reimbursement obligation which must be repaid prior to any
subordinated obligations or distributions.
RETAINAGE LETTER OF CREDIT
Cedar Bay has provided Multipower Associates ("MPA") with a letter of
credit in the amount of $20 million to secure the Partnership's obligation to
pay retainage amounts due (see Note 6).
INTEREST RATE SWAP AGREEMENT
Cedar Bay has entered into an interest rate swap agreement having a total
notional principal amount of $156 million. This agreement effectively changes
the interest rate on the portion of the debt covered by the notional amounts to
a fixed rate of 9.58 percent. At December 31, 1997, the notional amount
outstanding under the swap agreement was $130 million. The notional amounts
outstanding will vary according to a fixed schedule that is based on scheduled
amortization of principal amounts. The swap agreement will terminate on December
31, 2000. Total cash paid under the agreement was $5,113,354, $5,412,154 and
$4,451,245 in 1997, 1996 and 1995, respectively.
Counterparties to the interest rate swap agreement are major financial
institutions. While Cedar Bay may be exposed to credit losses in the event of
non-performance by these counterparties, Cedar Bay does not anticipate losses.
6. COMMITMENTS AND CONTINGENCIES
ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT
The final fixed price of Cedar Bay's engineering, procurement and
construction contract with MPA is $319.5 million. The contract provides for $20
million of the retainage to be paid after five years. Cedar Bay's obligation to
pay this amount is secured by a letter of credit (see Note 5). However, Cedar
Bay intends to borrow an additional $20 million from the Senior Lenders in 1999
in order to pay the retainage amount due under this contract. Such additional
advance has been approved by the Senior Lenders as of December 31, 1997.
Cedar Bay has entered into an amended and restated contract dated as of
March 31, 1993 (the "Contract") with MPA. Cedar Bay had informed MPA that MPA
did not complete successfully in January and March 1994 certain performance
tests set forth in the Contract. Cedar Bay had also informed MPA that it has
failed to provide Cedar Bay a functional ash pelletizer system ("APS"). In 1995,
Cedar Bay and MPA reached a settlement which provides a lump sum payment from
MPA of $15 million to settle all claims, other than a specific list of open
warranty items. The settlement amount has been paid through a release of the
$11.9 million held in retention as of December 31, 1994, plus a cash payment of
$3.1 million. $7.3 million of the settlement amount representing recovery of
incremental operating costs was recorded as a reduction in operating and
maintenance expense in 1995. The remaining $7.7 million of the settlement
amount, representing recovery of incremental costs incurred during construction
and start-up testing, was recorded as a
F-107
<PAGE> 225
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reduction in property, plant and equipment as of December 31, 1995. As part of
the settlement, the final performance acceptance was deemed to have been
achieved as of March 11, 1994.
GROUND LEASE AGREEMENT
Commencing April 29, 1991, Stone leased the plant site (approximately 30
acres), along with certain easements, to Cedar Bay for a term of 50 years,
unless extended by mutual agreement. For the first 23 years, the rent is
$500,000 per year, payable in arrears. After the first 23 years, the rent will
be a fair market rate, as defined and as mutually determined by Cedar Bay and
Stone. There is also an additional rent provision which is effective if the
Steam Services Agreement (see Note 7) is terminated through Cedar Bay's breach.
COAL PURCHASE AND TRANSPORTATION AGREEMENT
Indiantown entered into a 30-year purchase contract with Lodestar Energy,
Inc. ("Lodestar") (formerly known as Costain Coal, Inc.), commencing from the
first day of the calendar month following the Commercial Operation Date, for the
purchase of the Facility's annual coal requirements at a price defined in the
agreement, as well as for the disposal of ash residue. Indiantown has no
obligation to purchase a minimum quantity of coal under this agreement.
In 1997, Indiantown entered into an arrangement with Lodestar and the coal
transporter to compensate Indiantown for reduced FP&L revenues when the Facility
runs at minimum load during decommit periods. In exchange for Indiantown's
continued purchase and transportation of coal during these periods, Lodestar and
the coal transporter each pay Indiantown a portion of the foregone FP&L
revenues.
Cedar Bay executed an agreement with Lodestar, for the supply and
transportation of coal and ash waste transportation and disposal services. The
term of the agreement is for 20 years from January 25, 1994. Lodestar will
supply 100 percent of the Project's requirements, expected to be approximately
925,000 tons of coal per year, and the pricing is based on the cost of coal, as
defined in the agreement.
LIME PURCHASE AGREEMENT
On May 1, 1992, Indiantown entered into a lime purchase agreement with
Chemical Lime Company of Alabama, Inc. for supply of the Facility's lime
requirements for the Facility's dry scrubber sulfur dioxide removal system. The
initial term of the agreement is 15 years from the Commercial Operation Date and
may be extended for successive 5-year periods. The agreement may be canceled by
either party after January 1, 2000, upon proper notice. Indiantown has no
obligation to purchase a minimum quantity of lime under the agreement.
7. SALES AND SERVICES AGREEMENTS
INDIANTOWN
Power Purchase Agreement
On May 21, 1990, Indiantown entered into a Power Purchase Agreement with
FP&L for sales of the Facility's electric output. As amended, the agreement is
effective for a 30-year period, commencing with the Commercial Operation Date.
The pricing structure provides for both capacity and energy payments.
Capacity payments remain relatively stable because the amounts do not vary
with dispatch. Price increases are contractually provided. Capacity payments
include a bonus or penalty payment if actual capacity is in excess of or below
specified levels of available capacity. Energy payments are derived from a
contractual formula defined in the agreement based on the actual cost of
domestic coal at another FP&L plant, St. Johns River Power Park.
F-108
<PAGE> 226
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Energy Services Agreement
On September 30, 1992, Indiantown entered into an Energy Services Agreement
with Caulkins. Commencing on the Commercial Operation Date and continuing
throughout the 15-year term of the agreement, Caulkins is required to purchase
the lesser of 525 million pounds of steam per year or the minimum quantity of
steam per year necessary for the Facility to maintain its status as a Qualifying
Facility under PURPA. The Facility provided steam to Caulkins in 1995 during
start-up and testing of the Facility, and declared Commercial Operation with
Caulkins on March 1, 1996.
CEDAR BAY
Power purchase agreement
Cedar Bay has a 31-year Power Purchase Agreement with FP&L for the sale of
the Project's electric power output. On January 25, 1994, the contract was
approved by the Florida Public Service Commission and was effective commencing
with commercial operations, as defined in the agreement. The pricing structure
provides for both capacity and energy payments. Capacity payments remain
relatively stable as the amount does not vary with dispatch and price increases
are contractually provided. Energy payments are based on a formula as defined in
the agreement. Certain obligations under the agreement are secured on a second
lien subordinated basis by all owned assets of Cedar Bay.
Steam services agreement
The Steam Services Agreement ("Steam Agreement") between Cedar Bay and
Stone has an initial contract term of 22 years from January 25, 1994. The
Project will supply up to 380,000 pounds per hour of steam to the Stone mill and
Stone must purchase and productively use at least 600 million pounds of steam
per year, which is sufficient for the Project to maintain its status as a
Qualifying Facility under PURPA. Stone's payments for steam will include a
monthly fixed capacity payment escalating at a fixed rate and an energy payment
based on the amount of steam actually delivered. Stone's energy payment
escalates with the cost of coal delivered to the Project.
If Cedar Bay causes an interruption in Stone's production through loss of
steam supply then Cedar Bay is liable for liquidated damages. At December 31,
1997 and 1996 Cedar Bay owed Stone $226,510 and $289,844, respectively, for
liquidated damages, which are included in accounts payable and other accrued
liabilities in the accompanying combined balance sheets.
Stone has taken the position that Cedar Bay may be in default of its
obligations under the Steam Agreement for an alleged failure by Cedar Bay to
take, utilize, or pay for short recycled fiber rejects. Cedar Bay has informed
Stone that it has met its obligations under the Steam Agreement. Stone has
instituted legal action against Cedar Bay with respect to this matter. As
management of Cedar Bay believes that it currently has no obligation in
connection with the fiber reject materials, no such liability has been recorded
in the accompanying financial statements. See Note 11 for further discussion of
this matter.
Cedar Bay received a letter of credit in the amount of $10 million from
Stone for use in the event of a loss of qualifying status under PURPA. The
amount would be used by Cedar Bay as necessary to maintain or reinstate the
qualifying status.
8. LEGAL MATTERS
In December 1997, Cedar Bay filed an action in Circuit Court for Duval
County, Florida against FP&L. This action seeks damages and declaratory relief
for underpayment of capacity payments arising out of FP&L's breach of the Power
Purchase Agreement between FP&L and Cedar Bay (see Note 6), and FP&L's
F-109
<PAGE> 227
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
breach of the implied covenant of good faith, fair dealing and commercial
reasonableness between the parties. Although Cedar Bay intends to vigorously
pursue this matter to recover amounts owed by FP&L, and to have future capacity
payments made in a manner consistent with the Power Purchase Agreement, the
outcome in this action is uncertain at this time.
9. RELATED PARTY TRANSACTIONS
CONSTRUCTION CONTRACT
Indiantown entered into a construction agreement with Bechtel Power
Corporation ("Bechtel Power"), an affiliate of BEn, for the design, engineering,
procurement, construction, start-up and testing of the Facility (the
"Construction Contract"). As of December 31, 1997, the total contract value was
$440,442,879 including change orders to date. Payments of $440,442,879 have been
made to Bechtel Power under the Construction Contract since inception, including
$450,000 paid in 1997 as a final settlement for punch list items paid in 1997
for which $900,000 had been retained in 1996.
Bechtel Power guaranteed that Substantial Completion of the Indiantown
Facility would occur on or prior to January 21, 1996, the Guaranteed Completion
Date. Substantial Completion is achieved when the Facility demonstrates that it
has met emissions guarantees and has achieved 88 percent of guaranteed net
electrical output during required test periods. A schedule bonus for Substantial
Completion prior to the Guaranteed Completion Date is provided in the
Construction Contract. Substantial Completion was declared as of December 22,
1995 and a $6.1 million schedule bonus was paid on April 4, 1996. Performance
bonuses of $4.5 million were paid on April 4, 1996, as a portion of the estimate
of the total performance bonuses and a final payment of $3.9 million was made on
September 17, 1996. Final completion occurred on December 13, 1996.
CONSULTING SERVICES
In 1997, 1996 and 1995 Indiantown paid engineering consulting fees of $0,
$10,159 and $13,279, respectively, to Bechtel Generating Company, a wholly-owned
subsidiary of BEn.
RAILCAR LEASE
Indiantown entered into a 15 year Car Leasing Agreement with GE Capital
Railcar Services Corporation, an affiliate of GECC, to furnish and lease 72
pressure differential hopper railcars to Indiantown for the transportation of
fly ash and lime. The cars were delivered starting in April 1995, at which time
the lease was recorded as a capital lease. The leased asset of $5,753,375 and
accumulated depreciation of $1,017,347, is included in property, plant and
equipment at December 31, 1997. Payments of $629,856, including principal and
interest, were made in 1997, and the lease obligation of approximately
$5,138,000 at December 31, 1997 is reported as a lease payable in the
accompanying combined balance sheets.
Future minimum payments related to the Car Leasing Agreement at December
31, 1997, are approximately as follows:
<TABLE>
<S> <C>
1998............................................. $ 267,000
1999............................................. 287,000
2000............................................. 309,000
2001............................................. 332,000
2002............................................. 383,000
Thereafter....................................... 3,560,000
----------
Total $5,138,000
==========
</TABLE>
F-110
<PAGE> 228
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DEVELOPMENT COSTS
At the original financial closing in October 1992, Indiantown paid
development fees and reimbursed certain costs, totaling $14.8 million to PG&E
Enterprises, $3.9 million to BEn, $11.1 million to GECC and $1.2 million to
USGen, related to the development of the Facility.
DISTRIBUTION TO PARTNERS
On June 16 and December 15, 1997, as provided in the Partnership Agreement,
Indiantown distributed approximately $16.3 million and approximately $11.8
million, respectively, to the Indiantown Partners. An additional $3 million of
distributable cash was retained for capital projects and is included in cash and
cash equivalents as of December 31, 1997, on the accompanying combined balance
sheet. Funds distributed were from electric and steam revenues collected during
the second full year of commercial operations.
SERVICES AGREEMENT
Cedar Bay entered into a services agreement with BEn to provide management,
administrative, procurement, engineering and financial services to the
Partnership. Compensation to BEn includes reimbursement for personnel and other
direct costs as defined in the agreement. Payments of $414,716, $450,161 and
$412,674 were made to BEn in 1997, 1996 and 1995, respectively. At December 31,
1997 and 1996, Cedar Bay owed BEn $79,785 and $78,816, respectively, which is
included in accounts payable and other accrued liabilities in the accompanying
combined balance sheets.
Cedar Bay entered into a services agreement with Bechtel Power, a related
party of BEn, to provide management, technical, administrative, procurement,
engineering and financial services to the Partnership. Compensation to Bechtel
Power includes reimbursement for personnel and other direct costs as defined in
the agreement. Payments of $1,733, $163,381 and $590,321 were made to Bechtel
Power in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996, there
were no amounts owed to Bechtel Power.
MANAGEMENT SERVICES AGREEMENT
Indiantown and Cedar Bay both have separate Management Services Agreements
with USGen. The agreements provide for USGen to provide day-to-day management
and administration of each entity's business relating to their respective
projects. The Cedar Bay agreement will continue for the term of the Power
Purchase Agreement while the Indiantown agreement will last for a term of 34
years. Compensation to USGen under the agreement includes an annual base fee of
$1.5 million for Cedar Bay and $650,000 for Indiantown, wages and benefits for
employees performing work on behalf of the Partnerships and other costs directly
related to the Partnerships. The base fee is subject to an annual adjustment.
Payments of $8.4 million, $3.9 million and $6.3 million were made to USGen in
1997, 1996 and 1995, respectively. At December 31, 1997 and 1996, the
Partnerships' owed USGen $831,741 and $4.3 million, respectively, which is
included in accounts payable and other accrued liabilities in the accompanying
combined balance sheets.
OPERATIONS AND MAINTENANCE AGREEMENT
Indiantown and Cedar Bay both have separate Operation and Maintenance
Agreements with USOSC for periods of 30 and 31 years, respectively. Under the
Indiantown agreement, after the 30 year period the agreement will be
automatically renewed for periods of 5 years until terminated by either party
with 12 months notice. If targeted plant performance is not reached, USOSC will
pay liquidated damages to the Partnerships. Compensation to USOSC under the
agreement includes an annual base fee of $1.5 million ($900,000 of which is
subordinate to debt service and certain other costs) for Indiantown, $1.0
million for Cedar Bay, certain earned fees and bonuses based on the Facility's
performance and reimbursement for certain costs
F-111
<PAGE> 229
INDIANTOWN COGENERATION, L.P.
CEDAR BAY GENERATING COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
including payroll, supplies, spare parts, equipment, certain taxes, licensing
fees, insurance and indirect costs expressed as a percentage of payroll and
personnel costs. The fees are adjusted quarterly by a measure of inflation as
defined in the agreement. Payments of $21.0 million, $13.7 million, and $14.7
million were made to USOSC in 1997, 1996 and 1995, respectively. At December 31,
1997 and 1996, Indiantown owed USOSC $212,458 and $61,802 respectively, which is
included in accounts payable and accrued liabilities in the accompanying
combined balance sheets. At December 31, 1997 and 1996, Cedar Bay had prepaid
USOSC $218,423 and $363,124, respectively, which is included in deposits and
other prepaid expenses in the accompanying combined balance sheets.
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Partnerships' cash and cash equivalents,
accounts receivable, deposits, prepaid expenses, investments held by trustee,
accounts payable, accrued liabilities and accrued interest approximate fair
value because of the short maturities of these instruments.
Interest rate swap agreement entered into by Cedar Bay have no carrying
value on the accompanying combined balance sheets. The fair value of Cedar Bay's
swap agreement is based upon estimated market values provided by an independent
investment bank, and is estimated to be a liability of $13,885,900 and
$15,872,638 as of December 31, 1997 and 1996, respectively.
The following table presents the carrying amounts and estimated fair values
of certain of the Partnerships' financial instruments at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
FINANCIAL LIABILITIES CARRYING AMOUNT FAIR VALUE
--------------------- ----------------- ------------
<S> <C> <C>
Tax Exempt Bonds............................................ $125,010,000 $146,016,272
First Mortgage Bonds........................................ $486,504,000 $590,214,789
Senior Project Debt/Subordinated Project Debt............... $409,772,000 $343,798,018
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
FINANCIAL LIABILITIES CARRYING AMOUNT FAIR VALUE
--------------------- ----------------- ------------
<S> <C> <C>
Tax Exempt Bonds............................................ $125,010,000 $143,067,534
First Mortgage Bonds........................................ $496,205,000 $570,178,669
Senior Project Debt/Subordinated Project Debt............... $416,349,000 $380,502,000
</TABLE>
For the Tax Exempt Bonds and First Mortgage Bonds, the fair values of the
Partnerships' bonds payable are based on the stated rates of the Tax Exempt
Bonds and First Mortgage Bonds and current market interest rates to estimate
market values for the Tax Exempt Bonds and the First Mortgage Bonds. For the
Senior Project Debt and Subordinated Project Debt fair values are based upon
current market prices for similar instruments.
10. SUBSEQUENT EVENT
On January 19, 1998, the Florida Department of Environmental Protection
issued a Consent Order which resolved Cedar Bay's dispute with Stone regarding
the short recycled fiber rejects in favor of Cedar Bay. Cedar Bay expects that
Stone will submit an objection to the terms of the order.
F-112
<PAGE> 230
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of J. Makowski Company, Inc.:
We have audited the accompanying consolidated balance sheets of J. Makowski
Company, Inc. (a Delaware corporation) as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of J. Makowski Company, Inc.
and its subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Washington, D.C. /s/ Arthur Andersen LLP
February 5, 1998
F-113
<PAGE> 231
J. MAKOWSKI COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current Assets:
Cash...................................................... $ 19,775 $ 35,377 $ 9,625
Restricted cash........................................... 562 218 243
Accounts receivable....................................... 14,790 19,975 27,336
Due from parent -- income taxes........................... -- 6,437 7,125
Fuel inventory and supplies............................... 3,566 1,855 2,816
Prepaid and other......................................... 213 848 391
-------- -------- --------
Total current assets............................... 38,906 64,710 47,536
-------- -------- --------
Notes Receivable -- Long-term............................... 1,525 1,480 1,696
Equity investments.......................................... 209,231 211,857 219,133
Property, plant and equipment:
Feedline facility, net of accumulated depreciation of
$1,750 (unaudited), $1,543 and $1,173................... 6,356 6,540 6,910
Office and other equipment, net of accumulated
depreciation of $559 (unaudited), $2,805 and $1,592..... 1,445 3,239 3,307
-------- -------- --------
7,801 9,779 10,217
Power sales and other deposits.............................. -- 343 343
Power sales agreements, net of accumulated amortization of
$4,804 and $3,597 in 1997 and 1996, respectively.......... 15,474 15,333 16,540
Goodwill, net of accumulated amortization of $10,653
(unaudited), $9,424 and $6,005............................ 64,263 65,492 68,911
Management service agreements, net of accumulated
amortization of $10,795 and $9,785 in 1997 and 1996,
respectively.............................................. -- 5,900 6,910
-------- -------- --------
Total assets....................................... $337,200 $374,894 $371,286
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................................... $ 2,337 $ 11,568 $ 4,057
Accrued expenses.......................................... 9,479 19,085 17,270
Current portion of long-term debt......................... 2,068 3,040 3,054
Dividend payable.......................................... -- 10,000 --
Notes payable to affiliates............................... 43,804 43,804 43,804
-------- -------- --------
Total current liabilities.......................... 57,688 87,497 68,185
Deferred lease liability.................................... -- -- 1,330
Deferred revenue............................................ 475 125 --
Deferred income taxes....................................... 86,652 92,145 89,984
Long-term debt.............................................. 21,074 22,130 24,195
Other long-term liabilities................................. 5,742 5,022 3,920
Commitments and contingencies............................... -- -- 16,407
Minority interest........................................... 2,462 1,818 1,761
-------- -------- --------
Total liabilities.................................. 174,093 208,737 205,782
-------- -------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized,
none issued............................................... -- -- --
Class A common stock, $.01 par value; 2,000,000 shares
authorized, 1,094,585 issued.............................. 11 11 11
Additional paid-in capital.................................. 200,929 203,886 202,577
Accumulated deficit......................................... (37,833) (37,740) (37,084)
-------- -------- --------
Total stockholders' equity......................... 163,107 166,157 165,504
-------- -------- --------
Total liabilities and stockholders' equity......... $337,200 $374,894 $371,286
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-114
<PAGE> 232
J. MAKOWSKI COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Steam and power sales............. $42,909 $29,530 $ 94,461 $ 87,812 $ 85,275
Fuel sales........................ 14,359 18,034 35,565 35,366 32,517
Service billings, primarily to
affiliates...................... 1,025 4,512 9,586 13,081 17,791
Equity in earnings of operational
projects........................ 3,544 8,066 17,172 17,813 5,268
------- ------- -------- -------- --------
Total revenues............... 61,837 60,142 156,784 154,072 140,851
------- ------- -------- -------- --------
Operating expenses:
Cost of sales -- steam and
power........................... 18,820 11,204 59,988 56,193 51,072
Fuel costs........................ 14,359 17,993 35,565 35,366 32,517
Cost related to service
billings........................ 416 -- 4,151 4,252 1,905
Operating lease
payments-Pittsfield............. 11,220 11,220 24,350 25,197 22,439
General and administrative........ 3,938 5,829 9,436 13,679 23,567
Depreciation and amortization..... 6,177 5,957 17,452 11,878 11,168
Feasibility and development....... -- 230 258 1,384 8,991
------- ------- -------- -------- --------
Total operating expenses..... 54,930 52,433 151,200 147,949 151,659
------- ------- -------- -------- --------
Operating income....................... 6,907 7,709 5,584 6,123 (10,808)
Interest income........................ 689 295 1,533 1,135 764
Interest expense....................... (3,653) (2,722) (5,428) (5,520) (3,140)
Write-down of asset to fair value...... -- -- -- (39,702) --
Loss on sale of Mason Assets........... (3,143) -- -- -- --
Other (expense)/income................. 0 (2,976) (4,487) 4,344 399
------- ------- -------- -------- --------
Income (loss) before income taxes and
minority interest in earnings........ 800 2,306 (2,798) (33,620) (12,785)
Minority interest in earnings.......... (210) (203) (412) (399) (342)
------- ------- -------- -------- --------
Income (loss) before income taxes...... 590 2,103 (3,210) (34,019) (13,127)
Provision (benefit) for income taxes... 683 1,601 (2,554) (8,846) (4,714)
------- ------- -------- -------- --------
Net income (loss)...................... $ (93) $ 502 $ (656) $(25,173) $ (8,413)
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-115
<PAGE> 233
J. MAKOWSKI COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED) AND THE YEARS
ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ---------------- ADDITIONAL
NUMBER PAR NUMBER PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT TOTAL
--------- ----- -------- ----- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 1,094,585 $11 150,000 $ 2 $237,204 $ (3,498) $233,719
Retirement of Class B
Common Stock........................ -- -- (150,000) (2) (38,048) -- (38,050)
Net loss.............................. -- -- -- -- -- (8,413) (8,413)
--------- --- -------- --- -------- -------- --------
Balance at December 31, 1995.......... 1,094,585 11 -- -- 199,156 (11,911) 187,256
========= === ======== === ======== ======== ========
Contributed capital................... -- -- -- -- 3,421 -- 3,421
Net loss.............................. -- -- -- -- -- (25,173) (25,173)
--------- --- -------- --- -------- -------- --------
Balance at December 31, 1996.......... 1,094,585 11 -- -- 202,577 (37,084) 165,504
========= === ======== === ======== ======== ========
Contributed capital................... -- -- -- -- 16,559 -- 16,559
Dividend, September 1997.............. -- -- -- -- (5,250) -- (5,250)
Dividend, December 1997............... -- -- -- -- (10,000) -- (10,000)
Net loss.............................. -- -- -- -- -- (656) (656)
--------- --- -------- --- -------- -------- --------
Balance at December 31, 1997.......... 1,094,585 11 -- -- 203,886 (37,740) 166,157
========= === ======== === ======== ======== ========
Distribution of MSA's to Bechtel...... -- -- -- -- 8,014 -- 8,014
Other Equity Adjustment............... -- -- -- -- (9,944) -- (9,944)
Dividend, June 1998................... -- -- -- -- (1,027) -- (1,027)
Net Loss.............................. -- -- -- -- -- (93) (93)
--------- --- -------- --- -------- -------- --------
Balance at June 30, 1998
(Unaudited)......................... 1,094,585 $11 -- $-- $200,929 $(37,833) $163,107
========= === ======== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-116
<PAGE> 234
J. MAKOWSKI COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- -------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................... $ (93) $ 502 $ (656) $(25,173) $ (8,413)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Write-down of asset to fair value..................... -- -- -- 39,702 --
Investment earnings on projects....................... (3,544) (8,132) (17,172) (17,813) (5,268)
Cash distributions from projects...................... 5,005 6,228 19,724 18,834 11,013
Write-off of equity investments, net.................. (332) -- 1,240 -- --
Depreciation and amortization......................... 6,177 6,324 17,452 12,562 11,168
Provision for deferred income taxes................... 683 (1,949) 2,161 (12,097) 1,372
Minority interest in earnings......................... 210 203 412 399 342
Gain on sale of investment............................ -- -- -- -- (773)
Loss on sale of Mason Assets.......................... 3,143 -- -- -- --
Other equity adjustments.............................. (9,944) -- -- -- --
Change in assets and liabilities:
Restricted cash..................................... (344) 28 25 697 (705)
Accounts receivable................................. 5,185 (3,700) 7,361 2,099 (11,847)
Due to parent....................................... -- -- -- (2,961) 2,961
Fuel inventory and supplies......................... (1,711) 267 961 (512) (577)
Prepaid and other................................... 635 (224) (457) 983 (545)
Notes receivable long-term.......................... (45) -- -- -- --
Goodwill............................................ -- -- -- 181 --
Accounts payable.................................... (9,231) 9,526 7,511 (1,110) 9,980
Accrued expenses.................................... (9,606) (1,090) 1,815 (7,063) 617
Due from parent -- income taxes..................... 6,437 -- 688 2,785 (6,011)
Deferred lease liability............................ -- (592) (1,330) 331 (102)
Other long-term liabilities......................... 720 232 1,102 (1,589) (350)
Deferred revenue.................................... 350 -- 125 -- --
Refundable income taxes............................. -- 3,532 -- -- --
Commitments and contingencies....................... -- -- (16,407) -- --
-------- ------- -------- -------- ---------
Net cash (used in) provided by operating
activities.................................... (6,305) 11,155 24,555 10,255 2,862
-------- ------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in projects................................. 2,731 (450) (6,621) (4,215) (10,254)
Proceeds from sale of investments....................... -- -- -- -- 8,050
Plant and equipment..................................... -- (390) (1,057) (980) (1,155)
-------- ------- -------- -------- ---------
Net cash provided by (used in) investing
activities........................................ 2,731 (840) (7,678) (5,195) (3,359)
-------- ------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to affiliates............... -- -- -- -- 33,804
Proceeds from long-term debt............................ -- -- -- --
Repayment of long-term debt............................. (2,028) (1,025) (2,079) (2,482) (1,494)
Equity contributions.................................... 1,027 -- 16,559 3,421 --
Return of capital....................................... -- -- -- -- (8,050)
Retirement of Class B common stock...................... -- -- -- -- (30,000)
Proceeds from other loans............................... -- -- -- 120 130
Distribution to stockholders............................ (11,027) -- (5,250) -- --
Net increase (decrease) in line of credit............... -- 16 -- (853) 876
Distributions to minority investor...................... -- (175) (355) (367) (357)
-------- ------- -------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (12,028) (1,184) 8,875 (161) (5,091)
-------- ------- -------- -------- ---------
Net increase (decrease) in cash............................. (15,602) 9,131 25,752 4,899 (5,588)
Cash at beginning of period................................. 35,377 9,625 9,625 4,726 10,314
-------- ------- -------- -------- ---------
Cash at end of period....................................... $ 19,775 $18,756 $ 35,377 $ 9,625 $ 4,726
======== ======= ======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized.................... $ 2,481 $ 3,705 $ 3,128
Income taxes............................................ -- -- 252
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-117
<PAGE> 235
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND PRINCIPLES OF CONSOLIDATION
J. Makowski Company, Inc. (the "Company" or "JMC") is principally engaged
in the development and management of electric generation and natural gas
projects in which it has an equity ownership interest. The Company also provides
consulting, managerial, administrative and fuel supply services, under
management service agreements, to these projects and other entities engaged in
the generation of electricity and steam and the transportation and management of
natural gas supplies.
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its majority-owned and controlled
partnerships: Pittsfield Generating Company, L.P. ("Pittsfield") and Berkshire
Feedline Acquisition, L.P. ("BFALP"). Pittsfield leases and operates the
Pittsfield project, a 160-megawatt natural gas-fired cogeneration facility.
BFALP owns and operates the pipeline that connects the natural gas transmission
line of the Tennessee Gas Pipeline Company to the Pittsfield project (the
"Feedline"). All material intercompany accounts and transactions have been
eliminated.
On August 25, 1994, PG&E Enterprises and Bechtel Enterprises through Beale
Generating Company, ("Beale") acquired the stock of the Company. The acquisition
was accounted for under the purchase method and the related adjustments to the
fair value of the assets acquired and liabilities assumed were pushed down to
the Company. See Note 13 for discussion of significant transactions affecting
the Company and Beale in 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
Information presented as of June 30, 1998 and for the six-month periods
ended June 30, 1998 and 1997 is unaudited. In the opinion of management,
however, such information reflects all adjustments, which consist of normal
recurring adjustments necessary to present fairly the financial position of the
Company as of June 30, 1998 and the results of operations and cash flows for the
six-month periods ended June 30, 1998 and 1997. The results of operations for
these interim periods is not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole.
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.
CASH EQUIVALENTS
The Company considers all highly liquid securities with a maturity of three
months or less to be cash equivalents.
FUEL INVENTORY AND SUPPLIES
Inventories are stated at the lower of cost or market. Costs for materials,
supplies and oil inventories are determined by the first-in, first-out method.
EQUITY INVESTMENTS
Most of the Company's investments in projects (see Note 3) are accounted
for under the equity method. Such investments are carried at cost, determined to
be the fair market value assigned at the Beale acquisition
F-118
<PAGE> 236
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in 1994, adjusted for the Company's proportionate share of undistributed
earnings or losses and project distributions during the year and the differences
between the Company's cost and the related underlying book values of the
Company's equity investments which are being amortized on a straight-line basis
over the estimated remaining lives of the projects (as of August 25, 1994), 25
to 38 years.
DEVELOPMENT COSTS
Project development costs (included in equity investments) of $1,467,720
and $221,505 as of December 31, 1997 and 1996, respectively, 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 the project
financing is obtained or expensed at the time the Company determines the project
will not be developed.
Development costs expensed include project-screening costs associated with
identifying a potential project and include salaries, feasibility studies, legal
and other costs. These costs are expensed as incurred, as they relate to
projects not yet under development.
DEPRECIATION
The cost of property, plant and equipment is depreciated using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Feedline facility........................................ 22 years
Critical spare parts..................................... 16 years
Furniture and fixtures................................... 7 years
Office equipment......................................... 5 years
</TABLE>
CRITICAL SPARE PARTS
Critical spare parts consist of major replacement equipment and recurring
maintenance supplies required to be maintained in order to facilitate routine
maintenance activities and minimize unscheduled maintenance outages. These parts
are included in office and other equipment in the accompanying consolidated
balance sheets and are depreciated using the straight-line method over the
remaining useful life of the operating lease, which expires in 2010.
POWER SALES AGREEMENTS
Power sales agreements are intangible assets resulting from the Beale
acquisition and are being amortized using the straight-line method over the
remaining terms of the agreements (as of August 25, 1994), 15 years.
GOODWILL
Goodwill results from the Beale acquisition and is being amortized on a
straight-line basis over 30 years.
MANAGEMENT SERVICE AGREEMENTS
Management service agreements are an intangible asset resulting from the
Beale acquisition and are being amortized using the straight-line method over
the remaining weighted average term of the agreements (as of August 25, 1994),
17.5 years.
F-119
<PAGE> 237
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 109, deferred income tax assets and liabilities are recorded for the
estimated future tax resulting from differences in the carrying value of assets
and liabilities for tax and financial reporting purposes.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of", effective for fiscal years beginning after December
15, 1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets and requires that a loss be recognized for those assets if the
sum of the expected future cash flows from the use of the asset and its eventual
disposition (undiscounted) is less that the carrying amount of the asset. The
Company adopted SFAS No. 121 on January 1, 1996.
RECLASSIFICATIONS
Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.
3. EQUITY INVESTMENTS
The Company holds equity interests in several partnerships, which were
formed to build, own and operate various energy production, gas storage and
transportation facilities. See Note 13 for discussion of the sale of the Ocean
State Power ("OSP") projects in June 1998 and see the discussion later in this
note related to the sale of TBG Cogen ("TBG"). The Company also participates in
a cost-sharing agreement related to the Portland Pipeline project, for which a
partnership has not yet been formed. The investment in the Portland Pipeline
project was dividended to Beale in March 1998 (see Note 13). The Company's
ownership interest in this project was 6.6%. Debt incurred by the partnerships
is nonrecourse to the Company.
The Company generally has developed its cogeneration projects as
"qualifying facilities" ("QF's") under the Public Utility Regulatory Policies
Act of 1978, as amended, so that the projects are not subject to rate and
operational regulation under the Federal Power Act or state laws, and the
Company is not subject to regulation as a public utility holding company under
the Public Utility Holding Company Act of 1935, as amended.
The following is a summary of aggregated financial information for all of
the Company's investments, which are accounted for under the equity method:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(000'S) (000'S)
<S> <C> <C>
COMBINED BALANCE SHEETS
Current assets........................................... $ 280,538 $ 289,478
Development costs........................................ 48,975 49,980
Property and equipment, net.............................. 1,398,750 1,470,130
Other assets............................................. 68,098 55,159
---------- ----------
Total assets..................................... $1,796,361 $1,864,747
========== ==========
Current liabilities...................................... 132,876 149,533
Other liabilities, principally nonrecourse project
indebtedness.......................................... 1,241,654 1,280,052
Equity................................................... 421,831 435,162
---------- ----------
Total liabilities and equity..................... $1,796,361 $1,864,747
========== ==========
The Company's share of equity.............................. $ 57,727 $ 63,686
========== ==========
</TABLE>
F-120
<PAGE> 238
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(000'S) (000'S) (000'S)
<S> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS
Net sales..................................... $675,334 $677,814 $626,713
======== ======== ========
Operating profit.............................. $233,527 $242,783 $198,739
======== ======== ========
Earnings before taxes......................... $124,863 $125,154 $ 67,434
======== ======== ========
The Company's share of equity in earnings of
operational projects........................ $ 17,172 $ 17,813 $ 5,268
======== ======== ========
SUMMARY OF INVESTMENTS
The Company's share of equity in the net
assets of projects.......................... $ 57,727 $ 63,686 $ 55,814
Basis difference in carrying value of
investees and Company's investments......... 155,610 157,143 213,200
-------- -------- --------
$213,337 $220,829 $269,014
======== ======== ========
</TABLE>
OPERATIONAL PROJECTS
At December 31, 1997, the Company had investments in six operational
facilities (five electric projects and one pipeline project). See Note 13
related to the sale of two of the operational facilities (the OSP projects and a
pipeline development project). Also see information later in this note related
to the sale of TBG in February 1998. The five electric facilities have
contracted to sell electric generating capacity to utilities and other customers
under long-term power sales agreements. The facilities are fueled primarily by
natural gas purchased under long-term supply agreements and, with a few
exceptions, long-term firm transportation contracts. Generally, changes in
energy payments under a project's power sales contract correspond approximately
to changes in fuel cost, and, in certain cases, prices and costs are directly
linked. Each project, except for the OSP projects, which are not QF facilities,
also sells steam for industrial and other purposes under a long-term contract to
an unaffiliated company located adjacent to the project site. These steam sales
contracts require the purchaser to take at least the minimum steam necessary for
the project to maintain its QF status. The operations of and the rates charged
by the OSP projects and Iroquois Gas Transmission System ("IGTS") are subject to
regulation on the federal and state levels in the United States and certain gas
transportation agreements are subject to regulation on the federal and
provincial levels in Canada. The Company's interests in each of these projects
have been pledged as collateral for each of the projects' respective nonrecourse
financing.
TBG COGEN
On February 5, 1998, Calpine Corporation ("Calpine") acquired JMC's
interest in TBG Cogen. This 10% interest was held by a wholly-owned subsidiary
of JMC. The purchase price included a $125,000 non-refundable good faith deposit
paid prior to December 31, 1997, which is included as deferred revenue in the
accompanying consolidated balance sheet, and $1,125,000 in cash, paid at the
time of sale. Subsequent to the purchase, Calpine assumes all liabilities of the
Company's wholly-owned subsidiary, including the $1,000,000 demand notes
discussed in Note 6. This sale resulted in an immaterial loss to the Company;
accordingly, no adjustments to the Company's investment in TBG Cogen are
included in the accompanying consolidated financial statements.
F-121
<PAGE> 239
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SELKIRK COGEN PARTNERS, L.P. ("SELKIRK")
In October 1995, Niagara Mohawk Power Corporation ("NIMO") filed its "Power
Choice" proposal with the New York State Public Service Commission and filed a
Report on Form 8-K with the Securities and Exchange Commission whereby NIMO
described proposals to restructure the utility's business, including the
reorganization of its assets and the renegotiations of its contracts with
non-regulated generators, like Selkirk. NIMO had proposed that, if it cannot
renegotiate its contracts with the non-regulated generators, it would take
possession of such independent power projects through the power of eminent
domain and subsequently sell such assets. Further, NIMO stated that it had not
ruled out the ultimate possibility of a filing for restructuring under Chapter
11 of the U.S. Bankruptcy Code.
On March 10, 1997, NIMO filed a Form 8-K with the Securities and Exchange
Commission in which it announced an agreement in principle to terminate certain
power purchase contracts. The Company is committed to negotiate to reach
agreement on a restructured power purchase agreement for Selkirk. The Company
cannot definitively determine the effect, if any, the restructured power
purchase agreement will have on the Selkirk project. At this time the Company
believes any agreement with NIMO will not threaten the continued existence of
the Selkirk project.
Given the current facts, the Company believes its investment in Selkirk is
probable of recovery. However, should current facts change, there is a
reasonable possibility of loss. See Note 13 for additional disclosure related to
negotiations with NIMO.
Consolidated Edison ("ConEd"), a power purchaser at Selkirk, by a letter
dated September 19, 1994, claimed the right to acquire a portion of Unit 2's
natural gas supply not used in operating Unit 2 (the "excess gas"), when Unit 2
is dispatched off-line or at less than full capacity. The ConEd power purchase
agreement contains no express language granting ConEd any rights to such excess
gas and Selkirk has stated to ConEd that claims to excess gas are without merit.
To date ConEd has paid all amounts invoiced by Selkirk in accordance with the
ConEd power purchase agreement.
If ConEd were to prevail in its claim to Unit 2's excess natural gas
volumes, Selkirk would lose its ability to engage in lay-off sales of such
volumes at favorable prices relative to their costs, and thus cash flows from
gas resale activities would also be materially and adversely affected. The
Company is unable to determine the outcome of this uncertainty.
On June 20, 1990 and October 29, 1992, Selkirk entered into currency
exchange agreements to hedge against future exchange rate fluctuations which
could result in additional costs incurred under fuel transportation agreements
which are denominated in Canadian dollars. Selkirk is exposed to credit loss
under the currency agreements. In the unlikely event that a counterparty fails
to meet the terms of the agreements, Selkirk's exposure is limited to the
currency exchange rate differential. However, Selkirk does not anticipate
nonperformance by the counterparties.
MASSPOWER
MASSPOWER has entered into interest rate exchange agreements to mitigate
the interest rate risks associated with its floating-rate term loans. The
agreements provide for the exchange of fixed-rate interest payment obligations
for floating-rate interest payment obligations on notional amounts of principal.
In addition, MASSPOWER has three currency exchange agreements with different
banks to mitigate the currency exchange risks associated with MASSPOWER's
Canadian fuel transportation costs. In the event of default by any of the bank
counterparties to the interest rate and currency exchange agreements, MASSPOWER
could be exposed to interest rate and currency exchange rate risks. MASSPOWER
does not anticipate nonperformance by any of the counterparties.
F-122
<PAGE> 240
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEVELOPMENT AND CONSTRUCTION PROJECTS
Altresco Lynn, L.P. ("Riverworks")
At December 31, 1995, Riverworks had an outstanding development loan due to
General Electric Capital Corporation ("GECC") that amounted to $12,568,000,
which was used to finance development and pre-construction costs. The note had
as a maturity date the earlier of March 31, 1996 or the date of construction
financing. The development loan was a liability of Riverworks, the partnership
had no assets, and the loan was nonrecourse to the Company. In March 1996,
Boston Edison Company ("BECO") and GECC negotiated a tentative agreement that
BECO would pay $9.2 million to Riverworks for withdrawing the power bid. In June
1996, $7.025 million was paid to GECC, $700,000 was paid to the Company's former
partners in the West Lynn Creamery project and $1.475 million was retained by
Riverworks. An additional $550,000 related to the Riverworks project was
received by the Company from CommElec. The receipt of $2.025 million by the
Company was recognized as income during 1996 and is included as other income in
the accompanying statements of operations.
Avoca Natural Gas Storage Project ("Avoca")
Brine disposal problems encountered during construction in 1996 caused the
Company to evaluate this project for possible impairment. A write-down of
$39,702,000 was required and included the purchase price premium and allocated
goodwill resulting from the Beale acquisition, cash invested since the Beale
acquisition and a liability reflecting the Company's equity commitments related
to the project. The carrying value of the investment is zero at December 31,
1997 and 1996, and $0 and $16,407,000 is included as a liability to reflect
future equity commitments at December 31, 1997 and 1996, respectively. This
equity commitment was satisfied by a $16,559,000 equity infusion by the Beale
shareholders during May 1997. The Company believes it has accrued the full
extent of the losses incurred or to be incurred with respect to this project.
Avoca and JMC Avoca, Inc. ("JMC Avoca"), a wholly-owned subsidiary of JMC,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code on July 29,
1997 (See Note 10). Management believes this action does not have a material
impact on the JMC consolidated financial statements at December 31, 1997.
F-123
<PAGE> 241
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other
From time to time, the Company enters into cost-sharing arrangements to
fund the feasibility and development of various projects, including nonutility
generating projects and gas storage facilities throughout North America. As of
December 31, 1997 the Company's share of the one outstanding project was 6.6%
(see Note 4). On March 1, 1998, the Company dividended to Beale its interest in
this project (See Note 13).
Details of the Company's projects in operations and development are shown
in Table 1.
J. MAKOWSKI COMPANY, INC.
PROJECTS INVESTMENT SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(000S)
<TABLE>
<CAPTION>
JMC SHARE OF:
-------------------
IN- SIZE JMC INVESTMENT (2) PROJECT EARNINGS
SERVICE IN JMC ------------------- -------------------
PROJECT LOCATION DATE MW TYPE OWNERSHIP % 12/31/97 12/31/96 12/31/97 12/31/96
- ---------------------- ----------- ------- ------ -------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEVELOPMENT:
Portland(5)........... ME/NH/ N/A N/A Pipeline 6.60% $ 2,242 $ 222 -- --
VT/MA
OPERATIONS:
TBG Cogen(3).......... Bethpage, Aug-89 50 Cogen 10.00% 1,266 1,229 $ (4) $ 154
NY
OSP(4)................ Burrillville, Dec-90 250 Combined 10.10% 12,336 12,726 1,655 1,707
RI Cycle
OSP II(4)............. Burrillville, Oct-91 250 Combined 10.10% 8,393 8,389 1,529 1,565
RI Cycle
IGTS.................. NY/CT Dec-91 N/A Pipeline 4.93% 10,053 9,956 2,808 2,231
Selkirk............... Selkirk, NY Sep-94 344.90 Cogen 47.21%(1) 137,161 146,886 8,039 9,688
MASSPOWER............. Springfield, Sep-93 240 Cogen 30.00% 40,406 39,725 3,145 2,468
MA
Total operational.......................................................... 209,615 218,911 17,172 17,813
Total equity investments................................................... $211,857 $219,133 $ 17,172 $ 17,813
<CAPTION>
JMC SHARE OF:
-------------------
CASH DISTRIBUTIONS
-------------------
PROJECT 12/31/97 12/31/96
- ---------------------- -------- --------
<S> <C> <C>
DEVELOPMENT:
Portland(5)........... -- --
OPERATIONS:
TBG Cogen(3).......... $ -- $ (24)
OSP(4)................ (1,939) (1,878)
OSP II(4)............. (1,495) (1,980)
IGTS.................. (2,929) (1,774)
Selkirk............... (11,979) (11,075)
MASSPOWER............. (1,382) (2,103)
Total operational..... (19,724) (18,834)
Total equity investmen $(19,724) $(18,834)
</TABLE>
- ---------------
(1) Ownership percentage reflects JMC's effective interest in the project.
(2) Includes the Company's underlying equity in the net assets of each project
and the unamortized portion of the basis difference when Beale purchased the
Company
(3) Sold in February 1998
(4) Sold in June 1998 (See Note 13)
(5) Interest dividended to Beale in March 1998 (See Note 13).
4. RELATED-PARTY TRANSACTIONS
The Company provides consulting, managerial and administrative services to
several entities in which the Company has an interest. Transactions with these
entities represented 84%, 93% and 87% of revenues from service billings for the
years ended December 31, 1997, 1996 and 1995, respectively, and 93% and 65% of
total accounts receivable at December 31, 1997 and 1996, respectively.
During the years ended December 31, 1997 and 1996, Orchard Gas, a
wholly-owned subsidiary of the Company, purchased from unrelated third parties
approximately $35,565,000 and $35,366,000, respectively, in fuel for sale to its
customers. Orchard Gas does not generate a profit on its fuel sales, as all
natural gas is sold at a cost equal to that incurred by the Company.
Approximately 97% and 94% of this fuel was purchased by MASSPOWER, an affiliate
of the Company, during 1997 and 1996, respectively. As of December 31, 1997
F-124
<PAGE> 242
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1996, Orchard Gas was due $2,963,223 and $3,031,279, respectively, from
MASSPOWER for fuel sales. This amount due is included in accounts receivable in
the accompanying consolidated balance sheets.
Employees of JMC were merged into U.S. Generating Company's ("USGen"), an
affiliated entity, payroll and this payroll cost, for management and
administrative services, is billed directly to JMC including a contractual
profit margin. JMC also reimburses USGen for other direct costs incurred on
their behalf during the year. During 1997 and 1996, labor, benefits and other
direct costs incurred by USGen for JMC amounted to $11,778,000 and $11,878,000,
respectively.
The Company funds development costs of projects in which it has an
ownership interest in accordance with certain cost-sharing agreements. For the
periods ended December 31, 1997, 1996 and 1995, $258,000, $1,384,000 and
$5,216,000, respectively, of such costs were incurred by these projects and is
included in feasibility and development expense in the accompanying consolidated
statements of operations. Of these balances, $0 and $112,000 is included in
accounts payable in the accompanying consolidated balance sheets at December 31,
1997 and 1996, respectively.
The Company has demand notes for $10,000,000 and $33,803,800 payable to
Beale and Pentagen Investors, L.P. ("Pentagen"), respectively. Pentagen is an
affiliated partnership and a former subsidiary of the Company whose sole asset
is a 53.02% effective interest in Selkirk. The note to Beale accrues interest at
the prime rate (8.50%, 8.25% and 8.50% at December 31, 1997, 1996 and 1995,
respectively) and interest expense of approximately $844,000, $827,000 and
$879,000 was recorded for the years ended December 31, 1997, 1996 and 1995. The
promissory note to Pentagen issued in June 1995, accrues interest at LIBOR plus
0.5% (6.26%, 6.11% and 6.50% at December 31, 1997, 1996 and 1995, respectively)
and interest expense of approximately $2,103,000, $2,054,000 and $1,185,000 was
recorded for the years ended December 31, 1997, 1996 and 1995, respectively. No
interest has been paid as of December 31, 1997 on either demand note. Under
certain conditions, including bankruptcy or insolvency of the Company, and
notification from the note holder, the unpaid principal may require prepayment
in whole or in part, otherwise the entire principal amount shall be due and
payable in June 2000. Interest is payable quarterly in arrears commencing
September 29, 1995. The note is secured by a pledge of the Company's partnership
interests, via a subsidiary and the affiliated partnership, in the Selkirk
project.
5. INCOME TAXES
For financial reporting purposes, federal income taxes are provided for in
accordance with a federal tax-sharing agreement between the Company and its
parent, which provides, among other things, that the Company will generally pay
the amount required assuming separate Company tax returns were filed. The tax-
sharing agreement also provides that a member of the federal consolidated tax
group can recognize the tax effects of its separate losses to the extent those
losses are used or are expected to be utilized on a consolidated basis. At
December 31, 1997 and 1996, the Company was owed by its parent $6,437,000 and
$7,125,000, respectively, for current federal income taxes.
State income taxes are provided for based on amounts, which the Company
anticipates paying separately to various states. The Company is currently not
operating under any tax sharing agreements relating to state taxes.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. A valuation allowance of $10,961,000 has been established. Of
this total, $ 4,316,000 was created at the Beale acquisition date as a result of
certain restrictions on utilization of tax assets due to ownership change
limitations and the Company's uncertainty of its ability to realize the tax
benefits on a portion of its net operating loss and credit carryforwards. Any
subsequent reversal of the valuation allowance relating to net operating losses
existing at the acquisition date will first reduce goodwill related to the
Company's acquisition, then other noncurrent intangible assets related to the
acquisition, and then income tax expense.
F-125
<PAGE> 243
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the Company has unused net investment credits, which
may be used to offset future federal taxes payable, of approximately $972,000
which expire in year 2004. The Company also has federal net operating loss
carryforwards of approximately $7,804,000 that begin to expire in year 2004.
Approximately $3,300,000 of those net operating loss carryforwards resulted from
the period prior to the Beale acquisition.
At December 31, 1997, the Company has Massachusetts net operating loss
carryforwards of approximately $27,000,000 which may be used to offset future
Massachusetts taxable income and which will expire in years 1997-2000.
The significant components of net deferred income tax liabilities as of
December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Partnership differences................................... $ 4,147 $ --
Allocation of premium..................................... 91,301 91,908
-------- --------
Total deferred tax liabilities.................... 95,448 91,908
Deferred income tax assets:
Development costs......................................... 1,487 1,723
Partnership differences................................... -- 2,244
Deferred state taxes...................................... 6,173 (302)
Other..................................................... 683 510
Net operating losses...................................... 4,425 7,454
Investment tax credit..................................... 972 1,163
Alternative minimum tax credit............................ 524 524
-------- --------
Total deferred tax assets......................... 14,264 13,316
Valuation allowance......................................... (10,961) (11,392)
-------- --------
Net deferred tax asset................................. 3,303 1,924
-------- --------
Net deferred tax liability.................................. $ 92,145 $ 89,984
======== ========
</TABLE>
Significant components of the Company's income tax expense (benefit)
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(000'S) (000'S) (000'S)
<S> <C> <C> <C>
Current
Federal.......................................... $(4,588) $ 3,189 $(5,954)
State............................................ (127) 59 (20)
------- -------- -------
Total current............................... (4,715) 3,248 (5,974)
Deferred
Federal.......................................... 2,848 (12,356) 1,888
State............................................ (687) 262 (628)
------- -------- -------
Total deferred.............................. 2,161 (12,094) 1,260
Total income tax benefit.................... $(2,554) $ (8,846) $(4,714)
======= ======== =======
</TABLE>
F-126
<PAGE> 244
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the differences between the U.S. statutory rate and
the effective tax rate based on income before taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory income tax rate............. (35.00)% (35.00)% (35.00)%
Items that affect tax expense:
State taxes, net of federal effect.......... (16.48) (.55) (5.75)
Amortization of goodwill.................... 25.71 5.76 4.84
Other permanent differences................. .95 -- --
True-up of prior year taxes................... (54.74) 3.79 --
------ ------ ------
Effective tax rate............................ (79.56)% (26.00)% (35.91)%
====== ====== ======
</TABLE>
6. DEBT
SENIOR SECURED NOTES PAYABLE
In November 1992, a subsidiary of the Company obtained $19,000,000 through
the issuance of 12-year senior secured notes to fund its equity commitments to
OSP. These notes bear interest, payable quarterly, at a fixed rate of 7.42%. The
notes amortize quarterly over the life of the loan and mature on December 31,
2004.
The subsidiary entered into a collateral agency agreement whereby all
distributions from OSP and OSP II are remitted to a cash collateral account and
pledged to the agent bank. All required quarterly principal and interest
payments are deducted from the account by the bank and any excess is remitted to
the subsidiary. The Company pledged all rights, title and interest in the
capital stock of the subsidiary to the security agent and the subsidiary
assigned all rights, title and interest in the partnerships. The notes are
nonrecourse to the Company.
MORTGAGE LOAN PAYABLE
In March 1993, BFALP obtained a $10,000,000 mortgage loan in order to
refinance the remaining construction costs related to the Feedline. The mortgage
loan carries a per annum floating rate of interest equal to the 30-day rate for
commercial paper, in effect at the end of the month, plus 6.07% (11.65% and
12.02% at December 31, 1997 and 1996, respectively). Interest was payable
monthly on the outstanding balance through December 31, 1995. Subsequent to
December 31, 1995, principal and interest are due monthly, with a maturity date
of December 31, 2010.
The loan is secured by a first mortgage on the Feedline and collateralized
by all the outstanding shares of a subsidiary of the Company and the pledge of
all partnership interests. In addition, each of the partners has guaranteed
$500,000 of the mortgage loan.
TERM LOAN PAYABLE
Pittsfield has a term loan agreement with GECC. The loan, which expires in
2009, has a fixed interest rate of 10.38%. Principal and interest are payable
quarterly in arrears.
OTHER
The Company is obligated, as a result of one of its equity investments, to
fund $1,000,000 in an escrow account in favor of one of the power purchasers,
which will be returned in the years 2003 and 2004. These fundings are financed
by noninterest-bearing demand notes, are included in accounts receivable on the
accompanying consolidated balance sheets and totaled $1,000,000 at both December
31, 1997 and 1996.
F-127
<PAGE> 245
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997 and 1996, the Company's long-term debt consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(000'S) (000'S)
<S> <C> <C>
Senior secured notes payable, interest payable quarterly at
7.42%..................................................... $10,429 $11,949
Mortgage loan payable, interest payable monthly at
commercial paper rate plus 6.07%.......................... 9,435 9,745
Term loan payable, interest payable quarterly at 10.38%..... 4,306 4,508
Other....................................................... 1,000 1,047
------- -------
25,170 27,249
Less current portion........................................ 3,040 3,054
------- -------
$22,130 $24,195
======= =======
</TABLE>
Following are maturities of long-term debt for each of the next five years
(in thousands):
<TABLE>
<S> <C>
1998....................................................... 3,040
1999....................................................... 2,109
2000....................................................... 2,181
2001....................................................... 2,262
2002....................................................... 2,354
Thereafter................................................. 13,224
-------
Total............................................ $25,170
=======
</TABLE>
7. DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, restricted cash,
accounts receivable, accounts payable, accrued expenses, notes payable to
affiliates and long-term debt. The fair value of these financial instruments,
with the exception of the senior secured notes payable and the term loan
payable, approximate their carrying value as of December 31, 1997 and 1996. The
fair value of the senior secured notes payable and the term loan payable as of
December 31, 1997 and 1996 was approximately $13,542,000 and $15,150,000,
respectively. The fair value was estimated using discounted cash flows analysis,
based on the Company's current incremental borrowing rate. The carrying value of
these two notes is $14,735,000 and $16,457,000 at December 31, 1997 and 1996,
respectively.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
The declaration and payment of dividends on the Class A common stock and
the amount thereof, are solely at the discretion of the Board of Directors, and
holders of such stock are not entitled to any rights of conversion. In December
1997, the Company declared a $10,000,000 dividend. See Note 13 for discussion of
subsequent payment of this dividend.
9. COMMITMENTS
PITTSFIELD
Operating lease
The Pittsfield project lease with GECC has been accounted for as an
operating lease. The lease has an initial term of 20 years, with two five-year
renewal options, exercisable by the Company. Rent is due in quarterly
installments of approximately $5,610,000. Supplemental rent is due under certain
circumstances and remitted in the form of lessor distributions. The Company has
the option to purchase the plant during years 12
F-128
<PAGE> 246
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 20 of the lease agreement; in year 12, at the higher of its then fair market
value or the stipulated loss value (as defined in the lease) and in year 20, at
its then fair market value.
For the years ended December 31, 1997, 1996 and 1995, rent expense amounted
to $24,349,916, $25,196,731 and $22,445,667, respectively (of which $1,911,000,
$2,758,000 and $6,389,000, respectively, is related to supplemental rents) all
of which is included in rent under operating lease payments-Pittsfield in the
accompanying consolidated statements of operations.
Future minimum lease payments (in thousands), at December 31, 1997, under
the operating lease are as follows:
<TABLE>
<S> <C>
1998...................................................... 22,439
1999...................................................... 22,439
2000...................................................... 22,439
2001...................................................... 22,439
2002...................................................... 22,439
Thereafter................................................ 173,905
--------
Total........................................... $286,100
========
</TABLE>
In accordance with the lease, GECC provided a funding mechanism for the
estimated remaining costs of completing the Pittsfield project (the completion
fund). At December 31, 1997 and 1996, approximately $435,000 and $436,000,
respectively, was available from GECC in their completion fund for remaining
facility costs. These funds are available to the Pittsfield project, subject to
GECC approval.
The Pittsfield project lease is collateralized by the assignment of the
Company's rights, title and interest in all project contracts and the pledge of
all Company interests to the trustee and is nonrecourse to the individual
partners.
Certain operative documents related to the lease contain warranties and
covenants including, among others, a restriction on Company distributions and
additional indebtedness. In addition, a lease reserve account is required to be
maintained due to lease covenants under certain circumstances. On an annual
basis, the funding requirement if any is determined based on the terms of the
disbursement and security agreement. This account is not currently required.
Power sales agreements -- electricity
Pittsfield has a power sales agreement, as amended, with New England Power
Company ("NEPCO") to sell 65.6% of the net electric output of the project
through 2010, subject to one six-year extension. In accordance with the
agreement, Pittsfield has agreed to provide NEPCO with a security interest in a
specified portion of its electric revenues. Should Pittsfield experience an
event of default under the terms of the power sales agreement and NEPCO
terminates the agreement, Pittsfield is obligated to pay NEPCO the total amount
accumulated as liquidated damages. As of December 31, 1997 and 1996, the amount
totaled approximately $34,307,000 and $49,612,000 respectively. In January 1995,
the liquidating damages began to decline and will continue until eliminated.
In addition, Pittsfield is required to provide an irrevocable letter of
credit to NEPCO to secure payment of liquidated damages in the event of
nonperformance under the power sales agreement. The letter of credit increases
monthly to the extent of 4% of NEPCO electric revenues received by Pittsfield
until the letter of credit equals the lesser of the amount of liquidating
damages or $18,000,000. At December 31, 1997 and 1996, the letter of credit
totaled approximately $18,000,000 and $18,071,000, respectively.
Pittsfield has power sales agreements with Cambridge Electric Light Company
and Commonwealth Electric Company to sell a total of 34.4% of the net electric
output of the Pittsfield project. Delivery of this net
F-129
<PAGE> 247
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
electric output will continue until December 31, 2011. Pittsfield is required to
provide irrevocable letters of credit to Cambridge Electric Light Company and
Commonwealth Electric Company to secure its performance under these power sales
agreements. At December 31, 1997 and 1996, the letters of credit outstanding
were approximately $5,737,000 and $5,109,000 for Cambridge Electric Light
Company, respectively, and $4,554,000 and $4,209,000 for Commonwealth Electric
Company, respectively. The letters of credit reach a maximum of $11,100,000 for
calendar year 1998 and expire on December 31, 2002 and December 31, 2001,
respectively.
Steam sales agreements
Pittsfield has a steam sales agreement with General Electric ("GE") through
2008, subject to two five-year extensions. GE has committed to purchase a
minimum of 700 million pounds (mmlbs.) of steam per year, up to a maximum of 840
mmlbs. per year.
The basic contract price (subject to escalation or renegotiation) of
$1,000,000 annually for up to 840 mmlbs. of steam per year will be reduced if
steam sales are less than 840 mmlbs. per year, with the total reduction not to
exceed $400,000 annually. Total operating revenue from GE was approximately
$712,000, $780,000 and $600,000 for steam delivered during the years ended
December 31, 1997, 1996 and 1995, respectively.
Fuel supply agreements
Pittsfield has two new long-term gas purchase and sale agreements with
Talisman Energy, Inc. ("Talisman") and Home Oil Company Limited ("Home"). The
Talisman agreement, which expires on September 1, 2010, calls for a daily fuel
supply of 22,420 Mcf/day. The Home agreement expires on October 31, 2011, and
calls for a daily fuel supply of 11,759 Mcf/day.
In addition, Pittsfield provides irrevocable letters of credit to Talisman
and Home to secure performance under the agreements. At December 31, 1997 and
1996, the total outstanding amount under the letters of credit was $3,300,000.
Fuel transportation agreements
Pittsfield's Canadian fuel suppliers have contracted for the transportation
of fuel from the wellhead in Empress, Alberta on the Nova Pipeline ("Nova") to
the TCPL interconnect. Pittsfield has entered into a firm transportation
agreement for the delivery of fuel from the Nova/TCPL interconnect to the
U.S./Canadian border. In addition, Pittsfield entered into a long-term
transportation agreement for firm transportation of fuel from the U.S./Canadian
border to the Feedline.
In June 1995, Pittsfield entered into a short-term firm service
transportation agreement with TCPL to transport fuel of 21,500 Mcf/day from the
Nova/TCPL pipeline interconnect at Empress, Alberta to the U.S./Canadian border
at Niagara Falls. This agreement expired on March 31, 1996. In December 1995,
the National Energy Board ("NEB") approved Pittsfield's application for
long-term transportation service on TCPL. Pittsfield has negotiated to replace
the short-term firm service transportation agreement with a firm long-term
transportation agreement. The term of the long-term firm transportation
agreement commenced on April 1, 1996 and expires on October 31, 2010. Under the
terms of this agreement, Pittsfield is required to provide an irrevocable letter
of credit to secure performance. At December 31, 1997 and 1996, the total letter
of credit outstanding was approximately $1,600,000.
In October 1995, Pittsfield entered into a temporary capacity assignment
agreement with NEPCO for firm transportation on TCPL. Pittsfield took assignment
of 10,000 Mcf/day of TCPL capacity effective November 1, 1995. The capacity
assignment allows Pittsfield to transport fuel on TCPL from Empress, Alberta to
Waddington, New York. In September 1997, the temporary capacity assignment
agreement was
F-130
<PAGE> 248
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
made permanent effective from November 1, 1997 through October 31, 2006. Under
the terms of the permanent assignment agreement, Pittsfield is required to
provide an irrevocable letter of credit to secure performance. At December 31,
1997, the total letter of credit outstanding was approximately $413,000.
In October 1997, Pittsfield entered into two temporary capacity assignment
agreements with Renaissance Energy, Ltd. ("Renaissance") for firm transportation
on TCPL. These agreements exchange delivery points from Waddington, New York to
Niagara Falls, New York to allow Pittsfield to deliver Canadian gas supplies to
the interconnect at Niagara Falls to match the downstream firm transportation.
Effective November 1, 1997, Pittsfield assigned to Renaissance 10,000 Mcf/day of
capacity for fuel transportation on TCPL from Empress, Alberta to Waddington,
New York. In return, Pittsfield took assignment from Renaissance for 10,000
Mcf/day of capacity for fuel transportation on TCPL from Empress, Alberta to
Niagara Falls, New York. The temporary capacity assignment agreements are
effective from November 1, 1997 to November 1, 1998. Renaissance and Pittsfield
are in the process of executing permanent assignment agreements to be effective
November 1, 1998.
NEPCO contingency
Pursuant to the rate formula established in the NEPCO power sales
agreement, Pittsfield bills NEPCO for reimbursement of transportation charges
(including finance charges) related to the Feedline. The NEPCO contingency
exists because NEPCO has not acknowledged in writing its obligation to reimburse
the Company for such charges using the rate formula or terms set forth in the
NEPCO power sales agreement. As of December 31, 1997, NEPCO continued to
reimburse the Company for amounts billed for transportation charges related to
the Feedline.
Transmission agreements
Pittsfield has an interconnection agreement whereby Northeast Utilities
("NU") provides the transmission of electricity to NEPCO through 2010. In
December 1994, the agreement was amended and Pittsfield provided NU with a
$343,388 application deposit, which is refundable upon expiration of certain
agreements (December 31, 2011) and is reflected as a long-term transmission
deposit, included as power sales and other deposits in the accompanying
consolidated balance sheets as of December 31, 1997 and 1996.
Pittsfield has agreements with Montaup Electric Company and Boston Edison
Company for the transmission of electricity to third-party purchasers
terminating on December 31, 2011.
Operation and maintenance agreement
Pittsfield and GE entered into a six-year, fee-based agreement whereby GE
provides ongoing operating and maintenance services. GE is also entitled to an
annual bonus based on the performance of the Pittsfield plant. The agreement
with GE expired on September 30, 1996.
Pittsfield paid GE $375,000 in November 1996 for the bonus earned during
the nine months ended September 30, 1996. Pittsfield entered into a new
agreement on October 1, 1996 with U.S Operating Services Company ("USOSC"), an
affiliated entity, which extends through October 31, 2002 and automatically
extends for an additional five years unless terminated by either party. The
USOSC agreement provides for ongoing operating and maintenance services similar
to those in the GE agreement. Pittsfield paid USOSC $125,000 in February 1997,
which was accrued for at December 31, 1996, for the bonus earned during the
three months ended December 31, 1996. As of December 31, 1997, Pittsfield has
$500,000 in accrued bonuses due to USOSC included in the accompanying
consolidated balance sheet and in operating expenses in the accompanying
consolidated statement of operations for the year then ended.
F-131
<PAGE> 249
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Site lease
Pittsfield has a lease with GE for certain property on which its plant is
located. The lease term expires the later of April 2028 or the economic useful
life of the plant. The lease may be terminated in the event that the steam sales
agreement with GE is terminated for default. The lease provides for rent of $1
for the entire lease term.
Office lease
In 1989, the Company entered into a ten year operating lease for office
space, commencing June 1989, with payments beginning September 1990. The Company
provided for the obligation on a straight-line basis over the term of the lease
and accrued a deferred lease liability for rent incurred from the commencement
date through October 31, 1996.
This lease was terminated on October 31, 1996 by the Company and assumed by
USGen. The Company's deferred lease liability has been relieved to zero. Total
rent expense was approximately $1,272,000 and $938,000 for the years ended
December 31, 1996 and 1995, respectively, and is included in general and
administrative expense in the accompanying consolidated statement of operations.
10. CONTINGENCIES
AVOCA
During 1997, JMC Avoca was named in several civil suits on behalf of
contractors and other vendors seeking damages related to Avoca, an unsuccessful
development project. This project, located in Steuben County, New York, was a
development project owned by JMC Avoca and two other general partners. In July
1997, Avoca and its partners, including JMC Avoca, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. JMC and the other non-debtor affiliates
of JMC named in any such lawsuits are responding to the above claims and
undertaking their respective legal defenses. Given the uncertainty associated
with this litigation, management cannot predict the outcome or estimate JMC's
exposure at this time.
11. CONCENTRATION OF CREDIT RISK
The Company provides management and consulting services to, and invests in,
projects and entities engaged in the generation of electricity and
transportation of natural gas. The majority of the Company's service revenues
are from affiliated entities; therefore, the Company does not perform credit
evaluations of these entities' financial condition and does not require
collateral. Credit losses historically have been small, which is consistent with
management's expectations.
12. SALE OF MANAGEMENT SALES AGREEMENTS
On January 1, 1998, the Company sold its management sales agreements with
Alberta Northeast Gas and Boundary Gas, Inc., and use of the name Northeast Gas
Marketing for approximately $2,000,000. Management does not believe the outcome
of this will have a material impact on the financial position, results of
operations, or cash flows of the Company.
13. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
On March 1, 1998, JMC distributed the stock of ten subsidiary companies to
Beale. The distribution was intended to complete the purchase and sale
transaction entered into in September 1997 between PG&E Generating Company
("PGen"), a wholly owned indirect subsidiary of PG&E Enterprises and Bechtel
Generating Company ("BGen"), a wholly owned indirect subsidiary of Bechtel
Enterprises. Subsequent to this distribution, the stock of the companies was
further distributed or sold.
F-132
<PAGE> 250
J. MAKOWSKI COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1998, PGen's indirect ownership interest in Beale was transferred to
U.S. Generating Company, LLC ("USGenLLC") and subsequently contributed by
USGenLLC to its subsidiary, USGen Power Group, LLC ("Power").
On June 24, 1998, Power and BGen each contributed cash totaling
approximately $1 million in exchange for the stock of Mason Generating Company.
The cash contribution and the related allocation of stock was consistent with
their ownership ratio of Beale. Immediately following the formation of Mason, it
purchased six wholly-owned subsidiaries of JMC for approximately $1 million. The
sale resulted in a loss of approximately $3 million to JMC. JMC the distributed
the cash proceeds from this sale to Beale, who in turn distributed the cash pro
rata to Power and BGen.
On October 15, 1998, Beale was merged with and into JMC. JMC was then
renamed Beale Generating Company ("New Beale"), indicating a reverse merger. The
surviving company, New Beale, consists of all the assets and liabilities
previously held by both Beale and JMC and is owned 89.1% by Power and 10.9% by
BGen.
The transactions described above, except for the transfer of ownership
interest in Beale in May 1998, were performed to prepare BGen's 10.9% interest
in Beale for sale. Such sale is expected to occur in October 1998 by a
subsidiary of Cogentrix Energy, Inc, a North Carolina corporation.
In June 1998, JMC sold its interest in the OSP projects which resulted in a
nominal gain.
On August 31, 1998 Selkirk and NIMO consummated the transactions relating
to the amendment and restatement of the existing power purchase agreement
between Selkirk and NIMO pursuant to the Master Restructuring Agreement dated as
of July 9, 1997, as amended, among NIMO, Selkirk and certain other independent
power producers (the "MRA"). As contemplated by the MRA, on that date (i)
Selkirk notified NIMO of Selkirk's determination that the requirements of
Selkirk's Trust Indenture, dated as of May 1, 1994 (the "Indenture"), with
respect to the restructuring of certain project contracts relating to the
operation of Unit 1 of the Selkirk facility had been satisfied: (ii) the Amended
ad Restated Power Purchased Agreement, dated as of July 1, 1998 between Selkirk
and NIMO became effective; and (iii) NIMO made certain payments into Selkirk's
Project Revenue Fund maintained at Bankers Trust Company, as Depository Agent
under the May 1, 1994 Deposit and Disbursement Agreement. In addition, Selkirk
has delivered notices to Paramount Resources Limited ("Paramount") and
TransCanada Pipelines Limited ("TransCanada") that the Second Amended and
Restated Gas Purchase Contract, dated as of May 6, 1998 between Selkirk and
Paramount, and the Amending Agreement to Gas Transportation Contract, dated as
of July 20, 1998, between Selkirk and TransCanada have become effective.
In June 1998, the $10,000,000 dividend declared in 1997 was paid.
F-133
<PAGE> 251
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Selkirk Cogen and MASSPOWER:
We have audited the accompanying combined balance sheets of Selkirk Cogen
Partners L.P. (a Delaware limited partnership) and MASSPOWER (a Massachusetts
general partnership) as of December 31, 1997 and 1996, and the related
statements of income, changes in partner's capital and cash flows for the years
ended December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Selkirk Cogen Partners L.P.
and MASSPOWER as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 12, 1998
F-134
<PAGE> 252
SELKIRK COGEN/MASSPOWER
COMBINED BALANCE SHEETS
AS OF JUNE 30, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,592 $ 8,164 $ 9,022
Restricted funds.......................................... 25,136 19,994 18,374
Accounts receivable....................................... 37,827 34,675 36,253
Inventories............................................... 9,440 9,205 8,635
Due from affiliates....................................... 59 14 40
Other current assets...................................... 711 530 664
-------- -------- --------
Total current assets.............................. 75,765 72,582 72,988
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF $91,995 (unaudited), $81,893 AND
$61,627................................................... 493,217 503,304 523,776
DEFERRED CHARGES AND OTHER ASSETS:
Deferred financing cost, net of accumulated amortization
of $8,980 (unaudited), $8,057 and $6,248............... 14,950 15,873 17,682
Other assets.............................................. 6,949 6,944 5,157
Prepaid rent.............................................. 9,190 8,195 6,010
Long-term restricted funds................................ 24,491 21,494 20,446
-------- -------- --------
Total assets...................................... $624,562 $628,392 $646,059
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 9,478 $ 8,811 $ 6,630
Short-term debt........................................... 4,700 8,400 13,000
Accounts payable and accrued expenses..................... 19,770 24,678 25,122
Due to affiliated companies............................... 1,405 1,212 1,519
Accrued interest.......................................... 2,480 2,536 1,217
Customer advances......................................... -- -- 17
-------- -------- --------
Total current liabilities......................... 37,833 45,637 47,505
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 567,377 574,171 584,516
OTHER LIABILITIES........................................... 22,259 18,665 16,522
PARTNERS' CAPITAL........................................... (2,907) (10,081) (2,484)
-------- -------- --------
Total liabilities and partners' capital........... $624,562 $628,392 $646,059
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-135
<PAGE> 253
SELKIRK COGEN/MASSPOWER
COMBINED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------
1998 1997 1997 1996 1995
------------ ------------ -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric and steam.................... $138,404 $140,040 $279,344 $261,810 $244,659
Gas resale............................ 6,097 7,180 14,909 26,313 18,974
-------- -------- -------- -------- --------
Total operating revenues...... 144,501 147,220 294,253 288,123 263,633
-------- -------- -------- -------- --------
COST OF REVENUES:
Fuel costs............................ 73,384 79,052 156,847 147,414 143,537
Operating and maintenance expenses.... 13,450 15,561 29,994 30,240 27,405
Ground lease.......................... 1,408 1,408 2,816 4,090 5,000
Depreciation.......................... 10,442 10,447 20,931 20,795 20,604
-------- -------- -------- -------- --------
Total cost of revenues........ 98,684 106,468 210,588 202,539 196,546
-------- -------- -------- -------- --------
GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,786 5,000 10,336 10,578 11,206
-------- -------- -------- -------- --------
Operating income.............. 41,031 35,752 73,329 75,006 55,881
INTEREST EXPENSE, NET................... 25,669 25,540 51,386 51,598 52,082
-------- -------- -------- -------- --------
Net income.................... $ 15,362 $ 10,212 $ 21,943 $ 23,408 $ 3,799
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE> 254
SELKIRK COGEN/MASSPOWER
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994.................................. $14,221 $ 24,539 $38,760
Distributions............................................. (5,599) (20,321) (25,920)
Conversion and assignment of JMCSI Investors L.P.
interest............................................... 4,411 (4,411) --
Net income................................................ 2,119 1,680 3,799
------- -------- -------
BALANCE, DECEMBER 31, 1995.................................. 15,152 1,487 16,639
Distributions............................................. (7,379) (35,152) (42,531)
Net income................................................ 8,380 15,028 23,408
------- -------- -------
BALANCE, DECEMBER 31, 1996.................................. 16,153 (18,637) (2,484)
Distributions............................................. (4,861) (24,679) (29,540)
Net income................................................ 10,598 11,345 21,943
------- -------- -------
BALANCE, DECEMBER 31, 1997.................................. 21,890 (31,971) (10,081)
Distributions............................................. (4,897) (3,291) (8,188)
Net income................................................ 8,919 6,443 15,362
------- -------- -------
BALANCE, JUNE 30, 1998 (UNAUDITED).......................... $25,912 $(28,819) $(2,907)
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-137
<PAGE> 255
SELKIRK COGEN/MASSPOWER
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 15,362 $ 10,212 $ 21,943 $ 23,408 $ 3,799
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation............................. 10,442 10,447 20,931 20,795 20,604
Amortization of deferred financing
activities............................. 583 586 1,170 1,173 1,130
Other.................................... 890 239 (472) (1,053) (268)
Decrease (increase) in accounts
receivable............................. (3,152) 414 1,728 1,309 (6,022)
Decrease (increase) in inventory......... (236) (333) (570) (2,242) 233
Increase in other current assets......... (1,221) (1,077) (2,019) (5,314) (2)
Decrease (increase) in accounts payable
and accrued expenses................... (5,663) (3,471) 1,006 4,232 (3,331)
Decrease in other liabilities............ 3,596 3,035 2,140 3,903 5,158
-------- -------- -------- -------- --------
Net cash provided by operating
activities........................ 20,601 20,052 45,857 46,211 21,301
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of proceeds...... (14) (101) 28 (2,973) (4,497)
Other long-term assets -- escrow
deposits................................. (3,002) (1,851) (2,802) (424) 15,619
-------- -------- -------- -------- --------
Net cash (used in) provided by
investing activities.............. (3,016) (1,952) (2,774) (3,397) 11,122
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................ (6,127) (3,801) (8,164) (6,330) (3,998)
(Repayment) proceeds from short-term debt,
net...................................... (3,700) (4,000) (4,600) 4,900 2,100
Capital distributions...................... (8,188) (16,845) (29,540) (42,531) (25,920)
Advances................................... -- (17) (17) (136) (5,282)
Financing costs............................ -- -- -- -- (217)
-------- -------- -------- -------- --------
Net cash used in financing
activities........................ (18,015) (24,663) (42,321) (44,097) (33,317)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (430) (6,563) 762 (1,283) (894)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR....................................... 28,158 27,396 27,396 28,679 29,573
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR....... $ 27,728 $ 20,833 $ 28,158 $ 27,396 $ 28,679
======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest..... $ 26,539 $ 25,160 $ 51,820 $ 52,877 $ 56,555
======== ======== ======== ======== ========
Purchase of inventory -- noncash........... $ -- $ -- $ -- $ 182 $ 3,800
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-138
<PAGE> 256
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BUSINESS
ORGANIZATION
Selkirk Cogen Partners, L.P. (Selkirk) was organized on December 15, 1989
as a Delaware limited partnership. Prior to the Partnership Agreement, the
partners had a cost-sharing arrangement for costs incurred from the project's
inception in October 1987.
Selkirk was formed for the purpose of constructing, owning and operating a
natural gas-fired combined-cycle cogeneration facility located on General
Electric Company's (GE) property in Bethlehem, New York (the Facility). The
Facility consists of one unit (Unit 1) with an electric generating capacity of
approximately 79.9 megawatts (MW) and a second unit (Unit 2) with an electric
generating capacity of approximately 265 MW. Unit 1 and Unit 2 have been
designed to operate independently for electrical generation, while thermally
integrated for steam generation, thereby optimizing efficiencies in the combined
performance of the Facility. Selkirk received construction financing for Unit 1
in June 1990 and commercial operations commenced on April 17, 1992. Unit 2
obtained construction financing in October 1992 and commercial operations
commenced September 1, 1994. Both units are fueled by Canadian natural gas
purchased under firm 15-year natural gas supply contracts (extendible to 20
years upon satisfaction of certain conditions). Unit 1 is selling at least 79.9
MW of electric capacity and associated energy to Niagara Mohawk Power
Corporation (NIMO) under a 20-year contract, and Unit 2 is selling 265 MW of
electric capacity and associated energy to Consolidated Edison Company of New
York (ConEd) under a 20-year contract. Also, Selkirk makes excess gas layoff
sales during periods when Units 1 and 2 are not operating at full capacity (see
Note 4). Historical natural gas resale prices have resulted in significant gas
resale margins for Selkirk.
Unit 1 of Selkirk is currently certified as a qualifying facility (QF)
under the Public Utility Regulatory Policy Act of 1978, as amended (PURPA).
Accordingly, the prices charged for the sale of electricity and steam are not
regulated. When Unit 2 commenced operations, Selkirk was no longer qualified by
the State of New York but continues to be certified by the Federal Energy
Regulation Commission (FERC) as a QF. However, this is not expected to have a
material impact on Selkirk's financial position or operations. Certain fuel
transportation agreements entered into by Selkirk are subject to regulation on
the federal and provincial levels in Canada. Selkirk has obtained all material
Canadian governmental permits and authorizations required for operation.
MASSPOWER is a Massachusetts General Partnership formed under the terms of
a Joint Venture Agreement dated August 8, 1989 and as amended and restated on
August 14, 1991. The partnership consists of five general partners and is
managed by a committee comprised of one representative from each general
partner. MASSPOWER has no employees, and the administration and operation of the
project are arranged under various contractual agreements (see Note 4).
MASSPOWER was formed to construct, own and operate a gas-fired combined
cycle cogeneration facility located on the property of Solutia Company (Solutia)
in Springfield, Massachusetts. The Facility's average net capacity is
approximately 240 MW. The Facility is fueled by Canadian natural gas and
revaporized liquefied natural gas (LNG), which are both purchased under firm
long-term contracts (see Note 5). The Facility's electrical generation is sold
to five utility companies under long-term power purchase agreements (see Note
5). The steam generation is sold to Solutia under a 20-year stream purchase
agreement (see Note 5). MASSPOWER also enters into short-term (less than six
months) contracts for sale of a portion of its electrical generation capability.
MASSPOWER is currently certified by the Federal Energy Regulatory
Commission as a QF under the PURPA. Accordingly, the prices charged for the sale
of electricity and steam are not regulated. However, MASSPOWER and certain
agreements entered into by MASSPOWER are subject to regulation by various
F-139
<PAGE> 257
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
federal, state and Canadian authorities. The criteria for QF certification
include requirements that a minimum of 5% of the Facility's output be useful
thermal energy, that the Facility achieve at least a specified ratio of energy
output to energy input, and that the ownership of the Facility by electric
utilities be no greater than 50%.
Construction and term financing was obtained on August 15, 1991, and
commercial operations commenced on September 1, 1993.
PARTNERS' CAPITAL
The general and limited partners of Selkirk, along with their respective
equity interests, are as follows:
<TABLE>
<CAPTION>
INTEREST
--------------------
GENERAL PARTNERS AFFILIATE OF PREFERRED ORIGINAL
- ---------------- ------------ --------- --------
<S> <C> <C> <C>
JMC Selkirk, Inc. J. Makowski Company, Inc. .09% 1.00%
(JMC)
Cogen Technologies Selkirk GP, Inc. Cogen Technologies, Inc. 1.00% --%
</TABLE>
<TABLE>
<CAPTION>
INTEREST
--------------------
LIMITED PARTNERS AFFILIATE OF PREFERRED ORIGINAL
- ---------------- ------------ --------- --------
<S> <C> <C> <C>
JMC Selkirk, Inc. J. Makowski Company, Inc. 1.95% 21.40%
Pentagen Investors, L.P. J. Makowski Company, Inc. 5.25% 57.60%
EI Selkirk, Inc. GPU International, Inc. 13.55% 20.00%
Cogen Technologies Selkirk L.P., Inc. Cogen Technologies, Inc. 78.16% --%
</TABLE>
Under the terms of the Selkirk amended partnership agreement, cash
available is distributed 99% to the partners in accordance with their respective
equity interest (preferred equity) and 1% is allocated based on the original
ownership structure between JMC affiliates and GPU International, Inc. (GPUI).
Any additional funds available after the preferred distribution are distributed
99% to the initial equity holders and 1% to the preferred equity holders.
Subsequent to the eighteenth anniversary of Unit 1's commercial operations or
the date on which all the preferred partners achieve a specified return,
distributions will be made in accordance with the residual interest: JMC
affiliates at 64.8%, GPUI at 17.7% and Cogen Technologies, Inc. at 17.5%.
The five general partners of MASSPOWER, along with their respective equity
interests, are as follows:
<TABLE>
<CAPTION>
EQUITY
PARTNER AFFILIATE OF INTEREST
- ------- ------------ --------
<S> <C> <C>
MASSPOWER, Inc. PG&E Enterprises 30.0%
Springfield Generating Company, L.P. PG&E Enterprises 17.5%
MP Cogen, Inc. General Electric Company 17.5%
Bay State Energy Development, Inc. Energy Investors Funds 17.5%
EPEC Independent Power I Company El Paso Energy 17.5%
</TABLE>
The net profits or losses and cash distributions of MASSPOWER are allocated
to the partners based on their respective equity interests.
F-140
<PAGE> 258
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The detail of partners capital, as reflected in the accompanying combined
balance sheets as of December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Selkirk --
General Partners.......................................... $ (311) $ (173)
Limited Partners.......................................... (31,971) (18,637)
MASSPOWER --
General Partners.......................................... 22,201 16,326
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of Selkirk Cogen Partners,
L.P. and MASSPOWER (collectively the Partnerships) are presented on a combined
basis due to the common management of the operating facilities of the
Partnerships. As such, all interpartnership transactions have been eliminated in
combination.
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.
INTERIM FINANCIAL STATEMENTS
The combined financial statements as of June 30, 1998 and for the periods
ended June 30, 1998 and 1997 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the accompanying combined financial statements reflect all
adjustments (which are of normal recurring nature) necessary to present fairly
the financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations for a
full fiscal year.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash equivalents include
short-term investments with maturities of three months or less.
RESTRICTED FUNDS AND LONG-TERM RESTRICTED FUNDS
The Partnerships are required to maintain cash reserve accounts for
maintenance costs and debt service requirements as part of their credit
agreement with a bank. Certain of the restricted funds are associated with
transactions or events that are applicable to periods beyond the current
accounting period and are, therefore, classified as long-term. All other funds
are classified as current assets.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs for materials,
supplies and oil inventories are determined using the average unit cost method.
F-141
<PAGE> 259
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Cogeneration facility....................................... 30 years
Computer systems............................................ 7 years
Office equipment............................................ 5 years
Furniture, fixtures and other equipment..................... 10 years
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs represent the costs incurred to obtain project
financing and are amortized using the effective interest rate method over the
estimated life of the loans.
OTHER ASSETS
Included in other assets is a $525 and $491 long-term deposit with
Northeast Utilities Service Company (NUSCO) for long-term firm transmission
service as of December 31, 1997 and 1996, respectively, and $6,059 and $4,666 in
an escrow account to fulfill a potential repayment obligation under the power
purchase agreement with Boston Edison Company (BECo) as of December 31, 1997 and
1996, respectively.
REAL ESTATE TAXES
Real estate tax payments made under the Partnerships' payment in lieu of
taxes (PILOT) agreements are recognized on a straight-line basis over the term
of the agreement.
INCOME TAXES
Income taxes have not been recorded in the accompanying combined financial
statements because such taxes, if any, are the responsibility of the partners of
Selkirk and MASSPOWER.
PLANNED MAJOR OVERHAULS
Periodic major overhauls of the gas and steam turbines will be necessary to
maintain the Facilities' operating capacity. A maintenance and repairs reserve
is recorded by Selkirk based on scheduled major maintenance plans for 20 years.
MASSPOWER will be conducting its next major overhaul of a gas turbine engine
during 1998 at an estimated cost of $1,500. MASSPOWER follows the direct
expensing method for these major overhaul costs. Deterioration in existing parts
and required work scope could cause the estimates to change in the near term.
CURRENCY AND INTEREST RATE SWAPS
In connection with its asset and liability management policies, the
Partnerships have entered into foreign currency and interest rate swap
agreements. Gains and losses on currency exchange contracts are deferred as
hedges of firmly committed transactions and recognized in income in the same
period that the hedged transactions are realized. In the unlikely event that the
underlying transaction terminates, the deferred gains and losses on the
associated swap agreement will be recorded in the income statement.
REVENUE RECOGNITION
Revenues for the sale of electricity and steam are recorded based on
monthly output delivered as specified under contractual terms. Revenues for the
sale of excess gas are recorded in the month sold.
F-142
<PAGE> 260
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT FINANCING
SELKIRK
On May 9, 1994, the Selkirk Funding Corporation, a wholly owned subsidiary
of Selkirk Cogen, issued an aggregate of $392,000 in bonds, of which a portion
was used to refinance the outstanding indebtedness of the Partnerships. The
bonds consist of $165,000, which matures on December 26, 2007 at an interest
rate of 8.65% with principal and interest payable semiannually on June 26 and
December 26 of each year with principal payments commencing June 26, 1996, and
$227,000, which matures on June 26, 2012 at an interest rate of 8.98% with
principal and interest payable semiannually on June 26 and December 26 of each
year with principal payments commencing December 26, 2007.
The scheduled principal payments on the bonds are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1998........................................................ $ 3,298
1999........................................................ 4,822
2000........................................................ 7,307
2001........................................................ 11,062
2002........................................................ 13,529
Thereafter.................................................. 349,235
</TABLE>
The loans are secured by liens on, and security interests in, substantially
all of the assets of Selkirk Cogen. These loans are nonrecourse to the
individual partners. The trust indenture restricts the ability of Selkirk to
make distributions to the partners under certain circumstances.
In connection with the bonds, the Partnerships are required to maintain
certain restricted funds to finance future debt, interest and maintenance
payments. These funds have been included in restricted funds and long-term
restricted funds in the accompanying combined balance sheets.
In 1994, Selkirk entered into a combined working capital and bank
reimbursement agreement (Credit Agreement). The Credit Agreement has a maximum
available amount of $23,471 to be used by Selkirk for required letters of credit
related to various project contracts and working capital purposes. The maximum
amount available under the Credit Agreement for working capital purposes is
$5,000. No amounts have been drawn under the Credit Agreement.
MASSPOWER
The MASSPOWER loan payable represents borrowings under a $240,000
construction and term credit facility from a syndicate of banks (the Banks)
dated August 15, 1991. The credit facility consists of $210,000 of original
principal term loan, $15,000 available for letters of credit and $15,000
available for working capital loans.
TERM LOANS
The term loans bear interest at the option of MASSPOWER at either 1%
through September 14, 1997 and 1 3/8% thereafter, plus the greater of the prime
rate or the Federal Funds rate plus 3/8%; or 1 1/2% through September 14, 1997
and 1 7/8% thereafter over the certificate of deposit rate; or 1 3/8% through
September 14, 1997 and 1 3/4% thereafter over the LIBOR rate. The credit
facility is secured by substantially all of the assets of the Facility. A
commitment fee is payable on the letter of credit facility semiannually based on
the daily average unused letter-of-credit commitment amount at a rate of 1/4%
per annum, and an issuance fee is payable semiannually on the average daily
stated amount of all outstanding letters of credit at a rate of 1 1/4% per
annum.
F-143
<PAGE> 261
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The term credit facility lenders have no recourse to any general partner
and do not benefit from a debt guarantee by any general partner.
The credit agreement contains certain covenants, including restrictions on
the distribution of cash or property to the partners, the incurrence of
additional indebtedness, the creation of liens, the sale of assets, the creation
of contingent obligations and the amendment of certain project contracts.
At December 31, 1997 and 1996, term loans totaled $193,729 and $199,727,
respectively. The effective interest rate on the loans without giving effect to
the differences between amounts received and paid under MASSPOWER's interest
rate swap agreements was 7.29%, 7.06% and 7.61% for the years ended December 31,
1997, 1996 and 1995, respectively. In addition, approximately $15,000,000 in
letters of credit were issued as security deposits under certain power sales
agreements and certain other project contracts as of December 31, 1997, 1996 and
1995 (see Note 4). The letters of credit expire at various times through the
year 2014.
The scheduled principal payments on the term loans are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 5,513
1999........................................................ 7,350
2000........................................................ 11,025
2001........................................................ 13,125
2002........................................................ 15,750
Thereafter.................................................. 140,966
</TABLE>
SHORT-TERM DEBT
As part of the credit facility, MASSPOWER has a $15,000 line of credit
available for working capital loans. Working capital loans bear interest at the
rate of 5/8% plus the greater of the prime rate or the federal funds rate plus
3/8%. A commitment fee is payable semiannually on the daily average unused
commitment amount at a rate of 3/8% per annum.
At December 31, 1997 and 1996, $8,400 and $13,000, respectively, were
outstanding under the working capital line of credit. The effective interest
rates on these borrowings were 9.135%, 9.0% and 9.42% for the years ended
December 31, 1997, 1996 and 1995, respectively.
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENTS
In August 1991, MASSPOWER entered into several intercreditor and security
arrangements with the Chase Manhattan Bank, N.A. (on behalf of itself as agent
for the Banks), State Street Bank and Trust Company (as the collateral agent),
Western Massachusetts Electric Company (WMECO), Commonwealth Electric Company
(ComElec) (WMECO and ComElec, together, the Secured Power Purchasers) and
Solutia. The credit facility is secured by a first priority lien and security
interest granted by MASSPOWER in favor of the collateral agent. The
intercreditor agreements have created a procedure for restructuring or selling
the Facility in the event the Facility is unable to perform in accordance with
its contracts and/or the credit facility.
The First Intercreditor and Collateral Agency Agreement includes a First
Mortgage, a Second Mortgage, an Equipment Security Agreement, and a Power Sales
Security Agreement. These agreements subject the leased property, equipment and
fixtures on the property, the Power Sales Agreements with the Secured Power
Purchasers and related accounts receivable, to liens in favor of the collateral
agent to benefit the Banks, and subordinately, to benefit the Secured Power
Purchasers. Solutia subordinately benefits under the Equipment Security
Agreement.
F-144
<PAGE> 262
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The remaining project contracts and all other assets of MASSPOWER, except
equipment, are subject to the lien and security interest granted under the
Second Intercreditor and Collateral Agency Agreement in favor of the collateral
agent to benefit the Banks and WMECO.
4. INTEREST AND CURRENCY SWAP AGREEMENTS
On June 20, 1990 and October 29, 1992, Selkirk entered into currency
exchange agreements to hedge against future exchange rate fluctuations, which
could result in additional costs incurred under fuel transportation agreements,
which are denominated in Canadian dollars. The June 1990 agreement relates to
Unit 1 under which Selkirk exchanges approximately $368 U.S. dollars for $458
Canadian dollars on a monthly basis commencing on December 25, 1992 and
terminating December 25, 2002. The October 1992 agreement relates to Unit 2
under which Selkirk exchanges approximately $1,044 U.S. dollars for $1,300
Canadian dollars on a monthly basis commencing on May 25, 1995 and terminating
on December 25, 2004.
On August 22, 1991, MASSPOWER entered into an interest rate exchange
agreement, as amended on December 1, 1993, effective from January 18, 1994 to
January 15, 2004 at a fixed rate of 8.925% for monthly predetermined notional
amounts as scheduled at the time of execution of this agreement. For the years
ended December 31, 1997, 1996 and 1995, the weighted average floating rate at
which MASSPOWER received interest payments was 5.72%, 5.65% and 6.05%,
respectively. The notional amount of debt for which interest rate exchange has
been entered into under this agreement is $105,000,000 at December 31, 1997,
1996 and 1995.
On January 27, 1994, MASSPOWER entered into an additional interest rate
exchange agreement with a bank. The agreement will be effective from January 16,
1996 to January 15, 2002 for predetermined interest rates and notional amounts
as scheduled at the time of execution of the agreement. For the years ended
December 31, 1997 and 1996, the weighted average floating rate at which
MASSPOWER received interest payments was 5.72% and 5.65% respectively. The
notional amount of debt for which interest rate exchange agreements have been
entered into under this agreement at December 31, 1997 and 1996 is $50,000 and
$55,000, respectively.
On August 22, 1991, MASSPOWER entered into a currency exchange agreement
with a bank to mitigate the currency exchange rate risks associated with
MASSPOWER's Canadian fuel transportation costs (see Note 4), which are
denominated in Canadian dollars. The currency exchange agreement commenced on
February 20, 1994 and terminates on February 20, 2004. MASSPOWER will exchange
U.S. dollars for Canadian dollars at an exchange rate of 1.20 Canadian dollars
for each U.S. dollar on amounts scheduled at the time of the execution of the
agreement.
On October 6, 1994, MASSPOWER entered into two other currency exchange
agreements with different banks to further mitigate its currency exchange risks
associated with its Canadian fuel transportation costs. Both agreements
commenced on October 20, 1994 and terminate on February 20, 2004. MASSPOWER will
exchange U.S. dollars for Canadian dollars at various exchange rates on $CDN 400
per month as scheduled at the time of the execution of the agreement. Gross
deferred unrealized gains from hedging firm purchase commitments were $787, $717
and $579, as of December 31, 1997, 1996 and 1995, respectively, and are expected
to be realized by the end of the agreements.
The monthly notional amount of transportation costs for which currency
exchange agreements have been entered into is $CDN 1,301 at December 31, 1997
and 1996 and $CDN 1,450 at December 31, 1995.
In the event of default by any of the bank counterparties to the interest
rate and currency exchange agreements, the Partnerships could be exposed to
interest rate and currency exchange rate risks. The Partnerships do not
anticipate nonperformance by any of the counterparties.
F-145
<PAGE> 263
SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnerships have only the above-mentioned limited involvement with
derivative financial instruments and does not use them for trading purposes.
They are used to manage well-defined interest rate and commodity price risks
(see Note 7 for fair value of financial instruments).
5. COMMITMENTS AND AGREEMENTS
Selkirk and MASSPOWER have entered into respective site lease, property
tax, fuel supply and transportation, power sales, steam sales, electric
interconnection and transmission, operations and maintenance, water supply and
project administrative agency agreements. In connection with the construction
and operation of these facilities, Selkirk and MASSPOWER are obligated under the
following agreements:
SITE LEASE
Selkirk has entered into an agreement with General Electric to lease the
property on which that facility is located. The amended lease term expires on
the twentieth anniversary of the commercial operations date of Unit 2 and is
renewable for the greater of five years or until termination of any power sales
contract, to a maximum of 20 years. The lease may be terminated by Selkirk under
certain circumstances with the appropriate written notice during the initial
term. Annual rent payments under this agreement are $1,000.
MASSPOWER has entered into an operating lease agreement, as amended in July
1991, to lease the property on which the Facility is located from Solutia. The
original lease agreement was amended in 1996. The amendment gives MASSPOWER the
right to extend the lease an additional 15 years. The amended lease term expires
in 2028. At the end of the term, the lease may be renewed, or if not renewed,
Solutia has the right to purchase the Facility at a fair market value or require
that the site be restored to its original condition at the partnership's
expense. The lease provides for annual rent of $5,000.
In addition, Solutia has agreed to supply MASSPOWER with wastewater
equalization and cooling water supply for 20 years or cancellation of the site
lease agreement under a separate services agreement.
Lease expense for MASSPOWER has been recorded ratably over the term of the
amended lease with the difference between the lease expense and lease payments
recorded as prepaid rent.
FUEL SUPPLY AND TRANSPORTATION PURCHASE AGREEMENTS
Selkirk has entered into a firm natural gas supply agreement, as amended,
with Paramount Resources Ltd., a Canadian corporation, for Unit 1. The agreement
has an initial term of 15 years, which began in November 1992, with an option to
extend for an additional five years upon satisfaction of certain conditions.
Selkirk has entered into firm natural gas supply agreements with various
suppliers for Unit 2. The agreements have an initial term of 15 years, which
began November 1, 1994, and an option to extend for an additional five-year term
upon satisfaction of certain conditions.
Each Unit 2 gas supply contract requires that Selkirk purchase a minimum of
75% of the maximum annual contract volumes each year. If the partnership fails
to take this minimum quantity, then the shortfall amount between the minimum
required volumes and the actual nominations must be made up in the following
year(s). The partnership is allowed up to two years under these contracts,
during which time the partnership may make up any shortfall. If the partnership
does not make up the shortfall within these periods, then the suppliers have a
right to reduce the maximum daily contract quantity by the shortfall. The
partnership purchased approximately $38,279 and $35,191 in gas from these
suppliers for the years ended December 31, 1997 and 1996, respectively.
Selkirk has entered three 20-year agreements for firm fuel transportation
service to supply Unit 1 commencing November 1, 1992. In accordance with one of
these agreements, Selkirk posted a letter of credit in the amount of
approximately $586 in October 1992.
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Selkirk has entered into three agreements for firm fuel transportation
service for Unit 2. The agreements commenced in November 1994 and have terms of
20 years. Upon the execution of the transportation agreement with one
transporter, the various fuel suppliers posted letters of credit totaling
approximately $10,007,000 Canadian dollars for the benefit of the transporter on
behalf of Selkirk, which was subsequently reduced to approximately $9,814
Canadian dollars in February 1997. Selkirk will reimburse all costs related to
obtaining and maintaining the letters of credit. Selkirk also posted two letters
of credit related to the remaining two firm fuel transportation agreements for
approximately $796 and $2,090.
MASSPOWER and Granite State Gas Transmission, Inc. (Granite State), a
subsidiary of Bay State Gas Company (Bay State), designated Orchard Gas
Corporation (Orchard Gas), an affiliate of J. Makowski Company, Inc. (JMC), as
their agent to purchase Canadian natural gas and to enter into gas
transportation contracts on their behalf for one half of the Facility's annual
fuel supply.
Orchard Gas entered into an 18.5-year Gas Purchase Contract with ProGas
Limited (ProGas), a Canadian corporation. Orchard Gas also entered into a
20-year Firm Gas Transportation Agreement with Iroquois Gas Transmission System,
L.P., and a 20-year Firm Gas Transportation Contract with Tennessee Gas Pipeline
Company. Local transportation is provided by Bay State through a 20-year
transportation agreement with MASSPOWER.
MASSPOWER entered into a gas supply contract for the purchase of
revaporized LNG from Distrigas of Massachusetts Corporation for a term of 20
years from the date of commercial operations for the remaining one-half of the
Facility's gas supply.
Additionally, MASSPOWER entered into two gas supply contracts with Bay
State to supply MASSPOWER with natural gas in the event of nonperformance by
MASSPOWER's primary gas supplier. Under the first contract, Bay State will
provide a 305-day sales service contract. Under the second contract, Bay State
will provide an interruptible sales service contract to facilitate the purchase
of incremental gas supplies. MASSPOWER also entered into a Gas Peaking Service
Agreement with Bay State for any 20 days during the period from November through
March.
MASSPOWER and Granite State entered into a release gas agreement whereby
MASSPOWER agreed to release and Granite State agreed to accept the difference
between the daily amount of gas required for use in the facility and 75% of the
daily contracted ProGas supply.
ENERGY SALES AGREEMENT -- STEAM
In February 1990, Selkirk entered into a steam sales agreement for Unit 1,
as amended, with GE for an initial term of 20 years, effective from the date of
commercial operations. On October 21, 1992, Selkirk and GE entered into a new
steam sales agreement, as amended, with a term of 20 years from the commercial
operations date of Unit 2 and may be extended under certain circumstances. The
Unit 1 steam sales agreement terminated upon the commercial operations of Unit
2.
Until Unit 2 achieved commercial operations, GE had agreed to forego
(subject to later repayment plus interest) the discount on a certain quantity of
steam supplied by Selkirk during a quarter to the extent necessary for Selkirk
to maintain a quarterly debt service coverage ratio of 1.2 to 1, and the
advances, with interest, are repayable to the extent Selkirk's quarterly debt
service coverage ratio exceeds 1.3 to 1. Under this agreement, Selkirk had
invoiced and received from GE approximately $5,022. In April 1995, the
partnership paid off the outstanding principal amount and approximately 75% of
the associated accrued interest. The partnership paid the remaining accrued
interest in January 1996 and February 1997.
GE is obligated under the steam sales agreement to purchase the minimum
quantities of steam necessary for the Facility to maintain its QF status. In the
event that GE were to fail to purchase and take this minimum
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
quantity, the partnership could acquire title to the Facility site, terminating
the lease agreement, at no cost to the partnership.
The agreement provides GE the right of first refusal to purchase the
Facility, subject to certain pricing considerations. Additionally, GE has the
right to purchase the boiler facility that produces the steam at a mutually
agreed-upon price if and when the steam sales agreement is terminated. The steam
sales agreement may be terminated by Selkirk with one year's written notice if
either the NIMO or ConEd power sales agreement is terminated. It may also be
terminated by GE with two years' written notice if GE's plant no longer has a
requirement for steam.
In July 1990, MASSPOWER entered into an Energy Purchase Agreement (EPA)
with Solutia. Under the terms of the EPA, MASSPOWER is obligated to sell Solutia
steam for the period of 20 years from the date of commercial operations.
ENERGY/POWER SALES AGREEMENTS -- ELECTRICITY
In December 1987, Selkirk entered into a power sales agreement, as amended,
with NIMO for the sale of electricity for an initial term of 20 years commencing
on the date of commercial operations, April 17, 1992. The agreement may be
terminated upon two years' written notice to NIMO and payment of a termination
fee or upon the loss of Selkirk's status as a QF.
In April 1994, the power sales agreement with NIMO was amended and pursuant
to this amended agreement Selkirk paid NIMO $1,250,000 as a consent fee from the
proceeds of the bond offering. In addition, Selkirk posted a letter of credit
for approximately $15,000 under the Credit Agreement.
On October 6, 1996, NIMO filed its "PowerChoice" proposal with the New York
State Public Service Commission (NYPSC). On October 12, 1995, NIMO filed a
Report on Form 8-K with the Securities and Exchange Commission (the Commission)
explaining the PowerChoice proposal (the PowerChoice Statement). In the
PowerChoice Statement, NIMO describes a number of related proposals to
restructure the utility's business, including the reorganization of its assets
and the renegotiation of its contracts with generators which, like Selkirk, are
not regulated as utilities (nonutility generators). On July 10, 1997, NIMO filed
a Report on Form 8-K with the Commission stating that NIMO had entered into a
Master Restructuring Agreement (MRA) pursuant to which it and the 29 independent
power producers that had signed the MRA proposed to terminate, restate or amend
their respective power sales agreements. On October 17, 1997, NIMO filed a
Report on Form 8-K with the Commission stating that on October 11, 1997, NIMO
filed its Power Choice settlement with the NYPSC which incorporates the terms of
the MRA. On February 24, 1998, the NYPSC approved NIMO's Power Choice settlement
proposal, which includes the implementation of the MRA.
The consideration for the independent power sellers' agreement varies by
party and may consist of cash, short term notes, shares of NIMO's common stock
or certain swap contracts. Among the contracts proposed to be restructured is
the NIMO power sales agreement for the electric output of Unit 1. Pursuant to
the MRA and subject to implementation as described below, the parties proposed
to restructure the NIMO power sales agreement to provide for the sale of
electricity by Selkirk pursuant to a predetermined schedule of output at a price
based on certain indices for a period of 10 years in lieu of the delivery and
price provisions of the NIMO power sales agreement as currently in effect.
Selkirk anticipates that if and when a restructured power sales agreement goes
into effect, NIMO will relinquish its right to direct dispatch of Unit 1, the
electrical output of Unit 1 will be sold to NIMO and other purchasers based on
market conditions then in effect, and Selkirk will receive certain fixed
payments from NIMO under the restructured power sales agreement and other
payments under the MRA.
The details of the physical delivery and pricing arrangements are subject
to final agreement with NIMO, and possible modifications to other Selkirk
contracts for Unit 1 continue to be the subject of extensive
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
negotiations. Implementation of the MRA is subject to a number of significant
conditions, including, without limitation, NIMO and Selkirk negotiating the
restructured Unit 1 power sales agreement, the receipt of all regulatory
approvals, the receipt of all consents by third parties necessary for the
transaction contemplated by the MRA (including satisfying certain standards
under Selkirk's trust indenture relating to the absence of material adverse
changes or receiving any required approval of bondholders or other creditors),
Selkirk's entering into new third-party arrangements that will enable Selkirk to
restructure its project on a reasonably satisfactory economic basis, and the
receipt by NIMO and Selkirk of all necessary approvals from their respective
boards of directors, shareholders and partners. Should NIMO and Selkirk satisfy
all of the conditions to effectuating the transactions contemplated by the MRA
with respect to Selkirk, NIMO may nevertheless terminate the MRA if NIMO
determines that as a result of the failure to satisfy the conditions of the MRA
by other independent power producers the benefits anticipated to be received by
NIMO pursuant to the MRA have been materially and adversely affected. Further,
final implementation of the MRA is conditioned upon NIMO's successful completion
of financing required to fund certain of its payment obligations under
agreements to implement the MRA.
Selkirk, as a party to the MRA, is committed to negotiate with NIMO and
other parties to reach agreement on contractual arrangements required to
restructure the NIMO power sales agreement pursuant to the MRA; however, Selkirk
expresses no opinion with respect to the likelihood that all of the conditions
to implementation of the MRA will be met. Further, Selkirk expresses no opinion
with respect to the viability of NIMO's proposed alternatives should the
implementation of the MRA not be completed, such as NIMO's proposal in the
context of the Power Choice Statement to take possession of independent power
projects through the power of eminent domain and to thereafter sell such
projects or NIMO's position that it has not ruled out the ultimate possibility
of a filing for restructuring under Chapter 11 of the U.S. Bankruptcy Code as
set forth in the Power Choice Statement. Nevertheless, in the absence of
agreement on a definitive restructured power sales agreement, Selkirk continues
to believe that the NIMO power sales agreement is a valid and binding contract
with NIMO. Given the uncertainties with respect to such implementation, Selkirk
is unable to determine what effect, if any, the restructured power sales
agreement or the Power Choice proposal will have on Selkirk, its business or net
operating revenues. For the year ended December 31, 1997, electric sales to NIMO
accounted for approximately 19.3% of total project revenues.
Previously, in connection with NIMO's March 10, 1997 announcement of the
agreement in principle, Standard & Poor's placed the bonds on creditwatch "with
negative implications," based in part on its analysis of the current reports on
Form 8-K filed in March 1997 by NIMO and Selkirk, respectively, and its belief
that the restructuring has the potential to erode cash flow coverage derived
from long-term contracts supporting the bonds. To date, Standard & Poor's has
not changed its outlook on the bonds. Additionally, as of the date of this
report, Moody's Investors Service has not changed its rating or its previous
"negative outlook" on the bonds as a result of the developments.
Selkirk has also entered into a power sales agreement with ConEd for the
sale of electricity for an initial term of 20 years commencing on September 1,
1994, the date of Unit 2 commercial operations. The contract is extendible under
certain circumstances.
The power sales agreements with NIMO and ConEd each provide the purchasing
utility with the contractual right to schedule the related Unit for dispatch on
a daily basis at full capability, partial capability or off-line. Each
purchasing utility's scheduling decisions are required to be based in part on
economic criteria which, pursuant to the governing rules of the New York Power
Pool, take into account the variable cost of the electricity to be delivered.
Certain payments under these agreements are unaffected by levels of dispatch.
However, certain payments may be rebated or reduced to NIMO and ConEd if Selkirk
does not maintain a minimum availability level.
ConEd, by a letter dated September 19, 1994, claimed the right to acquire
that portion of Unit 2's natural gas supply not used in operating Unit 2 (the
excess gas), when Unit 2 is dispatched off-line or at less than full
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
capability. The ConEd power sales agreement contains no express language
granting ConEd any rights to such excess gas and the partnership has stated to
ConEd that claims to excess gas are without merit. To date, ConEd has paid all
amounts invoiced by the partnership in accordance with the ConEd power purchase
agreement.
If ConEd were to prevail in its claim to Unit 2's excess natural gas
volumes, Selkirk would lose its ability to engage in layoff sales of such
volumes at favorable prices relative to their costs, and thus Selkirk's cash
flows from gas resale activities would also be materially and adversely
affected. Selkirk is unable to determine the outcome of this uncertainty.
In August 1992, NIMO filed a petition requesting the NYPSC to authorize
NIMO to curtail purchases from, and avoid payment obligations to, nonutility
generators, including QFs such as the Facility, during certain periods. NIMO
claimed that such curtailment would be consistent with PURPA, and the
regulations promulgated thereunder, which contemplate utilities' curtailing
purchases from QFs under certain circumstances. In October 1992, the NYPSC
initiated a proceeding to investigate whether conditions existed justifying the
exercise of the PURPA curtailment rights and, if so, to determine the procedures
for implementing PURPA curtailment rights. ConEd also filed a petition in this
proceeding seeking to implement PURPA curtailment rights during certain periods.
An administrative law judge appointed by the NYPSC held hearings during the
spring of 1993; however, his opinion was never released. On August 30, 1996, the
NYPSC reopened the curtailment proceedings and directed an administrative law
judge to prepare a recommended decision under an abbreviated deadline. On March
18, 1998, the NYPSC announced that an order instituting a curtailment policy
would be forthcoming; however, a written order has not yet been issued. Selkirk
expects that any agreement that it enters into with NIMO to implement the MRA
will waive NIMO's right, if any, to curtail purchases from Selkirk.
In any event, Selkirk has taken the position in this proceeding that it
should not be subject to curtailment as a result of this proceeding, even if the
NYPSC grants NIMO and ConEd some measure of generic curtailment rights.
Selkirk's position is based in part on the fact that neither NIMO nor ConEd
bargained for an express curtailment right in its power sales agreement and
Selkirk agreed to permit NIMO and ConEd to direct the dispatch of the relevant
Unit. Nevertheless, both NIMO and ConEd have refused to expressly waive their
claimed curtailment rights against dispatchable facilities and have not agreed
to exempt the Facility from curtailment, notwithstanding the absence of
contractual language in the power sales agreements granting the utilities this
right. If NIMO and ConEd were to receive NYPSC authorization to curtail power
purchases from QFs, including dispatchable facilities, they may seek to
implement curtailment with respect to Selkirk by avoiding not only energy
payments but also capacity payments during periods in which the Facility is
curtailed. Such a reduction in energy payments and capacity payments could
materially and adversely affect Selkirk's net operating revenues.
MASSPOWER has entered into long-term "take-and-pay" capacity and energy
sales contracts with Massachusetts Municipal Wholesale Electric Company for 20
years, ComElec (Commonwealth I) for 15 years, ComElec (Commonwealth II) for 20
years, WMECO for 15 years and BECo for 20 years. These contracts account for 98%
and 95% of the Facility's net stated capacity for the Summer and Winter period,
respectively. The pricing methods for these contracts vary, but in general, are
based on variable costs with inflation and other escalators, plus fixed amounts
with annual escalation adjustments. In addition, MASSPOWER has entered into a
20-year energy-only contract with Consolidated Edison Company of New York, Inc.
MASSPOWER has also entered into short-term sales agreements with various other
parties.
ELECTRIC TRANSMISSION AND INTERCONNECTION AGREEMENTS
Selkirk constructed an interconnection facility to transfer power from Unit
1 to NIMO and transferred title of the facility to NIMO. Selkirk has agreed to
reimburse NIMO $150 annually for the operation and
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maintenance of the facility. The term of the agreement is for 20 years from the
commercial operations date of Unit 1 and may be extended if the power sales
agreement with NIMO is extended.
In December 1990, Selkirk entered into a 20-year firm interruptible
transmission agreement with NIMO, as amended, to transmit power from Unit 2 to
ConEd, beginning with commercial operations. In connection with this agreement,
Selkirk constructed an interconnection facility and transferred title to NIMO in
1995. Under the terms of this agreement, Selkirk will reimburse NIMO $450
annually for the maintenance of the facility.
There are three transmission service agreements associated with
transmitting power from the MASSPOWER facility. MASSPOWER entered into a firm
service agreement with NUSCO to allow transmission of energy through the NUSCO
system to all power purchasers and a non-firm transmission agreement to provide
additional transmission capabilities. MASSPOWER also entered into an agreement
with Montaup Electric Company (Montaup) to allow for transmission of energy from
Montaup's interconnection with NUSCO to BECo, Commonwealth I and Commonwealth
II.
In March of 1997, MASSPOWER signed a Memorandum of Understanding and
Settlement Agreement (Agreement) with Northeast Utilities Service Company (NU)
and with Montaup. The Agreements are intended to provide for certain rights and
obligations of the parties with respect to the Transmission Service Agreements
with NU and Montaup under and in light of the Restated New England Power Pool
Agreement (NEPOOL Agreement), filed with the Federal Energy Regulatory
Commission on December 31, 1996, which filing includes a NEPOOL Open Access
Transmission Tariff. These Agreements provide for firm transmission rates to be
set as $14 per kilowatt-year and $8 per kilowatt-year for NU and Montaup,
respectively. These Agreements are awaiting FERC approval, which is anticipated
to occur in early 1998.
MASSPOWER agreed to construct certain interconnection facilities to enable
the Facility to interconnect with the NUSCO system. The costs of these
facilities are included in property, plant and equipment in the accompanying
combined financial statements. Under the terms of the interconnection agreement
with WMECO, ownership of these facilities was transferred, without
consideration, to WMECO after energization of the Facility. During 1997, 1996
and 1995, MASSPOWER reimbursed WMECO $133, $122 and $133, respectively, for the
operation and maintenance costs of these facilities under a service agreement.
PROPERTY TAXES
In October 1992, Selkirk entered into a PILOT agreement with the Town of
Bethlehem Industrial Development Agency, a corporate governmental agency, which
exempts Selkirk from all property taxes, except for special assessments. The
agreement commenced on January 1, 1993 and terminates on December 31, 2012.
MASSPOWER has entered into an agreement with the City of Springfield,
Massachusetts, providing for payments in lieu of property taxes. Payments are
due twice per year in equal installments. The combined PILOT payments of Selkirk
and MASSPOWER scheduled for fiscal years are as follows:
<TABLE>
<S> <C>
1998........................................................ $3,766
1999........................................................ 3,960
2000........................................................ 4,173
2001........................................................ 4,387
2002........................................................ 4,601
Thereafter.................................................. 55,832
</TABLE>
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER AGREEMENTS
Selkirk has an operations and maintenance services agreement with GE
whereby GE will provide certain operation and maintenance services during the
operations of Unit 1 and the construction of Unit 2 and for seven years after
the Unit 2 commercial operations date on a cost plus fixed fee basis. In
addition, Selkirk has entered into a 20-year take or pay water supply agreement
with the Town of Bethlehem under which Selkirk is committed to make minimum
annual purchases of approximately $1,000, subject to adjustment for changes in
market rates beginning in the tenth year.
6. RELATED PARTIES
An affiliate of JMC Selkirk, Inc. has been appointed project administrative
agent to manage the day-to-day affairs of Selkirk. This affiliate is compensated
at agreed-upon billing rates, which are adjusted quadrennially in accordance
with an administrative services agreement. For the years ended December 31, 1997
and 1996, approximately $2,852 and $2,715, respectively, were incurred for
services rendered and are reflected in general and administrative expenses in
the accompanying combined statements of operations.
During the years ended December 31, 1997 and 1996, Selkirk purchased
approximately $346 and $16, respectively, and sold approximately $26 and $238,
respectively, in fuel at its fair market value in transactions with affiliates
of JMC Selkirk, Inc. Purchases are included in fuel costs and sales are included
in gas resales in the accompanying combined statements of operations.
During the year ended December 31, 1996, Selkirk entered into an Enabling
Agreement with US Gen Power Services, L.P. (USGEN PS), an affiliate of JMC
Selkirk Inc., to enter into certain transactions for the purchase and sale of
energy and other services. During the years ended December 31, 1997 and 1996,
Selkirk entered into energy and capacity sales transactions with USGEN PS
totaling approximately $100 and $45, respectively.
Selkirk has two agreements with Iroquois Gas Transmission System (IGTS) to
provide firm transportation of natural gas from Canada. An affiliate of JMC
Selkirk, Inc. has a partnership interest in IGTS.
MASSPOWER entered into an agreement with GE whereby GE provided certain
operations and maintenance services for the one-year period prior to commercial
operations (mobilization/start-up) and will continue to provide services for the
seven-year period commencing on the date of commercial operations. For the years
ended December 31, 1997, 1996 and 1995, respectively, MASSPOWER paid GE
approximately $4,448, $4,519 and $4,222 for services rendered under this
contract. In addition, certain plant equipment was purchased from GE through the
construction contractor.
An affiliate of JMC was appointed the project administrator to manage the
day-to-day affairs of MASSPOWER. This affiliate is compensated at agreed-upon
billing rates, which are adjusted annually. JMC's affiliate was paid
approximately $1,729, $1,647 and $1,708 for the years ended 1997, 1996 and 1995,
respectively. Orchard Gas, an affiliate of JMC, was reimbursed by MASSPOWER for
fuel purchases it made acting in its capacity as agent for MASSPOWER. Orchard
Gas was compensated $47, $52 and $62 for services performed during the years
ended December 31, 1997, 1996 and 1995, respectively.
7. DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnerships in
estimating their fair value disclosures for financial instruments as of December
31, 1997 and 1996:
Cash -- The carrying amount reported in the accompanying combined balance
sheets for cash approximates its fair value of $8,164 and $9,022 at December 31,
1997 and 1996, respectively.
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SELKIRK COGEN/MASSPOWER
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Restricted funds -- The carrying amount reported in the accompanying
combined balance sheets for restricted funds approximates its fair value of
$41,488 and $38,820 at December 31, 1997 and 1996, respectively.
Due from affiliates -- Management believes that the fair market value of
these advances approximates market value.
Due to affiliates -- The carrying amount reported in the accompanying
combined balance sheets for amounts due to affiliates approximates its fair
value due to the short-term maturities of these amounts.
Long-term bonds -- The fair value of the long-term bonds is based on the
current market rates for the bonds. The fair value of the long-term bonds
(including the current portion) at December 31, 1997 and 1996 is approximately
$598,010 and $591,451, respectively. The recorded value of these bonds is
$574,171 and $584,516 at December 31, 1997 and 1996, respectively.
Currency swap agreements -- The fair value of the currency exchange
arrangements represents the termination value (liability) of approximately
$(18,554) and $(8,433) at December 31, 1997 and 1996, respectively, estimated
using current exchange rates.
Interest rate swap agreements -- The fair value of the interest rate swap
arrangements represents the termination value (liability) of approximately
$14,680 at December 31, 1997 and 1996, respectively.
The carrying amounts of other short-term liabilities (short-term debt,
accrued interest and accounts payable and accrued expenses) reported in the
accompanying combined balance sheet approximate market due to their short-term
nature.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY COGENTRIX ENERGY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF COGENTRIX ENERGY SINCE THE DATE AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Summary Consolidated Historical and
Unaudited Pro Forma Financial
Information.............................. 11
Risk Factors............................... 12
Capitalization............................. 19
Use of Proceeds............................ 20
The Exchange Offer......................... 21
Selected Consolidated Historical Financial
Information.............................. 30
Unaudited Pro Forma Consolidated Financial
Data..................................... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 40
Business................................... 53
Management................................. 75
Principal Stockholders..................... 80
Certain Relationships and Related
Transactions............................. 81
Description of Senior Notes................ 82
Description of Certain Other
Indebtedness............................. 108
Transfer Restrictions...................... 109
Certain Federal Income Tax
Considerations........................... 109
Plan of Distribution....................... 112
Legal Matters.............................. 112
Independent Public Accountants............. 112
Incorporation of Certain Documents by
Reference................................ 113
Index to Cogentrix Energy, Inc. and
Subsidiary Companies Consolidated
Financial Statements..................... F-1
Index to Historical Financial Statements of
Recent Acquisitions...................... F-26
</TABLE>
UNTIL , 1998, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
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$220,000,000
COGENTRIX
ENERGY, INC.
OFFER TO EXCHANGE 8.75%
SENIOR NOTES DUE 2008
FOR ALL OUTSTANDING 8.75%
SENIOR NOTES DUE 2008
(COGENTRIX LOGO)
---------------------
PROSPECTUS
Dated , 1998
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<PAGE> 272
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 55-2-02 of the North Carolina Business Corporation Act (the
"Business Corporation Act") enables a corporation in its articles of
incorporation to eliminate or limit, with certain exceptions, the personal
liability of a director for monetary damages for breach of duty as a director.
No such provision is effective to eliminate or limit a director's liability for
(i) acts or omissions that the director at the time of the breach knew or
believed to be clearly in conflict with the best interests of the corporation,
(ii) improper distributions described in Section 55-8-33 of the Business
Corporation Act, (iii) any transaction from which the director derived an
improper personal benefit or (iv) acts or omissions occurring prior to the date
the exculpatory provision became effective. Cogentrix Energy's Articles of
Incorporation limit the personal liability of its directors to the fullest
extent permitted by the Business Corporation Act.
Sections 55-8-50 through 55-8-58 of the Business Corporation Act permit a
corporation to indemnify its directors and officers under either or both a
statutory or nonstatutory scheme of indemnification. Under the statutory scheme,
a corporation may, with certain exceptions, indemnify a director or officer of
the corporation who was, is, or is threatened to be made, a party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative, or investigative, because of the fact that such
person was a director or officer of the corporation, or is or was serving at the
request of such corporation as a director, officer, agent or employee of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses, including
attorneys' fees, incurred in connection with a proceeding; provided that no such
indemnification may be granted unless such director or officer (i) conducted
himself or herself in good faith, (ii) reasonably believed that (A) any action
taken in his or her official capacity with the corporation was in the best
interests of the corporation and (B) in all other cases, his or her conduct was
at least not opposed to the corporation's best interests, and (iii) in the case
of any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In accordance with Section 55-8-55 of the Business
Corporation Act, the determination of whether a director has met the requisite
standard of conduct for the type of indemnification set forth above is made by
the board of directors, a committee of directors, special legal counsel or the
shareholders. A corporation may not indemnify a director under the statutory
scheme in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation or in connection with
a proceeding in which a director was adjudged liable on the basis of having
received an improper personal benefit.
In addition to, and notwithstanding the conditions of and limitations on
indemnification described above under the statutory scheme, Section 55-8-57 of
the Business Corporation Act permits a corporation in its articles of
incorporation or bylaws or by contract or resolution to indemnify or agree to
indemnify any of its directors or officers against liability and expenses,
including attorneys' fees, in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation.
Pursuant to this nonstatutory scheme, Cogentrix Energy's bylaws provide for
indemnification to the fullest extent permitted by law of (i) any person who at
any time serves or has served as an officer, serving in a capacity of vice
president or any more senior officer, or a director of Cogentrix Energy, (ii)
any person who serves or has served in such capacity at the request of Cogentrix
Energy for another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan or
(iii) any other persons as the directors of Cogentrix Energy may determine;
provided such persons have not engaged in activities known or believed by the
person who undertook them to be clearly in conflict with Cogentrix Energy's best
interests when they occurred.
Sections 55-8-52 and 55-8-56 of the Business Corporation Act require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify against reasonable expenses incurred by a director or officer who
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has been wholly successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was, or was threatened to be made,
a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification in view of all the relevant circumstances as
provided in Sections 55-8-54 and 55-8-56 of the Business Corporation Act.
In addition, Section 55-8-57 of the Business Corporation Act authorizes a
corporation to purchase and maintain insurance on behalf of an individual who is
or was a director or officer of the corporation against certain liabilities
incurred by such persons, whether or not the corporation is otherwise authorized
by the Business Corporation Act to indemnify such party.
Cogentrix Energy (sometimes referred to herein as the "Registrant")
maintains a directors and officers insurance policy which, subject to certain
exceptions, insures the officers and directors of the Registrant from any claim
arising out of an alleged wrongful act by such persons in their respective
capacities as officers and directors of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
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2.1 Purchase Agreement, dated as of March 6, 1998, between
Cogentrix Energy, Inc. and Bechtel Generating Company, Inc.
(10.2).(*)(17)
2.1(a) Amendment No. 1, dated October 14, 1998, to Purchase
Agreement, dated March 6, 1998, between Cogentrix Energy,
Inc. and Bechtel Generating Company, Inc. (2.1(a)). (23)
2.2 Securities Purchase Agreement, dated March 6, 1998, by and
among LS Power Corporation, Granite Power Partners, L.P.,
Cogentrix Mid-America, Inc., Cogentrix Cottage Grove, LLC,
Cogentrix Whitewater, LLC and Cogentrix Energy, Inc.
(2).(16)
3.1 Articles of Incorporation of Cogentrix Energy, Inc.
(3.1).(1)
3.2 Amended and Restated Bylaws of Cogentrix Energy, Inc., as
amended (3.2).(15)
4.1 Indenture, dated as of March 15, 1994, between Cogentrix
Energy, Inc. and First Union National Bank of North
Carolina, as Trustee, including form of 8.10% 2004 Senior
Note (4.1).(3)
4.2 Indenture, dated as of October 20, 1998, between Cogentrix
Energy, Inc. and First Union National Bank, as Trustee,
including form of 8.75% Senior Note.
4.3 First Supplemental Indenture, dated as of October 20, 1998,
between Cogentrix Energy, Inc. and First Union National
Bank, as Trustee.
4.4 Registration Agreement, dated as of October 20, 1998, by and
among Cogentrix Energy, Inc., Salomon Smith Barney Inc.,
Goldman, Sachs & Co. and CIBC Oppenheimer Corp.
5.1 Opinion of Moore & Van Allen, PLLC.
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)).(*)(11)
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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)).(*)(11)
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)).(*)(11)
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)).(*)(11)
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)).(*)(11)
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).(10)
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) (10.6(b)).(15)
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) (10.7(a)).(15)
</TABLE>
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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)).(3)
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).(12)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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).(7)
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).(*)(2)
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).(*)(14)
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).(*)(2)
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).(*)(14)
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).(*)(2)
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).(*)(2)
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).(9)
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).(*)(2)
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).(*)(2)
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).(*)(2)
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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).(*)(12)
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)).(12)
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).(*)(2)
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)).(*)(2)
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)).(*)(8)
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).(*)(2)
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)).(*)(2)
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)).(*)(8)
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).(*)(2)
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)).(*)(2)
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)).(*)(8)
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).(*)(2)
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).(*)(14)
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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).(*)(2)
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)).(*)(11)
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).(*)(14)
10.43(a) Amendment No. 1 to Contract CSXT-C-67123, effective on June
3, 1998, between Cogentrix of North Carolina, Inc. and CSX
Transportation, Inc. (Southport Facility).(**)
10.44 Railroad Transportation Contract, dated as of December 15,
1986, between Cogentrix of Virginia, Inc., and Norfolk
Southern Railway Company, as amended (assigned to and
assumed by James River Cogeneration Company) (Hopewell
Facility) (10.38).(*)(2)
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).(*)(2)
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).(*)(2)
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)).(8)
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)).(11)
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).(12)
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)).(14)
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).(*)(2)
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).(6)
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).(*)(2)
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).(6)
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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)).(*)(11)
10.49(c) Amendment No. 6 to Contract CSXT-C-04033, effective on June
9, 1998, between Cogentrix of Richmond, Inc. and CSX
Transportation, Inc. (Richmond Facility).(**)
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).(*)(12)
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)).(*)(12)
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).(11)
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)
(10.51(a)).(15)
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).(11)
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) (10.52(a)).(15)
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) (10.53).(15)
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) (10.54).(15)
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)
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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).(10)
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)). (11)
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 The
Prudential Insurance Company of America, as Credit Facility
Agent (Rocky Mount Facility) (10.55(c)).(15)
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) (10.56(a)).(15)
10.57 Amended and Restated Subordinated Note dated April 22, 1994
of Cogentrix of Pennsylvania, Inc. payable to Cogentrix
Delaware Holdings, Inc. (10.57).(15)
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)).(8)
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)).(8)
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).(10)
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) (10.58(d)).(15)
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)
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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 Amended and Restated Loan and Reimbursement Agreement, dated
as of July 1, 1998, 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 other Institutions party thereto, Banque
Paribas, New York Branch, Barclays Bank PLC, Credit Suisse
First Boston, 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).(22)
10.62 Amended and Restated Security Deposit and Intercreditor
Agreement, dated as of July 1, 1998, among Birchwood Power
Partners, L.P., the Secured Parties named therein, and
Credit Suisse First Boston, as Security Agent (Birchwood
Facility) (10.2).(22)
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).(12)
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).(14)
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).(11)
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).(11)
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) (10.67).(15)
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) (10.68).(15)
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)
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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)).(2)
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).(11)
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).(11)
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).(11)
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).(11)
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).(11)
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)).(11)
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)
(10.77(b)).(15)
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)).(11)
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)
(10.78(b)).(15)
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) (10.79).(15)
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).(12)
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10.82 Ground Lease, dated as of August 23, 1984, between Cogentrix
of North Carolina, Inc. (then known as Cogentrix Leasing
Corporation) and West Point Stevens Inc. (then known as West
Point-Pepperell, Inc.), as amended (assigned to and assumed
by Cogentrix Eastern Carolina Corporation) (Elizabethtown
Facility) (10.82).(1)
10.83 Ground Lease, dated as of August 23, 1984, between Cogentrix
of North Carolina, Inc. (then known as Cogentrix Leasing
Corporation) and West Point Stevens Inc. (then known as West
Point-Pepperell, Inc.), as amended (assigned to and assumed
by Cogentrix Eastern Carolina Corporation) (Lumberton
Facility) (10.83).(1)
10.84 Ground Lease, dated as of November 30, 1984, between
Cogentrix of North Carolina, Inc. (then known as Cogentrix
Leasing Corporation) and Guilford Mills, Inc., as amended
(assigned to and assumed by Cogentrix Eastern Carolina
Corporation) (Kenansville Facility) (10.84).(1)
10.85 Lease (SBD 9284; RE-81558) from Seaboard System Railroad,
Inc. to Cumberland Elkhorn Coal and Coke, Inc., dated
December 17, 1985, assigned by Cumberland Elkhorn Coal &
Coke, Inc. to Oxbow Carbon and Minerals Inc. and further
assigned by Oxbow Carbon & Minerals, Inc. to Cogentrix
Eastern Carolina Corporation, as amended (Kenansville
Facility) (10.85).(1)
10.86 Lease (SBD 8074; RE-81558) from Seaboard System Railroad,
Inc. to Cumberland Elkhorn Coal & Coke, Inc., dated October
4, 1985, assigned by Cumberland Elkhorn Coal & Coke, Inc. to
Oxbow Carbon and Minerals Inc. and further assigned by Oxbow
Carbon & Minerals, Inc. to Cogentrix Eastern Carolina
Corporation, as amended (Kenansville Facility) (10.86).(1)
10.87 Agreement (SBD 8801; RE-81558) dated October 2, 1985, as
amended, between CSX Transportation, Inc. (as successor to
the rights and obligations of Seaboard System Railroad,
Inc.), and Cogentrix Eastern Carolina Corporation (as
successor to the rights of Oxbow Carbon & Minerals, Inc.,
which succeeded to the rights and obligations of Cumberland
Elkhorn Coal & Coke, Inc. by assignment), as amended
(Kenansville Facility) (10.87).(1)
10.88 Agreement (SBD 10257; RE-83767) dated June 18, 1986, as
amended, between CSX Transportation, Inc. (as successor to
the rights and obligations of Seaboard System Railroad,
Inc.), and Cogentrix Eastern Carolina Corporation (as
successor to the rights of Oxbow Carbon & Minerals, Inc.,
which succeeded to the rights and obligations of Cumberland
Elkhorn Coal & Coke, Inc. by assignment), as amended
(Elizabethtown and Lumberton Facilities) (10.88).(1)
10.89 Lease Agreement, dated as of November 10, 1987, between
United States Trust Company of New York, as Roxboro Owner
Trustee, as Lessor, and Cogentrix of North Carolina, Inc.
(successor by merger to Cogentrix Carolina Leasing
Corporation), as Lessee, as amended (Roxboro Facility)
(10.89).(1)
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)).(11)
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)).(11)
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10.91 Ground Lease, dated as of December 31, 1985, between United
States Trust Company, as Roxboro Owner Trustee, as Lessee,
and Cogentrix of North Carolina, Inc. (successor by merger
to Cogentrix Carolina Leasing Corporation), as Lessor
(Roxboro Facility) (10.91).(1)
10.92 Amended and Restated Ground Lease, dated as of December 31,
1985, between Carolina Power & Light Company, as Lessor, and
Cogentrix of North Carolina, Inc. (successor by merger to
Cogentrix Carolina Leasing Corporation), as Lessee, as
amended (Southport Facility) (10.92).(1)
10.93 Ground Lease, dated January 31, 1986, between Allied-Signal,
Inc., as Lessor, and Cogentrix of Virginia, Inc., as Lessee,
as amended (assigned to and assumed by James River
Cogeneration Company) (Hopewell Facility) (10.93).(1)
10.94 Ground Lease and Easement, dated as of December 15, 1986,
between Virginia Chemicals, Inc., as Lessor and Cogentrix
Virginia Leasing Corporation, as Lessee (Portsmouth
Facility) (10.94).(1)
10.95 Ground Lease, dated as of December 13, 1990, between
Cogentrix of Richmond, Inc., as Lessee, and E.I. du Pont de
Nemours and Company, as Lessor (Richmond Facility)
(10.95).(1)
10.96 Amended and Restated Land Lease Agreement, dated as of
February 18, 1988, among Arrowpoint Associates Limited
Partnership, as Landlord, and Cogentrix, Inc., CI
Properties, Inc. and Equipment Leasing Partners, as Tenant,
as amended (assigned to and assumed by Equipment Leasing
Partners, with Cogentrix, Inc., as guarantor) (Corporate
Headquarters) (10.96).(1)
10.97 Amended and Restated Lease Agreement, dated as of April 30,
1993, among Equipment Leasing Partners, as Landlord,
Cogentrix, Inc., as Tenant, and CI Properties, Inc., as
amended (Corporate Headquarters) (10.97).(1)
10.98 Letter Agreement, dated May 25, 1989, among Cogentrix, Inc.,
Cogentrix of Richmond, Inc. (formerly named Cogentrix of
Petersburg, Inc.), and WV Hydro, Inc., as amended (Richmond
Facility) (10.98).(1)
10.99 Consulting Agreement, dated as of September 27, 1991,
between Robert W. Lewis and Cogentrix, Inc., as amended
(assigned to and assumed by Cogentrix Energy, Inc.)
(10.99).(1)
10.100 Consulting Agreement, dated as of September 30, 1993,
between Cogentrix, Inc. and W.E. Garrett (assigned to and
assumed by Cogentrix Energy, Inc.) (10.100).(1)
10.101 Consulting Agreement, dated as of September 30, 1993,
between Cogentrix, Inc. and C&L Account Ten Inc. (assigned
to and assumed by Cogentrix Energy, Inc.) (10.101).(1)
10.102 Form of Profit-Sharing Plan (I) (10.102).(1)
10.103 Form of Profit-Sharing Plan (II) (10.103).(1)
10.104 Executive Incentive Bonus Plan (10.104).(2)
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)
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10.108 Employment Agreement, dated as of June 24, 1994, between
David J. Lewis and Cogentrix Energy, Inc. (10.115).(3)
10.109 Employment Agreement, dated as of May 1, 1997, between Mark
F. Miller and Cogentrix Energy, Inc. (10.109).(14)
10.110 Employment Agreement, dated as of January 1, 1994, between
Dennis W. Alexander and Cogentrix Energy, Inc. (10.110).(15)
10.111 Power Purchase Agreement, dated as of September 30, 1994,
between Mangalore Power Company and Karnataka Electricity
Board (Phase One Facility) (10.1).(4)
10.112 Power Purchase Agreement, dated as of September 30, 1994,
between Mangalore Power Company and Karnataka Electricity
Board (Phase Two Facility) (10.2).(4)
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).(5)
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).(6)
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).(6)
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).(6)
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).(*)(12)
10.118 Operating Agreement, dated as of November 14, 1997, between
Greenhost, Inc., as Owner, and Village Farms of Virginia,
Inc., as Operator (Birchwood Facility) (10.1).(*)(17)
10.119 Amended and Restated Limited Partnership Agreement of
Birchwood Power Partners, L.P., dated December 15, 1994
(Birchwood Facility) (10.6).(6)
10.120 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).(6)
10.121 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).(6)
10.122 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).(6)
10.123 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).(8)
10.124 Supplemental Retirement Savings Plan (10.132).(8)
10.125 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).(8)
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10.126 Consulting and Noncompetition Employment Agreement, dated as
of August 11, 1995, between Cogentrix Energy, Inc. and
George T. Lewis, Jr. (10.135).(8)
10.127 Joint Development Agreement, dated as of July 14, 1995,
between Cogentrix Mauritius Company and Malconna Company
Limited (10.136).(*)(8)
10.128 Support Agreement, dated as of July 14, 1995, from Cogentrix
Energy, Inc. to Malconna Company Limited (10.137).(8)
10.129 Amended and Restated Credit Agreement, dated as of October
29, 1998, among Cogentrix Energy, Inc., the Lenders (as
defined therein), Australia and New Zealand Banking Group
Limited, CIBC Oppenheimer Corporation, and The Bank of Nova
Scotia, as the lead arrangers, and Australia and New Zealand
Banking Group Limited, as the Agent (as defined therein) and
as the Issuing Bank (as defined therein).
10.130 Amended and Restated Guarantee, dated as of October 29,
1998, made by Cogentrix Delaware Holdings, Inc. in favor of
the Borrower Creditors (as defined therein).
10.131 Agreement of Limited Partnership of Village Farms of Texas,
L.P., dated as of February 6, 1996, by and among Cogentrix
of Fort Davis I, Inc. and Village Farms of Delaware, L.L.C.,
as General Partners, and Cogentrix of Fort Davis II, Inc.
and Village Farms, L.L.C., as Limited Partners
(10.6).(*)(10)
10.132 Guaranty, dated as of February 14, 1996, made by Cogentrix
Energy, Inc. in favor of Farm Credit Bank of Texas and Texas
Production Credit Association, as Lenders, and CoBank, ACB,
as Administrative Agent, to guarantee certain obligations of
Village Farms of Texas, L.P. (10.7).(10)
10.133 Agreement of Limited Partnership, dated as of March 10,
1997, of Pocono Village Farms, L.P. by and among Cogentrix
of Pocono, Inc., Cogentrix Greenhouse Investments, Inc.,
Village Farms of Delaware, L.L.C. and Village Farms, L.L.C.
(10.1).(13)
10.134 Agreement of Limited Partnership, dated as of June 4, 1997,
of Village Farms of Marfa, L.P. by and among Cogentrix of
Marfa, Inc., Cogentrix Greenhouse Investments, Inc., Village
Farms of Delaware, L.L.C. and Village Farms, L.L.C.
(10.134).(*)(14)
10.135 Agreement of Limited Partnership, dated as of September 4,
1997, of Village Farms of Buffalo, L.P. by and among
Cogentrix of Buffalo, Inc., Cogentrix Greenhouse
Investments, Inc., Village Farms of Delaware, L.L.C. and
Village Farms, L.L.C. (10.135).(*)(14)
10.135(a) Amendment to Agreement of Limited Partnership, dated as of
April 17, 1998, by and among Cogentrix of Buffalo, Inc.,
Cogentrix Greenhouse Investments, Inc., Village Farms of
Delaware, L.L.C., and Village Farms, L.L.C. (10.3).(17)
10.136 Amended and Restated Limited Partnership Agreement, dated as
of June 30, 1995, among LSP-Cottage Grove, Inc., Granite
Power Partners, L.P., and TPC Cottage Grove, Inc.(18)
10.136(a) Amendment #1 to the Cottage Grove Partnership Agreement.(19)
10.136(b) Consent, Waiver and Amendment No. 2, dated March 20, 1998,
to the Amended and Restated Limited Partnership Agreement of
LSP-Cottage Grove, L.P.(21)
10.137 Amended and Restated Partnership Agreement, dated as of June
30, 1995, among LSP-Whitewater I, Inc., Granite Power
Partners, L.P. and TPC Whitewater, Inc.(18)
10.137(a) Consent, Waiver and Amendment No. 1, dated March 20, 1998,
to the Amended and Restated Limited Partnership Agreement of
LSP-Whitewater Limited Partnership.(21)
10.138 Power Purchase Agreement, dated as of May 9, 1994, between
Northern States Power Company and LSP-Cottage Grove,
L.P.(18)
10.139 Power Purchase Agreement, dated as of December 21, 1993,
between Wisconsin Electric Power Company and LSP-Whitewater
Limited Partnership.(18)
</TABLE>
II-15
<PAGE> 287
<TABLE>
<CAPTION>
DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
10.139(a) Amendment to Power Purchase Agreement, dated as of February
10, 1994, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.(18)
10.139(b) Second Amendment to Power Purchase Agreement, dated as of
October 5, 1994, between Wisconsin Electric Power Company
and LSP-Whitewater Limited Partnership.(18)
10.139(c) Third Amendment to Power Purchase Agreement, dated as of May
5, 1995, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.(18)
10.139(d) Fourth Amendment to Power Purchase Agreement, dated March
18, 1997, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.(20)
10.139(e) Fifth Amendment to Power Purchase Agreement, dated February
26, 1998, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.(21)
10.140 Equity Contribution Agreement, dated as of August 28, 1998,
among LSP Batesville Holding, LLC, LSP Energy Limited
Partnership, and IBJ Schroder Bank and Trust Company
(Batesville Facility).
21.1 Direct and Indirect Subsidiaries of Cogentrix Energy, Inc.
23.1 Consent of Moore & Van Allen, PLLC (contained in the opinion
filed as Exhibit 5.1).
23.2 Independent Auditors' Consent of Arthur Andersen LLP.
23.3 Consent of Independent Accountants of PricewaterhouseCoopers
LLP.
23.4 Independent Certified Public Accountants' Consent of KPMG
Peat Marwick LLP.
23.5 Consent of Independent Auditors of Ernst & Young LLP.
23.6 Independent Auditors' Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (contained on the signature page of this
Prospectus).
25.1 Form T-1 Statement of Eligibility of First Union National
Bank, as Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
(*) Certain portions of these exhibits have been omitted pursuant to previously
approved requests for confidential treatment.
(**) Certain portions of these exhibits have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange
Commission pursuant to Rule 406 under the Securities Act of 1933, 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. 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.
(3) 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.
(4) 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.
II-16
<PAGE> 288
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) Incorporated by reference to the Form 10-K (File No. 33-74254) filed March
30, 1998. 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 8-K (File No. 33-74254) filed April
6, 1998. 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.
(17) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed May
15, 1998. 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.
(18) Incorporated herein by reference from the Registration Statement on Form
S-4, File No. 33-95928 filed with the Securities and Exchange Commission by
LS Power Funding Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater
Limited Partnership on August 16, 1995, as amended, or from the Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 filed with
the Securities and Exchange Commission by LS Power Funding Corporation,
LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership.
II-17
<PAGE> 289
(19) Incorporated herein by reference from the Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, File No. 33-95928 filed with the
Securities and Exchange Commission by LS Power Funding Corporation,
LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership.
(20) Incorporated herein by reference from the Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997, File No. 33-95928 filed with the
Securities and Exchange Commission by LS Power Funding Corporation,
LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership.
(21) Incorporated herein by reference from the Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 filed with the Securities and
Exchange Commission by LS Power Funding Corporation, LSP-Cottage Grove,
L.P. and LSP-Whitewater Limited Partnership.
(22) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed August
14, 1998. 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.
(23) Incorporated by reference to the Form 8-K (File No. 33-74254) filed
November 4, 1998. 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) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Part II of the
Registration Statement:
None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement, relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-18
<PAGE> 290
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(f) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-19
<PAGE> 291
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Charlotte,
North Carolina, on November 12, 1998.
COGENTRIX ENERGY, INC.
By: /s/ THOMAS F. SCHWARTZ
------------------------------------
Thomas F. Schwartz
Senior Vice President - Finance
and Treasurer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Thomas
F. Schwartz his attorney-in-fact, with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto in all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might, or could, do in
person, hereby ratifying and confirming that such attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE T. LEWIS, JR. Chairman of the Board of November 12, 1998
- ----------------------------------------------------- Directors
George T. Lewis, Jr.
/s/ DAVID J. LEWIS Vice Chairman, Chief November 12, 1998
- ----------------------------------------------------- Executive Officer and
David J. Lewis Director
/s/ MARK F. MILLER President, Chief Operating November 12, 1998
- ----------------------------------------------------- Officer and Director
Mark F. Miller
/s/ JAMES E. LEWIS Executive Vice President and November 12, 1998
- ----------------------------------------------------- Director
James E. Lewis
/s/ DENNIS W. ALEXANDER Group Senior Vice President, November 12, 1998
- ----------------------------------------------------- General Counsel, Secretary
Dennis W. Alexander and Director
/s/ JAMES R. PAGANO Group Senior Vice President November 12, 1998
- ----------------------------------------------------- -- Chief Financial Officer
James R. Pagano (Principal Financial
Officer)
/s/ BETTY G. LEWIS Director November 12, 1998
- -----------------------------------------------------
Betty G. Lewis
/s/ ROBERT W. LEWIS Director November 12, 1998
- -----------------------------------------------------
Robert W. Lewis
/s/ W.E. GARRETT Director November 12, 1998
- -----------------------------------------------------
W.E. Garrett
/s/ JOHN A. TILLINGHAST Director November 12, 1998
- -----------------------------------------------------
John A. Tillinghast
</TABLE>
II-20
<PAGE> 292
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS F. SCHWARTZ Senior Vice President -- November 12, 1998
- ----------------------------------------------------- Finance and Treasurer
Thomas F. Schwartz (Principal Accounting
Officer)
</TABLE>
II-21
<PAGE> 1
Exhibit No. 4.2
COGENTRIX ENERGY, INC.
To
FIRST UNION NATIONAL BANK,
Trustee
----------
Indenture
Dated as of October 20, 1998
----------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION.......................................1
Section 1.01. DEFINITIONS............................................1
Section 1.02. COMPLIANCE CERTIFICATES AND OPINIONS..................13
Section 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE................14
Section 1.04. NOTICES, ETC., TO TRUSTEE AND COMPANY.................14
Section 1.05. NOTICE TO HOLDERS; WAIVER.............................15
Section 1.06. CONFLICT WITH TRUST INDENTURE ACT.....................16
Section 1.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS..............16
Section 1.08. SUCCESSORS AND ASSIGNS................................16
Section 1.09. SEPARABILITY CLAUSE...................................16
Section 1.10. BENEFITS OF INDENTURE.................................16
Section 1.11. GOVERNING LAW.........................................16
Section 1.12. LEGAL HOLIDAYS........................................16
Section 1.13. NO SECURITY INTEREST CREATED..........................17
Section 1.14. LIABILITY SOLELY CORPORATE............................17
ARTICLE TWO DEBT SECURITY FORMS.........................................18
Section 2.01. FORMS GENERALLY.......................................18
Section 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.......18
Section 2.03. SECURITIES IN GLOBAL FORM.............................19
ARTICLE THREE THE DEBT SECURITIES ........................................19
Section 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES..................19
Section 3.02. DENOMINATIONS.........................................23
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING........23
Section 3.04. TEMPORARY DEBT SECURITIES; EXCHANGE OF TEMPORARY
GLOBAL NOTES FOR DEFINITIVE BEARER SECURITIES.......25
Section 3.05. REGISTRATION, TRANSFER AND EXCHANGE...................30
Section 3.06. MUTILATED, DESTROYED, LOST AND STOLEN DEBT SECURITIES.33
Section 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED........33
Section 3.08. CANCELLATION..........................................36
Section 3.09. COMPUTATION OF INTEREST...............................36
Section 3.10. CURRENCY OF PAYMENTS IN RESPECT OF DEBT ..............36
Section 3.11. JUDGMENTS.............................................40
Section 3.12. EXCHANGE UPON DEFAULT.................................40
i
<PAGE> 3
ARTICLE FOUR SATISFACTION AND DISCHARGE..................................41
Section 4.01. SATISFACTION AND DISCHARGE OF INDENTURE...............41
Section 4.02. APPLICATION OF TRUST MONEY............................42
ARTICLE FIVE REMEDIES....................................................43
Section 5.01. EVENTS OFDEFAULT......................................43
Section 5.02. [INTENTIONALLY OMITTED]...............................43
Section 5.03. COLLECTION OF DEBT AND SUITS FOR ENFORCEMENT
BY TRUSTEE............................................43
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM......................44
Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF DEBT SECURITIES..................................45
Section 5.06. APPLICATION OF MONEY COLLECTED........................45
Section 5.07. LIMITATION ON SUITS...................................45
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.....................46
Section 5.09. RESTORATION OF RIGHTS AND REMEDIES....................46
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE........................46
Section 5.11. DELAY OR OMISSION NOT WAIVER..........................47
Section 5.12. CONTROL BY HOLDERS....................................47
Section 5.13. WAIVER OF PAST DEFAULTS...............................47
Section 5.14. UNDERTAKING FOR COSTS.................................48
Section 5.15. WAIVER OF STAY OR EXTENSION LAWS......................48
ARTICLE SIX THE TRUSTEE.................................................48
Section 6.01. CERTAIN DUTIES AND RESPONSIBILITIES...................48
Section 6.02. NOTICE OF DEFAULTS....................................50
Section 6.03. CERTAIN RIGHTS OF TRUSTEE.............................50
Section 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
DEBT SECURITIES.....................................52
Section 6.05. MAY HOLD DEBT SECURITIES..............................52
Section 6.06. MONEY HELD IN TRUST...................................52
Section 6.07. COMPENSATION AND REIMBURSEMENT........................52
Section 6.08. DISQUALIFICATION; CONFLICTING INTERESTS...............53
Section 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY...............58
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.....59
Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR................60
Section 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.........................................61
Section 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.....62
Section 6.14. APPOINTMENT OF AUTHENTICATING AGENT...................65
ii
<PAGE> 4
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE
AND COMPANY...............................................67
Section 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES
OF HOLDERS..........................................67
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATION TO
HOLDERS.............................................67
Section 7.03. REPORTS BY TRUSTEE....................................69
Section 7.04. REPORTS BY COMPANY....................................70
ARTICLE EIGHT CONCERNING THE HOLDERS......................................71
Section 8.01. ACTS OF HOLDERS.......................................71
Section 8.02. PROOF OF OWNERSHIP; PROOF OF EXECUTION OF
INSTRUMENTS BY HOLDER...............................71
Section 8.03. PERSONS DEEMED OWNERS.................................72
Section 8.04. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND..........72
ARTICLE NINE HOLDERS' MEETINGS...........................................73
Section 9.01. PURPOSES OF MEETINGS..................................73
Section 9.02. CALL OF MEETINGS BY TRUSTEE...........................73
Section 9.03. CALL OF MEETINGS BY COMPANY OR HOLDERS................74
Section 9.04. QUALIFICATIONS FOR VOTING.............................74
Section 9.05. REGULATIONS...........................................74
Section 9.06. VOTING................................................75
Section 9.07. NO DELAY OF RIGHTS BY MEETING.........................75
ARTICLE TEN SUPPLEMENTAL INDENTURES.....................................75
Section 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS...75
Section 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS......77
Section 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES.................78
Section 10.04. EFFECT OF SUPPLEMENTAL INDENTURES....................78
Section 10.05. CONFORMITY WITH TRUST INDENTURE ACT..................78
Section 10.06. REFERENCE IN DEBT SECURITIES TO SUPPLEMENTAL
INDENTURES.........................................78
Section 10.07. NOTICE OF SUPPLEMENTAL INDENTURE.....................79
ARTICLE ELEVEN COVENANTS...................................................79
Section 11.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST...........79
Section 11.02. OFFICER'S CERTIFICATE AS TO DEFAULT..................79
Section 11.03. MAINTENANCE OF OFFICE OR AGENCY......................79
Section 11.04. MONEY FOR DEBT SECURITIES; PAYMENTS TO BE
HELD IN TRUST......................................81
Section 11.05. PURCHASE OF DEBT SECURITIES BY COMPANY...............82
Section 11.06. WAIVER OF CERTAIN COVENANTS..........................82
iii
<PAGE> 5
ARTICLE TWELVE REDEMPTION OF DEBT SECURITIES...............................83
Section 12.01. APPLICABILITY OF ARTICLE.............................83
Section 12.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE................83
Section 12.03. SELECTION BY TRUSTEE OF DEBT SECURITIES
TO BE REDEEMED.....................................83
Section 12.04. NOTICE OF REDEMPTION.................................84
Section 12.05. DEPOSIT OF REDEMPTION PRICE..........................85
Section 12.06. DEBT SECURITIES PAYABLE ON REDEMPTION DATE...........85
Section 12.07. DEBT SECURITIES REDEEMED IN PART.....................86
ARTICLE THIRTEEN SINKING FUNDS...............................................86
Section 13.01. APPLICABILITY OF ARTICLE.............................86
Section 13.02. SATISFACTION OF MANDATORY SINKING FUND PAYMENTS
WITH DEBT SECURITIES...............................87
Section 13.03. REDEMPTION OF DEBT SECURITIES FOR SINKING FUND.......87
ARTICLE FOURTEEN DEFEASANCE..................................................89
Section 14.01. APPLICABILITY OF ARTICLE.............................89
Section 14.02. DEFEASANCE AND DISCHARGE OF INDENTURE................89
Section 14.03. DEPOSITED MONEYS AND U.S. GOVERNMENT, OBLIGATIONS
TO BE HELD IN TRUST................................90
Section 14.04. REPAYMENT TO COMPANY.................................91
iv
<PAGE> 6
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October 20, 1998
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
ss. 310 (a)(1)..................................... 6.09
(a)(2)..................................... 6.09
(a)(3)..................................... Not Applicable
(a)(4)..................................... Not Applicable
(a)(5)..................................... 6.09
(b)........................................ 6.08, 6.10
(c)........................................ Not Applicable
ss. 311 (a)........................................ 6.13(a)
(b)........................................ 6.13(b)
(c)........................................ Not Applicable
ss. 312 (a)........................................ 7.01, 7.02(a)
(b)........................................ 7.02(b)
(c)........................................ 7.02(c)
ss. 313 (a)........................................ 7.03(a)
(b)........................................ 7.03(b)
(c)........................................ 7.03(a),
7.03(c)
(d)........................................ 7.03(d)
ss. 314 (a)........................................ 7.04,
........................................ 11.02
(b)........................................ Not Applicable
(c)(1)..................................... 1.02
(c)(2)..................................... 1.02
(c)(3)..................................... Not Applicable
(d)........................................ Not Applicable
(e)........................................ 1.02
ss. 315 (a)........................................ 6.01(a),
6.01(c)
(b)........................................ 6.02,
7.03(a)(7)
(c)........................................ 6.01(b)
(d)(1)..................................... 6.01(a)
(d)(2)..................................... 6.01(c)(2)
(d)(3)..................................... 6.01(c)(3)
(e)........................................ 5.14
ss. 316 (a)(1)(A).................................. 5.02, 5.12
(a)(1)(B).................................. 5.13
(a)(2)..................................... Not Applicable
(b)........................................ 5.08
(c)........................................ Not Applicable
ss. 317 (a)(1)..................................... 5.03
(a)(2)..................................... 5.04
(b)........................................ 11.04
ss. 318 ........................................... 1.06
---------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 7
INDENTURE, dated as of October 20, 1998, between COGENTRIX
ENERGY, INC., a North Carolina corporation (hereinafter called the "COMPANY"),
having its principal executive office at 9405 Arrowpoint Boulevard, Charlotte,
North Carolina 28273-8110 and FIRST UNION BANK, a National Banking Association
(hereinafter called the "TRUSTEE"), having its Corporate Trust Office at 230
South Tryon Street, 9th Floor, Charlotte, North Carolina 28288-1179.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its debentures,
notes, bonds or other evidences of Debt (herein generally called the "DEBT
SECURITIES"), to be issued in one or more series, as in this Indenture provided.
All things necessary have been done to make this Indenture a
valid agreement of the Company, in accordance with its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of Debt
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of Debt Securities or of Debt
Securities of any series, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.01. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as defined herein);
and
(4) the words "HEREIN," "HEREOF" and "HEREUNDER" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
<PAGE> 8
Certain terms, used principally in Article Three or Article Six, are defined in
those respective Articles.
"ACT" when used with respect to any Holder, has the meaning
specified in Section 8.01.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"CONTROL" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") when used with respect to any
Person means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"AFFILIATED CORPORATION" means any corporation which is
controlled by the Company but which is not a Subsidiary of the Company pursuant
to the definition of the term "SUBSIDIARY".
"AUTHENTICATING AGENT" has the meaning specified in Section 6.14.
"AUTHORIZED NEWSPAPER" means a newspaper in an official language
of the country of publication customarily published at least once a day, and
customarily published for at least five days in each calendar week, and of
general circulation in the place in connection with which the term is used or in
the financial community of such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any Business Day in such city.
"BEARER SECURITY" means any Debt Security (with or without
Coupons), in the form established pursuant to Section 2.01, which is payable to
bearer (including any Global Note payable to bearer) and title to which passes
by delivery only, but does not include any Coupons.
"BOARD OF DIRECTORS" means either the board of directors of the
Company, or any committee of that board duly authorized to act on behalf of such
board.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY" means a day which in the city (or in any of the
cities, if more than one) where amounts are payable in respect of the Debt
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<PAGE> 9
Securities is neither a legal holiday nor a day on which banking institutions
are authorized or required by law or regulation to close.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of, or interests in (however designated), the
equity of such Person which is outstanding or issued on or after the date of
this Indenture, including, without limitation, all Common Stock and Preferred
Stock and partnership and joint venture interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Debt represented
by such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP, and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date such lease may be terminated without penalty.
"CEDEL" means Cedel S.A.
"CODE" means the Internal Revenue Code of 1986, as amended and as
in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties on such date.
"COMMON STOCK" means with respect to any Person, Capital Stock of
such Person that does not rank prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a
written request or order signed in the name of the Company by the Chairman, a
Vice Chairman, the President, the Chief Financial Officer or a Vice President
and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant
Controller, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"COMPONENT CURRENCY" has the meaning specified in Section
3.10(i).
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<PAGE> 10
"CONVERSION DATE" has the meaning specified in Section 3.10(e).
"CONVERSION EVENT" means the cessation of (i) a Foreign Currency
to be used both by the government of the country which issued such Currency and
for the settlement of transactions by public institutions of or within the
international banking community, (ii) the ECU to be used both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Communities or (iii) any Currency unit
other than the ECU to be used for the purposes for which it was established.
"CORPORATE TRUST OFFICE" means the principal corporate trust
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
instrument is located at 230 South Tryon Street, 9th Floor, Charlotte, North
Carolina 28288-1179.
"CORPORATION" includes corporations, associations, companies and
business trusts.
"COUPON" means any interest coupon appertaining to any Debt
Security.
"COUPON SECURITY" means any Bearer Security authenticated and
delivered with one or more Coupons appertaining thereto.
"CURRENCY" means Dollars or Foreign Currency.
"CURRENCY DETERMINATION AGENT" means the New York Clearing House
bank, if any, from time to time selected by the Trustee for purposes of Section
3.10; provided that such agent shall accept such appointment in writing and the
terms of such appointment shall be acceptable to the Company and shall, in the
opinion of the Company and the Trustee at the time of such appointment, require
such agent to make the determinations required by this Indenture by a method
consistent with the method provided in this Indenture for the making of such
decision or determination.
"DEBT" means, with respect to any Person at any date of
determination (without duplication), (i) all Debt of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) all obligations of such Person in respect of
letters of credit or bankers' acceptance or other similar instruments (or
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred purchase price of property or services, except Trade
Payables, (v) the Attributable Value of all obligations of such Person as lessee
under Capitalized Leases, (vi) all Debt of others secured by a Lien on any asset
of such Person, whether or not such Debt is assumed by such Person; provided
that, for purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the lesser of the fair market value
of such asset or the amount of such Debt, (vii) all Debt of others Guaranteed by
such Person to the extent such Debt is Guaranteed by such Person, (viii) all
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<PAGE> 11
Redeemable Stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends and (ix) to the extent
not otherwise included in this definition, all obligations of such Person under
Currency Protection Agreements and Interest Rate Protection Agreements.
"DEBT SECURITIES" has the meaning stated in the first recital of
this Indenture and more particularly means any Debt Securities (including any
Global Notes) authenticated and delivered under this Indenture.
"DEFAULTED INTEREST" has the meaning specified in Section 3.07.
"DISCHARGED" has the meaning specified in Section 14.02.
"DISCOUNT SECURITY" means any Debt Security which is issued with
"original issue discount" within the meaning of Section 1273(a) of the Code and
the regulations thereunder.
"DOLLAR" or "$" means a dollar or other equivalent unit in such
coin or currency of the United States as at the time of payment is legal tender
for the payment of public and private debts.
"DOLLAR EQUIVALENT OF THE CURRENCY UNIT" has the meaning
specified in Section 3.10(h).
"DOLLAR EQUIVALENT OF THE FOREIGN CURRENCY" has the meaning
specified in Section 3.10(g).
"ECU" means the European Currency Unit as defined and revised
from time to time by the Council of the European Communities.
"ELECTION DATE" has the meaning specified in Section 3.10(i).
"EURO-CLEAR OPERATOR" means Morgan Guaranty Trust Company of New
York, Brussels office, or its successor as operator of the Euro-clear System.
"EUROPEAN COMMUNITIES" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.
"EUROPEAN MONETARY SYSTEM" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01.
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<PAGE> 12
"EXCHANGE RATE OFFICER'S CERTIFICATE" means a telex or a
certificate setting forth (i) the applicable Market Exchange Rate and (ii) the
Dollar, Foreign Currency or Currency unit amounts of principal, premium, if any,
and any interest respectively (on an aggregate basis and on the basis of a Debt
Security having the lowest denomination principal amount determined in
accordance with Section 3.02 in the relevant Currency or Currency unit), payable
on the basis of such Market Exchange Rate sent (in the case of a telex) or
signed (in the case of a certificate) by the Treasurer or any Assistant
Treasurer of the Company.
"FIXED RATE SECURITY" means a Debt Security which provides for
the payment of interest at a fixed rate.
"FLOATING RATE SECURITY" means a Debt Security which provides for
the payment of interest at a variable rate determined periodically by reference
to an interest rate index or any other index specified pursuant to Section 3.01.
"FOREIGN CURRENCY" means a currency issued by the government of
any country other than the United States or a composite currency or currency
unit the value of which is determined by reference to the values of the
currencies of any group of countries.
"GAAP" is defined to mean generally accepted accounting
principles in the U.S. as in effect as of the date of the Indenture applied on a
basis consistent with the principles, methods, procedures and practices employed
in the preparation of Cogentrix Energy's audited financial statements,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"GLOBAL NOTE" means a Registered or Bearer Security evidencing
all or part of a series of Debt Securities, including, without limitation, any
temporary or permanent Global Note.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, or to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
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<PAGE> 13
"HOLDER" means, with respect to a Registered Security, the
Registered Holder, and with respect to a Bearer Security or a Coupon, the bearer
thereof.
"INDENTURE" means this instrument as originally executed, or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and, unless the context otherwise requires, shall include the terms of a
particular series of Debt Securities as established pursuant to Section 3.01.
"INTEREST," when used with respect to a Discount Security which
by its terms bears interest only after maturity, means interest payable after
Maturity, and, when used with respect to a Bearer Security, includes any
additional amounts payable on such Bearer Security, if so provided pursuant to
Section 3.01.
"INTEREST PAYMENT DATE" with respect to any Debt Security means
the Stated Maturity of an installment of interest on such Debt Security.
"LIEN" means, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property; provided, however, that the term "Lien" shall not mean any easements,
rights-of-way, restrictions and other similar encumbrances and encumbrances
consisting of zoning restrictions, leases, subleases, licenses, sublicenses,
restrictions on the use of property or defects in the title thereto. For
purposes of this Indenture, the Company shall be deemed to own subject to a Lien
any Property which it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such Property.
"MARKET EXCHANGE RATE" means (i) for any conversion involving a
Currency unit on the one hand and Dollars or any Foreign Currency on the other,
the exchange rate between the relevant Currency unit and Dollars or such Foreign
Currency calculated by the method specified pursuant to Section 3.01 for the
securities of the relevant series, (ii) for any conversion of Dollars into any
Foreign Currency, the noon (New York City time) buying rate for such Foreign
Currency for cable transfers quoted in New York City as certified for customs
purposes by the Federal Reserve Bank of New York and (iii) for any conversion of
one Foreign Currency into Dollars or another Foreign Currency, the spot rate at
noon local time in the relevant market at which, in accordance with normal
banking procedures, the Dollars or Foreign Currency into which conversion is
being made could be purchased with the Foreign Currency from which conversion is
being made from major banks located in either New York City, London or any other
principal market for Dollars or such purchased Foreign Currency. In the event of
the unavailability of any of the exchange rates provided for in the foregoing
clauses (i), (ii) and (iii) the Currency Determination Agent, if any, or if
there shall not be a Currency Determination Agent, then the Trustee or an
Affiliate of the Trustee appointed by the Trustee, shall use, in its sole
discretion and without liability on its part, such quotation of the Federal
Reserve Bank of New York as of the most recent available date, or quotations
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<PAGE> 14
from one or more major banks in New York City, London or other principal market
for such Currency or Currency unit in question, or such other quotations as the
Currency Determination Agent or the Trustee, as the case may be, shall deem
appropriate. Unless otherwise specified by the Currency Determination Agent, if
any, or if there shall not be a Currency Determination Agent, then by the
Trustee or an Affiliate of the Trustee, if there is more than one market for
dealing in any Currency or Currency unit by reason of foreign exchange
regulations or otherwise, the market to be used in respect of such Currency or
Currency unit shall be that upon which a nonresident issuer of securities
designated in such Currency or Currency unit would purchase such Currency or
Currency unit in order to make payments in respect of such securities.
"MATURITY" when used with respect to any Debt Security means the
date on which the principal of such Debt Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption, repayment at
the option of the Holder thereof or otherwise.
"NON-RECOURSE" to a Person as applied to any Debt (or portion
thereof) means that such Person is not, directly or indirectly, liable to make
any payments with respect to such Debt (or portion thereof), that no Guarantee
of such Debt (or portion thereof) has been made by such Person other than a
Guarantee limited in recourse to the Capital Stock of the Person incurring such
Debt (or any shareholder, partner, member or participant of such Person) and
that such Debt (or portion thereof) is not secured by a Lien on any asset of
such Person other than the Capital Stock of the Person incurring such Debt (or
any shareholder, partner, member or participant of such Person) or of the Person
whose obligations were Guaranteed, provided that for purposes of this definition
the status of a Subsidiary as a general partner of a partnership or Joint
Venture shall not, without more, cause such Person to be, directly or
indirectly, liable to make payments with respect to such Debt or constitute a
Guarantee of such Debt for purposes of determining whether Debt is Non-Recourse,
and provided further that none of the following shall cause any Debt to fail to
be Non-Recourse: the incurrence of Debt, Guarantees or Liens jointly by (i)
Cogentrix Eastern Carolina Corporation and Cogentrix of North Carolina, Inc. (or
a successor to the merger or other combination of such entities) with respect to
the cogeneration facilities located at Elizabethtown, Kenansville, Lumberton,
Southport and Roxboro, North Carolina; (ii) Cogentrix Virginia Leasing
Corporation and James River Cogeneration Company (or a successor to the merger
or other combination of such entities) with respect to the cogeneration
facilities located at Portsmouth and Hopewell, Virginia; and (iii) Subsidiaries
or Joint Ventures in which Cogentrix Energy or one of its Subsidiaries is a
partner, shareholder, member or other participant, which become such after the
date of this Indenture, incurred thereafter with respect to the future
development or acquisition of multiple Power Generation Facilities.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman of the Board of Directors or any Vice Chairman of the Board of
Directors or the President or any Vice President or by the Chief Financial
Officer or the Secretary or any Assistant Secretary of the Company and delivered
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<PAGE> 15
to the Trustee. Each such certificate small comply with Section 314 of the Trust
Indenture Act and include the statements provided for in this Indenture, if and
to the extent required hereby.
"OPINION OF COUNSEL" means an opinion in writing signed by legal
counsel satisfactory to the Trustee, who may be an employee of or counsel to the
Company. Each such opinion shall comply with Section 314 of the Trust Indenture
Act and include the statements provided for in this Indenture, if and to the
extent required hereby.
"OUTSTANDING" when used with respect to Debt Securities, means,
as of the date of determination, all Debt Securities theretofore authenticated
and delivered under this Indenture, except:
(i) Debt Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Debt Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Debt Securities and any
Coupons thereto pertaining; provided, however, that if such Debt
Securities are to be redeemed, notice of such redemption has been duly
give pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
(iii) Debt Securities which have been paid pursuant to Section
3.06 or in exchange for or in lieu of which other Debt Securities have
been authenticated and delivered pursuant to this Indenture, other
than any such Debt Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such Debt
Securities are held by a bona fide purchaser in whose hands such Debt
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Debt Securities Outstanding have performed any Act
hereunder, Debt Securities owned by the Company or any other obligor upon the
Debt Securities or any Affiliate of the Company or of such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such Act, only Debt
Securities which the Trustee knows to be so owned shall be so disregarded. Debt
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right to act with respect to such Debt Securities and that the pledgee
is not the Company or any other obligor upon the Debt Securities or any
Affiliate of the Company or of such other obligor. In determining whether the
Holders of the requisite principal amount of Outstanding Debt Securities have
performed any Act hereunder, the principal amount of a Discount Security that
shall be deemed to be Outstanding for such purpose shall be the amount of the
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<PAGE> 16
principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the Maturity thereof
pursuant to the provisions of this Indenture and the principal amount of a Debt
Security denominated in a Foreign Currency that shall be deemed to be
Outstanding for such purpose shall be the amount calculated pursuant to Section
3.10(k).
"OVERDUE RATE", when used with respect to any series of the Debt
Securities, means the rate designated as such in or pursuant to the Board
Resolution or the supplemental indenture, as the case may be, relating to such
series as contemplated by Section 3.01.
"PAYING AGENT" means any Person authorized by the Company to pay
the principal of (and premium, if any) or interest on any Debt Securities on
behalf of the Company.
"PERMANENT GLOBAL NOTE" shall have the meaning given such term in
Section 3.04(b).
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLACE OF PAYMENT" when used with respect to the Debt Securities
of any series means the place or places where the principal of (and premium, if
any) and interest on the Debt Securities of that series are payable as specified
pursuant to Section 3.01.
"PREDECESSOR SECURITY" of any particular Debt Security means
every previous Debt Security evidencing all or a portion of the same debt as
that evidenced by such particular Debt Security; and, for the purposes of this
definition, any Debt Security authenticated and delivered under Section 3.06 in
lieu of a mutilated, lost, destroyed or stolen Debt Security or a Debt Security
to which a mutilated, lost, destroyed or stolen Coupon appertains shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Debt Security or the Debt Security to which the mutilated, lost, destroyed or
stolen Coupon appertains, as the case may be.
"PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of preferred or preference stock of such Person
which is outstanding or issued on or after the date of original issuance of the
Debt Securities.
"PROPERTY" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person under
GAAP.
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<PAGE> 17
"REDEEMABLE STOCK" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Debt Securities outstanding with the longest
maturity, (ii) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the Debt Securities
outstanding with the longest maturity or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Debt having a
scheduled maturity prior to the Stated Maturity of the Debt Securities
outstanding with the longest maturity.
"REDEMPTION DATE" means the date fixed for redemption of any Debt
Security pursuant to this Indenture which, in the case of a Floating Rate
Security, unless otherwise specified pursuant to Section 3.01, shall be an
Interest Payment Date only.
"REDEMPTION PRICE" means, in the case of a Discount Security, the
amount of the principal thereof that would be due and payable as of the
Redemption Date upon a declaration of acceleration of the maturity thereof
pursuant to the provisions of this Indenture, and in the case of any other Debt
Security, the principal amount thereof, plus, in each case, premium, if any, and
accrued and unpaid interest, if any, to the Redemption Date.
"REGISTERED HOLDER" means the Person in whose name a Registered
Security is registered in the Security Register.
"REGISTERED SECURITY" means any Debt Security in the form
established pursuant to Section 2.01 which is registered as to principal and
interest in the Security Register.
"REGULAR RECORD DATE" for the interest payable on the Registered
Securities of any series on any Interest Payment Date means the date specified
for the purpose pursuant to Section 3.01 for such Interest Payment Date.
"RESPONSIBLE OFFICER" when used with respect to the Trustee means
any Vice President, the secretary, any assistant secretary or any assistant vice
president or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 3.05(a).
"SIGNIFICANT SUBSIDIARY" of a Person means, as of any date, any
Subsidiary, or two or more Subsidiaries taken together in the event of a
cross-collateralization of such multiple Subsidiaries' Debt, which has two or
more of the following attributes: (i) it contributes 20% or more of such
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<PAGE> 18
Person's Excess Cash Flow for its most recently completed fiscal quarter or (ii)
it contributed 15% or more of Net Income before tax of such Person and its
consolidated Subsidiaries for such Person's most recently completed fiscal
quarter or (iii) it constituted 20% or more of Consolidated Total Assets of such
Person at the end of such Person's most recently completed fiscal quarter.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.07.
"SPECIFIED AMOUNT" has the meaning specified in Section 3.10(i).
"STATED MATURITY" means, with respect to any Debt Security or any
installment of interest thereon, the date specified in such Debt Security as the
fixed date on which any principal of such debt security or any such installment
of interest is due and payable.
"SUBSIDIARY" means, with respect to any Person, any corporation
or other entity of which a majority of the Capital Stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
"TEMPORARY GLOBAL NOTE" shall have the meaning given such term in
Section 3.04(b).
"TRUSTEE" means the Person named as the "TRUSTEE" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"TRUSTEE" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "TRUSTEE" as used with
respect to the Debt Securities of any series shall mean the Trustee with respect
to Debt Securities of such series.
"TRADE PAYABLES" means, with respect to any Person, any accounts
payable or any other Debt or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 10.05.
"UNITED STATES" means the United States of America (including the
States and the District of Columbia), and its possessions, which include Puerto
Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
"U.S. DEPOSITARY" means a clearing agency registered under the
Securities Exchange Act of 1934, as amended, or any successor thereto, which
shall in either case be designated by the Company pursuant to Section 3.01 until
a successor U.S. Depositary shall have become such pursuant to the applicable
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<PAGE> 19
provisions of this Indenture, and thereafter "U.S. DEPOSITARY" shall mean or
include each Person who is then a U.S. Depositary hereunder, and if at any time
there is more than one such Person, "U.S. DEPOSITARY" as used with respect to
the Debt Securities of any series shall mean the U.S. Depositary with respect to
the Debt Securities of that series.
"U.S. GOVERNMENT OBLIGATIONS" means securities which are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the U.S.,
which, in either case are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"U.S. PERSON" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States, or an estate or trust the income of which is subject
to United States Federal income taxation regardless of its source.
"VALUATION DATE" has the meaning specified in Section 3.10(d).
"VICE PRESIDENT" includes with respect to the Company and the
Trustee, any Vice President of the Company or the Trustee, as the case may be,
whether or not designated by a number or word or words added before or after the
title "VICE PRESIDENT".
Section 1.02. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than certificates
provided pursuant to Section 11.02) shall include:
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(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.04. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing to
or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Department, or
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(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid or airmail postage prepaid if sent from outside the United
States, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this instrument, to the
attention of its Treasurer, or at any other address previously
furnished in writing to the Trustee by the Company.
Any such Act or other document shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
Section 1.05. NOTICE TO HOLDERS; WAIVER.
When this Indenture provides for notice to Holders of any event,
(1) such notice shall be sufficiently given to Registered Holders (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to such Registered Holders as their names and addresses appear
in the Security Register, within the time prescribed, and (2) such notice shall
be sufficiently given to Holders of Bearer Securities or Coupons (unless
otherwise herein expressly provided) if published at least twice in an
Authorized Newspaper or Newspapers in The City of New York and, if Debt
Securities of such series are then listed on The Stock Exchange of the United
Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any
other stock exchange located outside the United States and such stock exchange
shall so require, in a daily newspaper in London or Luxembourg or in such other
city or cities specified pursuant to Section 3.01 or in any Debt Security on
Business Days, the first such publication to be not earlier than the earliest
date and not later than two Business Days prior to the latest date prescribed
for the giving of such notice; provided, however, that, in any case, any notice
to Holders of Floating Rate Securities regarding the determination of a periodic
rate of interest, if such notice is required pursuant to Section 3.01, shall be
sufficiently given if given in the manner specified pursuant to Section 3.01.
In the event of suspension of regular mail service or by reason
of any other cause it shall be impracticable to give notice by mail, such
notification as shall be given with the approval of the Trustee shall constitute
sufficient notice for every purpose hereunder.
In the event of suspension of publication of any Authorized
Newspapers or by reason of any other cause it shall be impracticable to give
notice by publication, such notification as shall be given with the approval of
the Trustee shall constitute sufficient notice for every purpose hereunder.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance on such waiver. In any case where notice to Holders is given
by mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders, and any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given. In any case
where notice to Holders is given by publication, any defect in any notice so
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published as to any particular Holder shall not affect the sufficiency of such
notice with respect to other Holders, and any notice which is published in the
manner herein provided shall be conclusively presumed to have been duly given.
Section 1.06. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with the
duties imposed on any person by the provisions of Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 1.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and in the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.08. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the parties
hereto shall bind their respective successors and assigns and inure to the
benefit of their permitted successors and assigns, whether so expressed or not.
Section 1.09. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Debt Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.10. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Debt Securities, express or
implied, shall give to any Person, other than the parties hereto, any Security
Registrar, any Paying Agent and their successors hereunder, and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.11. GOVERNING LAW.
This Indenture, the Debt Securities and the Coupons shall be
deemed to be contracts made and to be performed entirely in the State of New
York, and for all purposes shall be governed by and construed in accordance with
the laws of said State without regard to the conflicts of law rules of said
State.
Section 1.12. LEGAL HOLIDAYS.
Unless otherwise specified pursuant to Section 3.01 or in any
Debt Security, in any case where any Interest Payment Date, Redemption Date or
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Stated Maturity of any Debt Security of any series shall not be a Business Day
at any Place of Payment for the Debt Securities of that series, then
(notwithstanding any other provision of this Indenture or of the Debt Securities
or Coupons) payment of principal (and premium, if any) or interest need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date, Redemption Date or at the Stated
Maturity, and no interest shall accrue on the amount so payable for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, to such Business Day if such payment is made or duly
provided for on such Business Day.
Section 1.13. NO SECURITY INTEREST CREATED.
Nothing in this Indenture or in the Debt Securities or Coupons,
express or implied, shall be construed to constitute a security interest under
the Uniform Commercial Code or similar legislation, as now or hereafter enacted
and in effect in any jurisdiction where property of the Company or its
Subsidiaries is or may be located.
Section 1.14. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of (or
premium, if any) or the interest on any Debt Securities or Coupons, or any part
thereof, or of the Debt represented thereby, or upon any obligation, covenant or
agreement of this Indenture, against any incorporator, or against any
stockholder, officer or director, as such, past, present or future, of the
Company (or any incorporator, stockholder, officer or director of any
predecessor or successor corporation), either directly or through the Company
(or any such predecessor or successor corporation), whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that this
Indenture and all the Debt Securities and Coupons are solely corporate
obligations, and that no personal liability whatsoever shall attach to, or be
incurred by, any such incorporator, stockholder, officer of director, past,
present or future, of the Company (or any incorporator, stockholder, officer or
director of any such predecessor or successor corporation), either directly or
indirectly through the Company or any such predecessor or successor corporation,
because of the Debt hereby authorized or under or by reason of any of the
obligations, covenants, promises or agreements contained in this Indenture or in
any of the Debt Securities or Coupons or to be implied herefrom or therefrom;
and that any such personal liability is hereby expressly waived and released as
a condition of, and as part of the consideration for, the execution of this
Indenture and the issue of Debt Securities; provided, however, that nothing
herein or in the Debt Securities or Coupons contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of the shares of capital stock
not fully paid.
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ARTICLE TWO
DEBT SECURITY FORMS
Section 2.01. FORMS GENERALLY.
The Debt Securities and the Coupons, if any, of each series shall
be substantially in one of the forms (including global form) established in or
pursuant to a Board Resolution or one or more indentures supplemental hereto,
and shall have such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification or designation and such
legends or endorsements placed thereon as the Company may deem appropriate and
as are not inconsistent with the provisions of this Indenture, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any securities exchange on which any
series of the Debt Securities may be listed, or to conform to usage, all as
determined by the officers executing such Debt Securities and Coupons as
conclusively evidenced by their execution of such Debt Securities and Coupons.
If the form of a series of Debt Securities or Coupons (or any Global Note) is
established in or pursuant to a Board Resolution, a copy of such Board
Resolution shall be delivered to the Trustee, together with an Officers'
Certificate setting forth the form of such series, at or prior to the delivery
of the Company Order contemplated by Section 3.03 for the authentication and
delivery of such Debt Securities (or any such Global Note) or Coupons.
Unless otherwise specified as contemplated by Section 3.01, Debt
Securities in bearer form (other than inglobal form) shall have Coupons
attached.
The definitive Debt Securities and Coupons, if any, of each
series shall be printed, lithographed or engraved or produced by any combination
of these methods on steel engraved borders or may be produced in any other
manner, all as determined by the officers executing such Debt Securities and
Coupons, as conclusively evidenced by their execution of such Debt Securities
and Coupons.
Section 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The form of the Trustee's certificate of authentication to be
borne by the Debt Securities shall be substantially as follows:
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the series of Debt Securities issued under the
within mentioned Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By ___________________________
Authorized Signatory
Section 2.03. SECURITIES IN GLOBAL FORM.
If any Debt Security of a series is issuable in global form (a
"GLOBAL NOTE"), such Global Note may provide that it shall represent the
aggregate amount of Outstanding Debt Securities from time to time endorsed
thereon and may also provide that the aggregate amount of Outstanding Debt
Securities represented thereby may from time to time be reduced to reflect
exchanges. Any endorsement of a Global Note to reflect the amount, or any
increase or decrease in the amount, of Outstanding Debt Securities represented
thereby shall be made by the Trustee and in such manner as shall be specified in
such Global Note. Any instructions by the Company with respect to a Global Note,
after its initial issuance, shall be in writing but need not comply with Section
1.02.
Global Notes may be issued in either registered or bearer form
and in either temporary or permanent form. Permanent Global Notes will be issued
in definitive form.
ARTICLE THREE
THE DEBT SECURITIES
Section 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Debt Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Debt Securities may be issued in one or more series. There
shall be established in or pursuant to a Board Resolution and (subject to
Section 3.03) set forth in an Officers' Certificate, or established in one or
more indentures supplemental hereto, prior to the issuance of Debt Securities of
any series:
(1) the title of the Debt Securities of the series (which shall
distinguish the Debt Securities of such series from all other series
of Debt Securities);
(2) the limit, if any, upon the aggregate principal amount of the
Debt Securities of the series which may be authenticated and delivered
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under this Indenture (except for Debt Securities authenticated and
delivered upon transfer of, or in exchange for, or in lieu of, other
Debt Securities of such series pursuant to Sections 3.04, 3.05, 3.06,
10.06 or 12.07);
(3) the date or dates on which or periods during which the Debt
Securities of the series may be issued, and the date or dates (or the
method of determination thereof) on which the principal of (and
premium, if any, on) the Debt Securities of such series are or may be
payable (which, if so provided in such Board Resolution or
supplemental indenture, may be determined by the Company from time to
time and set forth in the Debt Securities of the series issued from
time to time);
(4) the rate or rates (or the method of determination thereof) at
which the Debt Securities of the series shall bear interest, if any,
and the dates from which such interest shall accrue (which, in either
case or both, if so provided in such Board Resolution or supplemental
indenture, may be determined by the Company from time to time and set
forth in the Debt Securities of the series issued from time to time);
and the Interest Payment Dates on which such interest shall be payable
(or the method of determination thereof), and, in the case of
Registered Securities, the Regular Record Dates for the interest
payable on such Interest Payment Dates and, in the case of Floating
Rate Securities, the notice, if any, to Holders regarding the
determination of interest and the manner of giving such notice;
(5) the place or places, if any, in addition to or instead of the
Corporate Trust Office of the Trustee (in the case of Registered
Securities) or the principal London office of the Trustee (in the case
of Bearer Securities), where the principal of (and premium, if any)
and interest on Debt Securities of the series shall be payable; the
extent to which, or the manner in which, any interest payable on any
Global Note on an Interest Payment Date will be paid, if other than in
the manner provided in Section 3.07; the extent, if any, to which the
provisions of the last sentence of Section 11.01 shall apply to the
Debt Securities of the Series; and the manner in which any principal
of, or premium, if any, on, any Global Note will be paid, if other
than as set forth elsewhere herein;
(6) the obligation, if any, of the Company to redeem, repay or
purchase Debt Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of the Holder and the period or
periods within which or the dates on which, the prices at which and
the terms and conditions upon which Debt Securities of the series
shall be redeemed, repaid or purchased, in whole or in part, pursuant
to such obligation;
(7) the period or periods within which, or the date or dates on
which, the price or prices at which, and the terms and conditions upon
which Debt Securities of the series may be redeemed, if any, in whole
or in part, at the option of the Company or otherwise;
(8) if the coin or Currency in which the Debt Securities shall be
issuable is in Dollars, the denominations of such Debt Securities if
other than denominations of $1,000 and any integral multiple thereof
(except as provided in Section 3.04);
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(9) whether the Debt Securities of the series are to
be issued as Discount Securities and the amount of discount with
which such Debt Securities may be issued and, if other than the
principal amount thereof, the portion of the principal amount of
Debt Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to the
provisions of this Indenture;
(10) provisions, if any, for the defeasance of Debt Securities of
the series;
(11) whether Debt Securities of the series are to be issued as
Registered Securities or Bearer Securities or both, and, if Bearer Securities
are issued, whether Coupons will be attached thereto, whether Bearer Securities
of the series may be exchanged for Registered Securities of the series, as
provided in Section 3.05(b) or otherwise, and the circumstances under which and
the place or places at which any such exchanges, if permitted, may be made;
(12) whether provisions for payment of additional amounts or tax
redemptions shall apply and, if such provisions shall apply, such provisions;
and, if Bearer Securities of the series are to be issued, whether a procedure
other than that set forth in Section 3.04(b) shall apply and, if so, such other
procedure, and if the procedure set forth in Section 3.04(b) shall apply, the
forms of certifications to be delivered under such procedure;
(13) if other than Dollars, the Foreign Currency or Currencies in
which Debt Securities of the series shall be denominated or in which payment of
the principal of (and/or premium, if any) and/or interest on the Debt Securities
of the series may be made, and the particular provisions applicable thereto and,
if applicable, the amount of Debt Securities of the series which entitles the
Holder of a Debt Security of the series or its proxy to one vote for purposes of
Section 9.05;
(14) if the principal of (and premium, if any) or interest on
Debt Securities of the series are to be payable, at the election of the Company
or a Holder thereof, in a Currency other than that in which the Debt Securities
are denominated or payable without such election, in addition to or in lieu of
the provisions of Section 3.10, the period or periods within which and the terms
and conditions upon which, such election may be made and the time and the manner
of determining the exchange rate or rates between the Currency or Currencies in
which the Debt Securities are denominated or payable without such election and
the Currency or Currencies in which the Debt Securities are to be paid if such
election is made;
(15) the date as of which any Debt Securities of the series shall
be dated, if other than as set forth in Section 3.03;
(16) if the amount of payments of principal of (and premium, if
any) or interest on the Debt Securities of the series may be determined with
reference to an index, including, but not limited to, an index based on a
Currency or Currencies other than that in which the Debt Securities are
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denominated or payable, or any other type of index, the manner in which such
amounts shall be determined;
(17) if the Debt Securities of the series are denominated or
payable in a Foreign Currency, any other terms concerning the payment of
principal of (and premium, if any) or any interest on such Debt Securities
(including the Currency or Currencies of payment thereof);
(18) the designation of the original Currency Determination
Agent, if any;
(19) the applicable Overdue Rate, if any;
(20) if the Debt Securities of the series do not bear interest,
the applicable dates for purposes of Section 7.01;
(21) any addition to, or modification or deletion of, any Events
of Default or covenants provided for with respect to Debt Securities of the
series;
(22) if Bearer Securities of the series are to be issued, (x)
whether interest in respect of any portion of a temporary Debt Security in
global form (representing all of the Outstanding Bearer Securities of the
series) payable in respect of any Interest Payment Date prior to the exchange of
such temporary Debt Security for definitive Debt Securities of the series shall
be paid to any clearing organization with respect to the portion of such
temporary Debt Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any such
interest payment received by a clearing organization will be credited to the
Persons entitled to interest payable on such Interest Payment Date, and (y) the
terms upon which interests in such temporary Debt Security in global form may be
exchanged for interests in a permanent Global Note or for definitive Debt
Securities of the series and the terms upon which interests in a permanent
Global Note, if any, may be exchanged for definitive Debt Securities of the
series;
(23) whether the Debt Securities of the series shall be issued in
whole or in part in the form of one or more Global Notes and, in such case, the
U.S. Depositary or any Common Depositary for such Global Note or Notes; and if
the Debt Securities of the series are issuable only as Registered Securities,
the manner in which and the circumstances under which Global Notes representing
Debt Securities of the series may be exchanged for Registered Securities in
definitive form, if other than, or in addition to, the manner and circumstances
specified in Section 3.04(c); and
(24) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Debt Securities of any one series shall be substantially
identical except as to denomination, rate of interest, Stated Maturity and the
date from which interest, if any, shall accrue, which, as set forth above, may
be determined by the Company from time to time as to Debt Securities of a series
if so provided in or established pursuant to the authority granted in a Board
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Resolution or in any such indenture supplemental hereto, and except as may
otherwise be provided in or pursuant to such Board Resolution and (subject to
Section 3.03) set forth in such Officers' Certificate, or in any such indenture
supplemental hereto. All Debt Securities of any one series need not be issued at
the same time, and unless otherwise provided, a series may be reopened for
issuance of additional Debt Securities of such series.
If any of the terms of a series of Debt Securities is established
in or pursuant to a Board Resolution, a copy of such Board Resolution shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
Section 3.02. DENOMINATIONS.
In the absence of any specification pursuant to Section 3.01 with
respect to the Debt Securities of any series, the Debt Securities of such series
shall be issuable only as Registered Securities in denominations of $1,000 and
any integral multiple thereof and shall be payable only in Dollars.
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Debt Securities and the Coupons, if any, of any series shall
be executed on behalf of the Company by its Chairman, a Vice Chairman, its
President, one of its Vice Presidents or its Treasurer, under its corporate seal
reproduced thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers may be manual or facsimile.
Debt Securities and Coupons bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Debt Securities and Coupons or did not hold such offices at the date of
such Debt Securities and Coupons.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Debt Securities, with
appropriate Coupons, if any, of any series, executed by the Company, to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Debt Securities and Coupons and the Trustee in accordance
with the Company Order shall authenticate and deliver such Debt Securities and
Coupons; provided, however, that, in connection with its sale during the
"restricted period" (as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United
States Treasury Regulations), no Bearer Security shall be mailed or otherwise
delivered to any location in the United States; and provided, further, that a
Bearer Security (other than a temporary Global Note in bearer form) may be
delivered outside the United States in connection with its original issuance
only if the Person entitled to receive such Bearer Security shall have furnished
to the Euro-clear operator or to CEDEL a certificate substantially in the form
set forth in Exhibit A to this Indenture. If all the Debt Securities of any one
series are not to be issued at one time and if a Board Resolution or
supplemental indenture relating to such series shall so permit, such Company
Order may set forth procedures acceptable to the Trustee for the issuance of
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such Debt Securities such as interest rate, Stated Maturity, date of issuance
and date from which interest, if any, shall accrue. If any Debt Security shall
be represented by a permanent Global Note, then, for purposes of this Section
and Section 3.04, the notation of a beneficial owner's interest therein upon
original issuance of such Debt Security or upon exchange of a portion of a
temporary Global Note shall be deemed to be delivery in connection with the
original issuance of such beneficial owner's interest in such permanent Global
Note. Except as permitted by Section 3.06 or 3.07, the Trustee shall not
authenticate and deliver any Bearer Security unless all Coupons for interest
then matured have been detached and cancelled.
The Trustee shall be entitled to receive, and (subject to Section
6.01) shall be fully protected in relying upon, prior to the authentication and
delivery of the Debt Securities and Coupons of such series, (i) the supplemental
indenture or the Board Resolution by or pursuant to which the form and terms of
such Debt Securities and Coupons have been approved and (ii) an Opinion of
Counsel substantially to the effect that:
(1) all instruments furnished by the Company to the Trustee in
connection with the authentication and delivery of such Debt
Securities and Coupons conform to the requirements of this Indenture
and constitute sufficient authority hereunder for the Trustee to
authenticate and deliver such Debt Securities and Coupons;
(2) the forms and terms of such Debt Securities and Coupons have
been established in conformity with the provisions of this Indenture;
(3) in the event that the forms or terms of such Debt Securities
and Coupons have been established in a supplemental indenture, the
execution and delivery of such supplemental indenture has been duly
authorized by all necessary corporate action of the Company, such
supplemental indenture has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by the
Trustee, is a valid and binding obligation enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law);
(4) the execution and delivery of such Debt Securities and
Coupons have been duly authorized by all necessary corporate action of
the Company and such Debt Securities and Coupons have been duly
executed by the Company and, assuming due authentication by the
Trustee and delivery by the Company, are valid and binding obligations
enforceable against the Company in accordance with their terms,
entitled to the benefit of the Indenture, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law) and subject to such other exceptions as counsel
shall request and as to which the Trustee shall not reasonably object;
and
(5) the amount of Debt Securities Outstanding of such series,
together with the amount of such Debt Securities, does not exceed any
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limit established under the terms of this Indenture on the amount of
Debt Securities of such series that may be authenticated and
delivered.
The Trustee shall not be required to authenticate such Debt
Securities and Coupons if the issuance of such Debt Securities and Coupons
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Debt Securities and this Indenture in a manner which is not
reasonably acceptable to the Trustee.
Each Registered Security shall be dated the date of its
authentication. Each Bearer Security (including any temporary or permanent or
other definitive Bearer Security in global form) shall be dated as of the date
of original issuance of the first Debt Security of such series to be issued,
except as otherwise provided pursuant to Section 3.01 with respect to the Bearer
Securities of any series.
No Debt Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Debt Security a certificate of authentication substantially in one of the forms
provided for herein duly executed by the Trustee or by an Authenticating Agent,
and such certificate upon any Debt Security shall be conclusive evidence, and
the only evidence, that such Debt Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Debt Security shall have been duly
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Debt Security to the Trustee for cancellation
as provided in Section 3.08 together with a written statement (which need not
comply with Section 1.02) stating that such Debt Security has never been issued
and sold by the Company, for all purposes of this Indenture such Debt Security
shall be deemed never to have been authenticated and delivered hereunder and
shall never be entitled to the benefits of this Indenture.
Section 3.04. TEMPORARY DEBT SECURITIES; EXCHANGE OF TEMPORARY
GLOBAL NOTES FOR DEFINITIVE BEARER SECURITIES; GLOBAL NOTES REPRESENTING
REGISTERED SECURITIES.
(a) Pending the preparation of definitive Registered Securities
of any series, the Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Registered Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination for Registered Securities of such series, substantially of the
tenor of the definitive Registered Securities in lieu of which they are issued
and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Registered Securities may determine,
as conclusively evidenced by their execution of such Registered Securities.
Every such temporary Registered Security shall be executed by the Company and
shall be authenticated and delivered by the Trustee upon the same conditions and
in substantially the same manner, and with the same effect, as the definitive
Registered Securities in lieu of which they are issued. In the case of any
series issuable as Bearer Securities, such temporary Debt Securities may be in
global form, representing such of the Outstanding Debt Securities of such series
as shall be specified therein.
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Except in the case of temporary Debt Securities in global form
(which shall be exchanged in accordance with the provisions of the following
paragraphs), if temporary Debt Securities of any series are issued, the Company
will cause definitive Debt Securities of such series to be prepared without
unreasonable delay. After the preparation of definitive Debt Securities of such
series, the temporary Debt Securities of such series shall be exchangeable for
definitive Debt Securities of such series, of a like Stated Maturity and with
like terms and provisions, upon surrender of the temporary Debt Securities of
such series at the office or agency of the Company in a Place of Payment for
such series, without charge to the Holder, except as provided in Section 3.05 in
connection with a transfer. Upon surrender for cancellation of any one or more
temporary Debt Securities of any series (accompanied by any unmatured Coupons),
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Debt Securities of the
same series of authorized denominations and of a like Stated Maturity and like
terms and provisions; provided, however, that no definitive Bearer Security
shall be delivered in exchange for a temporary Registered Security; and
provided, further, that a definitive Bearer Security (including a permanent
Bearer Security in global form) shall be delivered in exchange for a temporary
Bearer Security only in compliance with the conditions set forth in Section
3.03. Until so exchanged, the temporary Registered Securities of any series
shall in all respects be entitled to the same benefits under this Indenture as
definitive Registered Securities of such series.
(b) Unless otherwise specified pursuant to Section 3.01, all
Bearer Securities of a series shall be initially issued in the form of a single
temporary Bearer Security in global form (a "TEMPORARY GLOBAL NOTE"). The
Company shall execute, and upon Company Order the Trustee shall authenticate,
any temporary Global Note and any permanent Bearer Security in global form (as
described below, a "PERMANENT GLOBAL NOTE") upon the same conditions and in
substantially the same manner, and with the same effect, as definitive Bearer
Securities, and the temporary or permanent Global Note, as the case may be,
shall, unless otherwise specified therein, be delivered by the Trustee to the
London office of a depositary or common depositary (the "COMMON DEPOSITARY"),
for the benefit of the Euro-clear Operator or CEDEL, as the case may be, for
credit to the account of the Company (in the case of sales of Bearer Securities
by the Company directly to investors) or the managing underwriter (in the case
of sales of Bearer Securities by the Company to underwriters) or such other
accounts as the Company or the managing underwriter, respectively, may direct.
On or after the date specified in or determined pursuant to the
terms of any temporary Global Note, which (subject to any applicable laws and
regulations) shall be at least 40 days after the issue date of a temporary
Global Note (the "EXCHANGE DATE"), the Debt Securities represented by such
temporary Global Note may be exchanged for definitive Debt Securities (subject
to the second succeeding paragraph) or Debt Securities to be represented
thereafter by one or more permanent Global Notes in definitive form without
interest coupons. On or after the Exchange Date such temporary Global Note shall
be surrendered by the Common Depositary to the Trustee, as the Company's agent
for such purpose, at its principal office in London (or at such other place
specified outside the United States pursuant to Section 3.01) and following such
surrender, the Trustee shall (1) endorse the temporary Global Note to reflect
the reduction of its principal amount by an equal aggregate principal amount of
such Debt Security, (2) endorse the applicable permanent Global Note, if any, to
reflect the initial amount, or an increase in the amount of Debt Securities
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represented thereby, (3) manually authenticate such definitive Debt Securities
(including any permanent Global Note), (4) deliver such definitive Debt
Securities to the Holder thereof or, if such definitive Debt Security is a
permanent Global Note, deliver such permanent Global Note to the Common
Depositary to be held outside the United States for the accounts of the
Euro-clear Operator or CEDEL, as the case may be, for credit to the respective
accounts at Euro-clear Operator or CEDEL, as the case may be, designated by or
on behalf of the beneficial owners of such Debt Securities (or to such other
accounts as they may direct) and (5) redeliver such temporary Global Note to the
Common Depositary, unless such temporary Global Note shall have been cancelled
in accordance with Section 3.08 hereof; provided, however, that, unless
otherwise specified in such temporary Global Note, upon such presentation by the
Common Depositary, such temporary Global Note shall be accompanied by a
certificate dated the Exchange Date or a subsequent date and signed by the
Euro-clear Operator, as to the portion of such temporary Global Note held for
its account then to be exchanged for definitive Debt Securities (including any
permanent Global Note), and a certificate dated the Exchange Date or a
subsequent date and signed by CEDEL, as to the portion of such temporary Global
Note held for its account then to be exchanged for definitive Debt Securities
(including any permanent Global Note), each substantially in the form set forth
in Exhibit B to this Indenture. Each certificate substantially in the form of
Exhibit B hereto of the Euro-clear Operator or CEDEL, as the case may be, shall
be based on certificates of the account holders listed in the records of the
Euro-clear Operator or CEDEL, as the case may be, as being entitled to all or
any portion of the applicable temporary Global Note. An account holder of the
Euro-clear Operator or CEDEL, as the case may be, desiring to effect the
exchange of an interest in a temporary Global Note for an interest in definitive
Debt Securities (including any permanent Global Note) shall instruct the
Euro-clear Operator or CEDEL, as the case may be, to request such exchange on
its behalf and shall deliver to the Euro-clear Operator or CEDEL, as the case
may be, a certificate substantially in the form of Exhibit A hereto and dated no
earlier than 10 days prior to the Exchange Date. Until so exchanged, temporary
Global Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Debt Securities (including any permanent Global Note) of
the same series authenticated and delivered hereunder, except as to payment of
interest, if any.
The delivery to the Trustee by the Euro-clear Operator or CEDEL
of any certificate substantially in the form of Exhibit B hereto may be relied
upon by the Company and the Trustee as conclusive evidence that a corresponding
certificate or certificates has or have been delivered to the Euro-clear
Operator or CEDEL, as the case may be, pursuant to the terms of this Indenture.
On or prior to the Exchange Date, the Company shall deliver to
the Trustee definitive Debt Securities in an aggregate principal amount equal to
the principal amount of such temporary Global Note, executed by the Company. At
any time, on or after the Exchange Date, upon 30 days' notice to the Trustee by
the Euro-clear Operator or CEDEL, as the case may be, acting at the request of
or on behalf of the beneficial owner, a Debt Security represented by a temporary
Global Note or a permanent Global Note, as the case may be, may be exchanged, in
whole or from time to time in part, for definitive Debt Securities without
charge and the Trustee shall authenticate and deliver, in exchange for each
portion of such temporary Global Note or such permanent Global Note, an equal
aggregate principal amount of definitive Debt Securities of the same series of
authorized denominations and of a like Stated Maturity and with like terms and
conditions, as the portion of such temporary Global Note or such permanent
Global Note to be exchanged, which, unless the Debt Securities of the series are
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not issuable both as Bearer Securities and as Registered Securities, as
contemplated by Section 3.01, shall be in the form of Bearer Securities or
Registered Securities, or any combination thereof, as shall be specified by the
beneficial owner thereof; provided, however, that definitive Bearer Securities
shall be delivered in exchange for a portion of the temporary Global Note or the
permanent Global Note only in compliance with the requirements of the second
preceding paragraph. On or prior to the forty-fifth day following receipt by the
Trustee of such notice with respect to a Debt Security, or, if such day is not a
Business Day, the next succeeding Business Day, the temporary Global Note or the
permanent Global Note, as the case may be, shall be surrendered by the Common
Depositary to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or from time to time in part, for definitive Debt Securities
without charge following such surrender, upon the request of the Euro-clear
Operator or CEDEL, as the case may be, and the Trustee shall (1) endorse the
applicable temporary Global Note or the permanent Global Note to reflect the
reduction of its principal amount by the aggregate principal amount of such Debt
Security, (2) cause the terms of such Debt Security and Coupons, if any, to be
entered on a definitive Debt Security, (3) manually authenticate such definitive
Debt Security, and (4) if a Bearer Security is to be delivered, deliver such
definitive Debt Security outside the United States to the Euro-clear Operator or
CEDEL, as the case may be, for or on behalf of the beneficial owner thereof, in
exchange for a portion of such temporary Global Note or the permanent Global
Note.
Unless otherwise specified in such temporary Global Note or the
permanent Global Note, any such exchange shall be made free of charge to the
beneficial owners of such temporary Global Note or the permanent Global Note,
except that a Person receiving definitive Debt Securities must bear the cost of
insurance, postage, transportation and the like in the event that such Person
does not take delivery of such definitive Debt Securities in person at the
offices of the Euro-clear Operator or CEDEL. Definitive Securities in bearer
form to be delivered in exchange for any portion of a temporary Global Note or
the permanent Global Note shall be delivered only outside the United States.
Notwithstanding the foregoing, in the event of redemption or acceleration of all
or any part of a temporary Global Note prior to the Exchange Date, a permanent
Global Note or definitive Bearer Securities, as the case may be, will not be
issuable in respect of such temporary Global Note or such portion thereof, and
payment thereon will instead be made as provided in such temporary Global Note.
Until exchanged in full as hereinabove provided, any temporary
Global Note or the permanent Global Note shall in all respects be entitled to
the same benefits under this Indenture as definitive Debt Securities of the same
series and tenor authenticated and delivered hereunder, except that, unless
otherwise specified as contemplated by Section 3.01, interest payable on such
temporary Global Note on an Interest Payment Date for Debt Securities of such
series occurring prior to the applicable Exchange Date shall be payable to the
Euro-clear Operator or CEDEL on such Interest Payment Date upon delivery by the
Euro-clear Operator or CEDEL to the Trustee of a certificate or certificates
substantially in the form set forth in Exhibit B to this Indenture, for credit
without further interest on or after such Interest Payment Date to the
respective accounts of the Persons who are the beneficial owners of such
temporary Global Note on such Interest Payment Date and who have each delivered
to the Euro-clear Operator or CEDEL, as the case may be, a certificate
substantially in the form set forth in Exhibit A to this Indenture.
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Any definitive Bearer Security authenticated and delivered by the
Trustee in exchange for a portion of a temporary Global Note or the permanent
Global Note shall not bear a coupon for any interest which shall theretofore
have been duly paid by the Trustee to the Euro-clear Operator or CEDEL, or by
the Company to the Trustee in accordance with the provisions of this Section
3.04.
With respect to Exhibits A and B to this Indenture, the Company
may, in its discretion and if required or desirable under applicable law,
substitute one or more other forms of such exhibits for such exhibits, eliminate
the requirement that any or all certificates be provided, or change the time
that any certificate may be required, provided that such substitute form or
forms or notice of elimination or change of such certification requirement have
theretofore been delivered to the Trustee with a Company Request and such form
or forms, elimination or change is reasonably acceptable to the Trustee.
(c) If the Company shall establish pursuant to Section 3.01 that
the Registered Securities of a series are to be issued in whole or in part in
the form of one or more Global Notes, then the Company shall execute and the
Trustee shall, in accordance with Section 3.03 and the Company Order with
respect to such series, authenticate and deliver one or more Global Notes in
temporary or permanent form that (i) shall represent and shall be denominated in
an amount equal to the aggregate principal amount of the Outstanding Debt
Securities of such series to be represented by one or more Global Notes, (ii)
shall be registered in the name of the U.S. Depositary for such Global Note or
Notes or the nominee of such depositary, and (iii) shall bear a legend
substantially to the following effect: "This Debt Security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary, unless and until this Debt Security is
exchanged in whole or in part for Debt Securities in definitive form."
Notwithstanding any other provision of this Section or Section
3.05, unless and until it is exchanged in whole or in part for Registered
Securities in definitive form, a Global Note representing all or a portion of
the Registered Securities of a series may not be transferred except as a whole
by the U.S. Depositary for such series to a nominee of such depositary or by a
nominee of such depositary to such depositary or another nominee of such
depositary or by such depositary or any such nominee to a successor U.S.
Depositary for such series or a nominee of such successor depositary.
If at any time the U.S. Depositary for the Debt Securities of a
series notifies the Company that it is unwilling or unable to continue as U.S.
Depositary for the Debt Securities of such series or if at any time the U.S.
Depositary for Debt Securities of a series shall no longer be a clearing agency
registered and in good standing under the Securities Exchange Act of 1934, as
amended, or other applicable statute or regulation, the Company shall appoint a
successor U.S. Depositary with respect to the Debt Securities of such series. If
a successor U.S. Depositary for the Debt Securities of such series is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such condition, the Company will execute, and the Trustee,
upon receipt of a Company Order for the authentication and delivery of
definitive Debt Securities of such series, will authenticate and deliver,
Registered Securities of such series in definitive form in an aggregate
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principal amount equal to the principal amount of the Global Note or Notes
representing such series in exchange for such Global Note or Notes.
The Company may at any time and in its sole discretion determine
that the Registered Securities of any series issued in the form of one or more
Global Notes shall no longer be represented by such Global Note or Notes. In
such event, the Company will execute, and the Trustee, upon receipt of a Company
Order for the authentication and delivery of definitive Debt Securities of such
series, will authenticate and deliver, Registered Securities of such series in
definitive form and in an aggregate principal amount equal to the principal
amount of the Global Note or Notes representing such series in exchange for such
Global Note or Notes.
If the Registered Securities of any series shall have been issued
in the form of one or more Global Notes and if an Event of Default with respect
to the Debt Securities of such series shall have occurred and be continuing, the
Company will promptly execute, and the Trustee, upon receipt of a Company Order
for the authentication and delivery of definitive Debt Securities of such
series, will authenticate and deliver, Registered Securities of such series in
definitive form and in an aggregate principal amount equal to the principal
amount of the Global Note or Notes representing such series in exchange for such
Global Note or Notes.
If specified by the Company pursuant to Section 3.01 with respect
to Registered Securities of a series, the U.S. Depositary for such series of
Registered Securities may surrender a Global Note for such series of Debt
Securities in exchange in whole or in part for Registered Securities of such
series in definitive form on such terms as are acceptable to the Company and
such depositary. Thereupon, the Company shall execute and the Trustee shall
authenticate and deliver, without charge:
(i) to each Person specified by the U.S. Depositary a new
Registered Security or Securities of the same series, of any
authorized denomination as requested by such Person in an aggregate
principal amount equal to and in exchange for such Person's beneficial
interest in the Global Note; and
(ii) to the U.S. Depositary a new Global Note in a denomination
equal to the difference, if any, between the principal amount of the
surrendered Global Note and the aggregate principal amount of
Registered Securities delivered to Holders thereof.
Upon the exchange of a Global Note for Registered Securities in
definitive form, such Global Note shall be cancelled by the Trustee. Debt
Securities issued in exchange for a Global Note pursuant to this subsection (c)
shall be registered in such names and in such authorized denominations as the
U.S. Depositary for such Global Note, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Debt Securities to the Persons in whose names such Debt
Securities are so registered.
Section 3.05. REGISTRATION, TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the registers maintained in such office and in
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any other office or agency of the Company in a Place of Payment being herein
sometimes collectively referred to as the "SECURITY REGISTER") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Registered Securities and of transfers and exchanges of
Registered Securities. The Trustee is hereby appointed "SECURITY REGISTRAR" for
the purpose of registering Registered Securities and registering transfers and
exchanges of Registered Securities as herein provided; provided, however, that
the Company may appoint co-Security Registrars.
Upon surrender for registration of transfer of any Registered
Security of any series at the office or agency of the Company maintained for
such purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee, one or more new Registered
Securities of the same series of like aggregate principal amount of such
denominations as are authorized for Registered Securities of such series and of
a like Stated Maturity and with like terms and conditions.
Except as otherwise provided in Section 3.04 and this Section
3.05, at the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series of like aggregate
principal amount and of a like Stated Maturity and with like terms and
conditions, upon surrender of the Registered Securities to be exchanged at such
office or agency. Whenever any Registered Securities are surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Registered Securities which the Holder making the exchange is
entitled to receive.
(b) If and to the extent specified pursuant to Section 3.01, the
provisions of this Section 3.05(b) shall be applicable to Debt Securities of any
series which are Bearer Securities. At the option of the Holder thereof, to the
extent permitted by law, any Bearer Security of any series which by its terms is
registrable as to principal and interest may be exchanged for a Registered
Security of such series of like aggregate principal amount and of a like Stated
Maturity and with like terms and conditions upon surrender of such Bearer
Security at the Corporate Trust Office or at any other office or agency of the
Company designated pursuant to Section 3.01 for the purpose of making any such
exchanges. Any Coupon Security surrendered for exchange shall be surrendered
with all unmatured Coupons and any matured Coupons in default attached thereto.
If the Holder of a Bearer Security is unable to produce any such unmatured
Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be
effected if the Bearer Securities are accompanied by payment in funds acceptable
to the Company in an amount equal to the face amount of such missing Coupon or
Coupons, or the surrender of such missing Coupon or Coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Bearer Security shall surrender to any Paying
Agent any such missing Coupon in respect of which such a payment shall have been
made, such Holder shall be entitled to receive the amount of such payment;
provided, however, that except as otherwise provided in Section 11.03, interest
represented by Coupons shall be payable only upon presentation and surrender of
those Coupons at an office or agency located outside the United States.
Notwithstanding the foregoing, in case a Bearer Security of any series is
surrendered at any such office or agency in exchange for a Registered Security
of the same series and of a like Stated Maturity and with like terms and
conditions after the close of business at such office or agency on (i) any
Regular Record Date and before the opening of business at such office or agency
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on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed
date for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the Coupon relating to such Interest Payment Date or
proposed date for payment, as the case may be (or, if such Coupon is so
surrendered with such Bearer Security, such Coupon shall be returned to the
Person so surrendering the Bearer Security), and interest or Defaulted Interest,
as the case may be, will not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security, but will be payable only
to the Holder of such Coupon when due in accordance with the provisions of this
Indenture. The Company shall execute, and the Trustee shall authenticate and
deliver, the Registered Security or Securities which the Holder making the
exchange is entitled to receive.
Notwithstanding the foregoing, the exchange of Bearer Securities
for Registered Securities will be subject to the provisions of United States
income tax laws and regulations applicable to Debt Securities in effect at the
time of such exchange.
(c) Except as otherwise specified pursuant to Section 3.01, in no
event may Registered Securities, including Registered Securities received in
exchange for Bearer Securities, be exchanged for Bearer Securities.
(d) All Debt Securities issued upon any transfer or exchange of
Debt Securities shall be valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debt
Securities surrendered for such transfer or exchange.
Every Registered Security presented or surrendered for transfer
or exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge will be made for any transfer or exchange of
Debt Securities except as provided in Section 3.04(b) or 3.06. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration, transfer or
exchange of Debt Securities, other than those expressly provided in this
Indenture to be made at the Company's own expense or without expense or without
charge to the Holders.
The Company shall not be required (i) to register, transfer or
exchange Debt Securities of any series during a period beginning at the opening
of business 15 days before the day of the transmission of a notice of redemption
of Debt Securities of such series selected for redemption under Section 12.03
and ending at the close of business on the day of such transmission, or (ii) to
register, transfer or exchange any Debt Security so selected for redemption in
whole or in part, except the unredeemed portion of any Debt Security being
redeemed in part.
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Section 3.06. MUTILATED, DESTROYED, LOST AND STOLEN DEBT
SECURITIES.
If (i) any mutilated Debt Security or any mutilated Coupon with
the Coupon Security to which it appertains (and all unmatured Coupons attached
thereto) is surrendered to the Trustee at its Corporate Trust Office (in the
case of Registered Securities) or at its principal London office (in the case of
Bearer Securities), or that of its appointed agent, or (ii) the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Debt Security or any Coupon, and there is delivered to the Company and
the Trustee such security or indemnity as may be required by them to save each
of them and any Paying Agent harmless, and neither the Company nor the Trustee
receives notice that such Debt Security or Coupon has been acquired by a bona
fide purchaser, then the Company shall execute and upon Company Request the
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Debt Security or in exchange for the Coupon
Security to which such mutilated, destroyed, lost or stolen Coupon appertained,
a new Debt Security of the same series of like Stated Maturity and with like
terms and conditions and like principal amount, bearing a number not
contemporaneously Outstanding, and, in the case of a Coupon Security, with such
Coupons attached thereto that neither gain nor loss in interest shall result
from such exchange or substitution.
In case any such mutilated, destroyed, lost or stolen Debt
Security or Coupon has become or is about to become due and payable, the Company
in its discretion may, instead of issuing a new Debt Security, pay the amount
due on such Debt Security or Coupon in accordance with its terms; provided,
however, that principal of (and premium, if any) and any interest on Bearer
Securities shall, except as otherwise provided in Section 11.03, be payable only
at an office or agency located outside the United States and, unless otherwise
specified as contemplated by Section 3.01 or except as otherwise provided in
this Section 3.06, any interest on Bearer Securities shall be payable only upon
presentation and surrender of the Coupons appertaining thereto.
Upon the issuance of any new Debt Security under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in respect thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debt Security or Coupon of any series issued pursuant
to this Section shall constitute an original additional contractual obligation
of the Company, whether or not the destroyed, lost or stolen Debt Security or
Coupon shall be at any time enforceable by anyone, and shall be entitled to all
the benefits of this Indenture equally and proportionately with any and all
other Debt Securities or Coupons of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debt Securities
or Coupons.
Section 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
(a) Interest on any Registered Security which is payable and is
punctually paid or duly provided for on any Interest Payment Date shall be paid
to the Person in whose name such Registered Security (or one or more Predecessor
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Securities) is registered at the close of business on the Regular Record Date
for such interest notwithstanding the cancellation of such Registered Security
upon any transfer or exchange subsequent to the Regular Record Date. Unless
otherwise specified as contemplated by Section 3.01 with respect to the Debt
Securities of any series, payment of interest on Registered Securities shall be
made at the place or places specified pursuant to Section 3.01 or, at the option
of the Company, by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register or, if provided pursuant to
Section 3.01, by wire transfer to an account designated by the Registered
Holder.
(b) Interest on any Coupon Security which is payable and is
punctually paid or duly provided for on any Interest Payment Date shall be paid
to the Holder of the Coupon which has matured on such Interest Payment Date upon
surrender of such Coupon on such Interest Payment Date at the principal London
office of the Trustee or at such other Place of Payment outside the United
States specified pursuant to Section 3.01.
Interest on any Bearer Security (other than a Coupon Security)
which is payable and is punctually paid or duly provided for on any Interest
Payment Date shall be paid to the Holder of the Bearer Security upon
presentation of such Bearer Security and notation thereon on such Interest
Payment Date at the principal London office of the Trustee or at such other
Place of Payment outside the United States specified pursuant to Section 3.01.
Unless otherwise specified pursuant to Section 3.01, at the
direction of the Holder of any Bearer Security or Coupon payable in Dollars,
payment on such Bearer Security or Coupon will be made by check drawn on a bank
in The City of New York or, if agreeable to the Trustee, by wire transfer to a
Dollar account maintained by such Holder outside the United States. If such
payment at the offices of all Paying Agents outside the United States becomes
illegal or is effectively precluded because of the imposition of exchange
controls or similar restrictions on the full payment or receipt of such amounts
in Dollars, the Company will appoint an office or agent in the United States at
which such payment may be made. Unless otherwise specified pursuant to Section
3.01, at the direction of the Holder of any Bearer Security or Coupon payable in
a Foreign Currency, payment on such Bearer Security or Coupon will be made by a
check drawn on a bank outside the United States or by wire transfer to an
appropriate account maintained by such Holder outside the United States. Except
as provided in this paragraph, no payment on any Bearer Security or Coupon will
be made by mail to an address in the United States or by wire transfer to an
account in the United States.
(c) Any interest on any Debt Security which is payable but is not
punctually paid or duly provided for on any interest Payment Date (herein called
"DEFAULTED INTEREST") shall, if such Debt Security is a Registered Security,
forthwith cease to be payable to the Registered Holder on the relevant Regular
Record Date by virtue of his having been such Registered Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names such Registered Securities (or
their respective Predecessor Securities) are registered at the close
of business on a Special Record Date for the payment of such Defaulted
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Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each such Registered Security and the
date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money in the Currency or
Currency unit in which the Debt Securities of such series are payable
(except as otherwise specified pursuant to Sections 3.01 or 3.10)
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which date shall be not more
than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to the
Holders of such Registered Securities at their addresses as they
appear in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in
whose names such Registered Securities (or their respective
Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to
the following clause (2).
(2) The Company may make payment of any Defaulted Interest on
Registered Securities in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Registered
Securities may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
(d) Any Defaulted Interest payable in respect of Bearer
Securities of any series shall be payable pursuant to such procedures as may be
satisfactory to the Trustee in such manner that there is no discrimination
between the Holders of Registered Securities (if any) and Bearer Securities of
such series, and notice of the payment date therefor shall be given by the
Trustee, in the name and at the expense of the Company, in the manner provided
in Section 1.05 not more than 25 days and not less than 20 days prior to the
date of the proposed payment.
(e) Subject to the foregoing provisions of this Section, each
Debt Security delivered under this Indenture upon transfer of or in exchange for
or in lieu of any other Debt Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Debt Security.
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Section 3.08. CANCELLATION.
Unless otherwise specified pursuant to Section 3.01 for Debt
Securities of any series, all Debt Securities surrendered for payment,
redemption, transfer, exchange or credit against any sinking fund and all
Coupons surrendered for payment or exchange shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee. All Registered Securities
and matured Coupons so delivered shall be promptly cancelled by the Trustee. All
Bearer Securities and unmatured Coupons so delivered shall be held by the
Trustee and, upon instruction by the Company Order, shall be cancelled or held
for reissuance. Bearer Securities and unmatured Coupons held for reissuance may
be reissued only in exchange for Bearer Securities of the same series and of
like Stated Maturity and with like terms and conditions pursuant to Section 3.05
or in replacement of mutilated, lost, stolen or destroyed Bearer Securities of
the same series and of like Stated Maturity and with like terms and conditions
or the related Coupons pursuant to Section 3.06. All Bearer Securities and
unmatured Coupons held by the Trustee pending such cancellation or reissuance
shall be deemed to be delivered for cancellation for all purposes of this
Indenture and the Securities. The Company may at any time deliver to the Trustee
for cancellation any Debt Securities or Coupons previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Debt Securities previously authenticated
hereunder which the Company has not issued, and all Debt Securities or Coupons
so delivered shall be promptly cancelled by the Trustee. No Debt Securities or
Coupons shall be authenticated in lieu of or in exchange for any Debt Securities
or Coupons cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Debt Securities and Coupons held by the Trustee
shall be delivered to the Company upon Company Request. The acquisition of any
Debt Securities or Coupons by the Company shall not operate as a redemption or
satisfaction of the Debt represented thereby unless and until such Debt
Securities or Coupons are surrendered to the Trustee for cancellation. In the
case of any temporary Global Note which shall be destroyed if the entire
aggregate principal amount of the Debt Securities represented thereby has been
exchanged, the certificate of destruction shall state that all certificates
required pursuant to Section 3.04 hereof and substantially in the form of
Exhibit B hereto, to be given by the Euro-clear Operator or CEDEL, have been
duly presented to the Trustee by the Euro-clear Operator or CEDEL, as the case
may be. Permanent Global Notes shall not be destroyed until exchanged in full
for definitive Debt Securities or until payment thereon is made in full.
Section 3.09. COMPUTATION OF INTEREST.
Except as otherwise specified pursuant to Section 3.01 for Debt
Securities of any series, interest on the Debt Securities of each series shall
be computed on the basis of a 360-day year of twelve 30-day months.
Section 3.10. CURRENCY OF PAYMENTS IN RESPECT OF DEBT SECURITIES.
(a) Except as otherwise specified pursuant to Section 3.01 for
Bearer Securities of any series, payment of the principal of (and premium, if
any) and interest on Bearer Securities of such series denominated in any
Currency will be made in such Currency.
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(b) With respect to Registered Securities of any series not
permitting the election provided for in paragraph (c) below or the Holders of
which have not made the election provided for in paragraph (c) below, except as
provided in paragraph (e) below, payment of the principal of (and premium, if
any) and any interest on any Registered Security of such series will be made in
the Currency in which such Registered Security is payable.
(c) It may be provided pursuant to Section 3.01 with respect to
the Registered Securities of any series that Holders shall have the option,
subject to paragraphs (e) and (f) below, to receive payments of principal of
(and premium, if any) and any interest on such Registered Securities in any of
the Currencies which may be designated for such election by delivering to the
Trustee a written election, to be in form and substance satisfactory to the
Trustee, not later than the close of business on the Election Date immediately
preceding the applicable payment date. If a Holder so elects to receive such
payments in any such Currency, such election will remain in effect for such
Holder or any transferee of such Holder until changed by such Holder or such
transferee by written notice to the Trustee (but any such change must be made
not later than the close of business on the Election Date immediately preceding
the next payment date to be effective for the payment to be made on such payment
date and no such change or election may be made with respect to payments to be
made on any Registered Security of such series with respect to which an Event of
Default has occurred or notice of redemption has been given by the Company
pursuant to Article Thirteen). Any Holder of any such Registered Security who
shall not have delivered any such election to the Trustee by the close of
business on the applicable Election Date will be paid the amount due on the
applicable payment date in the relevant Currency as provided in paragraph (b) of
this Section 3.10.
(d) If the election referred to in paragraph (c) above has been
provided for pursuant to Section 3.01, then not later than the fourth Business
Day after the Election Date for each payment date, the Trustee will deliver to
the Company a written notice specifying, in the Currency in which each series of
the Registered Securities is payable, the respective aggregate amounts of
principal of (and premium, if any) and any interest on the Registered Securities
to be paid on such payment date, specifying the amounts so payable in respect of
the Registered Securities as to which the Holders of Registered Securities
denominated in any Currency shall have elected to be paid in another Currency as
provided in paragraph (c) above. If the election referred to in paragraph (c)
above has been provided for pursuant to Section 3.01 and if at least one Holder
has made such election, then, on the second Business Day preceding each payment
date, the Company will deliver to the Trustee an Exchange Rate Officer's
Certificate in respect of the Currency payments to be made on such payment date.
The Currency amount receivable by Holders of Registered Securities who have
elected payment in a Currency as provided in paragraph (c) above shall be
determined by the Company on the basis of the applicable Market Exchange Rate in
effect on the third Business Day (the "VALUATION DATE") immediately preceding
each payment date.
(e) If a Conversion Event occurs with respect to a Foreign
Currency, the ECU or any other Currency unit in which any of the Debt Securities
are denominated or payable other than pursuant to an election provided for
pursuant to paragraph (c) above, then with respect to each date for the payment
of principal of (and premium, if any) and any interest on the applicable Debt
Securities denominated or payable in such Foreign Currency, the ECU or such
other Currency unit occurring after the last date on which such Foreign
Currency, the ECU or such other Currency unit was used (the "CONVERSION DATE"),
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the Dollar shall be the Currency of payment for use on each such payment date.
The Dollar amount to be paid by the Company to the Trustee and by the Trustee or
any Paying Agent to the Holders of such Debt Securities with respect to such
payment date shall be the Dollar Equivalent of the Foreign Currency or, in the
case of a Currency unit, the Dollar Equivalent of the Currency Unit, in each
case as determined by the Currency Determination Agent, if any, or, if there
shall not be a Currency Determination Agent, then by the Trustee, in the manner
provided in paragraph (g) or (h) below.
(f) If the Holder of a Registered Security denominated in any
Currency shall have elected to be paid in another Currency as provided in
paragraph (c) above, and a Conversion Event occurs with respect to such elected
Currency, such Holder shall receive payment in the Currency in which payment
would have been made in the absence of such election. If a Conversion Event
occurs with respect to the Currency in which payment would have been made in the
absence of such election, such Holder shall receive payment in Dollars as
provided in paragraph (e) of this Section 3.10.
(g) The "DOLLAR EQUIVALENT OF THE FOREIGN CURRENCY" shall be
determined by the Currency Determination Agent, if any, or, if there shall not
be a Currency Determination Agent, then by the Trustee, and shall be obtained
for each subsequent payment date by converting the specified Foreign Currency
into Dollars at the Market Exchange Rate on the Conversion Date.
(h) The "DOLLAR EQUIVALENT OF THE CURRENCY UNIT" shall be
determined by the Currency Determination Agent, if any, or, if there shall not
be a Currency Determination Agent, then by the Trustee, and subject to the
provisions of paragraph (i) below, shall be the sum of each amount obtained by
converting the Specified Amount of each Component Currency into Dollars at the
Market Exchange Rate for such Component Currency on the Valuation Date with
respect to each payment.
(i) For purposes of this Section 3.10 the following terms shall
have the following meanings:
A "COMPONENT CURRENCY" shall mean any Currency which, on the
Conversion Date, was a component Currency of the relevant Currency
unit, including, but not limited to, the ECU.
A "SPECIFIED AMOUNT" of a Component Currency shall mean the
number of units of such Component Currency or fractions thereof which
were represented in the relevant Currency unit, including, but not
limited to, the ECU, on the Conversion Date. If after the Conversion
Date the official unit of any Component Currency is altered by way of
combination or subdivision, the Specified Amount of such Component
Currency shall be divided or multiplied in the same proportion. If
after the Conversion Date two or more Component Currencies are
consolidated into a single Currency, the respective Specified Amounts
of such Component Currencies shall be replaced by an amount in such
single Currency equal to the sum of the respective Specified Amounts
of such consolidated Component Currencies expressed in such single
Currency, and such amount shall thereafter be a Specified Amount and
such single Currency shall thereafter be a Component Currency. If
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after the Conversion Date any Component Currency shall be divided into
two or more Currencies, the Specified Amount of such Component
Currency shall be replaced by amounts of such two or more Currencies
with appropriate Dollar equivalents at the Market Exchange Rate on the
date of such replacement equal to the Dollar equivalent of the
Specified Amount of such former Component Currency at the Market
Exchange Rate on such date, and such amounts shall thereafter be
Specified Amounts and such Currencies shall thereafter be Component
Currencies. If after the Conversion Date of the relevant Currency
unit, including but not limited to, the ECU, a Conversion Event (other
than any event referred to above in this definition of "SPECIFIED
AMOUNT") occurs with respect to any Component Currency of such
Currency unit, the Specified Amount of such Component Currency shall,
for purposes of calculating the Dollar Equivalent of the Currency
Unit, be converted into Dollars at the Market Exchange Rate in effect
on the Conversion Date of such Component Currency.
"ELECTION DATE" shall mean the record date with respect to any
payment date, and with respect to the Maturity shall mean the record
date (if within 16 or fewer days prior to the Maturity) immediately
preceding the Maturity, and with respect to any series of Debt
Securities whose record date immediately preceding the Maturity is
more than 16 days prior to the Maturity or any series of Debt
Securities for which no record dates are provided with respect to
interest payments, shall mean the date which is 16 days prior to the
Maturity.
(j) All decisions and determinations of the Trustee or the
Currency Determination Agent, if any, regarding the Dollar Equivalent of the
Foreign Currency, the Dollar Equivalent of the Currency Unit and the Market
Exchange Rate shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive for all purposes and irrevocably binding upon the
Company and all Holders of the Debt Securities denominated or payable in the
relevant Currency. In the event of a Conversion Event with respect to a Foreign
Currency, the Company, after learning thereof, will immediately give written
notice thereof to the Trustee (and the Trustee will promptly thereafter give
notice in the manner provided in Section 1.05 to the Holders) specifying the
Conversion Date. In the event of a Conversion Event with respect to the ECU or
any other Currency unit in which Debt Securities are denominated or payable, the
Company, after learning thereof, will immediately give notice thereof to the
Trustee (and the Trustee will promptly thereafter give written notice in the
manner provided in Section 1.05 to the Holders) specifying the Conversion Date
and the Specified Amount of each Component Currency on the Conversion Date. In
the event of any subsequent change in any Component Currency as set forth in the
definition of Specified Amount above, the Company, after learning thereof, will
similarly give written notice to the Trustee. The Trustee, or its Affiliate
shall be fully justified and protected in relying and acting upon information
received by it from the Company and the Currency Determination Agent, if any,
and shall not otherwise have any duty or obligation to determine such
information independently.
(k) For purposes of any provision of the Indenture where the
Holders of Outstanding Debt Securities may perform an Act which requires that a
specified percentage of the Outstanding Debt Securities of all series perform
such Act and for purposes of any decision or determination by the Trustee of
amounts due and unpaid for the principal (and premium, if any) and interest on
the Debt Securities of all series in respect of which moneys are to be disbursed
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ratably, the principal of (and premium, if any) and interest on the Outstanding
Debt Securities denominated in a Foreign Currency will be the amount in Dollars
based upon the Market Exchange Rate for Debt Securities of such series, as of
the date for determining whether the Holders entitled to perform such Act have
performed it, or as of the date of such decision or determination by the
Trustee, as the case may be.
(l) Pursuant to this Section 3.10, neither the Trustee nor its
appointed Affiliate will have any liabilty for acts performed as the Currency
Determination Agent.
Section 3.11. JUDGMENTS.
If for the purpose of obtaining a judgment in any court with
respect to any obligation of the Company hereunder or under any Debt Security,
it shall become necessary to convert into any other Currency any amount in the
Currency due hereunder or under such Debt Security, then such conversion shall
be made at the Market Exchange Rate as in effect on the date the Company shall
make payment to any Person in satisfaction of such judgment. If pursuant to any
such judgment, conversion shall be made on a date other than the date payment is
made and there shall occur a change between such Market Exchange Rate and the
Market Exchange Rate as in effect on the date of payment, the Company agrees to
pay such additional amounts (if any) as may be necessary to ensure that the
amount paid is equal to the amount in such other Currency which, when converted
at the Market Exchange Rate as in effect on the date of payment or distribution,
is the amount then due hereunder or under such Debt Security. Any amount due
from the Company under this Section 3.11 shall be due as a separate debt and is
not to be affected by or merged into any judgment being obtained for any other
sums due hereunder or in respect of any Debt Security. In no event, however,
shall the Company be required to pay more in the Currency or Currency unit due
hereunder or under such Debt Security at the Market Exchange Rate as in effect
when payment is made than the amount of Currency stated to be due hereunder or
under such Debt Security so that in any event the Company's obligations
hereunder or under such Debt Security will be effectively maintained as
obligations in such Currency, and the Company shall be entitled to withhold (or
be reimbursed for, as the case may be) any excess of the amount actually
realized upon any such conversion over the amount due and payable on the date of
payment or distribution.
Section 3.12. EXCHANGE UPON DEFAULT.
If default is made in the payments referred to in Section 11.01,
the Company hereby undertakes that upon presentation and surrender of a
permanent Global Note to the Trustee (or to any other Person or at any other
address as the Company may designate in writing), on any Business Day on or
after the maturity date thereof the Company will issue and the Trustee will
authenticate and deliver to the bearer of such permanent Global Note duly
executed and authenticated definitive Debt Securities with the same issue date
and maturity date as set out in such permanent Global Note.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture, with respect to the Debt Securities of any series
(if all series issued under this Indenture are not to be affected), shall upon
Company Request, cease to be of further effect (except as to any surviving
rights of registration of transfer or exchange of such Debt Securities herein
expressly provided for and rights to receive payments of principal (and premium,
if any) and interest on such Debt Securities) and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Debt Securities and the Coupons, if any, of such series
theretofore authenticated and delivered (other than (i) Debt
Securities and Coupons of such series which have been destroyed, lost
or stolen and which have been replaced or paid as provided in Section
3.06, (ii) Coupons appertaining to Bearer Securities surrendered for
exchange for Registered Securities and maturing after such exchange,
whose surrender is not required or has been waived under Section 3.05,
(iii) Coupons appertaining to Bearer Securities called for redemption
and maturing after the relevant Redemption Date, whose surrender has
been waived as provided in Section 12.06, and (iv) Debt Securities and
Coupons of such series for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 11.04) have been delivered to the Trustee for
cancellation; or
(B) all Debt Securities and the Coupons, if any, of such series
not theretofore delivered to the Trustee for cancellation,
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii)are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) of this subclause
(B), has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount in the
Currency in which such Debt Securities are denominated (except as
otherwise provided pursuant to Sections 3.01 or 3.10) sufficient to pay
and discharge the entire Debt on such Debt Securities for principal
(and premium, if any) and interest to the date of such deposit (in the
case of Debt Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be; provided,
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however, in the event a petition for relief under the Federal
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar
law, is filed with respect to the Company within 91 days after the
deposit and the Trustee is required to return the deposited money to
the Company, the obligations of the Company under this Indenture with
respect to such Debt Securities shall not be deemed terminated or
discharged;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture with respect to such series have been
complied with; and
(4) the Company has delivered to the Trustee an Opinion of
Counsel or a ruling by the Internal Revenue Service to the effect that
Holders of the Debt Securities of the series will not recognize
income, gain or loss for Federal income tax purposes as a result of
such deposit and discharge.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07, the obligations of
the Trustee to any Authenticating Agent under Section 6.14, the obligations of
the Company under Section 11.01, and, if money shall have been deposited with
the Trustee pursuant to subclause (B) of clause (1) of this Section, the
obligations of the Trustee under Section 4.02 and the last paragraph of Section
11.04, shall survive. If, after the deposit referred to in Section 4.01 has been
made, (x) the Holder of a Debt Security is entitled to, and does, elect pursuant
to Section 3.10(c), to receive payment in a Currency other than that in which
the deposit pursuant to Section 4.01 was made, or (y) if a Conversion Event
occurs with respect to the Currency in which the deposit was made or elected to
be received by the Holder pursuant to Section 3.10(c), then the Debt represented
by such Debt Security shall be fully discharged to the extent that the deposit
made with respect to such Debt Security shall be converted into the Currency in
which such payment is made.
Section 4.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 11.04,
all money deposited with the Trustee pursuant to Section 4.01 shall be held in
trust and applied by it, in accordance with the provisions of the Debt
Securities and Coupons, if any, and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee.
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ARTICLE FIVE
REMEDIES
Section 5.01. EVENTS OF DEFAULT.
"EVENT OF DEFAULT" wherever used herein with respect to Debt
Securities of any series means any one of the events specified as an "Event of
Default" with respect to Debt Securities of that series in one or more
indentures supplemental hereto pursuant to Section 3.01.
Section 5.02. [INTENTIONALLY OMITTED.]
Section 5.03. COLLECTION OF DEBT AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any installment of interest
on any Debt Security or any payment with respect to any Coupons when
such interest or payment becomes due and payable and such default
continues for a period of 30 days,
(2) default is made in the payment of principal of (or premium,
if any, on) any Debt Security at the Maturity thereof, or
(3) default is made in the making or satisfaction of any sinking
fund payment or analogous obligation when the same becomes due
pursuant to the terms of the Debt Securities of any series,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debt Securities or of such Coupons, the amount then due and
payable on such Debt Securities or matured Coupons, for the principal (and
premium, if any) and interest, if any, and, to the extent that payment of such
interest shall be legally enforceable, interest upon the overdue principal (and
premium, if any) and upon overdue installments of interest, at the Overdue Rate;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amount forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon such Debt
Securities and Coupons, and collect the moneys adjudged or decreed to be payable
in the manner provided by law out of the property of the Company or any other
obligor upon such Debt Securities and Coupons wherever situated.
If an Event of Default with respect to Debt Securities of any
series occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Debt Securities
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and Coupons of such series by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceedings, or any voluntary or involuntary case under the
Federal bankruptcy laws, as now or hereafter constituted, relative to the
Company or any other obligor upon the Debt Securities and Coupons, if any, of a
particular series or the property of the Company or of such other obligor or
their creditors, the Trustee (irrespective of whether the principal of such Debt
Securities shall then be due and payable as therein expressed or by declaration
of acceleration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal
(or, if the Debt Securities of such series are Discount Securities,
such portion of the principal amount as may be due and payable with
respect to such series pursuant to a declaration of acceleration of
Maturity thereof in accordance with the provisions of this Indenture)
(and premium, if any) and interest owing and unpaid in respect of the
Debt Securities and Coupons of such series and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders of such Debt Securities and
Coupons allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, custodian, liquidator, sequestrator (or
other similar official) in any such proceeding is hereby authorized by each such
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to such Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Debt Securities and any Coupons of such series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
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Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
DEBT SECURITIES.
All rights of action and claims under this Indenture or the Debt
Securities and the Coupons, if any, of any series may be prosecuted and enforced
by the Trustee without the possession of any of such Debt Securities or Coupons
or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name, as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Debt Securities or Coupons in respect of which such judgment
has been recovered.
Section 5.06. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (and
premium, if any) or interest, upon presentation of the Debt Securities or
Coupons of any series in respect of which money has been collected and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under this
Indenture, including, without limitation, under Section 6.07.
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Debt Securities
or Coupons of such series, in respect of which or for the benefit of
which such money has been collected ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Debt Securities or Coupons for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
Section 5.07. LIMITATION ON SUITS.
No Holder of any Debt Security or Coupon of any series shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to such series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of such series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
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(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Debt Securities of
such series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other such
Holders or of the Holders of Outstanding Debt Securities or Coupons of any other
series, or to obtain or to seek to obtain priority or preference over any other
of such Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all of such
Holders. For the protection and enforcement of the provisions of this Section
5.07, each and every Holder of Debt Securities or Coupons of any series and the
Trustee for such series shall be entitled to such relief as can be given at law
or in equity.
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder
of any Debt Security or of any Coupon shall have the right, which is absolute
and unconditional, to receive payment of the principal of (and premium, if any)
and (subject to Section 3.07) interest on such Debt Security or Coupon on the
respective Stated Maturity or Maturities expressed in such Debt Security or
Coupon (or, in the case of redemption, on the Redemption Date) and to institute
suit for the enforcement of any such payment and interest thereon, and such
right shall not be impaired without the consent of such Holder.
Section 5.09. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise expressly provided elsewhere in this
Indenture, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
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right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Indenture or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.12. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Debt Securities of any series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee with respect to the
Debt Securities of such series, provided, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture;
(2) the Holders of the Outstanding Debt Securities of such series
shall have offered to the Trustee reasonable indemnity against
expenses and liabilities;
(3) subject to the provisions of Section 6.01, the Trustee shall
have the right to decline to follow any such direction if the Trustee
in good faith shall, by a Responsible Officer or Responsible Officers
of the Trustee, determine that the proceeding so directed would be
unjustly prejudicial to the Holders of Debt Securities of such series
not joining in any such direction; and
(4) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series may on behalf of the Holders of
all the Debt Securities of any such series waive any past default hereunder with
respect to such series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series, or in the payment of any
sinking fund instalment or analogous obligation with respect to the
Debt Securities of such series, or
(2) in respect of a covenant or provision hereof which pursuant
to Article Eleven cannot be modified or amended without the consent of
the Holder of each Outstanding Debt Security of such series affected.
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Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Debt Securities of such series under this Indenture, but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
Section 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Debt
Security or any Coupon by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Indenture, or in any suit against the Trustee for
any action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit other than the Trustee of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant, but the provisions of this Section do not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder or group of
Holders holding in the aggregate more than 10% in principal amount of the
Outstanding Debt Securities of any series, or to any suit instituted by any
Holder of a Debt Security or Coupon for the enforcement of the payment of the
principal of (or premium, if any) or interest on such Debt Security or the
payment of any Coupon on or after the respective Stated Maturity or Maturities
expressed in such Debt Security or Coupon (or, in the case of redemption, on or
after the Redemption Date).
Section 5.15. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
Section 6.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default with
respect to the Debt Securities of any series,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provisions hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default with respect to Debt Securities
of any series has occurred and is continuing, the Trustee shall, with respect to
the Debt Securities of such series, exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(1) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) neither the Trustee nor an Affiliate of the Trustee appointed
by the Trustee to act pursuant to this Indenture shall be liable with
respect to any action taken, suffered or omitted to be taken by it
with respect to Debt Securities of any series in good faith in
accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Debt Securities of such series
relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture; and
(4) the Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights
or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision
of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
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Section 6.02. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder with
respect to Debt Securities or Coupons, if any, of any series, the Trustee shall
give notice to all Holders of Debt Securities and Coupons of such series of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security or Coupon of such series or in the payment of any sinking fund
installment with respect to Debt Securities of such series, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders of Debt Securities and of Coupons of
such series; and provided, further, that in the case of any default in the
performance, or breach, of any covenant or agreement of the Company in this
Indenture with respect to Debt Securities of such series no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this Section, the term "DEFAULT" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to Debt Securities of such series.
Notice given pursuant to this Section 6.02 shall be transmitted
by first class mail, postage paid:
(1) to all Registered Holders, as the names and addresses of the
Registered Holders appear in the Security Register;
(2) to such Holders of Bearer Securities of any series as have
within two years preceding such transmission, filed their names and
addresses with the Trustee for such series for that purpose; and
(3) to each Holder of a Debt Security of any series whose name
and address appear in the information preserved at the time by the
Trustee in accordance with Section 7.02(a) of this Indenture.
Section 6.03. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of Debt or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a Board
Resolution;
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(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Debt Securities of any series pursuant to this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of Debt or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent (including any agent appointed pursuant to
Section 3.10(j)) or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture; and
(i) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
appraisal, bond, debenture, note, coupon, security, or other paper or document
with respect to the Debt Securities of any series unless requested in writing so
to do by the Holders of not less than a majority in aggregate principal amount
of the Outstanding Debt Securities of such series; provided that, if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall be paid by
the Company or, if paid by the Trustee or any predecessor trustee, shall be
repaid by the Company upon demand.
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Section 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBT
SECURITIES.
The recitals contained herein and in the Debt Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Debt Securities or Coupons, if any, of any series. The
Trustee shall not be accountable for the use or application by the Company of
any Debt Securities or the proceeds thereof.
Section 6.05. MAY HOLD DEBT SECURITIES.
The Trustee, any Paying Agent, the Security Registrar or any
other agent of the Company, in its individual or any other capacity, may become
the owner or pledgee of Debt Securities or Coupons, and, subject to Sections
6.08 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Paying Agent, Security Registrar or such other
agent.
Section 6.06. MONEY HELD IN TRUST.
Money in any Currency held by the Trustee or any Paying Agent
in trust hereunder need not be segregated from other funds except to the extent
required by law. Neither the Trustee nor any Paying Agent shall be under any
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
Section 6.07. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation in Dollars for all services rendered by it hereunder
(which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the trustee in Dollars upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify in Dollars the Trustee for, and to hold it
harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this trust or performance of
its duties hereunder, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
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As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a claim prior to the Debt Securities
and Coupons, if any, upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of amounts due on
the Debt Securities and Coupons.
The obligations of the Company under this Section 6.07 to
compensate and indemnify the Trustee for expenses, disbursements and advances
shall constitute additional Debt under this Indenture and shall survive the
satisfaction and discharge of this Indenture.
Section 6.08. DISQUALIFICATION; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest,
as defined in this Section with respect to the Debt Securities of any series,
then, within 90 days after ascertaining that it has such conflicting interest,
and if the default (as hereinafter defined) to which such conflicting interest
relates has not been cured or duly waived or otherwise eliminated before the end
of such 90-day period, the Trustee shall either eliminate such conflicting
interest or, except as otherwise provided below, resign with respect to the Debt
Securities of such series, and the Company shall take prompt steps to have a
successor appointed, in the manner and with the effect hereinafter specified in
this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section with respect to the Debt Securities
of any series, the Trustee shall, within 10 days after the expiration of such
90-day period, transmit to all Holders of Debt Securities of such series notice
of such failure.
Notice given pursuant to this Section 6.08(b) shall be
transmitted by first class mail, postage paid:
(1) to all Registered Holders, as the names and addresses of the
Registered Holders appear in the Security Register;
(2) to such Holders of Bearer Securities of any series as have,
within two years preceding such transmission, filed their names and
addresses with the Trustee for such series for that purpose; and
(3) to each Holder of a Debt Security of any series whose name
and address appear in the information preserved at the time by the
Trustee in accordance with Section 7.02(a) of this Indenture.
(c) For the purposes of this Section, the Trustee shall be deemed
to have a conflicting interest with respect to the Debt Securities of any
series, if there shall exist an Event of Default (as such term is defined
herein, but exclusive of any period of grace or requirement of notice) with
respect to such Debt Securities and
(1) the Trustee is trustee under this Indenture with respect to
the Outstanding Debt Securities of any series other than that series
or is trustee under another indenture under which any other
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securities, or certificates of interest or participation in any other
securities, of the Company are outstanding, unless such other
indenture is a collateral trust indenture under which the only
collateral consists of Debt Securities issued under this Indenture,
provided that there shall be excluded from the operation of this
paragraph this Indenture with respect to the Debt Securities of any
series other than that series and any other indenture or indentures
under which other securities, or certificates of interest or
participation in other securities, of the Company are outstanding, if
(i) this Indenture and such other indenture or indentures (and
all series of securities issuable thereunder) are wholly unsecured and
rank equally and such other indenture or indentures are hereafter
qualified under the Trust Indenture Act, unless the Commission shall
have found and declared by order pursuant to Section 305(b) or Section
307(c) of the Trust Indenture Act that differences exist between the
provisions of this Indenture with respect to the Debt Securities of
such series and one or more other series or the provisions of such
other indenture or indentures which are so likely to involve a
material conflict of interest as to make it necessary, in the public
interest or for the protection of investors to disqualify the Trustee
from acting as such under this Indenture with respect to the Debt
Securities of such series and such other series or under such other
indenture or indentures, or
(ii) the Company shall have sustained the burden of proving, on
application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture with respect to the
Debt Securities of such series and such other series or such other
indenture or indentures is not so likely to involve a material
conflict of interest as to make it necessary in the public interest or
for the protection of investors to disqualify the Trustee from acting
as such under this Indenture with respect to the Debt Securities of
such series and such other series or under such other indenture or
indentures;
(2) the Trustee or any of its directors or executive officers is
an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control
with an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is
a director, officer, partner, employee, appointee or representative of
the Company, or of an underwriter (other than the Trustee itself) for
the Company who is currently engaged in the business of underwriting,
except that (i) one individual may be a director or an executive
officer, or both, of the Trustee and a director or an executive
officer, or both, of the Company but may not be at the same time an
executive officer of both the Trustee and the Company; (ii) if and so
long as the number of directors of the Trustee in office is more than
nine, one additional individual may be a director or an executive
officer, or both, of the Trustee and a director of the Company; and
(iii) the Trustee may be designated by the Company or by any
underwriter for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary or in any other similar capacity, or, subject to the
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provisions of paragraph (l) of this subsection, to act as trustee,
whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner
or executive officer thereof, or 20% or more of such voting securities
is beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Company or by any
director, partner or executive officer thereof or is beneficially
owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default (as
hereinafter in this subsection defined), (i) 5% or more of the voting
securities, or 10% or more of any other class of security, of the
Company not including the Debt Securities issued under this Indenture
and securities issued under any other indenture under which the
Trustee is also trustee, or (ii) 10% or more of any class of security
of an underwriter for the Company;
(7) the Trustee is the beneficial owner of or holds as collateral
security for an obligation which is in default, 5% or more of the
voting securities of any person who, to the knowledge of the Trustee,
owns 10% or more of the voting securities of, or controls directly or
indirectly or is under direct or indirect common control with, the
Company;
(8) the Trustee is the beneficial owner of or holds as collateral
security for an obligation which is in default, 10% or more of any
class of security of any person who, to the knowledge of the Trustee,
owns 50% or more of the voting securities of the Company;
(9) the Trustee owns, on the date of such Event of Default or any
anniversary of such Event of Default while such Event of Default
remains outstanding, in the capacity of executor, administrator,
testamentary or inter vivos trustee, guardian, committee or
conservator, or in any other similar capacity, an aggregate of 25% or
more of the voting securities, or of any class of security, of any
person, the beneficial ownership of a specified percentage of which
would have constituted a conflicting interest under paragraph (6), (7)
or (8) of this subsection. As to any such securities of which the
Trustee acquired ownership through becoming executor, administrator or
testamentary trustee of an estate which included them, the provisions
of the preceding sentence shall not apply, for a period of not more
than two years from the date of such acquisition, to the extent that
such securities included in such estate do not exceed 25% of such
voting securities or 25% of any such class of security. Promptly after
the dates of any such Event of Default and annually in each succeeding
year that such Event of Default continues, the Trustee shall make a
check of its holdings of such securities in any of the above-mentioned
capacities as of such dates. If the Company fails to make payment in
full of the principal of (or premium, if any) or interest on any of
the Debt Securities when and as the same becomes due and payable, and
such failure continues for 30 days thereafter, the Trustee shall make
a prompt check of its holdings of such securities in any of the
above-mentioned capacities as of the date of the expiration of such
30-day period, and after such date, notwithstanding the foregoing
provisions of this paragraph, all such securities so held by the
Trustee, with sole or joint control over such securities vested in it,
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shall be considered as though beneficially owned by the Trustee for
the purposes of paragraphs (6), (7) and (8) of this subsection; or
(10) except under the circumstances described in paragraphs (1),
(3), (4), (5) or (6) of Section 6.13(b) of this Indenture, the Trustee
shall be or shall become a creditor of the Company.
For the purposes of paragraph (1) of this subsection, the term
"SERIES OF SECURITIES" or "SERIES" means a series, class or group of securities
issuable under an indenture pursuant to whose terms holders of one such series
may vote to direct the Trustee, or otherwise take action pursuant to a vote of
such holders, separately from holders of another series; provided, that "series
of securities" or "series" shall not include any series of securities issuable
under an indenture if all such series rank equally and are wholly unsecured.
The specification of percentages in paragraphs (5) to (9),
inclusive, of this subsection shall not be construed as indicating that the
ownership of such percentages of the securities of a person is or is not
necessary or sufficient to constitute direct or indirect control for the
purposes of paragraph (3) or (7) of this subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this
subsection only, (i) the terms "SECURITY" and "SECURITIES" shall include only
such securities as are generally known as corporate securities, but shall not
include any note or other evidence of Debt issued to evidence an obligation to
repay moneys lent to a person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of Debt; (ii) an obligation shall be deemed to be "IN DEFAULT" when a
default in payment of principal shall have continued for 30 days or more and
shall not have been cured; and (iii) the Trustee shall not be deemed to be the
owner or holder of (A) any security which it holds as collateral security, as
trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent or
depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "UNDERWRITER" when used with reference to the
Company means every person who, within one year prior to the time as
of which the determination is made, has purchased from the Company
with a view to, or has offered or sold for the Company in connection
with, the distribution of any security of the Company outstanding at
such time, or has participated or has had a direct or indirect
participation in any such undertaking, or has participated or has had
a participation in the direct or indirect underwriting of any such
undertaking, but such term shall not include a person whose interest
was limited to a commission from an underwriter or dealer not in
excess of the usual and customary distributors' or sellers'
commission.
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(2) The term "DIRECTOR" means any director of a corporation, or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "PERSON" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an
estate, an unincorporated organization, or a government or political
subdivision thereof. As used in this paragraph, the term "TRUST" shall
include only a trust where the interest or interests of the
beneficiary or beneficiaries are evidenced by a security.
(4) The term "VOTING SECURITY" means any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangements whereby a trustee or
trustees or agent or agents for the owner or holder of such security
are presently entitled to vote in the direction or management of the
affairs of a person.
(5) The term "COMPANY" means any obligor upon the Debt Securities
of any series.
(6) The term "EXECUTIVE OFFICER" means the president, every vice
president, every trust officer, the cashier, the secretary, and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization, whether
incorporated or unincorporated, but shall not include the chairman of
the board of directors.
(e) The percentages of voting securities and other securities
specified in this Section shall be calculated in accordance with the following
provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in this Section
(each of whom is referred to as a "PERSON" in this paragraph) means
such amount of the outstanding voting securities of such person as
entitles the holder or holders thereof to cast such specified
percentage of the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled to cast in
the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities of the
class outstanding.
(3) The term "AMOUNT", when used with regard to securities means
the principal amount if relating to evidences of Debt, the number of
shares if relating to capital shares, and the number of units if
relating to any other kind of security.
(4) The term "OUTSTANDING" means issued and not held by or for
the account of the issuer. The following securities shall not be
deemed outstanding within the meaning of this definition:
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(i) securities of an issuer held in a sinking fund relating
to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating
to another class of securities of the issuer, if the obligation
evidenced by such other class of securities is not in default as
to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as security
for an obligation of the issuer not in default as to principal or
interest or otherwise; and
(iv) securities held in escrow if placed in escrow by the
issuer thereof;
provided, however, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided, however, that, in
the case of secured evidences of Debt, all of which are issued under a
single indenture, differences in the interest rates or maturity dates of
various series thereof shall not be deemed sufficient to constitute such
series different classes; and provided, further, that, in the case of
unsecured evidences of Debt, differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to constitute them securities
of different classes, whether or not they are issued under a single
indenture.
(f) Except in the case of a default in the payment of the
principal of or interest on any Debt Security of any series, or in the payment
of any sinking or purchase fund installment, the Trustee shall not be required
to resign as provided by this Section if the Trustee shall have sustained the
burden of proving, on application to the Commission and after opportunity for
hearing thereon, that:
(1) the Event of Default may be cured or waived during a
reasonable period and under the procedures described in such
application; and
(2) a stay of the Trustee's duty to resign will not be
inconsistent with the interests of Holders of the Debt Securities.
The filing of such an application shall automatically stay the performance of
the duty to resign until the Commission orders otherwise.
Section 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $75,000,000, subject to supervision or examination by Federal, State
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or District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. Neither the Company nor any person directly or
indirectly controlling, controlled by, or under common control with the Company
shall serve as Trustee upon any Debt Securities.
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Debt
Securities of one or more series by giving written notice thereof to the
Company. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the Debt
Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Debt Securities of any series and a successor Trustee appointed by Act of the
Holders of a majority in principal amount of the Outstanding Debt Securities of
such series, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08(a) with
respect to the Debt Securities of any series after written request
therefor by the Company or by any Holder who has been a bona fide
Holder of a Debt Security of such series for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09
with respect to the Debt Securities of any series and shall fail to
resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Debt Securities, or (ii) subject to Section 5.14,
any Holder who has been a bona fide Holder of a Debt Security of any series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee for the Debt Securities of such series.
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(e) If the Trustee shall resign, be removed pursuant to Sections
6.10(c) or (d) or become incapable of acting, or if a vacancy shall occur in the
office of Trustee for any cause, with respect to the Debt Securities of one or
more series, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee or Trustees with respect to the Debt Securities of that or
those series (it being understood that any such successor Trustee may be
appointed with respect to the Debt Securities of one or more or all of such
series and that at any time there shall be only one Trustee with respect to the
Debt Securities of any particular series) and shall comply with the applicable
requirements of Section 6.11. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Debt Securities of any series shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of such series delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee with respect to the Debt Securities of such series
and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to the Debt Securities of any series shall
have been so appointed by the Company or the Holders of such series and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Debt Security of such series for at least six months may,
subject to Section 5.14, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Debt Securities of such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Debt Securities of any series and
each appointment of a successor Trustee with respect to the Debt Securities of
any series in the manner and to the extent provided in Section 1.05 to the
Holders of Debt Securities of such series. Each notice shall include the name of
the successor Trustee with respect to the Debt Securities of such series and the
address of its Corporate Trust Office.
Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In the case of an appointment hereunder of a successor
Trustee with respect to all Debt Securities, each such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee,
but, on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee, and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder, subject
nevertheless to its claim, if any, provided for in Section 6.07.
(b) In case of the appointment hereunder of a successor Trustee
with respect to the Debt Securities of one or more (but not all) series, the
Company, the retiring Trustee and each successor Trustee with respect to the
Debt Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
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and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Debt Securities of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Debt Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Debt Securities of that or those
series as to which the retiring Trustee is not retiring shall continue to be
vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in any such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any other trust or trusts hereunder administered by any other such Trustee; and
upon the execution and delivery of any such supplemental indenture the
resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Debt Securities of that
or those series to which the appointment of such successor Trustee relates, but,
on request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Debt
Securities of that or those series to which the appointment of such successor
Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
Section 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Debt Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Debt Securities so authenticated
with the same effect as if such successor Trustee had itself authenticated such
Debt Securities. In case any Debt Securities shall not have been authenticated
by such predecessor Trustee, any such successor Trustee may authenticate and
deliver such Debt Securities, in either its own name or that of its predecessor
Trustee, with the full force and effect which this Indenture provides for the
certificate of authentication of the Trustee.
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Section 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
(a) Subject to subsection (b) of this Section, if the Trustee
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company within three months prior to a default, as defined in
subsection (c) of this Section, or subsequent to such default, then, unless and
until such default shall be cured, the Trustee shall set apart and hold in a
special account for the benefit of the Trustee individually, the Holders of the
Debt Securities and of the Coupons, if any, and the holders of other indenture
securities (as defined in subsection (c) of this Section):
(1) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three-month period and
valid as against the Company and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in paragraph (2) of this subsection, or from the exercise of
any right of set-off which the Trustee could have exercised if a
voluntary or involuntary case had been commenced in respect of the
Company under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy,
insolvency or other similar law upon the date of such default; and
(2) all property received by the Trustee in respect of any claim
as such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such
three-month period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any, of
the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee:
(A) to retain for its own account (i) payments made on account of
any such claim by any Person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such claim
by the Trustee to a third Person, and (iii) distributions made in
cash, securities or other property in respect of claims filed against
the Company in bankruptcy or receivership or in proceedings or
reorganization pursuant to the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or State
bankruptcy, insolvency or other similar law;
(B) to realize, for its own account, upon any property held by it
as security for any such claim, if such property was so held prior to
the beginning of such three-month period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such three-month period and such property was received as
security therefor simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to
believe that a default, as defined in subsection (c) of this Section,
would occur within three months, or
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(D) to receive payment on any claim referred to in paragraph (B)
or (C) against the release of any property held as security for such
claim as provided in paragraph (B) or (C), as the case may be, to the
extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three-month period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall be
apportioned among the Trustee, the Holders and the holders of other indenture
securities in such manner that the Trustee, the Holders and the holders of other
indenture securities realize, as a result of payments from such special account
and payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
bankruptcy laws, as now or hereafter constituted or any other applicable Federal
or State bankruptcy, insolvency or other similar law, the same percentage of
their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Company of the funds and
property in such special account and before crediting to the respective claims
of the Trustee and the Holders and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or State
bankruptcy, insolvency or other similar law, but after crediting thereon
receipts on account of the Debt represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As used in this paragraph, with respect to any claim,
the term "DIVIDENDS" shall include any distribution with respect to such claim,
in bankruptcy or receivership or proceedings for reorganization pursuant to the
Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or State bankruptcy, insolvency or other similar law, whether
such distribution is made in cash, securities, or other property, but shall not
include any such distribution with respect to the secured portion, if any, of
such claim. The court in which such bankruptcy, receivership or proceedings for
reorganization is pending shall have jurisdiction (i) to apportion among the
Trustee and the Holders and the holders of other indenture securities, in
accordance with the provisions of this paragraph, the funds and property held in
such special account and proceeds thereof, or (ii) in lieu of such
apportionment, in whole or in part, to give to the provisions of this paragraph
due consideration in determining the fairness of the distributions to be made to
the Trustee and the Holders and the holders of other indenture securities with
respect to their respective claims, in which event it shall not be necessary to
liquidate or to appraise the value of any securities or other property held in
such special account or as security for any such claim, or to make a specific
allocation of such distributions as between the secured and unsecured portions
of such claim, or otherwise to apply the provisions of this paragraph as a
mathematical formula.
Any Trustee which has resigned or been removed after the
beginning of such three-month period shall be subject to the provisions of this
subsection as though such resignation or removal had not occurred. If any
Trustee has resigned or been removed prior to the beginning of such three-month
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period, it shall be subject to the provisions of this subsection if and only if
the following conditions exist:
(i) the receipt of property or reduction of claim, which would
have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such three-month
period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of subsection (a)
of this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year
or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the Lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the Holders
at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an Debt created as a result of services rendered or premises
rented, or an Debt created as a result of goods or securities sold in
a cash transaction as defined in subsection (c) of this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; and
(6) The acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
subsection (c) of this Section.
(c) for the purposes of this Section only:
(1) The term "DEFAULT" means any failure to make payment in full
of the principal of or interest on any of the Debt Securities or upon
the other indenture securities when and as such principal or interest
becomes due and payable.
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(2) The term "OTHER INDENTURE SECURITIES" means securities upon
which the Company is an obligor outstanding under any other indenture
(i) under which the Trustee is also trustee, (ii) which contains
provisions substantially similar to the provisions of this Section,
and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account.
(3) The term "CASH TRANSACTION" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks and payable upon demand.
(4) The term "SELF-LIQUIDATING PAPER" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation
of the creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
(5) The term "COMPANY" means any obligor upon the Debt
Securities.
Section 6.14. APPOINTMENT OF AUTHENTICATING AGENT.
As long as any Debt Securities of a series remain Outstanding,
upon a Company Request, there shall be an authenticating agent (the
"AUTHENTICATING AGENT") appointed, for such period as the Company shall elect,
by the Trustee for such series of Debt Securities to act as its agent on its
behalf and subject to its direction in connection with the authentication and
delivery of each series of Debt Securities for which it is serving as Trustee.
Debt Securities of each such series authenticated by such Authenticating Agent
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by such Trustee. Wherever
reference is made in this Indenture to the authentication and delivery of Debt
Securities of any series by the Trustee for such series or to the Trustee's
Certificate of Authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee for such series by an
Authenticating Agent for such series and a Certificate of Authentication
executed on behalf of such Trustee by such Authenticating Agent, except that
only the Trustee may authenticate Debt Securities upon original issuance and
pursuant to Section 3.06 hereof. Such Authenticating Agent shall at all times be
a corporation organized and doing business under the laws of the United States
of America or of any State, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $10,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
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provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which any Authenticating Agent may be merged
or converted, or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of any Authenticating Agent, shall continue to be the Authenticating Agent with
respect to all series of Debt Securities for which it served as Authenticating
Agent without the execution or filing of any paper or any further act on the
part of the Trustee for such series or such Authenticating Agent. Any
Authenticating Agent may at any time, and if it shall cease to be eligible
shall, resign by giving written notice of resignation to the applicable Trustee
and to the Company.
Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 6.14 with respect to
one or more or all series of Debt Securities, the Trustee for such series shall
upon Company Request appoint a successor Authenticating Agent, and the Company
shall provide notice of such appointment to all Holders of Debt Securities of
such series in the manner and to the extent provided in Section 1.05. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all rights, powers, duties and responsibilities of its
predecessor hereunder, with like effect as if originally named as Authenticating
Agent herein. The Trustee for the Debt Securities of such series agrees to pay
to the Authenticating Agent for such series from time to time reasonable
compensation for its services, and the Trustee shall be entitled to be
reimbursed for such payment, subject to the provisions of Section 6.07. The
Authenticating Agent for the Debt Securities of any series shall have no
responsibility or liability for any action taken by it as such at the direction
of the Trustee for such series.
If an appointment with respect to one or more series is made
pursuant to this Section, the Debt Securities of such series may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alterative certificate of authentication in the following form:
This is one of the series of Debt Securities issued under the
within mentioned Indenture.
[INSERT NAME OF TRUSTEE],
As Trustee
By:[INSERT NAME OF AUTHENTICATING AGENT],
As Authenticating Agent
By:________________________
Authorized Signatory
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
with respect to Registered Securities of each series for which it acts as
Trustee:
(a) semi-annually on a date not more than 15 days after each
Regular Record Date with respect to an Interest Payment Date, if any, for the
Registered Securities of such series (or on semi-annual dates in each year to be
determined pursuant to Section 3.01 if the Registered Securities of such series
do not bear interest), a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Registered Holders as of the date 15
days next preceding each such Regular Record Date (or such semi-annual dates, as
the case may be); and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar for such series, no such list need be furnished.
The Company shall also be required to furnish to the Trustee at
all such times set forth above all information in the possession or control of
the Company or any of its Paying Agents other than the Trustee as to the names
and addresses of the Holders of Bearer Securities of all series; provided,
however, that the Company shall have no obligation to investigate any matter
relating to any Holders of Bearer Securities of any series.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATION TO
HOLDERS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of Holders
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 received by it in the capacity of Paying Agent (if so acting)
hereunder, and filed with it within the two preceding years pursuant to Section
7.03(c)(2).
The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished, destroy any information
received by it as Paying Agent (if so acting) hereunder upon delivering to
itself as Trustee, not earlier than 45 days after an Interest Payment Date, a
list containing the names and addresses of the Holders obtained from such
information since the delivery of the next previous list, if any, destroy any
list delivered to itself as Trustee which was compiled from information received
by it as Paying Agent (if so acting) hereunder upon the receipt of a new list so
delivered, and destroy not earlier than two years after filing, any information
filed with it pursuant to Section 7.03(c)(2).
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(b) If three or more Holders (hereinafter referred to as
"APPLICANTS") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Debt Security for a period
of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other Holders
of Debt Securities of a particular series (in which case the applicants must
hold Debt Securities of such series) or with all Holders of Debt Securities with
respect to their rights under this Indenture or under the Debt Securities and is
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall, within five Business
Days after the receipt of such application, at its election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of
Holders of Debt Securities of such series or of all Debt Securities,
as the case may be, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance with
Section 7.02(a), and as to the approximate cost of mailing to such
Holders the form of proxy or other communication, specified in such
application.
If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon written inquest of such applicants,
mail to the Holders of Debt Securities of such series or all Holders, as the
case may be, whose names and addresses appear in the information preserved at
the time by the Trustee in accordance with Section 7.02(a), a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
of Debt Securities of such series or all Holders, as the case may be, or would
be in violation of applicable law. Such written statement shall specify the
basis of such opinion. If the Commission, after opportunity for a hearing upon
the objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Holders with reasonable promptness after the entry of
such order and the renewal of such tender; otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Debt Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
Section 7.02(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
of any material pursuant to a request made under Section 7.02(b).
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Section 7.03. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year, commencing May 15,
1999, the Trustee shall, to the extent required by the Trust Indenture Act,
transmit to all Holders of Debt Securities of any series with respect to which
it acts as Trustee, in the manner hereinafter provided in this Section 7.03, a
brief report dated such date with respect to any of the following events which
may have occurred within the previous 12 months (but if no such event has
occurred within such period no report need be transmitted):
(1) any change to its eligibility under Section 6.09 and its
qualifications under Section 6.08;
(2) the creation of or any material change to a relationship
specified in paragraph (1) through (10) of Section 6.08(c) of this
Indenture;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the date of such
report, and for the reimbursement of which it claims or may claim a
lien or charge, prior to that of the Debt Securities of such series,
on any property or funds held or collected by it as Trustee, except
that the Trustee shall not be required (but may elect) to report such
advances if such advances so remaining unpaid aggregate not more than
1/2 of 1% of the principal amount of the Outstanding Debt Securities
of such series on the date of such report;
(4) any change to the amount, interest rate and maturity date of
all other Debt owing by the Company (or any other obligor on the Debt
Securities of such series) to the Trustee in its individual capacity,
on the date of such report, with a brief description of any property
held as collateral security therefor, except an Debt based upon a
creditor relationship arising in any manner described in Section
6.13(b)(2), (3), (4) or (6);
(5) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the date of such report;
(6) any additional issue of Debt Securities which the Trustee has
not previously reported; and
(7) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Debt Securities of such series, except
action in respect of a default, notice of which has been or is to be
withheld by the Trustee in accordance with Section 6.02.
(b) The Trustee shall transmit by mail to all Holders of Debt
Securities of any series (whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section 7.02 (a)) for
which it acts as the Trustee, as hereinafter provided, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
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subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Debt Securities of such series, on property or funds held or collected by it
as Trustee, and which it has not previously reported pursuant to this
subsection, except that the Trustee for each series shall not be required (but
may elect) to report such advances if such advances remaining unpaid at any time
aggregate 10% or less of the principal amount of the Debt Securities of such
series Outstanding at such time, such report to be transmitted within 90 days
after such time.
(c) Reports pursuant to this Section 7.03 shall be transmitted by
mail:
(1) to all Holders of Registered Securities, as the names and
addresses of such Holders of Registered Securities appear in the
Security Register;
(2) to such Holders of Bearer Securities of any series as have,
within two years preceding such transmission, filed their names and
addresses with the Trustee for such series for that purpose; and
(3) except in the cases of reports pursuant to subsection (b) of
this Section 7.03, to each Holder of a Debt Security of any series
whose name and address appear in the information preserved at the time
by the Trustee in accordance with Section 7.02(a).
(d) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which any Debt Securities of such series are listed, with the Commission and
also with the Company. The Company will notify the Trustee when any series of
Debt Securities are listed on any stock exchange.
Section 7.04. REPORTS BY COMPANY.
The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended; or,
if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it will file with
the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which may be
required pursuant to Sections 13 and 15(d) of the Securities Exchange
Act of 1934, as amended;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
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compliance by the Company with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(3) transmit to all Holders of Debt Securities, in the manner and
to the extent provided in Section 7.03, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
ARTICLE EIGHT
CONCERNING THE HOLDERS
Section 8.01. ACTS OF HOLDERS.
Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent or
proxy duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders
signing such instrument or instruments. Whenever in this Indenture it is
provided that the Holders of a specified percentage in aggregate principal
amount of the Outstanding Debt Securities of any series may take any Act, the
fact that the Holders of such specified percentage have joined therein may be
evidenced (a) by the instrument or instruments executed by Holders in person or
by agent or proxy appointed in writing, or (b) by the record of Holders voting
in favor thereof at any meeting of such Holders duly called and held in
accordance with the provisions of Article Nine, or (c) by a combination of such
instrument or instruments and any such record of such a meeting of Holders.
Section 8.02. PROOF OF OWNERSHIP; PROOF OF EXECUTION OF
INSTRUMENTS BY HOLDER.
The ownership of Registered Securities of any series shall be
proved by the Security Register for such series or by a certificate of the
Security Registrar for such series.
The ownership of Bearer Securities shall be proved by production
of such Bearer Securities or by a certificate executed by any bank or trust
company, which certificate shall be dated and shall state that on the date
thereof a Bearer Security bearing a specified identifying number or other mark
was deposited with or exhibited to the person executing such certificate by the
person named in such certificate, or by any other proof of possession reasonably
satisfactory to the Trustee. The holding by the person named in any such
certificate of any Bearer Security specified therein shall be presumed to
continue for a period of one year unless at the time of determination of such
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holding (1) another certificate bearing a later date issued in respect of the
same Bearer Security shall be produced, (2) such Bearer Security shall be
produced by some other person, (3) such Bearer Security shall have been
registered on the Security Register, if, pursuant to Section 3.01, such Bearer
Security can be so registered, or (4) such Bearer Security shall have been
cancelled or paid.
Subject to the provisions of Sections 6.01, 6.03 and 9.05, proof
of the execution of a writing appointing an agent or proxy and of the execution
of any instrument by a Holder or his agent or proxy shall be sufficient and
conclusive in favor of the Trustee and the Company if made in the following
manner:
The fact and date of the execution by any such person of any
instrument may be proved by the certificate of any notary public or other
officer authorized to take acknowledgements of deeds, that the person executing
such instrument acknowledged to him the execution thereof, or by an affidavit of
a witness to such execution sworn to before any such notary or other such
officer. Where such execution is by an officer of a corporation or association
or a member of a partnership on behalf of such corporation, association or
partnership, as the case may be, or by any other person acting in a
representative capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.
The record of any Holders' meeting shall be proved in the manner
provided in Section 9.06.
The Trustee may in any instance require further proof with
respect to any of the matters referred to in this Section so long as the request
is a reasonable one.
Section 8.03. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name any Registered Security is registered
as the owner of such Registered Security for the purpose of receiving payment of
the principal of (and premium, if any) and (subject to Section 3.07) interest,
if any, on such Registered Security and for all other purposes whatsoever,
whether or not such Registered Security be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary. The Company, the Trustee, and any agent of the Company or the
Trustee may treat the Holder of any Bearer Security or of any Coupon as the
absolute owner of such Bearer Security or Coupon for the purposes of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Bearer Security or Coupon be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary. All payments made to any Holder, or upon his
order, shall be valid, and, to the extent of the sum or sums paid, effectual to
satisfy and discharge the liability for moneys payable upon such Debt Security
or Coupon.
Section 8.04. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND.
At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 8.01, of the taking of any Act by the Holders of
the percentage in aggregate principal amount of the Outstanding Debt Securities
specified in this Indenture in connection with such Act, any Holder of a Debt
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Security the number, letter or other distinguishing symbol of which is shown by
the evidence to be included in the Debt Securities the Holders of which have
consented to such Act may, by filing written notice with the Trustee at the
Corporate Trust Office and upon proof of ownership as provided in Section 8.02,
revoke such Act so far as it concerns such Debt Security. Except as aforesaid,
any such Act taken by the Holder of any Debt Security shall be conclusive and
binding upon such Holder and, subject to the provisions of Section 5.08, upon
all future Holders of such Debt Security and all past, present and future
Holders of Coupons, if any, appertaining thereto and of any Debt Securities and
Coupons issued on transfer or in lieu thereof or in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon such Debt Security or Coupons or such other Debt Securities or Coupons.
ARTICLE NINE
HOLDERS' MEETINGS
Section 9.01. PURPOSES OF MEETINGS.
A meeting of Holders of any or all series may be called at any
time and from time to time pursuant to the provisions of this Article Nine for
any of the following purposes:
(1) to give any notice to the Company or to the Trustee for such
series, or to give any directions to the Trustee for such series, or
to consent to the waiving of any default hereunder and its
consequences, or to take any other action authorized to be taken by
Holders pursuant to any of the provisions of Article Five;
(2) to remove the Trustee for such series and appoint a successor
Trustee pursuant to the provisions of Article Six;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.02; or
(4) to take any other action authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of
the Outstanding Debt Securities of any one or more or all series, as
the case may be, under any other provision of this Indenture or under
applicable law.
Section 9.02. CALL OF MEETINGS BY TRUSTEE.
The Trustee for any series may at any time call a meeting of
Holders of such series to take any action specified in Section 9.01, to be held
at such time or times and at such place or places as the Trustee for such series
shall determine. Notice of every meeting of the Holders of any series, setting
forth the time and the place of such meeting and in general terms the action
proposed to be taken at such meeting, shall be given to Holders of such series
in the manner and to the extent provided in Section 1.05. Such notice shall be
given not less than 20 days nor more than 90 days prior to the date fixed for
the meeting.
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Section 9.03. CALL OF MEETINGS BY COMPANY OR HOLDERS.
In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in aggregate principal amount of the Outstanding
Debt Securities of a series or of all series, as the case may be, shall have
requested the Trustee for such series to call a meeting of Holders of any or all
such series by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have given the
notice of such meeting within 20 days after the receipt of such request, then
the Company or such Holders may determine the time or times and the place or
places for such meetings and may call such meetings to take any action
authorized in Section 9.01, by giving notice thereof as provided in Section
9.02.
Section 9.04. QUALIFICATIONS FOR VOTING.
To be entitled to vote at any meeting of Holders a Person shall
be (a) a Holder of a Debt Security of the series with respect to which such
meeting is being held or (b) a Person appointed by an instrument in writing as
agent or proxy by such Holder. The only Persons who shall be entitled to be
present or to speak at any meeting of Holders shall be the Persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
for the series with respect to which such meeting is being held and its counsel
and any representatives of the Company and its counsel.
Section 9.05. REGULATIONS.
Notwithstanding any other provisions of this Indenture, the
Trustee for any series may make such reasonable regulations as it may deem
advisable for any meeting of Holders of such series, in regard to proof of the
holding of Debt Securities of such series and of the appointment of proxies, and
in regard to the appointment and duties of inspectors of votes, the submission
and examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it shall
deem appropriate.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Holders of such series as provided in Section 9.03, in which
case the Company or the Holders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by a majority vote of the
meeting.
Subject to the provisos in the definition of "Outstanding," at
any meeting each Holder of a Debt Security of the series with respect to which
such meeting is being held or proxy therefor shall be entitled to one vote for
each $1,000 principal amount (or such other amount as shall be specified as
contemplated by Section 3.01) of Debt Securities of such series held or
represented by him; provided, however, that no vote shall be cast or counted at
any meeting in respect of any Debt Security challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote other than by virtue of Outstanding Debt
Securities of such series held by him or instruments in writing duly designating
him as the person to vote on behalf of Holders of Debt Securities of such
series. Any meeting of Holders with respect to which a meeting was duly called
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pursuant to the provisions of Section 9.02 or 9.03 may be adjourned from time to
time by a majority of such Holders present and the meeting may be held as so
adjourned without further notice.
Section 9.06. VOTING.
The vote upon any resolution submitted to any meeting of Holders
with respect to which such meeting is being held shall be by written ballots on
which shall be subscribed the signatures of such Holders or of their
representatives by proxy and the serial number or numbers of the Debt Securities
held or represented by them. The permanent chairman of the meeting shall appoint
two inspectors of votes who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of Holders
shall be taken and there shall be attached to said record the original reports
of the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was transmitted as provided
in Section 9.02. The record shall show the serial numbers of the Debt Securities
voting in favor of or against any resolution. The record shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
Section 9.07. NO DELAY OF RIGHTS BY MEETING.
Nothing contained in this Article Nine shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of Holders
or any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to any Holder under any of the provisions of this
Indenture or of the Debt Securities of any series.
ARTICLE TEN
SUPPLEMENTAL INDENTURES
Section 10.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company, when authorized
by a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
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(1) to evidence the succession of another corporation to the
Company and the assumption by such successor of the covenants of the
Company herein and in the Debt Securities contained; or
(2) to add to the covenants of the Company, for the benefit of
the Holders of all or any series of Debt Securities and the Coupons,
if any, appertaining thereto (and if such covenants are to be for the
benefit of less than all series, stating that such covenants are
expressly being included solely for the benefit of such series), or to
surrender any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default (and if such Events
of Default are to be applicable to less than all series, stating that
such Events of Default are expressly being included solely to be
applicable to such series); or
(4) to add or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance
of Debt Securities of any series in bearer form, registrable or not
registrable, and with or without Coupons, to permit Bearer Securities
to be issued in exchange for Registered Securities, to permit Bearer
Securities to be issued in exchange for Bearer Securities of other
authorized denominations or to permit the issuance of Debt Securities
of any series in uncertificated form, provided that any such action
shall not adversely affect the interests of the Holders of Debt
Securities of any series or any related Coupons in any material
respect; or
(5) to change or eliminate any of the provisions of this
Indenture, provided that any such change or elimination shall become
effective only when there is no Outstanding Debt Security or Coupon of
any series created prior to the execution of such supplemental
indenture which is entitled to the benefit of such provision and as to
which such supplemental indenture would apply; or
(6) to secure the Debt Securities; or
(7) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance
and discharge of any series of Securities pursuant to Article Four or
Fifteen, provided that any such action shall not adversely affect the
interests of the Holders of Debt Securities of such series or any
other series of Debt Securities or any related Coupons in any material
respect; or
(8) to establish the form or terms of Debt Securities and
Coupons, if any, of any series as permitted by Sections 2.01 and 3.01;
or
(9) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to one or more series of
Debt Securities and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11; or
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(10) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with any provision of this Indenture; provided such other
provisions shall not adversely affect the interests of the Holders of
Outstanding Debt Securities or Coupons, if any, of any series created
prior to the execution of such supplemental indenture in any material
respect.
Section 10.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of each series affected by
such supplemental indenture voting separately, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture of such
Debt Securities; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Debt Security of each such
series affected thereby,
(1) change the Stated Maturity of the principal of, or
installment of interest, if any, on, any Debt Security, or reduce the
principal amount thereof or the interest thereon or any premium
payable upon redemption thereof, or change the Stated Maturity of or
reduce the amount of any payment to be made with respect to any
Coupon, or change the Currency or Currencies in which the principal of
(and premium, if any) or interest on such Debt Security is denominated
or payable, or reduce the amount of the principal of a Discount
Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to the provisions of
this Indenture, or adversely affect the right of repayment or
repurchase, if any, at the option of the Holder, or reduce the amount
of, or postpone the date fixed for, any payment under any sinking fund
or analogous provisions for any Debt Security, or impair the right to
institute suit for the enforcement of any payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or limit the obligation of the Company to
maintain a paying agency outside the United States for payment on
Bearer Securities as provided in Section 11.03; or
(2) reduce the percentage in principal amount of the
Outstanding Debt Securities of any series, the consent of whose Holders
is required for any supplemental indenture, or the consent of whose
Holders is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture; or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 11.06, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Debt
Security of each series affected thereby; provided, however, that this
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clause shall not be deemed to require the consent of any Holder with
respect to changes in the references to "THE TRUSTEE" and concomitant
changes in this Section and Section 11.06, or the deletion of this
proviso, in accordance with the requirements of Sections 6.11 and
10.01(7).
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
A supplemental indenture which changes or eliminates any covenant
or other provision of this Indenture with respect to one or more particular
series of Debt Securities and Coupons, if any, or which modifies the rights of
the Holders of Debt Securities and Coupons of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Debt securities and Coupons, if any, of any other
series.
Section 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which adversely affects
the Trustee's own rights, duties or immunities under this Indenture or otherwise
in a material way.
Section 10.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Debt Securities and Coupons theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 10.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 10.06. REFERENCE IN DEBT SECURITIES TO SUPPLEMENTAL
INDENTURES.
Debt Securities and Coupons, if any, of any series authenticated
and delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debt Securities and Coupons of
any series so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Debt Securities and Coupons of such series.
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Section 10.07. NOTICE OF SUPPLEMENTAL INDENTURE.
Promptly after the execution by the Company and the appropriate
Trustee of any supplemental indenture pursuant to Section 10.02, the Company
shall transmit, in the manner and to the extent provided in Section 1.05, to all
Holders of any series of the Debt Securities affected thereby, a notice setting
forth in general terms the substance of such supplemental indenture.
ARTICLE ELEVEN
COVENANTS
Section 11.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series
of Debt Securities and Coupons, if any, that it will duly and punctually pay the
principal of (and premium, if any) and interest on the Debt Securities in
accordance with the terms of the Debt Securities, the Coupons and this
Indenture. Unless otherwise specified as contemplated by Section 3.01 with
respect to any series of Debt Securities or except as otherwise provided in
Section 3.06, any interest due on Bearer Securities on or before Maturity shall
be payable only upon presentation and surrender of the several Coupons for such
interest installments as are evidenced thereby as they severally mature. If so
provided in the terms of any series of Debt Securities established as provided
in Section 3.01, the interest, if any, due in respect of any temporary Global
Note or permanent Global Note, together with any additional amounts payable in
respect thereof, as provided in the terms and conditions of such Debt Security,
shall be payable only upon presentation of such Debt Security to the Trustee for
notation thereon of the payment of such interest.
Section 11.02. OFFICER'S CERTIFICATE AS TO DEFAULT.
The Company will deliver to the Trustee, on or before a date not
more than four months after the end of each fiscal year of the Company (which on
the date hereof is the calendar year) ending after the date hereof, a
certificate of the principal executive officer, principal financial officer or
principal accounting officer of the Company stating whether or not to the best
knowledge of the signer thereof the Company is in compliance with all covenants
and conditions under this Indenture, and, if the Company shall be in default,
specifying all such defaults and the nature thereof of which such signer may
have knowledge. For purposes of this Section, such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture.
Section 11.03. MAINTENANCE OF OFFICE OR AGENCY.
If Debt Securities of a series are issuable only as Registered
Securities, the Company will maintain in each Place of Payment for such series
an office or agency where Debt Securities of that series may be presented or
surrendered for payment, where Debt Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Debt Securities of that series and this
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Indenture may be served. If Debt Securities of a series are issuable as Bearer
Securities, the Company will maintain (A) in the Borough of Manhattan, The City
and State of New York, an office or agency where any Registered Securities of
that series may be presented or surrendered for payment, where any Registered
Securities of that series may be surrendered for registration of transfer, where
Debt Securities of that series may be surrendered for exchange, where notices
and demands to or upon the Company in respect of the Debt Securities of that
series and this Indenture may be served and where Bearer Securities of that
series and related Coupons may be presented or surrendered for payment in the
circumstances described in the following paragraph (and not otherwise), (B)
subject to any laws or regulations applicable thereto, in a Place of Payment for
that series which is located outside the United States, an office or agency
where Debt Securities of that series and related Coupons may be presented and
surrendered for payment (including payment of any additional amounts payable on
Securities of that series, if so provided pursuant to Section 3.01); provided,
however, that if the Debt Securities of that series are listed on The Stock
Exchange of the United Kingdom and the Republic of Ireland, the Luxembourg Stock
Exchange or any other stock exchange located outside the United States and such
stock exchange shall so require, the Company will maintain a Paying Agent for
the Debt Securities of that series in London, Luxembourg or any other required
city located outside the United States, as the case may be, so long as the Debt
Securities of that series are listed on such exchange, and (C) subject to any
laws or regulations applicable thereto, in a Place of Payment for that series
located outside the United States an office or agency where any Registered
Securities of that series may be surrendered for registration of transfer, where
Debt Securities of that series may be surrendered for exchange and where notices
and demands to or upon the Company in respect of the Debt Securities of that
series and this Indenture may be served. The Company will give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee (in the case of Registered
Securities) and at the principal London office of the Trustee, or its appointed
agent (in the case of Bearer Securities), and the Company hereby appoints the
Trustee as its agent to receive all presentations, surrenders, notices and
demands.
No payment of principal, premium or interest on Bearer Securities
shall be made at any office or agency of the Company in the United States or by
check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
the Debt Securities of a series are denominated and payable in Dollars, payment
of principal of and any premium and interest on any Bearer Security (including
any additional amounts payable on Debt Securities of such series, if so provided
pursuant to Section 3.01) shall be made at the office of the Company's Paying
Agent in the Borough of Manhattan, The City and State of New York, or in
Charlotte, North Carolina, if (but only if) payment in Dollars of the full
amount of such principal, premium, interest or additional amounts, as the case
may be, at all offices or agencies outside the United States maintained for the
purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
The Company may also from time to time designate different or
additional offices or agencies to be maintained for such purposes (in or outside
of such Place of Payment), and may from time to time rescind any such
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designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligations described in the preceding
paragraph. The Company will give prompt written notice to the Trustee of any
such additional designation or rescission of designation and any change in the
location of any such different or additional office or agency.
Section 11.04. MONEY FOR DEBT SECURITIES; PAYMENTS TO BE HELD IN
TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to any series of Debt Securities and Coupons, if any, it will, on or
before each due date of the principal of (and premium, if any) or interest on
any of the Debt Securities of such series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due until such sums shall be paid
to such Persons or otherwise disposed of as herein provided, and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with
respect to any series of Debt Securities and Coupons, it will, before or by
10:00 A.M. (Charlotte, North Carolina time) on each due date of the principal
(and premium, if any) or interest on any Debt Securities of such series, deposit
with any such Paying Agent a sum sufficient to pay the principal (and premium,
if any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled thereto, and (unless any such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent with respect to any
series of Debt Securities other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Debt Securities of such series in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Debt Securities of such series) in the making
of any payment of principal (and premium, if any) or interest on the
Debt Securities of such series; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
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such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and premium,
if any) or interest on any Debt Security of any series and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company upon Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Debt Security or Coupon shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be transmitted in the manner and to
the extent provided by Section 1.05, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification, any unclaimed balance of such money then
remaining will be repaid to the Company.
Section 11.05. PURCHASE OF DEBT SECURITIES BY COMPANY.
If the Debt Securities of a series are listed on The Stock
Exchange of the United Kingdom and the Republic of Ireland and such stock
exchange shall so require, the Company will not purchase any Debt Securities of
that series by private treaty at a price (exclusive of expenses and accrued
interest) which exceeds 120% of the mean of the nominal quotations of the Debt
Securities of that series as shown in The Stock Exchange Daily Official List for
the last trading day preceding the date of purchase.
Section 11.06. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition, if so specified pursuant to Section 3.01, any
covenant not set forth herein and specified pursuant to Section 3.01 to be
applicable to the Securities of any series, except as otherwise provided
pursuant to Section 3.01, with respect to the Debt Securities of any series if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Debt Securities of such series shall, by Act
of such Holders, either waive such compliance in such instance or generally
waive compliance with such term, provision or condition, but no such waiver
shall extend to or affect such term, provision or condition except to the extent
expressly so waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
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ARTICLE TWELVE
REDEMPTION OF DEBT SECURITIES
Section 12.01. APPLICABILITY OF ARTICLE.
Debt Securities of any series which are redeemable before their
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified pursuant to Section 3.01 for Debt Securities of any series)
in accordance with this Article.
Section 12.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem (or, in the case of
Discount Securities, to permit the Holders to elect to surrender for redemption)
any Debt Securities shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all of the Debt
Securities of any series pursuant to Section 12.03, the Company shall, at least
60 days before the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount of Debt Securities of such series to be
redeemed. In the case of any redemption of Debt Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Debt Securities or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with such
restrictions.
Section 12.03. SELECTION BY TRUSTEE OF DEBT SECURITIES TO BE
REDEEMED.
Except in the case of a redemption in whole of the Bearer
Securities or the Registered Securities of such series, if less than all the
Debt Securities of any series are to be redeemed at the election of the Company,
the particular Debt Securities to be redeemed shall be selected not more than 60
days prior to the Redemption Date by the Trustee, from the Outstanding Debt
Securities of such series not previously called for redemption, by such method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Debt Securities of such series or any integral multiple
thereof) of the principal amount of Debt Securities of such series in a
denomination larger than the minimum authorized denomination for Debt Securities
of such series pursuant to Section 3.02 in the Currency in which the Debt
Securities of such series are denominated. The portions of the principal amount
of Debt Securities so selected for partial redemption shall be equal to the
minimum authorized denominations for Debt Securities of such series pursuant to
Section 3.02 in the Currency in which the Debt Securities of such series are
denominated or any integral multiple thereof, except as otherwise set forth in
the applicable form of Debt Securities. In any case when more than one
Registered Security of such series is registered in the same name, the Trustee
in its discretion may treat the aggregate principal amount so registered as if
it were represented by one Registered Security of such series.
The Trustee shall promptly notify the Company in writing of the
Debt Securities selected for redemption and, in the case of any Debt Securities
selected for partial redemption, the principal amount thereof to be redeemed.
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For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Debt Securities shall
relate, in the case of any Debt Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Debt security which has
been or is to be redeemed.
Section 12.04. NOTICE OF REDEMPTION.
Notice of redemption shall be given by the Company, or at the
Company's request, by the Trustee in the name and at the expense of the Company,
not less than 30 days and not more than 60 days prior to the Redemption Date to
the Holders of Debt Securities of any series to be redeemed in whole or in part
pursuant to this Article Thirteen, in the manner provided in Section 1.05. Any
notice so given shall be conclusively presumed to have been duly given, whether
or not the Holder receives such notice. Failure to give such notice, or any
defect in such notice to the Holder of any Debt Security of a series designated
for redemption, in whole or in part, shall not affect the sufficiency of any
notice of redemption with respect to the Holder of any other Debt Security of
such series.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that Debt Securities of such series are being redeemed by the
Company pursuant to provisions contained in this Indenture or the
terms of the Debt Securities of such series or a supplemental
indenture establishing such series, if such be the case, together with
a brief statement of the facts permitting such redemption,
(4) if less than all Outstanding Debt Securities of any series
are to be redeemed, the identification (and, in the case of partial
redemption, the principal amounts) of the particular Debt Securities
to be redeemed,
(5) that on the Redemption Date the Redemption Price will become
due and payable upon each such Debt Security to be redeemed, and that
interest thereon, if any, shall cease to accrue on and after said
date,
(6) that, unless otherwise specified in such notice, Coupon
Securities of any series, if any, surrendered for redemption must be
accompanied by all Coupons maturing subsequent to the date fixed for
redemption, failing which the amount of any such missing Coupon or
Coupons will be deducted from the Redemption Price,
(7) the Place or Places of Payment where such Debt Securities are
to be surrendered for payment of the Redemption Price,
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(8) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if
such Bearer Securities may be exchanged for Registered Securities not
subject to redemption on this Redemption Date pursuant to Section
3.05(b) or otherwise, the last date on which such exchanges may be
made, and
(9) that the redemption is for a sinking fund, if such is the
case.
Section 12.05. DEPOSIT OF REDEMPTION PRICE.
By or before 10:00 A.M. (Charlotte, North Carolina time) on the
Redemption Date for any Debt Securities, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 11.04) an amount of
money in the Currency or Currencies in which such Debt Securities are
denominated (except as provided pursuant to Section 3.01) sufficient to pay the
Redemption Price of such Debt Securities or any portions thereof which are to be
redeemed on that date.
Section 12.06. DEBT SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, any Debt
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price in the Currency in which the Debt Securities of
such series are payable (except as otherwise specified pursuant to Section 3.01
or 3.10), and from and after such date (unless the Company shall default in the
payment of the Redemption Price) such Debt Securities shall cease to bear
interest. Upon surrender of any such Debt Security for redemption in accordance
with said notice, such Debt Security shall be paid by the Company at the
Redemption Price; provided, however, that installments of interest on Bearer
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable only at an office or agency located outside the United States (except as
otherwise provided in Section 11.03) and, unless otherwise specified as
contemplated by Section 3.01, only upon presentation and surrender of Coupons
for such interest; and provided, further, that, unless otherwise specified as
contemplated by Section 3.01, installments of interest on Registered Securities
which have a Stated Maturity on or prior to the Redemption Date for such Debt
Securities shall be payable according to the terms of such Debt Securities and
the provisions of Section 3.07.
If any Debt Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Debt Security.
If any Coupon Security surrendered for redemption shall not be
accompanied by all Coupons appertaining thereto maturing on or after the
Redemption Date, the Redemption Price for such Coupon Security may be reduced by
an amount equal to the face amount of all such missing Coupons. If thereafter
the Holder of such Coupon shall surrender to any Paying Agent outside the United
States any such missing Coupon in respect of which a deduction shall have been
made from the Redemption Price, such Holder shall be entitled to receive the
amount so deducted. The surrender of such missing Coupon or Coupons may be
waived by the Company and the Trustee, if there be furnished to them such
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security or indemnity as they may require to save each of them and any Paying
Agent harmless.
Section 12.07. DEBT SECURITIES REDEEMED IN PART.
Any Debt Security which is to be redeemed only in part shall be
surrendered at the Corporate Trust Office or such other office or agency of the
Company as is specified pursuant to Section 3.01 (in the case of Registered
Securities) and at an office of the Trustee or such other office or agency of
the Company outside the United States as is specified pursuant to Section 3.01
(in the case of Bearer Securities) with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing, and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Debt Security without service charge, a new Debt
Security or Debt Securities of the same series, of like tenor and form, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Debt Security so surrendered, and, in the case of a Coupon Security, with
appropriate Coupons attached. In the case of a Debt Security providing
appropriate space for such notation, at the option of the Holder thereof, the
Trustee, in lieu of delivering a new Debt Security or Debt Securities as
aforesaid, may make a notation on such Debt Security of the payment of the
redeemed portion thereof.
ARTICLE THIRTEEN
SINKING FUNDS
Section 13.01. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking
fund for the retirement of Debt Securities of a series except as otherwise
specified pursuant to Section 3.01 for Debt Securities of such series.
The minimum amount of any sinking fund payment provided for by
the terms of Debt Securities of any series is herein referred to as a "MANDATORY
SINKING FUND PAYMENT", and any payment in excess of such minimum amount provided
for by the terms of Debt Securities of any series is herein referred to as an
"OPTIONAL SINKING FUND PAYMENT". If provided for by the terms of Debt Securities
of any series, the amount of any cash sinking fund payment may be subject to
reduction as provided in Section 13.02. Each sinking fund payment shall be
applied to the redemption of Debt Securities of any series as provided for by
the terms of Debt Securities of such series.
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Section 13.02. SATISFACTION OF MANDATORY SINKING FUND PAYMENTS
WITH DEBT SECURITIES.
In lieu of making all or any part of a mandatory sinking fund
payment with respect to any Debt Securities of a series in cash, the Company may
at its option, at any time no more than sixteen months and no less than 45 days
prior to the date on which such sinking fund payment is due, deliver to the
Trustee Debt Securities of such series (together with the unmatured Coupons, if
any, appertaining thereto) theretofore purchased or otherwise acquired by the
Company, except Debt Securities of such series which have been redeemed through
the application of mandatory sinking fund payments pursuant to the terms of the
Debt Securities of such series, accompanied by a Company Order instructing the
Trustee to credit such obligations and stating that the Debt Securities of such
series were originally issued by the Company by way of bona fide sale or other
negotiation for value, provided that such Debt Securities shall not have been
previously so credited. Such Debt Securities shall be received and credited for
such purpose by the Trustee at the Redemption Price specified in such Debt
Securities for redemption through operation of the sinking fund and the amount
of such mandatory sinking fund payment shall be reduced accordingly.
Section 13.03. REDEMPTION OF DEBT SECURITIES FOR SINKING FUND.
Not less than 60 days prior to each sinking fund payment date for
any series of Debt Securities (unless a shorter period shall be satisfactory to
the Trustee), the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for that series
pursuant to the terms of that series, the portion thereof, if any, which is to
be satisfied by payment of cash in the Currency or Currencies in which the Debt
Securities of such series are denominated (except as provided pursuant to
Section 3.01) and the portion thereof, if any, which is to be satisfied by
delivering and crediting Debt Securities of such series pursuant to Section
13.02 and whether the Company intends to exercise its rights to make a permitted
optional sinking fund payment with respect to such series. Such certificate
shall be irrevocable and upon its delivery the Company shall be obligated to
make the cash payment or payments therein referred to, if any, on or before the
next succeeding sinking fund payment date. In the case of the failure of the
Company to deliver such certificate, the sinking fund payment due on the next
succeeding sinking fund payment date for such series shall be paid entirely in
cash and shall be sufficient to redeem the principal amount of the Debt
Securities of such series subject to a mandatory sinking fund payment without
the right to deliver or credit Debt Securities as provided in Section 13.02 and
without the right to make any optional sinking fund payment with respect to such
series at such time.
Any sinking fund payment or payments (mandatory or optional) made
in cash plus any unused balance of any preceding sinking fund payments made with
respect to the Debt Securities of any particular series shall be applied by the
Trustee (or by the Company if the Company is acting as its own Paying Agent) on
the sinking fund payment date on which such payment is made (or, if such payment
is made before a sinking fund payment date, on the sinking fund payment date
immediately following the date of such payment) to the redemption of Debt
Securities of such series at the Redemption Price specified in such Debt
Securities with respect to the sinking fund. Any sinking fund moneys not so
applied or allocated by the Trustee (or by the Company if the Company is acting
as its own Paying Agent) to the redemption of Debt Securities shall be added to
the next sinking fund payment received by the Trustee (or if the Company is
acting as its own Paying Agent, segregated and held in trust as provided in
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Section 11.04) for such series and, together with such payment (or such amount
so segregated) shall be applied in accordance with the provisions of this
Section. Any and all sinking fund moneys with respect to the Debt Securities of
any particular series held by the Trustee (or if the Company is acting as its
own Paying Agent, segregated and held in trust as provided in Section 11.04) on
the last sinking fund payment date with respect to Debt Securities of such
series and not held for the payment or redemption of particular Debt Securities
of such series shall be applied by the Trustee (or by the Company if the Company
is acting as its own Paying Agent), together with other moneys, if necessary, to
be deposited (or segregated) sufficient for the purpose, to the payment of the
principal of the Debt Securities of such series at Maturity.
The Trustee shall select or cause to be selected the Debt
Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 12.03 and the Company shall cause notice of the redemption
thereof to be given in the manner provided in Section 12.04. Such notice having
been duly given, the redemption of such Debt Securities shall be made upon the
terms and in the manner stated in Section 12.06.
On or before each sinking fund payment date, the Company shall
pay to the Trustee (or, if the Company is acting as its own Paying Agent, the
Company shall segregate and hold in trust as provided in Section 11.04) in cash
a sum, in the Currency or Currencies in which Debt Securities of such series are
denominated (except as provided pursuant to Sections 3.01 or 3.10), equal to the
principal and any interest accrued to the Redemption Date for Debt Securities or
portions thereof to be redeemed on such sinking fund payment date pursuant to
this Section.
Neither the Trustee nor the Company shall redeem any Debt
Securities of a series with sinking fund moneys or mail any notice of redemption
of Debt Securities of such series by operation of the sinking fund for such
series during the continuance of a default in payment of interest, if any, on
any Debt Securities of such series or of any Event of Default (other than an
Event of Default occurring as a consequence of this paragraph) with respect to
the Debt Securities of such series, except that if the notice of redemption
shall have been provided in accordance with the provisions hereof, the Trustee
(or the Company, if the Company is then acting as its own Paying Agent) shall
redeem such Debt Securities if cash sufficient for that purpose shall be
deposited with the Trustee (or segregated by the Company) for that purpose in
accordance with the terms of this Article. Except as aforesaid, any moneys in
the sinking fund for such series at the time when any such default or Event of
Default shall occur and any moneys thereafter paid into such sinking fund shall,
during the continuance of such default or Event of Default, be held as security
for the payment of the Debt Securities and Coupons, if any, of such series;
provided, however, that in case such default or Event of Default shall have been
cured or waived as provided herein, such moneys shall thereafter be applied on
or prior to the next sinking fund payment date for the Debt Securities of such
series on which such moneys may be applied pursuant to the provisions of this
Section.
88
<PAGE> 95
ARTICLE FOURTEEN
DEFEASANCE
Section 14.01. APPLICABILITY OF ARTICLE.
If, pursuant to Section 3.01, provision is made for the
defeasance of Debt Securities of a series, and if the Debt Securities of such
series are Registered Securities and denominated and payable only in Dollars
(except as provided pursuant to Section 3.01) then the provisions of this
Article shall be applicable except as otherwise specified pursuant to Section
3.01 for Debt Securities of such series. Defeasance provisions, if any, for Debt
Securities denominated in a Foreign Currency or Currencies or for Bearer
Securities may be specified pursuant to Section 3.01.
Section 14.02. DEFEASANCE AND DISCHARGE OF INDENTURE.
The Company will be deemed to have paid and will be discharged
from any and all obligations in respect of the Debt Securities of any series, on
the 123rd day after the deposit referred to in subparagraph (A) hereof has been
made, and the provisions of this Indenture will no longer be in effect with
respect to the Debt Securities of such series (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
as to:
(a) rights of registration of transfer and exchange, and the
Company's right of optional redemption, (b) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Debt Securities of such
series, (c) rights of Holders to receive payments of principal thereof
and interest thereon, (d) the rights, obligations and immunities of
the Trustee hereunder and (e) the rights of the Securityholders as
beneficiaries hereof with respect to the property so deposited with
the Trustee payable to all or any of them;
provided that the following conditions shall have been satisfied:
(A) with reference to this Section 14.02, the Company has
deposited or caused to be irrevocably deposited with the Trustee
(or another trustee satisfying the requirements of Section 6.09
hereof) as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of the
Debt Securities of such series, (i) money in an amount, or (ii)
U.S. Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms
will provide not later than one day before the due date of any
payment referred to in clause (x) or (y) of this subparagraph (A)
money in an amount, or (iii) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge without
consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other charges
and assessments in respect thereof payable by the Trustee (x) the
principal of, premium, if any, and each installment of principal
and interest on the Outstanding Debt Securities of such series at
the maturity date of such principal or installment of principal
or interest and (y) any mandatory sinking fund payments or
89
<PAGE> 96
analogous payments applicable to the Debt Securities of such
series on the day on which such payments are due and payable in
accordance with the terms of this Indenture and the Debt
Securities of such series;
(B) the Company has delivered to the Trustee (i) either (x)
an Opinion of Counsel to the effect that Holders of the Debt
Securities of such series will not recognize income, gain or loss
for federal income tax purposes as a result of the Company's
exercise of its option under this Section 14.02 and will be
subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based on a change in applicable federal income
tax law or related Treasury Regulations after the date of this
Indenture or a ruling of the Internal Revenue Service to the same
effect or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel (but without regard to whether it is based on
such a change of law) and (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and after the passage of 123
days following the deposit, the trust fund will not be subject to
the effect of Section 547 of the U.S. Bankruptcy Code or Section
15 of the New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving
of notice or lapse of time or both would become an Event of
Default with respect to the Debt Securities of such series, shall
have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which the
Company is bound; and
(D) if at such time the Debt Securities of such series are
listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that
the Debt Securities of such series will not be delisted as a
result of such deposit, defeasance and discharge.
Section 14.03. DEPOSITED MONEYS AND U.S. GOVERNMENT, OBLIGATIONS
TO BE HELD IN TRUST.
All moneys and U.S. Government Obligations deposited with the
Trustee pursuant to Section 14.02 in respect of Debt Securities of a series
shall be held in trust and applied by it, in accordance with the provisions of
such Debt Securities and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Debt Securities, of all
sums due and to become due thereon for principal (and premium, if any) and
interest, if any, but such money need not be segregated from other funds except
to the extent required by law.
90
<PAGE> 97
Section 14.04. REPAYMENT TO COMPANY.
The Trustee and any Paying Agent shall promptly pay or return to
the Company upon Company Request any moneys or U.S. Government Obligations held
by them at any time that are not required for the payment of the principal of
(and premium, if any) and interest on the Debt Securities of any series for
which money or U.S. Government Obligations have been deposited pursuant to
Section 14.02.
The provisions of the last paragraph of Section 11.04 shall apply
to any money held by the Trustee or any Paying Agent under this Article that
remains unclaimed for two years after the Maturity of any series of Debt
Securities for which money or U.S. Government Obligations have been deposited
pursuant to Section 14.02.
91
<PAGE> 98
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
COGENTRIX ENERGY, INC.
By: /s/ THOMAS F. SCHWARTZ
------------------------
Title: Senior Vice President -
Finance and Treasurer
Attest:
/s/LORI M. TOOLE
- --------------------------
Title: Assistant Secretary
Seal
First Union National Bank, as Trustee
By: /s/ DONNA J. FLANAGAN
------------------------
Title: Vice President
92
<PAGE> 99
STATE OF New York )
: ss.:
COUNTY OF New York)
On the 20th day of October, 1998, before me personally came
Thomas F. Schwartz, to me known, who, being by me duly sworn, did depose and say
that he resides at Charlotte, North Carolina; that he is Senior Vice President
of Cogentrix Energy, Inc., one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/ ALICE NOLL
------------------------
Notary Public
<PAGE> 100
SEAL
State of New York )
) ss.:
COUNTY OF New York)
On this 20th day of October, 1998, before me personally came
Donna Flanagan, to me known, who, being by me duly sworn, did depose and say
that he/she is a VP of FIRST UNION NATIONAL BANK, one of the entities described
in and which executed the above instrument; that he/she knows the seal of said
entity; that the seal or a facsimile thereof affixed to said instrument is such
seal; that it was so affixed by authority of the Board of Directors of said
entity, and that he/she signed his/her name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ ALICE NOLL
------------------------
Notary Public
<PAGE> 101
EXHIBIT A
[FORMS OF CERTIFICATION]
[FORM OF CERTIFICATE TO BE GIVEN BY
PERSON ENTITLED TO RECEIVE BEARER SECURITY
OR INTEREST PRIOR TO AN EXCHANGE DATE]
CERTIFICATE
------------------------
[Insert title or sufficient description
of Securities to be delivered]
This is to certify that as of the date hereof and except as set
forth below principal amount of the above captioned Debt Securities held by you
for our account (i) is owned by person(s) that are not United States person(s)
(as defined below), (ii) is owned by United States person(s) that are (a)
foreign branches of United States financial institutions (as defined in Section
1.165-12(c)(1)(v) of the United States Treasury regulations) ("FINANCIAL
INSTITUTIONS") purchasing for their own account or for resale, or (b) United
States person(s) who acquired the Debt Securities through foreign branches of
United States financial institutions and who hold the Debt Securities through
such United States financial institutions on the date hereof (and in either case
(a) or (b), each such United States financial institution hereby agrees, on its
own behalf or through its agent, that you may advise the Company or the
Company's agent that it will comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as
amended, and the Treasury regulations thereunder), or (iii) is owned by United
States or foreign financial institution(s) for the purpose of resale during the
restricted period (as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United
States Treasury regulations), and in addition if the owner of the Debt
Securities is a United States or foreign financial institution described in
clause (iii) above (whether or not also described in clause (i) or (ii)) this is
to further certify that such financial institution has not acquired the Debt
Securities for the purpose of resale directly or indirectly to a United States
person or to a person within the United States or its possessions.
We undertake to advise you promptly by tested telex on or prior
to the date on which you intend to submit your certification relating to the
beneficial interest in the temporary global Security held by you for our account
in accordance with your operating procedures if any applicable statement herein
is not correct on such date, and in the absence of any such notification it may
be assumed that this certification applies as of such date.
This certificate excepts and does not relate to ________
principal amount of Debt Securities held by you for our account as to which we
are not able to provide a certificate in this form. We understand that exchange
of such portion of the temporary global Note for definitive Bearer Securities or
interests in a permanent global Note cannot be made until we are able to provide
a certificate in this form.
<PAGE> 102
2
We understand that this certificate is required in connection
with certain tax laws and regulations of the United States. If administrative or
legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
"UNITED STATES PERSON" means any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States and any estate or trust the income of
which is subject to United States federal income taxation regardless of its
source. "UNITED STATES" means the United States of America (including the States
and the District of Columbia) and its "POSSESSIONS" which include Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands.
Dated:________________________, 199_
[To be dated no earlier than the
10th day before the Exchange Date]
By: _____________________________
As, or as agent for, the beneficial
owner(s)of the portion of the
temporary global Note to which
this certificate relates.
<PAGE> 103
EXHIBIT B
[FORM OF CERTIFICATE TO BE GIVEN BY EURO-CLEAR AND
CEDEL, S.A. IN CONNECTION WITH THE EXCHANGE OF
A PORTION OF A TEMPORARY GLOBAL NOTE]
CERTIFICATE
------------------------
[Insert title or sufficient description
of Securities to be delivered]
The undersigned certifies that, based solely on certifications we
have received in writing, by tested telex or by electronic transmission from
member organizations appearing in our records as persons being entitled to a
portion of the principal amount set forth below (our "MEMBER ORGANIZATIONS")
substantially to the effect set forth in the Indenture as of the date hereof,
_________ principal amount of the above-captioned Debt Securities (i) is owned
by person(s) that are not United States person(s) (as defined below), (ii) is
owned by United States person(s) that are (a) foreign branches of United States
financial institutions (as defined in Section 1.165-12(c)(1)(v) of the United
States Treasury regulations) ("FINANCIAL INSTITUTIONS") purchasing for their own
account or for resale, or (b) United States person(s) who acquired the Debt
Securities through foreign branches of United States financial institutions and
who hold the Debt Securities through such United States financial institutions
on the date hereof (and in either case (a) or (b), each such United States
financial institution has agreed, on its own behalf or through its agent, that
we may advise the Company or the Company's agent that it will comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended, and the Treasury regulations thereunder), or (iii) is owned by
United States or foreign financial institution(s) for the purpose of resale
during the restricted period (as defined in Section 1.163-5(c)(2)(i)(D)(7) of
the United States Treasury regulations), and in addition United States or
foreign financial institutions described in clause (iii) above (whether or not
also described in clause (i) or (ii)) have certified that they have not acquired
the Debt Securities for the purpose of resale directly or indirectly to a United
States person or to a person within the United States or its possessions.
We further certify (i) that we are not making available for
exchange or collection of any interest any portion of the temporary Global Note
excepted in such certifications and (ii) that as of the date hereof we have not
received any notification from any of our Member Organizations to the effect
that the statements made by such Member Organizations with respect to any
portion of the part submitted herewith for exchange or collection of any
interest are no longer true and cannot be relied upon as of the date hereof.
We understand that this certificate is required in connection
with certain tax laws and regulations of the United States. If administrative or
legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
<PAGE> 104
2
"UNITED STATES PERSON" means any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States and any estate or trust the income of
which is subject to United States federal income taxation regardless of its
source. "UNITED STATES" means the United States of America (including the States
and the District of Columbia) and its "POSSESSIONS" which include Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands.
Dated:________________________, 199_
[To be dated no earlier than the
Exchange Date]
By:________________________
[MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
BRUSSELS OFFICE, as
Operator of the Euro-Clear
System] [CEDEL, S.A.]
<PAGE> 1
Exhibit No. 4.3
COGENTRIX ENERGY, INC.
and
FIRST UNION NATIONAL BANK
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 20, 1998
Supplementing that certain
INDENTURE
Dated as of October 20, 1998
Authorizing the Issuance and Delivery of
Senior Debt Securities
consisting of $420,000,000 aggregate principal amount of
8.75% Senior Notes due 2008
<PAGE> 2
TABLE OF CONTENTS
Page
RECITALS.......................................................................1
ARTICLE I. CERTAIN DEFINITIONS.................................................2
Section 1.1. Certain Definitions.....................................2
ARTICLE II. THE NOTES.........................................................15
Section 2.1. Issuance of Notes......................................15
Section 2.2. One Series of Notes....................................17
Section 2.3. Interest on the Notes; Payment of Interest.............17
Section 2.4. Redemption.............................................18
Section 2.5. Exchange of Initial Notes for Exchange Notes...........18
Section 2.6. Transfer and Exchange..................................18
ARTICLE III. CERTAIN COVENANTS................................................31
Section 3.1. Limitation on Debt.....................................31
Section 3.2. Limitation on Subsidiary Debt..........................32
Section 3.3. Limitation on Restricted Payments......................34
Section 3.4. Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries....................35
Section 3.5. Restrictions on Dispositions...........................36
Section 3.6. Limitations on Transactions with Affiliates............39
Section 3.7. Limitations on Liens...................................40
Section 3.8. Repurchase of Notes Upon a Change of Control...........41
Section 3.9. Restrictions on Mergers, Consolidations
and Sales of Assets..................................42
Section 3.10. Limitations on Sale/Leaseback Transactions.............43
Section 3.11. Change in Covenants When Notes are Rated
Investment Grade ....................................44
ARTICLE IV. EVENTS OF DEFAULT.................................................44
Section 4.1. Events of Default Defined; Acceleration of Maturity;
Waiver of Default....................................44
ARTICLE V. MISCELLANEOUS......................................................47
Section 5.1. Reference to and Effect on the Base Indenture..........47
Section 5.2. Waiver of Certain Covenants............................47
Section 5.3. Ranking................................................47
Section 5.4. Defeasance of Certain Obligations......................47
Section 5.5. Supplemental Indenture May be Executed In
Counterparts.........................................48
Section 5.6. Effect of Headings.....................................48
Section 5.7. Governing Law..........................................48
Exhibit A Form of Note...............................................A-1
Exhibit B Form of Certificate of Transfer............................B-1
Exhibit C Form of Certificate of Exchange............................C-1
Exhibit D Form of Certificate from Acquiring IAI.....................D-1
<PAGE> 3
FIRST SUPPLEMENTAL INDENTURE, dated as of October 20, 1998 (the
"Supplemental Indenture"), between Cogentrix Energy, Inc., a corporation duly
organized and existing under the laws of the State of North Carolina (the
"Company"), and First Union National Bank, a National Banking Association, as
Trustee (the "Trustee"), supplementing that certain Indenture, dated as of
October 20, 1998, between the Company and the Trustee (the "Base Indenture," and
together with this Supplemental Indenture, the "Indenture").
RECITALS
WHEREAS, the Company has duly authorized the execution and
delivery of the Base Indenture to provide for the issuance from time to time of
its debentures, notes, bonds or other evidences of indebtedness (the
"Securities") to be issued in one or more series as provided for in the Base
Indenture;
WHEREAS, the Base Indenture provides that the Securities of each
series shall be in substantially the form set forth in the Base Indenture, or in
such other form as may be established by or pursuant to a Board Resolution or in
one or more indentures supplemental thereto, in each case with such appropriate
insertions, omissions, substitutions, and other variations as are required or
permitted by the Base Indenture, and may have such letters, numbers, or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with the rules of any securities exchange or as may,
consistent herewith, be determined to be required by the officers executing such
Securities, as evidenced by their execution thereof;
WHEREAS, the Company has duly authorized the execution and
delivery of this Supplemental Indenture to provide for the issuance of (i) on
October 20, 1998 (the "Issue Date"), $220,000,000 aggregate principal amount of
its senior notes authorized pursuant to the Indenture designated as its 8.75%
Series A Senior Notes due 2008 (the "Initial Notes"), (ii) if and when issued,
up to $200,000,000 aggregate principal amount of its additional "add-on" notes
which may be offered subsequent to the Issue Date (the "Subsequent Add-on
Notes"), (iii) if and when issued pursuant to a registered exchange offer for
Initial Notes or Subsequent Add-on Notes, its 8.75% Series B Senior Notes due
2008 (the "Exchange Notes"), and (iv) if and when issued pursuant to a private
exchange for Initial Notes or Subsequent Add-on Notes, its 8.75% Series B Senior
Notes due 2008 (the "Private Exchange Notes," and together with the Initial
Notes, the Subsequent Add-on Notes and the Exchange Notes, the "Notes") and the
Company and the Trustee have agreed that the Company shall issue and deliver,
and the Trustee shall authenticate, the Notes pursuant to the terms of this
Supplemental Indenture and substantially in the form set forth as Exhibit A
hereto, in each case with such appropriate insertions, omissions, substitutions,
and other variations as are required or permitted by the Base Indenture and this
Supplemental Indenture, and with such letters, numbers, or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistent herewith, be determined by the officers executing such Notes, as
evidenced by their execution of such Notes;
<PAGE> 4
WHEREAS, all acts and things necessary to make the Notes, when
the Notes have been executed by the Company and authenticated by the Trustee and
delivered as provided in the Base Indenture and this Supplemental Indenture, the
valid, binding, and legal obligations of the Company and to constitute these
presents a valid indenture and agreement according to its terms, have been done
and performed, and the execution and delivery by the Company of the Base
Indenture and this Supplemental Indenture and the issuance hereunder of the
Notes have in all respects been duly authorized;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
In order to declare the terms and conditions upon which the Notes
are authenticated, issued, and delivered, and in consideration of the premises
and of the purchase and acceptance of the Notes by the Holders thereof, it is
mutually agreed, for the equal and proportionate benefit of the respective
Holders from time to time of the Notes, as follows:
ARTICLE I. CERTAIN DEFINITIONS.
SECTION 1.1. CERTAIN DEFINITIONS.
The terms defined in this Section 1.1 (except as herein otherwise
expressly provided or unless the context of this Supplemental Indenture
otherwise requires) for all purposes of this Supplemental Indenture and of any
indenture supplemental hereto have the respective meanings specified in this
Section 1.1. All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP. All other terms used in this
Supplemental Indenture that are defined in the Base Indenture or the Trust
Indenture Act, either directly or by reference therein (except as herein
otherwise expressly provided or unless the context of this Supplemental
Indenture otherwise requires), have the respective meanings assigned to such
terms in the Base Indenture or the Trust Indenture Act, as the case may be, as
in force at the date of this Supplemental Indenture as originally executed.
"AGENT" means any Security Registrar or Paying Agent.
"ACQUISITION DEBT" means Debt of any Person existing at the time
such Person became a Subsidiary of the Company (or such Person is merged into
the Company or one of its Subsidiaries) or assumed in connection with the
acquisition of assets from any such Person (other than assets acquired in the
ordinary course of business), including Debt Incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company (but
excluding Debt of such Person which is extinguished, retired or repaid in
connection with such Person becoming a Subsidiary of the Company).
"ADJUSTED CONSOLIDATED NET INCOME" means for any period, for any
Person the aggregate Net Income (or loss) of such Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP plus the Net
Income of any Subsidiary of such Person for prior periods to the extent such Net
Income is actually paid in cash to such Person during such period plus the Net
Income of such Person (other than a Subsidiary thereof) in which any third
2
<PAGE> 5
Person has a joint interest for prior periods to the extent such Net Income is
actually paid in cash to such Person during such period; provided that the
following items shall be excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the Net Income (or loss) of such Person (other than a
Subsidiary thereof) in which any third Person has a joint interest, except to
the extent of the amount of dividends or other distributions actually paid in
cash to such Person during such period by such Person in which the joint
interest is held, which dividends and distributions shall be included in such
computation; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (c)(i) or (c)(ii) of
Section 3.3 hereof (and in such case, except to the extent includable pursuant
to clause (i) above), the Net Income (if positive) of such Person accrued prior
to the date it becomes a Subsidiary of any other Person or is merged into or
consolidated with such other Person or any of its Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by such
other Person or any of its Subsidiaries; (iii) the Net Income of any Subsidiary
of such Person, except to the extent that (A) such Net Income (if positive) is
actually paid in cash to such Person during such period and (B) such Net Income
(if negative) is actually paid in cash to such Subsidiary during such period;
(iv) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(v) the cumulative effect of a change in accounting principle; and (vi) any
amounts paid or accrued as dividends on Preferred Stock of such Person or
Preferred Stock of any Subsidiary of such Person.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depository, Euroclear and CEDEL that apply to such transfer or
exchange.
"ASSET ACQUISITION" means (i) an investment by the Company or any
of its Subsidiaries in any other Person pursuant to which such Person shall
become a Subsidiary of the Company or any of its Subsidiaries or shall be merged
into or consolidated with the Company or any of its Subsidiaries or (ii) an
acquisition by the Company or any of its Subsidiaries of the Property of any
Person other than the Company or any of its Subsidiaries that constitutes
substantially all of an operating unit or business of such Person.
"ASSET DISPOSITION" means, with respect to any Person, any sale,
transfer, conveyance, lease or other disposition (including by way of merger,
consolidation or sale-leaseback) by such Person or any of its Subsidiaries to
any Person (other than to such Person or a Subsidiary of such Person and other
than in the ordinary course of business) of (i) any Property of such Person or
any of its Subsidiaries or (ii) any shares of Capital Stock of such Person's
Subsidiaries. For purposes of this definition, any disposition in connection
with directors' qualifying shares or investments by foreign nationals mandated
by applicable law shall not constitute an Asset Disposition. In addition, the
term "Asset Disposition" shall not include (i) any sale, transfer, conveyance,
lease or other disposition of the Capital Stock or assets of Subsidiaries
pursuant to the terms of any power sales agreements or steam sales agreements to
which such Subsidiaries are parties as of the date of this Indenture or pursuant
to the terms of any power sales agreements or steam sales agreements to which
such Subsidiaries become a party after such date if the Board of Directors
determines in good faith (evidenced by a Board resolution) that such provisions
are necessary in order to effect such agreements and are reasonable, (ii) any
sale, transfer, conveyance, lease or other disposition of assets governed by
Section 3.9 hereof, (iii) the sale, transfer, conveyance, lease or other
disposition of the Capital Stock or assets of the following: (A) Cogentrix of
Pennsylvania, Inc.; and (B) ReUse Technology, Inc. and (iv) any transaction or
3
<PAGE> 6
series of related transactions consisting of the sale, transfer, conveyance,
lease or other disposition of Capital Stock or assets with a fair market value
aggregating less than $5 million. The term "Asset Disposition" also shall not
include (i) the grant of a Lien by any Person in any assets or shares of Capital
Stock securing a borrowing by, or contractual performance obligation of, such
Person or any Subsidiary of such Person or any Joint Venture in which such
Person has an interest, which Lien is not prohibited under Section 3.7 hereof or
the exercise of remedies hereunder or (ii) a sale-leaseback transaction
involving substantially all of the assets of a Power Generation Facility where a
Subsidiary of the Company sells the Power Generation Facility to a Person in
exchange for the assumption by that Person of the Debt financing the Power
Generation Facility and the Subsidiary leases the Power Generation Facility from
such Person.
"ASSET SALE" means the sale or other disposition by the Company
or any of its Subsidiaries (other than to the Company or another Subsidiary of
the Company) of (i) all or substantially all of the Capital Stock of any
Subsidiary of the Company or (ii) all or substantially all of the Property that
constitutes an operating unit or business of the Company or any of its
Subsidiaries.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction
means, as of the time of determination, the present value (discounted at the
interest rate assumed in making calculations in accordance with GAAP) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"ATTRIBUTABLE VALUE" means, as to a Capitalized Lease Obligation
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the capitalized amount thereof that would
appear on the face of a balance sheet of such Person in accordance with GAAP.
"AVERAGE LIFE" means, at any date of determination with respect
to any Debt security or Preferred Stock, the quotient obtained by dividing (i)
the sum of the product of (A) the number of years from such date of
determination to the dates of each successive scheduled principal or involuntary
liquidation value payment of such Debt security or Preferred Stock,
respectively, multiplied by (B) the amount of such principal or involuntary
liquidation value payment by (ii) the sum of all such principal or involuntary
liquidation value payments.
"CAPITALIZED LEASE" means, as applied to any Person, any lease of
any Property of which the discounted present value of the rental obligations of
such Person as lessee, in conformity with GAAP, is required to be capitalized on
the balance sheet of such Person.
"CERTIFICATED NOTE" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.6 hereof, in
the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
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<PAGE> 7
(i) prior to the initial Public Equity Offering Consummation Date, any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, or has the absolute power to direct the vote of,
with respect to the election of directors of the Company, shares of Capital
Stock entitled to cast more than the greater of (x) 35% or (y) the Original
Group Percentage of the votes entitled to be cast with respect to the
election of directors of the Company. The "Original Group Percentage" shall
mean, as of any date of determination, the percentage of the votes entitled
to be cast with respect to the election of directors of the Company, by the
Permitted Holders and by persons who have agreed to vote as directed by the
Permitted Holders with respect to the election of such directors;
(ii) subsequent to the initial Public Equity Offering Consummation
Date, any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above), directly or indirectly,
of more than 35% of the total voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders "beneficially own"
(as so defined), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors (for the purposes of this clause (ii), any person
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation"), if such person "beneficially owns" (as so defined), directly
or indirectly, more than 35% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders "beneficially own" (as so
defined), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the board of directors of such
parent corporation); or
(iii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors (together with any new
directors elected by such Board of Directors or nominated for election by
the shareholders of the Company by a vote of at least a majority of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office.
Notwithstanding the foregoing, a Change of Control shall not be
deemed to have occurred if one or more of the above events occur or
circumstances exist and, after giving effect thereto, the Notes are rated Ba1 or
better by Moody's Investors Service, Inc. and BB+ or better by Standard & Poor's
Corporation.
"CHANGE OF CONTROL OFFER" has the meaning set forth in Section
3.8 hereof.
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<PAGE> 8
"CONSOLIDATED EBITDA" of any Person for any period means the
Adjusted Consolidated Net Income of such Person, plus (i) income taxes,
excluding income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or Asset Sales, all determined
on a consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, (ii) Consolidated Fixed Charges, (iii) depreciation and
amortization expense, all determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP, (iv) all other non-cash
items reducing Adjusted Consolidated Net Income for such period, all determined
on a consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP and (v) the aggregate amount actually received in cash by
such Person during such period relating to non-cash items increasing Adjusted
Consolidated Net Income for prior periods, and less (i) all non-cash items
increasing Adjusted Consolidated Net Income during such period and (ii) the
aggregate amount actually paid in cash by such Person during such period
relating to non-cash items reducing Adjusted Consolidated Net Income for prior
periods; provided that depreciation and amortization expense of any Subsidiary
of such Person and any other non-cash item of any Subsidiary of such Person that
reduces Adjusted Consolidated Net Income shall be excluded (without duplication)
in computing Consolidated EBITDA, except to the extent that the positive cash
flow associated with such depreciation and amortization expense and other
non-cash items is actually distributed in cash to such Person during such
period.
"CONSOLIDATED FIXED CHARGES" of any Person means, for any period,
the aggregate of (i) Consolidated Interest Expense, (ii) the interest component
of Capitalized Leases, determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP excluding any interest
component of Capitalized Leases in respect of that portion of a Capitalized
Lease Obligation of a Subsidiary that is Non-Recourse to such Person and (iii)
cash and non-cash dividends due (whether or not declared) on the Preferred Stock
of any Subsidiary of such Person and any Redeemable Stock of such Person.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any
period, the aggregate interest expense in respect of Debt (including
amortization or original issue discount and non-cash interest payments or
accruals) of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Agreements and any amounts paid during such period in respect of such interest
expense, commissions, discounts, other fees and charges that have been
capitalized; provided that Consolidated Interest Expense of the Company shall
not include any interest expense (including all commissions, discounts, other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs associated with Interest Rate Agreements) in respect of
that portion of Debt of a Subsidiary of the Company that is Non-Recourse to the
Company; and provided further that Consolidated Interest Expense of the Company
in respect of a Guarantee by the Company of Debt of a Subsidiary shall be equal
to the commissions, discounts, other fees and charges that would be due with
respect to a hypothetical letter of credit issued under a bank credit agreement
that can be drawn by the beneficiary thereof in the amount of the Debt so
guaranteed if (i) the Company is not actually making directly or indirectly
interest payments on such Debt and (ii) GAAP does not require the Company on an
unconsolidated basis to record such Debt as a liability of the Company.
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<PAGE> 9
"CONSOLIDATED TOTAL ASSETS" means, with respect to any Person at
any time, the total assets of such Person and its consolidated Subsidiaries at
such time determined in conformity with GAAP.
"CURRENCY PROTECTION AGREEMENT" means with respect to any Person
any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in currency values to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of
this Indenture or becomes a party or a beneficiary thereafter.
"DEPOSITORY" means, when used with respect to the Notes, issuable
or issued in whole or in part in the form of one or more Global Notes, the
Person designated as depository by the Company pursuant to Section 2.1 of this
Supplemental Indenture which must be a clearing agency registered under the
Exchange Act.
"DTC" means The Depository Trust Company.
"EUROCLEAR" means the Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System.
"EXCESS CASH FLOW" of any Person for any period means
Consolidated EBITDA less Consolidated Fixed Charges less any income taxes
actually paid during such period.
"EXCESS PROCEEDS" has the meaning set forth in Section 3.5(a)(i)
hereof.
"EXCESS PROCEEDS OFFER" has the meaning set forth in Section
3.5(b) hereof.
"EXCESS PROCEEDS OFFER AMOUNT" has the meaning set forth in
Section 3.5(c)(ii) hereof.
"EXCESS PROCEEDS OFFER PERIOD" has the meaning set forth in
Section 3.5(c)(ii) hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" means, collectively, the Registered Exchange
Offer and the Private Exchange Offer.
"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set forth
in the Registration Agreement.
"EXCHANGING BROKER-DEALER" has the meaning set forth in the
Registration Agreement.
"FIXED CHARGE RATIO" means the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of any Person for the Reference
Period immediately prior to the date of the transaction giving rise to the need
to calculate the Fixed Charge Ratio (the "Transaction Date") to (ii) the
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<PAGE> 10
aggregate Consolidated Fixed Charges of such Person during such Reference
Period; provided that for purposes of such computation, in calculating
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom shall be assumed to have occurred on the
first day of the Reference Period, (2) Asset Sales and Asset Acquisitions which
occur during the Reference Period or subsequent to the Reference Period and
prior to the Transaction Date (but including any Asset Acquisition to be made
with the Debt Incurred pursuant to (1) above) shall be assumed to have occurred
on the first day of the Reference Period, (3) the Incurrence of any Debt during
the Reference Period or subsequent to the Reference Period and prior to the
Transaction Date and the application of the proceeds therefrom shall be assumed
to have occurred on the first day of such Reference Period, (4) Consolidated
Interest Expense attributable to any Debt (whether existing or being Incurred)
computed on a pro forma basis and bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period unless such Person or any of its
Subsidiaries is a party to an Interest Rate Protection Agreement (which shall
remain in effect for the twelve month period after the Transaction Date) which
has the effect of fixing the interest rate on the date of computation, in which
case such rate (whether higher or lower) shall be used and (5) there shall be
excluded from Consolidated Fixed Charges any Consolidated Fixed Charges related
to any amount of Debt which was outstanding during and subsequent to the
Reference Period but is not outstanding on the Transaction Date, except for
Consolidated Fixed Charges actually incurred with respect to Debt borrowed (as
adjusted pursuant to clause (4)) (x) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect on the
Transaction Date or (y) pursuant to the covenant described in clause (iii) in
Section 3.1(b) hereof. For the purpose of making this computation, Asset Sales
and Asset Acquisitions which have been made by any Person which has become a
Subsidiary of the Company or been merged with or into the Company or any
Subsidiary of the Company during the Reference Period, or subsequent to the
Reference Period and prior to the Transaction Date shall be calculated on a pro
forma basis (including all of the calculations referred to in clauses (1)
through (5) above assuming such Asset Sales or Asset Acquisitions occurred on
the first day of the Reference Period).
"FOREIGN ASSET DISPOSITION" means an Asset Disposition in respect
of the Capital Stock or assets of a Foreign Subsidiary or a Foreign Joint
Venture to the extent that the proceeds of such Asset Disposition are received
by a Person subject in respect of such proceeds to the tax laws of a
jurisdiction other than the United States of America or any State thereof or the
District of Columbia.
"FOREIGN JOINT VENTURE" means a Joint Venture organized under the
laws of a jurisdiction other than the United States of America or a State
thereof or the District of Columbia.
"FOREIGN SALE/LEASEBACK TRANSACTION" means a Sale/Leaseback
Transaction in respect of the Capital Stock or assets of a Foreign Subsidiary or
a Foreign Joint Venture to the extent that the proceeds of such Sale/Leaseback
Transaction are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
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<PAGE> 11
"FOREIGN SUBSIDIARY" means a Subsidiary that is organized under
the laws of a jurisdiction other than the United States of America or a State
thereof or the District of Columbia.
"GLOBAL NOTE LEGEND" shall have the meaning given to such term in
Section 2.6(g)(ii) hereof.
"IAI GLOBAL NOTE" means the Global Note in the form of Exhibit A
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depository or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"INCUR" means with respect to any Debt, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Debt; provided
that neither the accrual of interest (whether such interest is payable in cash
or kind) nor the accretion of original issue discount shall be considered an
Incurrence of Debt.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized
investment banking firm (i) which does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material financial
interest in the Company and (ii) which, in the sole judgment of the Board of
Directors, is otherwise independent and qualified to perform the task for which
such firm is being engaged.
"INDIRECT PARTICIPANT" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"INITIAL PURCHASERS" means Salomon Smith Barney Inc., Goldman,
Sachs & Co. and CIBC Oppenheimer Corp.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is
an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"ISSUE DATE" shall have the meaning given such term in the
Recitals hereto.
"INTEREST RATE PROTECTION AGREEMENT" means, with respect to any
Person, any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in interest rates to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of
this Indenture or becomes a party or a beneficiary thereafter.
"INVESTMENT" in a Person means any investment in, loan or advance
to, Guarantee on behalf of, directly or indirectly, or other transfer of assets
to, such Person.
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<PAGE> 12
"INVESTMENT GRADE" means, with respect to the Notes, a rating of
Baa3 or better by Moody's Investors Service, Inc. and a rating of BBB- or better
by Standard &Poor's Corporation.
"JOINT VENTURE" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that, as to any such arrangement in corporate form, such corporation
shall not, as to any Person of which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a party.
"LETTER OF TRANSMITTAL" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"NET CASH PROCEEDS" from an Asset Disposition or a Sale/Leaseback
Transaction means cash payments received (including any cash payments received
by way of a payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received (including any cash received upon sale
or disposition of such note or receivable), excluding any other consideration
received in the form of assumption by the acquiring Person of Debt or other
obligations relating to the Property disposed of in such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, or received in any other
non-cash form) therefrom, in each case, net of all legal, title and recording
tax expenses, commissions and other fees and expenses incurred or payable, and
all federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP (i) as a consequence of such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, (ii) as a result of the
repayment of any Debt in any jurisdiction other than the jurisdiction where the
Property disposed of was located or (iii) as a result of any repatriation to the
United States of any proceeds of such Asset Disposition or Sale/Leaseback
Transaction, as the case may be, and in each case net of a reasonable reserve
for the after-tax cost of any indemnification payments (fixed and contingent)
attributable to seller's indemnities to the purchaser undertaken by the Company
or any of its Subsidiaries in connection with such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, (but excluding any payments,
which by the terms of the indemnities will not, under any circumstances, be made
prior to the Stated Maturity of the Notes), and net of all payments made on any
Debt which is secured by such Property, in accordance with the terms of any Lien
upon or with respect to such Property or which must by its terms or by
applicable law be repaid out of the proceeds from such Asset Disposition or
Sale/Leaseback Transaction, as the case may be, and net of all distributions and
other payments made to holders of minority interests in Subsidiaries or Joint
Ventures as a result of such Asset Disposition or Sale/Leaseback Transaction, as
the case may be.
"NET INCOME" of any Person for any period means the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"NET WORTH" of any Person means, as of any date the aggregate of
capital, surplus and retained earnings (including any cumulative translation
adjustment) of such Person and its consolidated Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its consolidated Subsidiaries
prepared as of such date in accordance with GAAP.
"NON-U.S. PERSON" means a Person who is not a U.S. Person.
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"PARTICIPANT" means, with respect to the Depository, Euroclear or
Cedel, a Person who has an account with the Depository, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"PERMITTED HOLDERS" means George T. Lewis, Jr., Betty G. Lewis,
Robert W. Lewis, David J. Lewis, James E. Lewis (collectively, the "Current
Holders"), members of the immediate families of the Current Holders, trusts for
the benefit of the Current Holders or members of the immediate families of the
Current Holders, and a non-profit corporation or foundation controlled by any of
the Permitted Holders. Members of a Person's "immediate family" shall mean such
Person's parents, brothers, sisters, spouse and lineal descendants.
"PERMITTED INVESTMENT" means any Investment of the type specified
in clause (iv) of the definition of Restricted Payment which is made directly or
indirectly by the Company and its Subsidiaries; provided that the Person in
which the Investment is made is (a) a Subsidiary which, directly or indirectly,
is or will be engaged in the development, construction, marketing, management,
acquisition, ownership or operation of a Power Generation Facility or (b) a
Joint Venture; provided further, that, in the case of an Investment in a Joint
Venture, (i) at the time such Investment is made, the Company could Incur at
least $1 of Debt under Section 3.1 hereof; (ii) at the time such Investment is
made, no Event of Default or event that, after the giving of notice or lapse of
time or both would become an Event of Default, shall have occurred and be
continuing; and (iii) such Investment is in a Joint Venture which, directly or
indirectly, is or will be engaged in the development, construction, marketing,
management, acquisition, ownership or operation of a Power Generation Facility.
"PERMITTED PAYMENTS" means with respect to the Company or any of
its Subsidiaries (i) any dividend on shares of Capital Stock payable (or to the
extent paid) solely in shares of Capital Stock (other than Redeemable Stock) or
in options, warrants or other rights to purchase Capital Stock (other than
Redeemable Stock); (ii) any dividend or other distribution payable to the
Company by any of its Subsidiaries or by a Subsidiary to a Wholly-Owned
Subsidiary; (iii) the repurchase or other acquisition or retirement for value of
any shares of the Company's Capital Stock, or any option, warrant or other right
to purchase shares of the Company's Capital Stock with additional shares of, or
out of the proceeds of a substantially contemporaneous issuance of, Capital
Stock other than Redeemable Stock (unless the redemption provisions of such
Redeemable Stock prohibit the redemption thereof prior to the date on which the
Capital Stock to be acquired or retired was by its terms required to be
redeemed); (iv) any defeasance, redemption, repurchase or other acquisition for
value of any Debt which by its terms ranks subordinate in right of payment to
the Notes with the proceeds from the issuance of (x) Debt which is also
subordinate to the Notes at least to the extent and in the manner as the Debt to
be defeased, redeemed, repurchased or otherwise acquired is subordinate in right
of payment to the Notes; provided that such subordinated Debt provides for no
payments of principal by way of sinking fund, mandatory redemption or otherwise
(including defeasance) by the Company (including, without limitation, at the
option of the holder thereof other than an option given to a holder pursuant to
an "asset disposition" or a "change of control" covenant which is no more
favorable to the holders of such Debt than the provisions contained in Section
3.5 or Section 3.8 hereof are to the Holders of the Notes and such Debt provides
that the Company will not repurchase such Debt pursuant to such provisions prior
to the Company's repurchase of the Notes required to be repurchased by the
Company pursuant to Section 3.5 or Section 3.8 hereof) prior to, or in an amount
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<PAGE> 14
greater than, any Stated Maturity of the Debt being replaced and the proceeds of
such subordinated Debt are utilized for such purpose within 45 days of issuance
or (y) Capital Stock (other than Redeemable Stock); (v) in respect of any actual
payment on account of an Investment (other than a Permitted Investment) which is
not fixed in amount at the time when made, the amount determined by the Board of
Directors to be a Restricted Payment on the date such Investment was originally
deemed to have been made (the "Original Restricted Payment Charge") plus an
amount equal to the interest on a hypothetical investment in a principal amount
equal to the Original Restricted Payment Charge assuming interest at a rate of
7% per annum compounded annually for a period beginning on the date the
Investment was originally deemed to have been made and ending with respect to
any portion of the Original Restricted Payment Charge actually paid on the date
of actual payment less any actual payments previously made on account of such
Investment; provided that the Permitted Payment under this clause (v) shall in
no event exceed the payment actually made; (vi) any amount required to be paid
with respect to an obligation outstanding on the date of this Indenture or (vii)
a Permitted Investment.
"PERMITTED WORKING CAPITAL FACILITIES" means one or more credit
agreements providing for the extension of credit to the Company and/or its
Subsidiary Cogentrix Delaware Holdings, Inc. for working capital purposes in an
aggregate principal amount at any one time outstanding not to exceed $125
million, provided, however, that such limit shall not apply following the Rating
Event Date.
"POWER GENERATION FACILITY" means an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management and, to the extent such facilities are in existence on
the date of this Indenture or are required by contract or applicable law, rule
or regulation, facilities that use thermal energy from a cogeneration facility),
and its or their related electric power transmission, fuel supply and fuel
transportation facilities, together with its or their related power supply,
thermal energy and fuel contracts and other facilities, services or goods that
are ancillary, incidental, necessary or reasonably related to the marketing,
development, construction, management or operation of the foregoing, as well as
other contractual arrangements with customers, suppliers and contractors.
"PRIVATE EXCHANGE OFFER" means the offer by the Company to the
Initial Purchasers to exchange the Initial Notes held by the Initial Purchasers
as part of their initial distribution for a like aggregate principal amount of
Private Exchange Notes, as provided for in the Registration Agreement.
"PRIVATE PLACEMENT LEGEND" shall have the meaning given such term
in Section 2.6(g)(i) hereof.
"PUBLIC EQUITY OFFERING" means a public offering (registered
under the Securities Act) of Common Stock of the Company made after the date of
this Indenture.
"PUBLIC EQUITY OFFERING CONSUMMATION DATE" means the date on
which the Company receives any proceeds from a Public Equity Offering.
"PURCHASE DATE" has the meaning set forth in Section 3.5(c)(i)
hereof.
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"QIB" means a "qualified institutional buyer" as defined in rule
144A.
"RATING EVENT DATE" means the first date upon which the Notes are
rated Investment Grade.
"REDEEMABLE STOCK" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Debt having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require the Issuer to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or a "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the asset disposition or change of control
provision applicable to such Capital Stock is no more favorable to the holders
of such Capital Stock than the provisions contained in Section 3.5 and Section
3.8 hereof are to the Holders of the Notes and such Capital Stock specifically
provides that the Issuer will not repurchase or redeem any such Capital Stock
pursuant to such provisions prior to the Issuer's repurchase of the Notes
required to be repurchased by the Issuer under Section 3.5 and Section 3.8
hereof.
"REFERENCE PERIOD" means the four complete fiscal quarters for
which financial information is available preceding the date of a transaction
giving rise to the need to make a financial calculation.
"REFINANCE" means to issue Debt in order to substantially
concurrently repay, redeem, defease, refund, refinance, discharge or otherwise
retire for value, in whole or in part, other Debt or securities.
"REGISTERED EXCHANGE OFFER" means the offer which may be made by
the Company pursuant to a registration agreement to exchange Initial Notes or
Subsequent Add-on Notes, as the case may be, for Exchange Notes.
"REGISTRATION AGREEMENT" means the Registration Agreement, dated
October 20, 1998, between the Initial Purchasers and the Company, as such
agreement may be amended, modified or supplemented from time to time.
"REGULATION S" means Regulation S promulgated under the
Securities Act.
"REPURCHASE DATE" has the meaning set forth in Section 3.8
hereof.
"RESTRICTED PERIOD" means the 40-day restricted period as defined
in Regulation S.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
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"RESTRICTED PAYMENT" means, with respect to any Person, (i) any
dividend or other distribution on any shares of such Person's Capital Stock;
(ii) any payment on account of the purchase, redemption, retirement or
acquisition for value of such Person's Capital Stock; (iii) any defeasance,
redemption, repurchase or other acquisition or retirement for value prior to the
Stated Maturity of any Debt ranked subordinate in right of payment to the Notes;
and (iv) any Investment made in an Affiliate (other than the Company or
Cogentrix Delaware Holdings, Inc.). Notwithstanding the foregoing, "Restricted
Payment" shall not include any Permitted Payment.
"SALE/LEASEBACK TRANSACTION" has the meaning set forth in
Section 3.10(a) hereof.
"SENIOR DEBT" means the principal of and interest on all Debt of
the Company whether created, Incurred or assumed before, on or after the date of
this Indenture (other than the Notes); provided that Senior Debt shall not
include (i) Debt that, when Incurred and without respect to any election under
Section 1111 (b) of Title 11, United States Code, was Non-Recourse to the
Company, (ii) Debt of the Company to any Affiliate and (iii) any Debt of the
Company which by the terms of the instrument creating or evidencing the same is
specifically designated as not being senior in right of payment to the Notes.
"SECURITIES ACT" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration
Statement as defined in the Registration Agreement.
"SUBSEQUENT ADD-ON NOTES" shall have the meaning given such term
in the Recitals hereto.
"TREASURY RATE" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) that has become publicly available at least two Business Days prior to
the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining years to Stated Maturity of the Notes; provided that
if the number of years to Stated Maturity of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given except that if the average life to Stated Maturity of the Notes is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"2004 SENIOR NOTES" means the Company's 8.10% Senior Notes due
2004 issued pursuant to the 2004 Indenture.
"2004 INDENTURE" means the Indenture, dated as of March 15, 1994,
between the Company and First Union National Bank, as Trustee, pursuant to which
the 2004 Senior Notes were issued.
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"U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under
the Securities Act.
"UNRESTRICTED GLOBAL NOTE" means a permanent global Note in the
form of Exhibit A attached hereto that bears the Global Note Legend and that has
the "Schedule of Exchanges of Interests in the global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depository, representing a series of Notes that do not bear the Private
Placement Legend.
"VOTING STOCK" means, with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors (or persons fulfilling similar responsibilities) of such Person.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any
Subsidiary of such Person if all of the Capital Stock or other ownership
interests in such Subsidiary having ordinary voting power to elect the entire
board of directors or entire group of other persons performing similar functions
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly, by one or more
Wholly-Owned Subsidiaries of such Person's Wholly-Owned Subsidiaries, by such
Person.
ARTICLE II. THE NOTES.
SECTION 2.1. ISSUANCE OF NOTES.
(a) The aggregate principal amount of Notes which may be
authenticated and delivered under this Supplemental Indenture shall be limited
to $420,000,000 (except for Notes authenticated and delivered upon registration
or transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 3.04, 3.05, 3.06, 11.06 or 13.07 of the Base Indenture or pursuant to an
Exchange Offer), including (a) $220,000,000 in aggregate principal amount of
Initial Notes being offered on the Issue Date and (b) Subsequent Add-on Notes in
an aggregate principal amount not to exceed $200,000,000. All Notes issued on
the Issue Date and all Subsequent Add-on Notes shall be identical in all
respects other than issue dates, the date from which interest accrues and any
changes relating thereto. The Initial Notes and any Subsequent Add-on Notes
shall be known as the "8.75% Senior Notes due 2008" and the Exchange Notes and
the Private Exchange Notes shall be known as the "8.75% Series B Senior Notes
due 2008", in each case, of the Company. The Notes shall be in substantially the
forms set forth in Exhibit A hereto, with appropriate inclusions and exclusions
set forth therein depending on whether such Note is (i) an Initial Note, a
Subsequent Add-on Note, an Exchange Note or a Private Exchange Note, and (ii) a
Global Note or a Certificated Note, and shall be issued in the forms hereinafter
provided. Global Notes shall include the Global Note Legend thereon and the
"Schedule of Exchanges of Interests in the Global Note" attached thereto.
Certificated Notes shall be issued without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto. Each Global Note shall represent such of the outstanding Notes as shall
be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
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thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.6 hereof. The terms and
provisions contained in the Notes shall constitute and are hereby expressly made
a part of this Supplemental Indenture and the Company and the Trustee by their
execution and delivery of this Supplemental Indenture expressly agree to such
terms and provisions and to be bound thereby. The Notes shall bear interest as
provided in Section 2.3 hereof. Principal on the Notes shall be payable as
provided in Section 2.3 hereof and as otherwise provided in the Base Indenture.
The Notes shall be subject to redemption as provided in Section 2.4 hereof and
in Article Thirteen of the Base Indenture. The Initial Notes shall be entitled
to the benefits of the Registration Agreement.
(b) The Trustee shall authenticate and deliver: (1) Initial Notes
for original issue in an aggregate principal amount of $220,000,000, (2)
Subsequent Add-on Notes as may be offered subsequent to the Issue Date in an
aggregate principal amount not to exceed $200,000,000 and (3) Exchange Notes or
Private Exchange Notes for issue only in a Registered Exchange Offer or a
Private Exchange Offer, respectively, pursuant to the Registration Agreement,
for a like principal amount of Initial Notes, in each case upon a Company Order.
Such Company Order shall specify the amount of the Notes to be authenticated and
the date on which the original issue of Notes is to be authenticated and whether
the Notes are to be Initial Notes, Exchange Notes, Private Exchange Notes or
Subsequent Add-on Notes.
In the event that the Company shall issue and the Trustee shall
authenticate any Subsequent Add-on Notes, the Company shall use its best efforts
to obtain the same CUSIP number for such Subsequent Add-on Notes as is printed
on the Notes outstanding at such time; provided, however, that if any series of
Subsequent Add-on Notes is determined, pursuant to an Opinion of Counsel, to be
a different class of security than the Notes outstanding at such time for
federal income tax purposes, the Company may obtain a CUSIP number for such
series of Subsequent Add-on Notes that is different from the CUSIP number
printed on the Notes then outstanding.
(c) Initial Notes and Subsequent Add-on Notes offered and sold in
reliance on Rule 144A shall be issued initially in the form of one or more
Global Securities (the "Restricted Global Notes") registered in the name of the
Depository or a nominee of the Depository. Initial Notes and Subsequent Add-on
Notes offered and sold in reliance on Regulation S shall be issued initially in
the form of one or more Global Securities (the "Regulation S Global Notes")
registered in the name of the Depository or a nominee of the Depository.
Exchange Notes shall be issued initially in the form of one or more Global
Securities (the "Exchange Global Notes") registered in the name of the
Depository or a nominee of the Depository. Private Exchange Notes shall be
issued in the form of one or more Global Securities (the "Private Exchange
Global Notes", and together with the Exchange Global Notes, the Restricted
Global Notes, and the Regulation S Global Notes, the "Global Notes") registered
in the name of the Depository or a nominee of the Depository. The aggregate
principal amount of Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
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Depository or its nominee, as hereinafter provided. The Depository shall be DTC
unless the Company appoints a successor depository by delivery of a Company
Order to the Trustee specifying such successor depository.
(d) Notes shall be issued without coupons only in denominations
of $1,000 and integral multiples thereof.
SECTION 2.2. ONE SERIES OF NOTES.
The Initial Notes, the Private Exchange Notes, the Exchange Notes
and the Subsequent Add-on Notes shall for all purposes of the Indenture be
treated as a single series of Notes and shall vote and consent together on all
matters as one class and none of the Initial Notes, the Private Exchange Notes,
the Exchange Notes or the Subsequent Add-on Notes shall have the right to vote
or consent as a separate class on any matter.
SECTION 2.3. INTEREST ON THE NOTES; PAYMENT OF INTEREST.
(a) The Initial Notes shall bear interest at the rate of 8.75%
per annum from the Issue Date, the Subsequent Add-on Notes shall bear interest
at the rate of 8.75% per annum from the date of issuance and Exchange Notes and
Private Exchange Notes shall bear interest from the last Interest Payment Date
through which interest has been paid on the Initial Notes or Subsequent Add-on
Notes, as the case may be, in exchange for which they are issued prior to their
issuance. With respect to Initial Notes and any Subsequent Add-on Notes, the
Company also agrees to pay the amount of any additional interest required
pursuant to the terms of the Initial Notes, the Subsequent Add-on Notes and the
Registration Agreement in the manner provided below.
(b) The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date shall, as provided in such Indenture, be paid
to the Person in whose name a Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any
Defaulted Interest shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name the Note
(or one or more Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Notes not less than
10 calendar days prior to such Special Record Date, or be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Base Indenture.
Interest on Defaulted Interest shall (to the extent permitted by applicable law)
accrue at the rate of 9.75% per annum. Interest on any overdue principal shall
also accrue at the rate of 9.75% per annum
(c) Payment of the principal of (and premium, if any) and any
such interest on the Notes shall be made at the office or agency of the Company
in Charlotte, North Carolina, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address appears in the Security Register; provided further that
all payments with respect to Senior Notes the Holders of which have given wire
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transfer instructions to the Company and its Paying Agent prior to the
applicable record date for such payment will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof; provided further that all payments of principal, premium, if any, and
interest with respect to the Senior Notes represented by one or more permanent
global notes registered in the name of or held by DTC or its nominee will be
made by wire transfer of immediately available funds to DTC or its nominee as
the registered owner thereof.
SECTION 2.4. REDEMPTION.
The Notes may be redeemed, in whole or in part, at the Company's
option at any time prior to maturity, upon not less than 30 nor more than 60
days' prior notice, at a Redemption Price equal to (i) the then outstanding
principal amount of the Notes being redeemed plus accrued and unpaid interest
thereon to the Redemption Date plus (ii) a premium equal to the excess of (A)
the present value at the time of redemption of the principal amount of the Notes
being redeemed plus any required interest payments due on the Notes being
redeemed through Stated Maturity computed using a discount rate equal to the
Treasury Rate plus 50 basis points over (B) the then outstanding principal
amount of the Notes being redeemed.
SECTION 2.5. EXCHANGE OF INITIAL NOTES FOR EXCHANGE NOTES.
Exchanges of Initial Notes or Subsequent Add-on Notes for
Exchange Notes or Private Exchange Notes shall be made in accordance with the
provisions of Section 3.05 of the Base Indenture and the Registered Exchange
Offer or the Private Exchange Offer, as the case may be; provided that no such
exchange for Exchange Notes shall occur until an Exchange Offer Registration
Statement (as defined in the Registration Agreement) shall have been declared
effective by the Commission and the Trustee shall have received an Officers'
Certificate confirming that the Exchange Offer Registration Statement has been
declared effective by the Commission.
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not
be transferred as a whole except by the Depository to a nominee of the
Depository, by a nominee of the Depository to the Depository or to another
nominee of the Depository, or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. All Global Notes
will be exchanged by the Company for Certificated Notes if (i) the Company
delivers to the Trustee notice from the Depository that it is unwilling or
unable to continue to act as Depository or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depository is not appointed by the Company within 90 days after the date of such
notice from the Depository or (ii) the Company in its sole discretion determines
that the Global Notes (in whole but not in part) should be exchanged for
Certificated Notes and delivers a written notice to such effect to the Trustee.
Upon the occurrence of either of the preceding events in (i) or (ii) above,
Certificated Notes shall be issued in such names as the Depository shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 3.06 and 3.08 of the Base Indenture. Every
Security authenticated and delivered in exchange for, or in lieu of, a Global
Note or any portion thereof, pursuant to Section 3.06 or 3.08 of the Base
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Indenture, shall be authenticated and delivered in the form of, and shall be, a
Global Note. A Global Note may not be exchanged for another Debt Security other
than as provided in this Section 2.6(a), however, beneficial interests in a
Global Note may be transferred and exchanged as provided in Section 2.6(b), (c)
or (f) hereof.
(b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL
NOTES. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depository, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend (as
defined herein); provided, that prior to the expiration of the
Restricted Period transfers of beneficial interests in the Regulation
S Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred only to
Persons who take delivery thereof in the form of a beneficial interest
in an Unrestricted Global Note. No written orders or instructions
shall be required to be delivered to the Security Registrar to effect
the transfers described in this Section 2.6(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than a transfer of a beneficial interest
in a Global Note to a Person who takes delivery thereof in the form of
a beneficial interest in the same Global Note), the transferor of such
beneficial interest must deliver to the Security Registrar either (A)
(1) a written order from a Participant or an Indirect Participant
given to the Depository in accordance with the Applicable Procedures
directing the Depository to credit or cause to be credited a
beneficial interest in another Global Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depository in
accordance with the Applicable Procedures directing the Depository to
cause to be issued a Certificated Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2)
instructions given by the Depository to the Security Registrar
containing information regarding the Person in whose name such
Certificated Note shall be registered to effect the transfer or
exchange referred to in (1) above; provided, that in no event shall
Certificated Notes be issued upon the transfer or exchange of
beneficial interests in the Regulation S Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Security Registrar of any certificates required pursuant to Rule 903
under the Securities Act. Upon an Exchange Offer by the Company in
accordance with Section 2.6(f) hereof, the requirements of this
Section 2.6(b)(ii) shall be deemed to have been satisfied upon receipt
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by the Security Registrar of the instructions contained in the Letter
of Transmittal delivered by the Holder of such beneficial interests in
the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in
Global Notes contained in this Indenture, the Notes and otherwise
applicable under the Securities Act, the Trustee shall adjust the
principal amount of the relevant Global Note(s) pursuant to Section
2.6(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may
be transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of clause (ii) above and the Security
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the Restricted Global Senior Note, then
the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof;
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Senior Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications and certificates and Opinion
of Counsel required by item (3) thereof, if applicable, and the
transferee must deliver a certificate in the form of Exhibit D
hereto.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may
be exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
clause (ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Agreement and
the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a
transfer, is not (1) a broker-dealer, (2) a Person participating
in the distribution of the Securities or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Agreement;
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(C) any such transfer is effected by an Exchanging
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Agreement; or
(D) the Security Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Registrar
to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are not
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 3.03 of the Base Indenture, the
Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in
the form of, a beneficial interest in a Restricted Global Note.
(c) TRANSFER OR EXCHANGE OF BENEFICIAL INTERESTS FOR CERTIFICATED
NOTES.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Certificated Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Certificated Note or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of a Certificated Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Certificated Note, a certificate from such holder
in the form of Exhibit C hereto, including the certifications in
item (2)(a) thereof;
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(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable, and a certificate in
the form of Exhibit D hereto;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.6(h) hereof, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Person designated
in the instructions a Certificated Note in the appropriate principal
amount. Any Certificated Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.6(c)
shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial
interest shall instruct the Security Registrar through instructions
from the Depository and the Participant or Indirect Participant. The
Trustee shall make available for delivery such Certificated Notes to
the Persons in whose names such Notes are so registered. Any
Certificated Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.6(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Certificated Notes. A holder of a beneficial interest in
a Restricted Global Note may exchange such beneficial interest for an
Unrestricted Certificated Note or may transfer such beneficial
interest to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Note only if:
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(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Agreement and
the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies
in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Agreement;
(C) such transfer is effected by an Exchanging Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Certificated Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Certificated Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Security Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to
the Security Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Certificated Notes. If any holder of a beneficial
interest in an Unrestricted Global Note proposes to exchange such
beneficial interest for a Certificated Note or to transfer such
beneficial interest to a Person who takes delivery thereof in the form
of a Certificated Note, then, upon satisfaction of the conditions set
forth in Section 2.6(b)(ii) hereof, the Trustee shall cause the
aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.6(h) hereof, and the Company shall
execute and the Trustee shall authenticate and make available for
delivery to the Person designated in the instructions a Certificated
Note in the appropriate principal amount. Any Certificated Note issued
in exchange for a beneficial interest pursuant to this Section
2.6(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Security Registrar through
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instructions from the Depository and the Participant or Indirect
Participant. The Trustee shall make available for delivery such
Certificated Notes to the Persons in whose names such Notes are so
registered. Any Certificated Note issued in exchange for a beneficial
interest pursuant to this section 2.6(c)(iii) shall not bear the
Private Placement Legend.
A beneficial interest in an Unrestricted Global Note cannot be
exchanged for a Certificated Note bearing the Private Placement Legend
or transferred to a Person who takes delivery thereof in the form of a
Certificated Note bearing the Private Placement Legend.
(d) TRANSFER AND EXCHANGE OF CERTIFICATED NOTES FOR BENEFICIAL
INTERESTS.
(i) Restricted Certificated Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Certificated
Note proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Certificated Notes to a
Person who takes delivery thereof in the form of a beneficial interest
in a Restricted Global Note, then, upon receipt by the Security
Registrar of the following documentation:
(A) if the Holder of such Restricted Certificated Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Certificated Note is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such Certificated Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Certificated Note is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Certificated Note is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof;
(F) if such Certificated Note is being transferred pursuant
to an effective registration statement under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof; or
(G) if such Certificated Note is being transferred to an
Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
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including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, and a certificate in the form of
Exhibit D hereto,
the Trustee shall cancel the Certificated Note, increase or cause to
be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of
clause (B) above, the 144A Global Note, in the case of clause (C)
above, the Regulation S Global Note and in the case of clause (G)
above, the IAI Global Note.
(ii) Restricted Certificated Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Certificated Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Restricted Certificated Note to a Person
who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Agreement and
the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Agreement;
(C) any such transfer is effected by an Exchanging
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Certificated Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(c)
thereof;
(2) if the Holder of such Certificated Notes proposes to
transfer such Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company
to the effect that such exchange or transfer is in compliance
with the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend are not
required in order to maintain compliance with the Securities Act,
and such Certificated Notes are being exchanged or transferred in
compliance with any applicable blue sky securities laws of any
State of the United States.
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Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.6(d)(ii), the Trustee shall cancel the Certificated
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) Unrestricted Certificated Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Certificated
Note may exchange such Note for a beneficial interest in an
Unrestricted Global Note or transfer such Certificated Notes to a
Person who takes delivery thereof in the form of a beneficial interest
in an Unrestricted Global Note at any time. Upon receipt of a request
for such an exchange or transfer, the Trustee shall cancel the
applicable Unrestricted Certificated Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted
Global Notes.
If any such exchange or transfer from a Certificated Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an authentication order in
accordance with Section 3.03 of the Base Indenture, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of beneficial interests transferred
pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above.
(e) TRANSFER AND EXCHANGE OF CERTIFICATED NOTES FOR CERTIFICATED
NOTES. Upon request by a Holder of Certificated Notes and such Holder's
compliance with the provisions of this Section 2.6(e), the Security Registrar
shall register the transfer or exchange of Certificated Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Security Registrar the Certificated Notes duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Security Registrar duly executed by such Holder or by his attorney, duly
authorized in writing. In addition, the requesting Holder shall provide any
additional certifications, documents and information, as applicable, pursuant to
the provisions of this Section 2.6(e).
(i) Restricted Certificated Notes to Restricted Certificated
Notes. Restricted Certificated Notes may be transferred to and
registered in the name of Persons who take delivery thereof if the
Security Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item
(2) thereof;
(C) if the transfer will be made pursuant to an exemption
from the registration requirements of the Securities Act to an
Institutional Accredited Investor, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including
the certifications and certificates and Opinion of Counsel
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required by item (3) thereof, if applicable, and the transferee
must deliver a certificate in the form of Exhibit D hereto; and
(D) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver (x) a certificate in the
form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof,
if applicable.
(ii) Restricted Certificated Notes to Unrestricted Certificated
Notes. Any Restricted Certificated Note may be exchanged by the Holder
thereof for an Unrestricted Certificated Note or transferred to a
Person or Persons who take delivery thereof in the form of an
Unrestricted Certificated Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Agreement and
the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Agreement;
(C) any such transfer is effected by a Exchanging
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Agreement; or
(D) the Security Registrar receives the following:
(1) if the Holder of such Restricted Certificated Notes
proposes to exchange such Notes for an Unrestricted Certificated
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
(2) if the Holder of such Restricted Certificated Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Certificated
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company
to the effect that such exchange or transfer is in compliance
with the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend are not
required in order to maintain compliance with the Securities Act,
and such Restricted Certificated Note is being exchanged or
transferred in compliance with any applicable blue sky securities
laws of any State of the United States.
(iii) A Holder of Unrestricted Certificated Notes may transfer
such Notes to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Note. Upon receipt of a request for such a
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transfer, the Security Registrar shall register the Unrestricted
Certificated Notes pursuant to the instructions from the Holder
thereof. Unrestricted Certificated Notes cannot be exchanged for or
transferred to Persons who take delivery thereof in the form of a
Restricted Certificated Note.
(f) EXCHANGE OFFER. Upon the occurrence of the Exchange Offer in
accordance with the Registration Agreement, the Company shall issue and, upon
receipt of an authentication order in accordance with Section 3.03 of the Base
Indenture, the Trustee shall authenticate (i) one or more Unrestricted Global
Notes in an aggregate principal amount equal to the principal amount of the
beneficial interests in the Restricted Global Notes tendered for acceptance by
persons that are not (x) broker-dealers, (y) Persons participating in the
distribution of the Exchange Notes or (z) Persons who are affiliates (as defined
in Rule 144) of the Company and accepted for exchange in the Exchange Offer and
(ii) Certificated Notes in an aggregate principal amount equal to the principal
amount of the Restricted Certificated Notes accepted for exchange in the
Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Persons designated by the
Holders of Certificated Notes so accepted Certificated Notes in the appropriate
principal amount.
(g) LEGENDS. The following legends shall appear on the face of
all Global Notes and Certificated Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Certificated Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend
(the "Private Placement Legend") in substantially the following
form:
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF
THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
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(d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASERS FROM IT OF THIS NOTE OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or
Certificated Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.6 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
(the "Global Note Legend") in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.6 OF THE SUPPLEMENTAL INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(A) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 3.08 OF THE BASE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Certificated Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 3.08 of the Base
Indenture. At any time prior to such cancellation, if any beneficial interest in
a Global Note is exchanged for or transferred to a Person who will take delivery
thereof in the form of a beneficial interest in another Global Note or for
Certificated Notes, the principal amount of Notes represented by such Global
Note shall be reduced accordingly and an endorsement shall be made on such
Global Note, by the Trustee or by the Depository at the direction of the
Trustee, to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
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<PAGE> 32
shall be increased accordingly and an endorsement shall be made on such Global
Note, by the Trustee or by the Depository at the direction of the Trustee, to
reflect such increase.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Certificated Notes upon the Company's order or at the Security
Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Certificated Note for
any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.04, 13.07 and 11.06 of the
Base Indenture).
(iii) The Security Registrar shall not be required to register
the transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed
in part.
(iv) All Global Notes and Certificated Notes issued upon any
registration of transfer or exchange of Global Notes or Certificated
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under the Base Indenture
and this Supplemental Indenture, as the Global Notes or Certificated
Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange Notes during a period beginning at the
opening of business 15 days before the day of mailing of a notice of
redemption under Section 13.03 of the Base Indenture and ending at the
close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in
whole or in part, except the unredeemed portion of any Note being
redeemed in part or (C) to register the transfer of or to exchange a
Note between a record date and the next succeeding Interest Payment
Date.
(vi) Prior to due presentment for the registration of a transfer
of any Security, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of principal
of and interest on such Notes and for all other purposes, and none of
the Trustee, any Agent or the Company shall be affected by notice to
the contrary.
(vii) The Trustee shall authenticate Global Notes and
Certificated Notes in accordance with the provisions of Section 3.03
of the Base Indenture.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Security Registrar pursuant to this
Section 2.6 to effect a transfer or exchange may be submitted by
facsimile.
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ARTICLE III. CERTAIN COVENANTS.
The following covenants shall, subject to the provisions of
Section 3.11 hereof, be applicable to the Company (unless waived or amended) for
so long as any of the Notes are Outstanding. Nothing in this paragraph will,
however, affect the Company's obligations under any provision of the Base
Indenture or, except for Article III hereof, this Supplemental Indenture.
SECTION 3.1. LIMITATION ON DEBT.
(a) The Company shall not Incur any Debt, including Acquisition
Debt, unless after giving effect to the Incurrence of such Debt and the receipt
and application of the proceeds therefrom, the Fixed Charge Ratio of the Company
would be equal to or greater than 2.0 to 1.
(b) Notwithstanding the foregoing, the Company may Incur each and
all of the following:
(i) Debt issued in exchange for, or the proceeds of which are
used to Refinance Outstanding Notes or other Debt of the Company in an
amount (or, if such new Debt provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, with an original issue price) not to exceed the
amount so exchanged or Refinanced (plus accrued interest and fees and
expenses related to such exchange or Refinancing), the amount so
exchanged or Refinanced being equal to the lesser of (x) the principal
amount or involuntary liquidation preference of the Debt so exchanged
or Refinanced and (y) if the Debt being exchanged or Refinanced was
issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such Refinancing;
provided that such Debt of the Company will rank pari passu with or
expressly subordinated in right of payment to the Notes and the
Average Life of the new Debt shall be equal to or greater than the
Average Life of the Debt to be exchanged or Refinanced;
(ii) Debt of the Company to any of its Subsidiaries and to any
Joint Ventures in which the Company is a direct or indirect partner,
shareholder, member or other participant if such Debt of the Company
is expressly subordinated in right of payment to the Notes; provided
that any transfer of such Debt by a Subsidiary or a Joint Venture
(other than to another Subsidiary or Joint Venture) will be deemed to
be an Incurrence of Debt;
(iii) Debt issued under or in respect of Permitted Working
Capital Facilities;
(iv) Debt in an aggregate principal amount not to exceed $10
million at any one time outstanding;
(v) Debt in respect of Currency Protection Agreements or Interest
Rate Protection Agreements; and
(vi) Debt outstanding as of the date of this Indenture.
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For purposes of determining any particular amount of Debt under
this Section 3.1, Guarantees of, or obligations with respect to letters of
credit supporting, Debt otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with the provisions of this Section 3.1, in the event that an item of Debt meets
the criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses.
SECTION 3.2. LIMITATION ON SUBSIDIARY DEBT
(a) The Company shall not permit any Subsidiary to Incur, assume
or otherwise cause or suffer to exist, directly or indirectly, any Debt.
(b) Notwithstanding the foregoing, each and all of the following
Debt may be Incurred by a Subsidiary:
(i) Debt outstanding as of the date of this Indenture;
(ii) Debt owed by a Subsidiary to the Company;
(iii) Debt Incurred to finance the development, acquisition,
construction or operation of a Power Generation Facility in which
such Subsidiary has a direct or indirect interest; provided that
such Debt shall be permitted under this clause (iii) only to the
extent of the amount thereof which is Non-Recourse to the Company
and is Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility;
(iv) Debt issued in exchange for, or the proceeds of which
are used to Refinance, outstanding Debt of such Subsidiary
otherwise permitted under this Indenture in an amount (or, if
such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration thereof, with an original issue price) not to exceed
the amount so exchanged or Refinanced (plus accrued interest and
fees and expenses related to such exchange or Refinancing), the
amount so exchanged or Refinanced being equal to the lesser of
(x) the principal amount or involuntary liquidation preference of
the Debt so exchanged or Refinanced and (y) if the Debt being
exchanged or Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided that (A) the
new Debt shall be Non-Recourse to the Company to no lesser extent
than the Debt to be exchanged or Refinanced, (B) the new Debt
shall be Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility to no
lesser extent than the Debt to be exchanged or Refinanced, and
(C) the Average Life of the new Debt shall be equal to or greater
than the Average Life of the Debt to be exchanged or Refinanced;
(v) Debt issued in exchange for, or the proceeds of which
are used to Refinance, outstanding Debt of such Subsidiary
otherwise permitted under this Indenture in an amount (or, if
such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration thereof, with an original issue price) in excess of
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the amount so exchanged or Refinanced (plus accrued interest and
fees and expenses related to such exchange or Refinancing);
provided that (A) the new Debt shall be Non-Recourse to the
Company to no lesser extent than the Debt to be exchanged or
Refinanced, (B) the new Debt shall be Non-Recourse to any other
Subsidiary with a direct or indirect interest in any other Power
Generation Facility to no lesser extent than the Debt to be
exchanged or Refinanced, and (C) the Average Life of the new Debt
shall be equal to or greater than the Average Life of the Debt to
be exchanged or Refinanced; provided further that, after giving
effect to the Incurrence of such new Debt and the retirement of
the Debt to be exchanged or Refinanced, the Fixed Charge Ratio of
the Company would be equal to or greater than 2.0 to 1;
(vi) Debt issued in exchange for, or the proceeds of which
are used to Refinance, outstanding Debt which is not Non-Recourse
to the Company or to any other Subsidiary in an amount (or if
such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration or
acceleration thereof, with an original issue price) not to exceed
the amount so exchanged or Refinanced (plus accrued interest and
fees and expenses related to such exchange or Refinancing), the
amount so exchanged or Refinanced being equal to the lesser of
(x) the principal amount of the Debt so exchanged or Refinanced
and (y) if the Debt being so exchanged or Refinanced was issued
with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such
Refinancing; provided that the Average Life of the new Debt shall
be equal to or greater than the Average Life of the Debt to be
exchanged or Refinanced;
(vii) Debt Incurred to support the performance obligations
of a Subsidiary engaged in providing construction management or
operating services to a Power Generation Facility; provided that
such Debt shall be permitted under this clause (vii) only to the
extent of the amount thereof which is Non-Recourse to the Company
and is Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility;
(viii) Debt of a Subsidiary, provided that after giving
effect to the Incurrence of such new Debt and the retirement of
any Debt to be exchanged or Refinanced, the Fixed Charge Ratio of
the Company would be equal to or greater than 2.0 to 1;
(ix) Debt Incurred by a Person prior to the time: (A) such
Person became a Subsidiary of the Company; (B) such Person merges
with or into a Subsidiary of the Company; or (C) another
Subsidiary of the Company merges with or into such Person (in a
transaction in which such Person becomes a Subsidiary of the
Company); provided that, giving effect to such transaction, such
Debt could have been Incurred at the time of such merger or
acquisition by the Company pursuant to Section 3.1 hereof or by
the Subsidiary pursuant to either of clauses (iii) or (iv) of
this subsection (b) of this Section 3.2;
(x) Debt Incurred by a Subsidiary of which at least 80% of
each class of Common Stock is owned, directly or indirectly, by
the Company, to another Subsidiary of which at least 80 % of each
class of Common Stock is owned, directly or indirectly, by the
Company; and
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(xi) Debt issued by Cogentrix Delaware Holdings, Inc. under
or in respect of Permitted Working Capital Facilities.
For purposes of determining any particular amount of Debt under
this Section 3.2, Guarantees of, or obligations with respect to letters of
credit supporting, Debt otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with the provisions of this Section 3.2, in the event that an item of Debt meets
the criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses.
SECTION 3.3. LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment if at the time of such
Restricted Payment and after giving effect thereto:
(a) an Event of Default or an event that, after the giving of
notice or lapse of time or both would become an Event of Default, shall have
occurred and be continuing;
(b) the Company could not Incur at least $1 of Debt under Section
3.1(a) hereof;
(c) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries after the date of this Indenture (the amount so
made, if other than in cash, to be determined in good faith by the Board of
Directors, as evidenced by a Board resolution) shall exceed the sum (without
duplication) of: (i) $25 million plus 50% of the Net Income of the Company and
its consolidated Subsidiaries for the period (taken as one accounting period)
beginning on October 1, 1998 and ending on the last day of the fiscal quarter
immediately prior to the date of such calculation; provided that if Net Income
for such period is less than zero, then minus 100 % of the amount of such net
loss; plus (ii) the aggregate net proceeds (including the fair market value of
proceeds other than cash, as determined in good faith by the Board of Directors)
received by the Company from and after the date of this Indenture from the
issuance and sale (other than to a Subsidiary) of its Capital Stock (excluding
Redeemable Stock, but including Capital Stock other than Redeemable Stock issued
upon conversion of, or in exchange for, Redeemable Stock or securities other
than its Capital Stock), and warrants, options and rights to purchase its
Capital Stock (other than Redeemable Stock), but excluding the net proceeds from
the issuance, sale, exchange, conversion or other disposition of its Capital
Stock convertible (whether at the option of the Company or the holder thereof or
upon the happening of any event) into (x) any security other than its Capital
Stock or (y) its Redeemable Stock; plus (iii) the net reduction in Investments
of the type specified in clause (iv) of the definition of "Restricted Payment"
resulting from payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets to the Company or other Person that made
the original Investment from the Person in which such Investment was made;
provided that such payment shall not exceed the amount of the original
Investment; plus (iv) any amount previously included as a Restricted Payment on
account of an obligation by the Company or any Subsidiary to make a Restricted
Payment which has not actually been made by the Company or any Subsidiary and
which is no longer required to be made by the Company or any Subsidiary;
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provided that this clause (c) shall not prevent the payment of any dividend
within 60 days after the date of its declaration if such dividend could have
been paid on the date of its declaration without violation of the provisions of
this Section 3.3.
SECTION 3.4. LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Company will not, and will not permit any Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to (a)
pay dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Subsidiary owned by the Company or any other Subsidiary,
(b) make payments in respect of any Debt owed to the Company or any other
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Subsidiary of the Company or (d) transfer any of its Property to the
Company or any other Subsidiary, other than those encumbrances and restrictions
created or existing (i) on the date of this Indenture, (ii) pursuant to this
Indenture, (iii) in connection with the Incurrence of any Debt permitted under
clauses (iii) and (vii) of Section 3.2(b) hereof; provided that the President or
the Chief Financial Officer of the Company determines in good faith, as
evidenced by an Officers' Certificate, that such encumbrances or restrictions
are required in order to effect such financing and are not materially more
restrictive, taken as a whole, on the ability of the applicable Subsidiary to
make the payments, distributions, loans, advances or transfers referred to in
clauses (a) through (d) above than encumbrances and restrictions, taken as a
whole, customarily accepted (or, in the absence of any industry custom,
reasonably acceptable) in substantially Non-Recourse financing, (iv) in
connection with the execution and delivery of an electric power or thermal
energy purchase contract to which such Subsidiary is the supplying party or
other contracts with customers, suppliers and contractors to which such
Subsidiary is a party and where such Subsidiary is engaged, directly or
indirectly, in the development, construction, acquisition or operation of a
Power Generation Facility; provided that the President or the Chief Financial
Officer of the Company determines in good faith, as evidenced by an Officers'
Certificate, that such encumbrances or restrictions are required in order to
effect such contracts and are not materially more restrictive, taken as a whole,
on the ability of the applicable Subsidiary to make the payments, distributions,
loans, advances or transfers referred to in clauses (a) through (d) above than
encumbrances and restrictions, taken as a whole, customarily accepted (or, in
the absence of any industry custom, reasonably acceptable) in comparable
transactions, (v) in connection with any Debt of a Person outstanding when such
Person becomes a Subsidiary permitted under clause (ix) of Section 3.2(b)
hereof; provided that such encumbrance or restriction was not Incurred in
contemplation of such Subsidiary becoming a Subsidiary, (vi) in connection with
the Incurrence of any Debt permitted under clause (iv), (v), (vi), (viii) or (to
the extent not covered by (iii) above) (iii) of Section 3.2(b) hereof; provided
that the President or the Chief Financial Officer of the Company determines in
good faith, as evidenced by an Officers' Certificate, that such encumbrances or
restrictions taken as a whole are not materially more restrictive on the ability
of the applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (a) through (d) above than those,
taken as a whole, customarily accepted (or, in the absence of any industry
custom, reasonably acceptable) in comparable financing transactions of the same
nature as the Debt being Incurred, (vii) customary non-assignment provisions in
leases or other contracts entered into in the ordinary course of business of the
Company or any Subsidiary and (viii) any restrictions imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
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of the Capital Stock or assets of any Subsidiary or Joint Venture that apply
pending the closing of such sale or disposition.
SECTION 3.5. RESTRICTIONS ON DISPOSITIONS
(a) (i) Subject to the provisions of Section 3.9 hereof, the
Company will not make and will not permit any of its Subsidiaries to make, any
Asset Disposition unless the Company (or the Subsidiary, as the case may be)
receives consideration at the time of each such Asset Disposition at least equal
to the fair market value of the securities or assets sold or otherwise disposed
of (determined in good faith by the Board of Directors, as evidenced by a Board
resolution); and first, the Net Cash Proceeds of such Asset Disposition are
applied within 90 days from the later of the date of such Asset Disposition or
the receipt of Net Cash Proceeds related thereto, to the payment of the
principal of and premium, if any, and interest on any Senior Debt of the Company
(including to cash collateralize letters of credit) if required by the terms of
any Senior Debt and, in connection with any such payment, any related loan
commitment, standby facility or the like shall be permanently reduced in an
amount equal to the principal amount so repaid; second, to the extent such Net
Cash Proceeds are not required by the terms of the Senior Debt to be applied in
accordance with the foregoing or, if after being so applied there remain Net
Cash Proceeds, then at the Company's election, such Net Cash Proceeds are either
(A) applied to the permanent repayment, prepayment or purchase of senior
indebtedness or invested in the business or businesses of the Company or any of
its Subsidiaries; provided that such Net Cash Proceeds are applied within 365
days from the later of the date of such Asset Disposition or the receipt of the
Net Cash Proceeds related thereto or (B) in the case of any Asset Disposition by
a Subsidiary, applied to the payment of any Debt (or as otherwise required under
the terms of such Debt) of such Subsidiary or any Wholly-Owned Subsidiary (other
than Debt owed to the Company or another Subsidiary), and in connection with any
such payment, any related loan commitment, standby facility or the like shall be
permanently reduced by an amount equal to the principal amount so repaid;
provided that such Net Cash Proceeds are so applied within the 365-day period
referred to in clause (A) above; and third, to the extent of any Net Cash
Proceeds from Asset Dispositions that are not applied as provided in clause
first or second above, the balance of such Net Cash Proceeds are applied to make
a tender offer to purchase any outstanding 2004 Senior Notes pursuant and
subject to the conditions of the 2004 Indenture at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
purchase date. Any Net Cash Proceeds from Asset Dispositions that are not
applied as provided in clauses first, second and third above shall constitute
"Excess Proceeds." In the event the Company or any Subsidiary shall receive any
Excess Proceeds, such Excess Proceeds shall be applied to make a tender offer in
the manner described in Section 3.5(b) below to purchase the then outstanding
Notes (subject to proration in the event of over subscription in the manner set
forth below).
(ii) To the extent that any or all of the Net Cash Proceeds of
any Foreign Asset Disposition is prohibited or delayed by applicable local law
from being repatriated to the United States, only that portion of such Net Cash
Proceeds so affected shall not be required to be applied at the time provided
above, but it may be retained by the applicable Subsidiary so long, but only so
long, as the applicable local law prohibits repatriation to the United States
(the Company hereby agreeing promptly to take or cause the applicable Subsidiary
promptly to take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Cash Proceeds
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is no longer prohibited under the applicable local law, such repatriation shall
be effected promptly and such repatriated Net Cash Proceeds shall be applied in
the manner set forth in this Section 3.5 as if such Asset Disposition had
occurred on the date of such repatriation.
(iii) To the extent that the Board of Directors determines, in
good faith, that repatriation of any or all of the Net Cash Proceeds of any
Foreign Asset Disposition would have a material adverse tax consequence to the
Company, the Net Cash Proceeds so affected may be retained outside of the United
States by the applicable Subsidiary for so long as such material adverse tax
consequence would continue.
(b) In the event of an Asset Disposition that requires the
purchase of Notes pursuant to the covenant described in the last sentence of the
first paragraph of Section 3.5(a)(i) above, the Company will be required to make
an offer to all holders of the Notes to purchase the maximum principal amount of
Notes (the "Excess Proceeds Offer") to which the Asset Disposition offer applies
that may be purchased out of the Excess Proceeds at an offering price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase in accordance with the procedures set forth in
the Indenture. If the aggregate purchase price of the Notes tendered pursuant to
the Excess Proceeds Offer is less than the Excess Proceeds, the Company may use
the remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes tendered pursuant to the Excess Proceeds Offer exceeds
the amount of Excess Proceeds, the Company shall purchase tendered Notes on a
pro rata basis (with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000 or integral multiples
thereof, shall be purchased). The Company will not be required to make an Excess
Proceeds Offer if the Excess Proceeds available therefor are less than $10
million (which lesser amounts will be carried forward and cumulated for each 36
consecutive month period for purposes of determining whether an Excess Proceeds
Offer is required with respect to any Excess Proceeds of any subsequent Asset
Dispositions). Any lesser amounts so carried forward and cumulated need not be
segregated or reserved and may be used for general corporate purposes.
(c) (i) Promptly, and in any event within 30 days from the
receipt of any Net Cash Proceeds as to which the Company must make an Excess
Proceeds Offer, the Company shall be obligated to deliver to the Trustee and
send, by first-class mail to each Holder, a written notice stating that:
(A) such Holder may elect to have its Notes purchased by the
Company either in whole or in part (subject to prorationing as
hereinafter described in the event the Excess Proceeds Offer is
oversubscribed) in integral multiples of $1,000 principal amount,
at the applicable purchase price;
(B) any Security not tendered or accepted for payment will
continue to accrue interest;
(C) any Security accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest after the Purchase
Date (as defined below); and
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(D) Holders will be entitled to withdraw their election in
the manner described in clause (iii) below.
The notice shall specify a purchase date not less than 10 days
nor more than 60 days after the date of such notice (the "Purchase Date"), shall
include all instructions and materials necessary to enable each Holder to tender
Notes pursuant to the Excess Proceeds Offer and shall contain information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (1) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, (2) a description
of material developments in the Company's business subsequent to the date of the
latest of such Reports, and (3) if material, other appropriate information).
The notice shall contain all instructions determined by the
Company, in its sole judgment, and consistent with applicable law (including,
without limitation, Rule l4e-1 under the Exchange Act, or any successor or
replacement rule, regulation or statute, if applicable), to be necessary to
enable such Holders to tender Notes.
(ii) Not later than the date upon which written notice of an
Excess Proceeds Offer is delivered to the Trustee as provided above, the Company
shall deliver to the Trustee an Officers' Certificate as to (A) the amount of
the Excess Proceeds Offer (the "Excess Proceeds Offer Amount"), (B) the
allocation of the Net Cash Proceeds pursuant to which such Excess Proceeds Offer
is being made and (C) the compliance of such allocation with the provisions of
Section 3.5(a) hereof. Not later than 11:00 a.m. on the Business Day which is
one Business Day prior to the Purchase Date, the Company shall also irrevocably
deposit with the Trustee or with a paying agent (or, if the Company is acting as
its own paying agent, segregate and hold in trust) in immediately available
funds an amount equal to the Excess Proceeds Offer Amount plus accrued interest,
if any, to be held for payment in accordance with the provisions of this Section
3.5. In the event that the aggregate purchase price of the Notes delivered by
the Company to the Trustee is less than the Excess Proceeds Offer Amount, the
Trustee shall deliver the excess to the Company immediately after the expiration
of the period for which the Excess Proceeds Offer remains open (the "Excess
Proceeds Offer Period").
(iii) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form (found on the back
of the Certificate) duly completed, to the Trustee at the address specified in
the notice by 11: 00 a.m. on the Business Day which is at least one Business Day
prior to the Purchase Date. Holders will be entitled to withdraw their election
if the Trustee or paying agent (if any) receives not later than the close of
business on the third Business Day prior to the Purchase Date a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder and a
statement that such Holder is withdrawing his election to have all or a portion
of his Notes purchased. Holders whose Notes are purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered.
(iv) At the time the Company delivers Notes to the Trustee which
are to be accepted for purchase, the Company will also deliver an Officers'
Certificate stating that such Notes are to be accepted by the Company pursuant
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to and in accordance with the terms of this Section 3.5. A Security shall be
deemed to have been accepted for purchase at the time the Trustee, directly or
through an agent, mails or delivers payment of the purchase price therefor to
the surrendering Holder.
(d) In the event the Company is unable to purchase Notes from
Holders in an Excess Proceeds Offer because such purchase is prohibited by any
provision of applicable law, the Company need not make an Excess Proceeds Offer.
SECTION 3.6. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into any transaction after the date of this
Indenture (including, without limitation, the sale, purchase or lease of any
assets or properties or the rendering of any services) involving aggregate
consideration with respect to such transaction in excess of $2 million with any
Affiliate or holder of 5 % or more of any class of Capital Stock of the Company
except for transactions (including, subject to Section 3.3 hereof, any loans or
advances by or to, or guarantee on behalf of, any Affiliate or holder) made in
good faith the terms of which are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are at least as favorable as the terms which
could be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis with Persons who are not
such a holder or Affiliate; provided that if such transaction is approved by a
majority of the members of the Board of Directors (including a majority of the
Company's independent directors) and the related resolutions of the Board of
Directors specifically state that such members have found the transaction to be
on terms which are fair and reasonable to the Company or any of its Subsidiaries
and on terms which are at least as favorable as the terms which could be
obtained on an arm's-length basis with Persons who are not such a holder or
Affiliate, then such transaction shall be presumed to be on such terms; and
provided further that with respect to the purchase or disposition of assets of
the Company or any of its Subsidiaries having a net book value in excess of $10
million, in addition to approval of its Board of Directors, the Company shall
obtain a written opinion of an Independent Financial Advisor stating that the
terms of such transaction are fair to the Company or its Subsidiary, as the case
may be, from a financial point of view; and provided further that the fairness,
reasonableness and arm's-length nature of the terms of any transaction which is
part of a series of related transactions may be determined on the basis of the
terms of the series of related transactions taken as a whole. This covenant
shall not apply to (a) transactions between the Company or any of its
Subsidiaries and any employee of the Company or any of its Subsidiaries (who is
not a holder of 5 % or more of any class of Capital Stock of the Company, or a
member of such holder's immediate family) that are approved by the Board of
Directors or any committee of the Board of Directors consisting of the Company's
independent directors, (b) the payment of reasonable and customary regular fees
to directors of the Company or a Subsidiary of the Company (including directors
who are employees), (c) any transaction between the Company and any of its
Subsidiaries or between any of its Subsidiaries, (d) any Permitted Payment, and
any Restricted Payment not otherwise prohibited by Section 3.3 hereof or (e)
equipment and real property lease transactions with and loans to Equipment
Leasing Partners, a North Carolina general partnership, outstanding on the date
of this Indenture, indebtedness of the shareholders of the Company outstanding
on the date of this Indenture, the agreements between the Company and each of
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George T. Lewis, David J. Lewis and Robert W. Lewis, in each case as in effect
on the date of this Indenture.
SECTION 3.7. LIMITATIONS ON LIENS
The Company may not Incur any Debt which is secured, directly or
indirectly, with, nor will the Company grant or cause or suffer to exist, a Lien
on the Property of the Company now owned or hereafter acquired unless
contemporaneous therewith or prior thereto the Notes are equally and ratably
secured thereof except for (a) any such Debt secured by Liens existing on the
assets of any entity at the time such assets are acquired by the Company,
whether by merger, consolidation, purchase of assets or otherwise; provided that
such Liens (x) are not created, incurred or assumed in contemplation of such
assets being acquired by the Company and (y) do not extend to any other Property
of the Company; (b) Liens granted to secure any other Debt required by its terms
to be equally and ratably secured as a result of the Incurrence of such Debt;
(c) Liens on the Company's interests in Subsidiaries and Joint Ventures in which
the Company is a partner, shareholder, member or other participant, which Liens
are granted in good faith in connection with the acquisition of such assets or
as part of the financing of a Power Generation Facility; provided that the
President or Chief Financial Officer of the Company determines in good faith, as
evidenced by an Officers' Certificate, that such Liens are required in order to
effect such financing and are not materially more restrictive, taken as a whole,
than Liens, taken as a whole, customarily accepted (or in the absence of any
industry custom, reasonably acceptable) in substantially Non-Recourse project
financing; (d) Liens on the stock or partnership interests of Subsidiaries and
interests in Joint Ventures in which the Company becomes a partner, shareholder,
member or other participant which Liens are granted in good faith as part of a
project financing or the development of a project; provided that the President
or Chief Financial Officer of the Company determines in good faith, as evidenced
by an Officers' Certificate, that such Liens are required in order to effect
such transaction and are not materially more restrictive, taken as a whole, than
Liens, taken as a whole, customarily accepted (or in the absence of industry
custom, reasonably acceptable) in substantially Non-Recourse project financing;
(e) Liens in existence on the date of this Indenture; (f) purchase money Liens
incurred to secure Debt incurred by the Company as permitted by Section 3.1
hereof, which Debt finances the purchase price of Property acquired in the
ordinary course of business, and which Liens will not cover any Property other
than that being purchased, improved or constructed; (g) Liens on any Property of
the Company securing up to $50 million in aggregate principal amount of
outstanding obligations under Permitted Working Capital Facilities and any
Guarantees thereof; (h) Liens incurred in connection with Capitalized Lease
Obligations incurred by the Company as permitted by Section 3.1 hereof; (i)
Liens in respect of extensions, renewals, refunding or Refinancing of any Debt
secured by the Liens referred to in clauses (a), (b), (c), (d), (e), (f), (g) or
(h) above, provided that the Liens in connection with such renewal, extension,
refunding or Refinancing shall be limited to all or part of the specific
Property which was subject to the original Lien; any Lien arising by reason of
(A) any judgment, decree or order or any court, so long as such Lien is being
contested in good faith and is adequately bonded, and any appropriate legal
proceedings which may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired, (B) taxes not
yet delinquent or which are being contested in good faith, (C) security for
payment of worker's compensation or other insurance, (D) security for the
performance of tenders, contracts (other than contracts for the payment of
money) or leases, (E) deposits to secure public or statutory obligations, or to
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secure permitted contracts for the purchase or sale of any currency entered into
in the ordinary course of business, (F) operation of law in favor of carriers,
warehousemen, landlords, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums which are not
yet delinquent or which are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof, (G) easements,
rights-of-way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not material, and
which do not in any case materially detract from the value of the Property
subject thereto or materially interfere with the ordinary conduct of the
business of the Company or (H) leases and subleases of real property which do
not interfere with the ordinary conduct of the business of the Company, and
which are made on customary and usual terms applicable to similar properties; or
(k) Liens in addition to the foregoing, provided that the amount of the
obligations secured by such Liens does not exceed in the aggregate $1 million.
SECTION 3.8. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
(a) Upon a Change of Control, each Holder of the Notes shall have
the right to require that the Company repurchase such Holder's Notes at a
repurchase price in cash equal to 101 % of the principal amount thereof plus
accrued interest, if any, to the date of repurchase, in accordance with the
terms contemplated in paragraph (b) below.
(b) Within 30 days following any Change of Control, the Company
shall mail a notice to each Holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such
Holder has the right to require the Company to repurchase such
Holder's Notes at a repurchase price in cash equal to 101 % of
the principal amount thereof plus accrued interest, if any, to
the date of repurchase (the "Change of Control Offer");
(ii) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after
giving effect to such Change of Control);
(iii) the repurchase date (which shall be a Business Day and
be not earlier than 30 days or later than 60 days from the date
such notice is mailed) (the "Repurchase Date");
(iv) that any Note not tendered will continue to accrue
interest;
(v) that interest on any Note accepted for payment pursuant
to the Change of Control Offer shall cease to accrue after the
Repurchase Date;
(vi) that Holders electing to have a Note purchased pursuant
to a Change of Control Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the paying
agent at the address specified in the notice prior to 11:00 a.m.
on the Business Day prior to the Repurchase Date;
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(vii) that Holders will be entitled to withdraw their
election if the paying agent receives, not later than the close
of business on the third Business Day (or such shorter periods as
may be required by applicable law) preceding the Repurchase Date,
a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Notes the Holder
delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Notes purchased; and
(viii) that Holders which elect to have their Notes
purchased only in part will be issued new Notes in a principal
amount equal to then unpurchased portion of the Notes
surrendered.
(c) On the Business Day preceding the Repurchase Date, the
Company shall (i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Trustee money sufficient
without reinvestment to pay the purchase price of all Notes or portions thereof
so tendered and (iii) deliver or cause to be delivered to the Trustee Notes
(which must be delivered by 11: 00 a.m. on the Business Day preceding the
Repurchase Date) so accepted together with an Officers' Certificate identifying
the Notes or portions thereof tendered to the Company. The Trustee shall
promptly mail to the Holders of the Notes so accepted payment in an amount equal
to the purchase price, and promptly authenticate and mail to such Holders a new
Note in a principal amount equal to any unpurchased portion of the Security
surrendered. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Repurchase Date.
(d) The Company will comply with Rule l4e-1 under the Exchange
Act and any other applicable laws and regulations in the event that a Change of
Control occurs and the Company is required to make a Change of Control Offer.
SECTION 3.9. RESTRICTIONS ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
(a) The Company may not consolidate with, merge with or into, or
transfer all or substantially all of its assets (as an entirety or substantially
an entirety in one transaction or a series of related transactions), to any
Person unless:
(i) the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation
or into which the Company is merged or to which properties and
assets of the Company are transferred shall be a corporation
organized and existing under the laws of the United States or any
state thereof or the District of Columbia and shall expressly
assume by supplemental indenture all the obligations of the
Company under this Indenture and the Notes;
(ii) immediately after giving effect to such transaction, no
Event of Default or event or condition which through the giving
of notice or lapse of time or both would become an Event of
Default shall have occurred and be continuing;
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(iii) the Net Worth of the Company or the surviving entity,
as the case may be, on a pro forma basis after giving effect to
such transaction, is not less than the Net Worth of the Company
immediately prior to such transaction; and
(iv) immediately after giving effect to such transaction on
a pro forma basis, the Company or the surviving entity would be
able to Incur at least $1 of Debt under Section 3.1(a) hereof.
(b) Notwithstanding the foregoing, clause (iv) of this Section
3.9 shall not prohibit a transaction, the principal purpose of which is (as
determined in good faith by the Board of Directors and evidenced by a Board
resolution) to change the state of incorporation of the Company, if such
transaction does not have as one of its purposes the evasion of the limitations
imposed by this Section 3.9.
(c) Upon any consolidation with or merger into any other
corporation, or any conveyance, transfer or lease of the properties and assets
of the Company substantially as an entirety in accordance with this Section 3.9,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein, and thereafter the predecessor
corporation shall be relieved of all obligations and covenants under this
Indenture and the Notes.
SECTION 3.10. LIMITATIONS ON SALE/LEASEBACK TRANSACTIONS
The following provision shall apply only subsequent to the Rating
Event Date.
(a) For so long as any Notes remain Outstanding, the Company
shall not, and shall not permit any Subsidiary to, enter into any arrangement
with any Person providing for the leasing by the Company or a Subsidiary of any
assets which have been or are to be sold or transferred by the Company or such
Subsidiary to such Person (a "Sale/Leaseback Transaction") unless: (i) such
transaction involves a lease for a term, including renewals, of not more than
three years; (ii) such transaction is between the Company or a Subsidiary, on
the one hand, and a Subsidiary of the Company on the other hand; (iii) the
Company would be entitled to incur Debt secured by a Lien on the assets or
property involved in such transaction at least equal in amount to the
Attributable Debt with respect to such Sale/Leaseback Transaction, without
equally and ratably securing the Notes, pursuant to Section 3.1 hereof; or (iv)
the Company (or the Subsidiary, as the case may be) receives consideration at
the time of each such Sale/Leaseback Transaction at least equal to the fair
market value of the property sold or otherwise disposed of (determined by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) and the Company or a Subsidiary within 365 days following the
later of the date of such Sale/Leaseback Transaction or the receipt of Net Cash
Proceeds related thereto, regardless of whether such sale or transfer may have
been made by the Company or such Subsidiary, as the case may be, applies, in the
case of a sale or transfer for cash, an amount equal to the Net Cash Proceeds
thereof and, in the case of a sale or transfer otherwise than for cash, an
amount equal to the fair value of the assets so leased at the time of entering
into such arrangement (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) to (a)
the retirement of Debt of the Company or any Subsidiary owed to a Person other
43
<PAGE> 46
than an Affiliate of the Company or (b) investment in properties or assets that
will be used in the business of the Company or a Subsidiary, as the case may be,
existing on the Issue Date or in businesses reasonably related thereto.
(b) To the extent that any or all of the Net Cash Proceeds of any
Foreign Sale/Leaseback Transaction is prohibited or delayed by applicable local
law from being repatriated to the United States, the portion of such Net Cash
Proceeds so affected shall not be required to be applied at the time provided
above, but may be retained by the applicable Subsidiary so long, but only so
long, as the applicable local law will not permit repatriation to the United
States (the Company will agree to promptly take or cause the applicable
Subsidiary to promptly take all actions required by the applicable local law to
permit such repatriation). Once such repatriation of any of such affected Net
Cash Proceeds is permitted under the applicable local law, such repatriation
shall be promptly effected and such repatriated Net Cash Proceeds will be
applied in the manner set forth in this provision as if such Sale/Leaseback
Transaction had occurred on the date of such repatriation.
(c) To the extent that the Board of Directors determines, in good
faith, that repatriation of any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction would have a material adverse tax consequence to the
Company, the Net Cash Proceeds so affected may be retained outside of the United
States by the applicable Subsidiary for so long as such material adverse tax
consequence would continue.
SECTION 3.11. CHANGE IN COVENANTS WHEN NOTES ARE RATED INVESTMENT GRADE
Notwithstanding the foregoing, subsequent to the Rating Event
Date, and provided that no Event of Default or event which with notice or
passage of time would constitute an Event of Default shall exist on the Rating
Event Date, the provisions and covenants described in Sections 3.1, 3.2, 3.3,
3.4, 3.5 and 3.8 above and clause (iv) under Section 3.9 shall be of no further
force and effect and shall cease to apply to the Company and the covenant
described in Section 3.10 shall take effect.
ARTICLE IV. EVENTS OF DEFAULT.
SECTION 4.1. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF
DEFAULT.
In case one or more of the following (each, an "Event of
Default") with respect to the Notes (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court of
any order, rule or regulation of any administrative or governmental body) shall
have occurred and be continuing, that is to say:
(a) default in the payment of all or any part of the principal,
or the Change of Control purchase price or premium, if any, on any of
the Notes as and when the same shall become due and payable either at
Maturity, upon any redemption or required repurchase, by declaration
or otherwise; or
44
<PAGE> 47
(b) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; or
(c) an event of default, as defined in any indenture or
instrument evidencing or under which the Company or any Significant
Subsidiary has at the date of this Indenture or shall hereafter have
outstanding any Debt, shall happen and be continuing and either (i)
such default results from the failure to pay principal of such Debt in
excess of $10 million at final maturity of such Debt or (ii) as a
result of such default, the maturity of such Debt shall have been
accelerated so that the same shall be or become due and payable prior
to the date on which the same would otherwise have become due and
payable, and such acceleration shall not be rescinded or annulled
within 30 days and the principal amount of such Debt of the Company or
any Significant Subsidiary in default, or the maturity of which has
been accelerated aggregates $10 million or more; provided that such
default shall not be an Event of Default if such Debt is Debt of a
Significant Subsidiary, is Non-Recourse to the Company in respect of
the amounts not paid or due upon acceleration and the Company could,
at the time of default, Incur at least $1 of Debt under Section 3.1(a)
hereof; or
(d) failure on the part of the Company duly to observe or perform
any other of the covenants or agreements on the part of the Company in
the Notes or in this Indenture (other than a covenant or agreement a
default in whose performance or whose breach is elsewhere in this
Section 4.1 specifically dealt with or which expressly has been
included in the Base Indenture solely for the benefit of Debt
Securities of a series other than the Notes) and such failure
continues for a period of 30 days after the date on which written
notice specifying such failure, stating that such notice is a "Notice
of Default" hereunder and demanding that the Company remedy the same,
shall have been given by registered or certified mail, return receipt
requested, to the Company by the Trustee, or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount
of the Notes at the time Outstanding; or
(e) a judgment or order for the payment of money shall be
rendered against the Company or any Significant Subsidiary in an
amount in excess of $3 million (excluding the amount thereof covered
by insurance or by bond written by third parties)individually or in
the aggregate for all such judgments or orders against all such
Persons (treating any deductibles, self insurance or retentions as not
so covered) that shall not be vacated, discharged, satisfied or
waived, or stayed pending appeal and all such judgments and order
remain outstanding and there shall be any period of 30 consecutive
days following entry of such judgment or order in excess of $3 million
or the judgment or order which causes the aggregate amount to exceed
$3 million during which a stay of enforcement of such judgment or
order by reason of a pending appeal or otherwise, shall not be in
effect; provided, that such a judgment or order shall not be an Event
of Default if such judgment or order is against a Significant
Subsidiary and does not require any payment by the Company and the
Company could, at the expiration of the applicable 30 day period,
Incur at least $1 of Debt under Section 3.1(a) hereof; or
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<PAGE> 48
(f) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of its property or ordering
the winding up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive
days; or
(g) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for any
substantial part of its property, or make any general assignment for
the benefit of creditors;
then, and in each and every such case (other than an Event of Default with
respect to the Company specified in Section 4.1(f) or 4.1(g) hereof), unless the
principal of all of the Notes shall have already become due and payable, either
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Notes then Outstanding hereunder, by notice in writing to the Company (and
to the Trustee if given by Holders of the Notes), may declare the entire
principal of all the Notes and the interest accrued thereon, to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable. This provision, however, is subject to the
condition that if, at any time after the principal of the Notes shall have been
so declared due and payable and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
Company shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Notes and the principal of any and
all Notes which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, on Defaulted Interest, at the rate of 9.75%
per annum, to date of such payment or deposit) and such amount as shall be
sufficient to cover reasonable compensation to the Trustee and each predecessor
Trustee except as a result of negligence or bad faith, and if any and all Events
of Default under this Indenture, other than the non-payment of the principal of
Notes which shall have become due by acceleration, shall have been cured, waived
or otherwise remedied as provided herein, then and in every such case the
Holders of a majority in aggregate principal amount of the Notes then
Outstanding, by written notice to the Company and to the Trustee, may waive all
defaults (except, unless theretofore cured, a default in payment of principal
of, or Change of Control purchase price or premium, if any, or interest on, the
Notes) and rescind and annul such declaration and its consequences, but no such
waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
If an Event of Default specified in Section 4.1(f) or 4.1(g)
hereof occurs with respect to the Company, the principal of and accrued interest
on the Notes shall become and be immediately due and payable, without any
declaration or other act on the part of the Trustee or any Holder.
46
<PAGE> 49
ARTICLE V. MISCELLANEOUS.
SECTION 5.1. REFERENCE TO AND EFFECT ON THE BASE INDENTURE.
This Supplemental Indenture shall be construed as supplemental to
the Base Indenture and all the terms and conditions of this Supplemental
Indenture shall be deemed to be part of the terms and conditions of the Base
Indenture. Except as set forth herein, the Base Indenture heretofore executed
and delivered is hereby (i) incorporated by reference in this Supplemental
Indenture and (ii) ratified, approved and confirmed.
SECTION 5.2. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision, or condition set forth in Article III hereof if the Holders
of a majority in principal amount of the Outstanding Notes shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision, or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision, or condition shall remain in full force and effect.
SECTION 5.3. RANKING.
Notes authenticated and delivered under this Supplemental
Indenture are neither senior nor subordinate in right of payment to the 2004
Senior Notes.
SECTION 5.4. DEFEASANCE OF CERTAIN OBLIGATIONS.
The Company may omit to comply with any term, provision, or
condition set forth in Article III hereof, Section 4.1(d) hereof as it relates
to the covenants in Article III hereof and Sections 4.1(c) and 4.1(e) hereof
shall be deemed not to be Events of Default if
(A) with reference to this Section 5.4, the Company has deposited
or caused to be irrevocably deposited with the Trustee (or another
trustee satisfying the requirements of Section 6.09 of the Base
Indenture) as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of the Notes,
(i) money in an amount, or (ii) U.S. Government Obligations which
through the payment of interest and principal in respect thereof in
accordance with their terms will provide not later than one day before
the due date of any payment referred to in this Section 5.4 money in
an amount, or (iii) a combination thereof, sufficient, in the opinion
of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay and discharge without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the
Trustee the principal of, premium, if any, and each installment of
principal and interest on the Notes at the maturity date of such
47
<PAGE> 50
principal or installment of principal or interest in accordance with
the terms of this Indenture and the Notes;
(B) the Company has delivered to the Trustee (i) an Opinion of
Counsel to the effect that Holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this Section 5.3 and will
be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, and (ii) an
Opinion of Counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not
be subject to the effect of Section 547 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default with respect to the Notes, or event
that after the giving of notice or lapse of time or both would become
an Event of Default with respect to the Notes, shall have occurred and
be continuing on the date of such deposit or during the period ending
on the 123rd day after the date of such deposit, and such deposit
shall not result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is a
party or by which the Company is bound; and
(D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
SECTION 5.5. SUPPLEMENTAL INDENTURE MAY BE EXECUTED IN COUNTERPARTS.
This instrument may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
SECTION 5.6. EFFECT OF HEADINGS.
The Article and Section headings herein are for convenience only
and shall not affect the construction hereof.
SECTION 5.7. GOVERNING LAW.
THIS SUPPLEMENTAL INDENTURE AND THE NOTES ISSUED HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
48
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
[Seal] COGENTRIX ENERGY, INC.
By: /s/ THOMAS F. SCHWARTZ
---------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
Attest:
/s/LORI M. TOOLE
- --------------------------
Name: Lori M. Toole
Title: Assistant Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By: /s/ DONNA J. FLANAGAN
---------------------------
Name: Donna J. Flanagan
Title: Vice President
49
<PAGE> 52
STATE OF New York )
) ss.:
COUNTY OF New York )
On this 20th day of October, 1998, before me personally came
Thomas F. Schwartz, to me known, who, being by me duly sworn, did depose and say
that he/she is a Senior Vice President of COGENTRIX ENERGY, INC., one of the
entities described in and which executed the above instrument; that he/she knows
the seal of said entity; that the seal or a facsimile thereof affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of said entity, and that he/she signed his/her name thereto by like
authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ ALICE NOLL
--------------
Notary Public
50
<PAGE> 53
STATE OF New York )
) ss.:
COUNTY OF New York )
On this 20th day of October, 1998, before me personally came
Donna Flanagan, to me known, who, being by me duly sworn, did depose and say
that he/she is a Vice President of FIRST UNION NATIONAL BANK, one of the
entities described in and which executed the above instrument; that he/she knows
the seal of said entity; that the seal or a facsimile thereof affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of said entity, and that he/she signed his/her name thereto by like
authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ ALICE NOLL
--------------
Notary Public
51
<PAGE> 54
SCHEDULE I
PARTICULAR TERMS OF NOTES
MATURITY: The Notes will mature on October 15, 2008.
INTEREST: The interest rate per annum on the Notes shall be 8.75%.
REDEMPTION: The Notes will be redeemable at the option of the Company prior to
maturity subject to the terms set forth in the Indenture. The Notes
are not subject to a sinking fund.
<PAGE> 55
EXHIBIT A
TO SUPPLEMENTAL INDENTURE
[THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF
THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
(d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASERS FROM IT OF THIS NOTE OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.]
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.6 OF THE SUPPLEMENTAL INDENTURE, (II) THIS GLOBAL NOTE MAY
BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(A) OF THE
SUPPLEMENTAL INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 3.08 OF THE BASE INDENTURE AND (IV) THIS
A-1
<PAGE> 56
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.]
[Face of Note]
[This Note is a Global Note within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depository or a nominee thereof.
This Note may not be transferred to, or registered or exchanged for Notes
registered in the name of, any Person other than the Depository or a nominee
thereof, and no such transfer may be registered, except in the limited
circumstances described in the Indenture. Every Note authenticated and delivered
upon registration of transfer of, or in exchange for or in lieu of, this Note
shall be a Global Note subject to the foregoing, except in such limited
circumstances.]
COGENTRIX ENERGY, INC.
CUSIP
8.75% SENIOR NOTE DUE 2008
No. R-1 $
COGENTRIX ENERGY, INC., a corporation duly organized and existing
under the laws of the State of North Carolina (hereinafter called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of $ on October 15, 2008, and to pay
interest thereon from October 20, 1998 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually on April
15 and October 15 of each year, commencing on April 15, 1999, at the rate of
8.75% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date shall, as provided in said Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Notes of this series not less than 10 calendar days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the Notes
of this series may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
A-2
<PAGE> 57
[Payment of the principal of and any such interest on this Note
shall be made at the office or agency of the Company maintained for the purpose
in New York, New York, in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts; provided, however, that at the option of the Company payment of interest
may be made by check mailed to the address of the Person entitled thereto as
such address appears in the Security Register; provided further that if the
Holder hereof has given wire transfer instructions to the Company and its Paying
Agent prior to the applicable Record Date for any such payments, payment of the
principal of and any interest on this Note shall be made by wire transfer of
immediately available funds to the accounts specified by the Holder.] [TO BE
INSERTED IN GLOBAL NOTES -- Payments of principal, premium, if any, and any such
interest on this Note shall be made by wire transfer of immediately available
funds to the Depository Trust Company or its nominee as the registered owner
thereof.]
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS SET FORTH ON
THE REVERSE HEREOF. SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT
AS THOUGH FULLY SET FORTH IN THIS PLACE.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication herein has been signed manually by the
Trustee under said Indenture.
A-3
<PAGE> 58
IN WITNESS WHEREOF, this instrument has been duly executed in accordance with
the Indenture.
COGENTRIX ENERGY, INC.
Date Issued: By:______________________________
Name:
Title:
Attest:
By:___________________
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series designated therein
referred to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By:___________________________
Authorized Officer
A-4
<PAGE> 59
[Reverse of Note]
COGENTRIX ENERGY, INC.
8.75% Senior Notes due 2008
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Securities") issued in one or more series under an
Indenture, as supplemented by the First Supplemental Indenture thereto, each
dated as of October 20, 1998 (collectively herein called the "Indenture"),
between the Company and First Union National Bank, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all Indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties, and
immunities thereunder of the Company, the Trustee, and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $420,000,000.
These Securities may be redeemed, in whole or in part, at the
Company's option at any time prior to maturity, upon not less than 30 nor more
than 60 days' prior notice, at a redemption price equal to (i) the then
outstanding principal amount of the Securities being redeemed plus accrued and
unpaid interest thereon to the date of redemption plus (ii) a premium equal to
the excess of (A) the present value at the time of redemption of the principal
amount of the Securities being redeemed plus any required interest payments due
on the Securities being redeemed through Stated Maturity computed using a
discount rate equal to the Treasury Rate plus 50 basis points over (B) the then
outstanding principal amount of the Securities being redeemed.
In the event of a redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the portion hereof
not so repurchased shall be issued in the name of the Holder hereof upon the
cancellation hereof.
The Indenture contains provisions for defeasance at any time of
(a) the entire indebtedness of this Security or (b) certain restrictive
covenants and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series
shall occur and be continuing, the principal of the Securities of this series
may be declared due and payable in the manner and with the effect provided in
the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
A-5
<PAGE> 60
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request and shall have failed to institute such proceeding for 60 calendar
days after receipt of such notice, request and offer of indemnity. The foregoing
shall apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $1,000 and any integral multiple of $1,000. A Holder
may transfer or exchange Securities in accordance with the Indenture. Subject to
payment by the Company of a sum sufficient to pay the amount due on redemption,
interest on this Security shall cease to accrue upon the date duly fixed for
redemption of this Security.
In the event of a Change of Control prior to the Rating Event
Date, the Company has the obligation, subject to certain conditions, to offer to
purchase the Securities at 101% of the principal amount thereof plus accrued
interest to the date of purchase in accordance with the procedures set forth in
the Indenture.
The Company, the Trustee, and any authorized agent of the Company
or the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or the Trustee or any authorized agent of the Company or
the Trustee), for the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and neither the Company nor the Trustee
nor any authorized agent of the Company or the Trustee shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of, or
premium, if any, or the interest on this Security, for any claim based hereon,
or otherwise in respect hereof, or based on or in respect of the Indenture or
any indenture supplemental thereto, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
A-6
<PAGE> 61
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the for the
issue hereof, expressly waived and released.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated:
This is one of the Notes referred to in the within-mentioned
Indenture.
FIRST UNION NATIONAL BANK, as Trustee
________________________
Authorized Signatory
[FORM OF ASSIGNMENT]
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on the books of
the Company. The agent may substitute another to act for him.
Date:____________________
Your Signature:___________________
Signature Guarantee:______________________________
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Note.
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
In connection with any transfer or exchange of any of the Notes evidenced by
this certificate occurring prior to the date that is two years after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being:
A-7
<PAGE> 62
CHECK ONE BOX BELOW:
1 __ acquired for the undersigned's own account, without transfer; or
2 __ transferred to the Company; or
3 __ transferred pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"); or
4 __ transferred pursuant to an effective registration statement under the
Securities Act; or
5 __ transferred pursuant to and in compliance with Regulation S under the
Securities Act; or
6 __ transferred to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has
furnished to the Trustee a signed letter containing certain
representations and agreements; or
7 __ transferred pursuant to another available exemption from the registration
requirements of the Securities Act of 1933.
A-8
<PAGE> 63
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (5), (6) or (7) is
checked, the Trustee or the Company may require, prior to registering any such
transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
- ------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
(Signature must be guaranteed) Signature
- ------------------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
A-9
<PAGE> 64
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Date of Amount of decrease in Amount of increase in this Global Note authorized signatory
Exchange Principal Amount of Principal Amount of following such of Trustee or
this Global Note this Global Note decrease or increase Securities Custodian
- -------- --------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
A-10
<PAGE> 65
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Cogentrix Energy
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
First Union Bank of North Carolina
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
Re: 8.75% SENIOR NOTES DUE 2008
Reference is hereby made to the Indenture, dated as of October
20, 1998 (the "Indenture"), between COGENTRIX ENERGY, INC., as issuer (the
"COMPANY"), and First Union Bank of North Carolina, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
______________, (the "TRANSFEROR") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "TRANSFER"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
Connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "SECURITIES ACT"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
B-1
<PAGE> 66
2. |_| CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO
REGULATION S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act and, (iii) the transaction is
not part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note, the Temporary
Regulation S Global Note and/or the Definitive Note and in the Indenture and the
Securities Act.
3. |_| CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE
SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) |_| such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that the Transfer complies with the
transfer restrictions applicable to Restricted Definitive Notes and the
requirements of the exemption claimed, which certification is supported by (1) a
certificate executed by the Transferee in the form of Exhibit D to the Indenture
and (2) if such Transfer is in respect of a principal amount of Notes at the
B-2
<PAGE> 67
time of transfer of less than $100,000, an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred Definitive Note will be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on Definitive Notes and in the Indenture and the Securities Act.
4. |_| CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) |_| CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) |_| CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) |_| CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
B-3
<PAGE> 68
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
[Insert Name of Transferor]
_____________________________________
By:
Name:
Title:
Dated: ____________, ___
B-4
<PAGE> 69
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ), or
(ii) |_| Regulation S Global Note (CUSIP ), or
(iii) |_| IAI Global Note (CUSIP_____), or
(b) |_| a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ), or
(ii) |_| Regulation S Global Note (CUSIP ), or
(iii) |_| Unrestricted Global Note (CUSIP ); or
(b) |_| a Restricted Definitive Note; or
(c) |_| an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-5
<PAGE> 70
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Cogentrix Energy
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
First Union Bank of North Carolina
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
Re: 8.75% SENIOR NOTES DUE 2008
Reference is hereby made to the Indenture, dated as of October
20, 1998 (the "Indenture"), between COGENTRIX ENERGY, INC., as issuer (the
"COMPANY"), and First Union Bank of North Carolina, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
____________, (the "OWNER") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "EXCHANGE"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR
BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) |_| CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "SECURITIES ACT"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) |_| CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
C-1
<PAGE> 71
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) |_| CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) |_| CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR
BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) |_| CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) |_| CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] |_| 144A Global Note, |_| Regulation S Global Note or |_| IAI Global
Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
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<PAGE> 72
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
[Insert Name of Owner]
By:__________________________
Name:
Title:
Dated: _____________, ____
C-3
<PAGE> 73
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Cogentrix Energy
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
First Union Bank of North Carolina
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
Re: 8.75% SENIOR NOTES DUE 2008
Reference is hereby made to the Indenture, dated as of October
20, 1998 (the "Indenture"), between COGENTRIX ENERGY, INC., as issuer (the
"COMPANY"), and First Union Bank of North Carolina, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of:
(a) |_| a beneficial interest in a Global Note, or
(b) |_| a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "SECURITIES ACT").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
D-1
<PAGE> 74
transfer is in respect of a principal amount of Notes, at the time of transfer
of less than $100,000, an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144 under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion and we are acquiring the Notes for investment purposes and
not with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or other applicable securities law. You and the
Company are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
[Insert Name of Accredited Investor]
By:______________________________
Name:
Title:
Dated:__________________, ____
D-2
<PAGE> 1
Exhibit No. 4.4
COGENTRIX ENERGY, INC.
8.75% Senior Notes Due 2008
REGISTRATION AGREEMENT
New York, New York
October 20, 1998
Salomon Smith Barney Inc.
Goldman, Sachs & Co.
CIBC Oppenheimer Corp.
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Cogentrix Energy, Inc., a North Carolina corporation (the
"Company"), proposes to issue and sell to certain purchasers (the "Initial
Purchasers"), upon the terms set forth in a purchase agreement, dated October
15, 1998 (the "Purchase Agreement"), its 8.75% Senior Notes due 2008 (the
"Securities") (the "Initial Placement"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to your obligations thereunder, the Company agrees with you, (i) for
your benefit and the benefit of the other Initial Purchasers and (ii) for the
benefit of the holders from time to time of the Securities (including you and
the other Initial Purchasers) (each of the foregoing a "Holder" and together the
"Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Registration Agreement (the "Agreement"), the following capitalized
defined terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect,
to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE> 2
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Exchange Offer Registration Period" means the 1 year period
following the consummation of the Registered Exchange Offer, exclusive
of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration
Statement.
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Act with
respect to the Registered Exchange Offer, all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Exchanging Dealer" means any Holder (which may include the
Initial Purchasers) which is a broker-dealer, electing to exchange
Securities acquired for its own account as a result of market-making
activities or other trading activities, for New Securities.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture as supplemented by the First
Supplemental Indenture thereto relating to the Securities, each dated
as of October 20, 1998, each between the Company and First Union
National Bank of North Carolina, as trustee, as the same may be
amended or supplemented from time to time in accordance with the terms
thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Securities for
use by such Holders in connection with the Registered Exchange Offer.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of securities registered under a
Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten
offering.
2
<PAGE> 3
"New Securities" means debt securities of the Company identical
in all material respects to the Securities (except that the interest
rate step-up provisions and the transfer restrictions will be modified
or eliminated, as appropriate), to be issued under the Indenture or
the New Securities Indenture.
"New Securities Indenture" means an indenture between the Company
and the New Securities Trustee, identical in all material respects
with the Indenture.
"New Securities Trustee" means a bank or trust company reasonably
satisfactory to the Initial Purchasers, as trustee with respect to the
New Securities under the New Securities Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective Registration Statement in reliance upon Rule 430A under the
Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Securities
or the New Securities, covered by such Registration Statement, and all
amendments and supplements to the Prospectus, including post-effective
amendments.
"Registered Exchange Offer" means the proposed offer to the
Holders to issue and deliver to such Holders, in exchange for the
Securities, a like principal amount of the New Securities.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the
Securities or the New Securities pursuant to the provisions of this
Agreement, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3
hereof which covers some or all of the Securities or New Securities,
as applicable, on an appropriate form under Rule 415 under the Act, or
any similar rule that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Trustee" means the trustee with respect to the Securities under
the Indenture.
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<PAGE> 4
"Underwriter" means any underwriter of securities in connection
with an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by
Exchanging Dealers; Private Exchange. (a) The Company shall prepare and, not
later than 90 days following the Closing Date, shall file with the Commission
the Exchange Offer Registration Statement with respect to the Registered
Exchange Offer. The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to become effective under the Act within 150 days
of the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder is
not an affiliate of the Company within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements or understanding with any person to participate in the distribution
(within the meaning of the Act) of the New Securities) to trade such New
Securities from and after their receipt without any limitations or restrictions
under the Act and without material restrictions under the securities laws of a
substantial proportion of the several states of the United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30
days and not more than 45 days after the date notice thereof is mailed
to the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York; and
(iv) comply in all material respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
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<PAGE> 5
(iii) cause the Trustee or the New Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder of
Securities, New Securities equal in principal amount to the Securities
of such Holder so accepted for exchange.
(e) The Initial Purchasers and the Company acknowledge that,
pursuant to interpretations by the Commission's staff of Section 5 of the Act,
and in the absence of an applicable exemption therefrom, each Exchanging Dealer
is required to deliver a Prospectus in connection with a sale of any New
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Securities acquired for its own account as a
result of market-making activities or other trading activities. Accordingly, the
Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto
in the forepart of the Exchange Offer Registration Statement in a
section setting forth details of the Exchange Offer, and in Annex C
hereto in the underwriting or plan of distribution section of the
Prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in
the letter of transmittal delivered pursuant to the Registered
Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange
Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Securities received pursuant to the
Registered Exchange Offer, as contemplated by Section 4(h) below. The
Company shall be deemed not to have used its best efforts to keep the
Exchange Offer Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in Holders
of securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by
applicable law or (ii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(k) hereof, if applicable.
(f) In the event that any Initial Purchaser determines that it is
not eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of such Initial Purchaser, the Company shall issue and deliver to such
Initial Purchaser or the party purchasing New Securities registered under a
Shelf Registration Statement as contemplated by Section 3 hereof from such
Initial Purchaser, in exchange for such Securities, a like principal amount of
New Securities. The Company shall seek to cause the CUSIP Service Bureau to
issue the same CUSIP number for such New Securities as for New Securities issued
pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for
any reason the Securities validly tendered pursuant to the Registered Exchange
Offer are not exchanged for New Securities within 180 days of the Closing Date,
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<PAGE> 6
or (iii) any Initial Purchaser so requests with respect to Securities held by it
following consummation of the Registered Exchange Offer, or (iv) if any Holder
(other than an Initial Purchaser) is not eligible to participate in the
Registered Exchange Offer or (v) in the case of any Initial Purchaser that
participates in the Registered Exchange Offer or acquires New Securities
pursuant to Section 2(f) hereof, such Initial Purchaser does not receive freely
tradeable New Securities in exchange for Securities constituting any portion of
an unsold allotment (it being understood that, for purposes of this Section 3,
(x) the requirement that an Initial Purchaser deliver a Prospectus containing
the information required by Items 507 and/or 508 of Regulation S-K under the Act
in connection with sales of New Securities acquired in exchange for such
Securities shall result in such New Securities being not "freely tradeable" but
(y) the requirement that an Exchanging Dealer deliver a Prospectus in connection
with sales of New Securities acquired in the Registered Exchange Offer in
exchange for Securities acquired as a result of market-making activities or
other trading activities shall not result in such New Securities being not
"freely tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use its best
efforts to cause to be declared effective under the Act a Shelf
Registration Statement relating to the offer and sale of the
Securities or the New Securities, as applicable, by the Holders from
time to time in accordance with the methods of distribution elected by
such Holders and set forth in such Shelf Registration Statement;
provided, that with respect to New Securities received by an Initial
Purchaser in exchange for Securities constituting any portion of an
unsold allotment, the Company may, if permitted by current
interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph
(a) with respect thereto, and any such Exchange Offer Registration
Statement, as so amended, shall be referred to herein as, and governed
by the provisions herein applicable to, a Shelf Registration
Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period
of two years from the date the Shelf Registration Statement is
declared effective by the Commission or such shorter period that will
terminate when all the Securities or New Securities, as applicable,
covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement (in any such case, such period being
called the "Shelf Registration Period"). The Company shall be deemed
not to have used its best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of securities covered
thereby not being able to offer and sell such securities during that
period, unless (i) such action is required by applicable law or (ii)
such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so
long as the Company promptly thereafter complies with the requirements
of Section 4(k) hereof, if applicable.
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<PAGE> 7
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing thereof
with the Commission, a copy of any Shelf Registration Statement and
any Exchange Offer Registration Statement, and each amendment thereof
and each amendment or supplement, if any, to the Prospectus included
therein and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as you and
your counsel reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement
and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto complies in all material respects
with the Act and the rules and regulations thereunder, (ii) any
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby,
and, if requested by you or any such Holder, confirm such advice in
writing:
(i) when a Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer which has provided in writing to the Company a
telephone or facsimile number and address for notices, and, if
requested by you or any such Holder or Exchanging Dealer, confirm such
advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
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<PAGE> 8
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making
of any changes in the Registration Statement or the Prospectus so
that, as of such date, the statements therein are not misleading
and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case
of the Prospectus, in light of the circumstances under which they
were made) not misleading (which advice shall be accompanied by
an instruction to suspend the use of the Prospectus until the
requisite changes have been made).
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of
the Prospectus (including each preliminary Prospectus) included in
such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of securities in connection
with the offering and sale of the securities covered by the Prospectus
or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents
incorporated by reference therein, and, if the Exchanging Dealer so
requests in writing, all exhibits (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such
Exchanging Dealer in connection with a sale of New Securities received
by it pursuant to the Registered Exchange Offer; and the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by any such Exchanging Dealer, as aforesaid.
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<PAGE> 9
(i) Prior to the Registered Exchange Offer or any other offering
of securities pursuant to any Registration Statement, the Company
shall register or qualify or cooperate with the Holders of securities
included therein and their respective counsel in connection with the
registration or qualification of such securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any
such Holders reasonably request in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the securities covered by such Registration
Statement;
provided, however, that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is
not then so subject.
(j) The Company shall cooperate with the Holders of securities to
facilitate the timely preparation and delivery of certificates
representing securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request prior to sales of
securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement
to the related Prospectus or file any other required document so that,
as thereafter delivered to purchasers of the securities included
therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under
such Registration Statement, and provide the applicable trustee with
printed certificates for such Securities or New Securities, in a form
eligible for deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to Holders as soon as practicable after the
effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Securities
Indenture, as the case may be, to be qualified under the Trust
Indenture Act in a timely manner.
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of such
securities as the Company may from time to time reasonably require for
inclusion in such Registration Statement.
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<PAGE> 10
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment.
(q) In the case of any Shelf Registration Statement, the Company
shall enter into such agreements (including underwriting agreements)
and take all other appropriate actions in order to expedite or
facilitate the registration or the disposition of the securities, and
in connection therewith, if an underwriting agreement is entered into,
cause the same to contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 (or such other
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any) with respect to all parties to be
indemnified pursuant to Section 7 from Holders of Securities to the
Company.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any underwriter participating
in any disposition pursuant to such Registration Statement, and any
attorney, accountant or other agent retained by the Holders or any
such underwriter such financial and other books and records of the
Company as shall be necessary to conduct a reasonable investigation;
(ii) cause the Company's officers, directors and employees to supply
all relevant information reasonably requested by such Holders or any
such underwriter, attorney, accountant or agent in connection with any
such Registration Statement as is customary for similar due diligence
examinations; provided, however, that any information that is
designated in writing by the Company, in good faith, as confidential
at the time of delivery of such information shall be kept confidential
by such Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available
to the public generally or through a third party without an
accompanying obligation of confidentiality; (iii) make such
representations and warranties to the Holders of securities registered
thereunder and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary
underwritten offerings and covering matters including, but not limited
to, those set forth in the Purchase Agreement; (iv) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions
(in form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and
the underwriters, if any, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to
each selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
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<PAGE> 11
primary underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders
and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed at (A) the
effectiveness of such Registration Statement and each post-effective
amendment thereto and (B) each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by the
Initial Purchasers, and any attorney, accountant or other agent
retained by the Initial Purchasers, such financial and other
information and books and records of the Company as shall be necessary
to conduct a reasonable investigation; (ii) cause the Company's
officers, directors and employees to supply all relevant information
reasonably requested by such Initial Purchaser or any such attorney,
accountant or agent in connection with any such Registration Statement
as is customary for similar due diligence examinations; provided,
however, that any information that is designated in writing by the
Company, in good faith, as confidential at the time of delivery of
such information shall be kept confidential by such Initial Purchaser
or any such attorney, accountant or agent, unless such disclosure is
made in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a
third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to such Initial
Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to such Initial Purchaser and its
counsel, addressed to such Initial Purchaser, covering such matters as
are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by
such Initial Purchaser or its counsel; (v) obtain "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement), addressed to such Initial Purchaser, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten
offerings, or if requested by such Initial Purchaser or its counsel in
lieu of a "cold comfort" letter, an agreed-upon procedures letter
under Statement on Auditing Standards No. 35, covering matters
requested by such Initial Purchaser or its counsel; and (vi) deliver
such documents and certificates as may be reasonably requested by such
Initial Purchaser or its counsel, including those to evidence
compliance with Section 4(k) and with conditions customarily contained
in underwriting agreements. The foregoing actions set forth in clauses
(iii), (iv), (v), and (vi) of this Section 4(s) shall be performed at
the close of the Registered Exchange Offer and the effective date of
any post-effective amendment to the Exchange Offer Registration
Statement.
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<PAGE> 12
5. Special Interest Under Certain Circumstances. In the event
that (i) the Exchange Offer Registration Statement or a Shelf Registration
Statement, as the case may be, has not been filed with the Commission on or
prior to the 90th day following the Closing Date (or in the case of a Shelf
Registration Statement required to be filed pursuant to clause (i) of the first
paragraph of Section 3, within 60 days after publication of the change in law or
interpretation); (ii) either the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, has not been declared
effective prior to the 150th day following the Closing Date (or in the case of a
Shelf Registration Statement required to be filed pursuant to clause (i) of the
first paragraph of Section 3, if later, within 60 days after publication of the
change in law or interpretation); (iii) the Registered Exchange Offer has not
been consummated prior to the 180th day following the Closing Date; or (iv)
after the Shelf Registration Statement has been declared effective, such Shelf
Registration Statement thereafter ceases to be effective or usable in connection
with resales of Securities or New Securities in accordance with and during the
periods specified in Section 3(b) hereof (because either (A) any event occurs as
a result of which the related Prospectus forming part of such Shelf Registration
Statement would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading or (B) it shall be
necessary to amend such Shelf Registration Statement or supplement the related
prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder) without, in the case of (A) or (B), being succeeded
within 30 days by an amended or an additional Shelf Registration Statement filed
and declared effective (each such event referred to in clauses (i) through (iv)
a "Registration Default"), interest ("Special Interest") will accrue and be
payable semi-annually on the Securities and the New Securities which are the
subject of such Registration Default (in addition to the stated interest on the
Securities and the New Securities) from and including the date such Registration
Default occurs to but excluding the date, as applicable, on which the applicable
Registration Statement is filed or is declared effective, the Registered
Exchange Offer is consummated or the Shelf Registration Statement again becomes
effective, as the case may be. During the time that Special Interest is accruing
continuously the rate of such Special Interest shall be 0.25% per annum during
the 30-day period immediately following the occurence of any Registration
Default and shall increase by 0.25% per annum for each subsequent 30-day period,
but in no event shall such rate exceed 1.50% per annum in the aggregate
regardless of the number of Registration Defaults. If, after the cure of a
Registration Default, there is a subsequent Registration Default, the Special
Interest rate for such subsequent Registration Default shall initially be 0.25%,
regardless of the Special Interest Rate in effect with respect to any prior
Registration Default at the time of the cure of such Registration Default.
6. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith. Notwithstanding the
foregoing, the Holders of any Securities or New Securities being registered on
the Shelf Registration Statement shall pay all agency or brokerage fees and
commissions and underwriting discounts and commissions attributable to the sale
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<PAGE> 13
of such Securities or New Securities and the fees and disbursements of any
counsel retained by such Holders other than counsel referred to above.
7. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including each Initial Purchaser and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder specifically for inclusion therein
(the "Holder's Purchase Information"). This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses of,
as provided in Section 7(d), any underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Initial Purchaser and the selling Holders provided in
this Section 7(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
(b) Each Holder of securities covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees
to indemnify and hold harmless (i) the Company, (ii) each of its directors,
(iii) each of its officers who signs such Registration Statement and (iv) each
person who controls the Company within the meaning of either the Act or the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each such Holder, but only with reference to written information relating to
such Holder furnished to the Company by or on behalf of such Holder specifically
for inclusion in the documents referred to in the foregoing indemnity (together
with the Holder's Purchase Information, the "Written Information"). This
indemnity agreement will be in addition to any liability which any such Holder
may otherwise have.
13
<PAGE> 14
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in is respect thereof is to be made against the indemnifying
party under this Section 7, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent the indemnifying party did not otherwise
learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. No indemnifying party shall be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively, "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
14
<PAGE> 15
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
no case shall any Initial Purchaser or any subsequent Holder of any Security or
New Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest which the Company was not required
to pay as a result of registering the securities covered by the Registration
Statement which resulted in such Losses. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Securities or New Securities, as applicable, registered under the Act.
Benefits received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement which resulted in such
Losses. Relative fault shall be determined by reference to whether any alleged
untrue statement or omission relates to information provided by the indemnifying
party, on the one hand, or by the indemnified party, on the other hand. The
parties agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. No person whose loss, claim, damage or liability
arises out of or is based upon such person's Written Information shall be
entitled to contribution. For purposes of this Section 7, each person who
controls a Holder within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors or controlling persons referred
to in Section 7 hereof, and will survive the sale by a Holder of securities
covered by a Registration Statement.
15
<PAGE> 16
8. Underwritten Offerings. No Holder may participate in any
underwritten Shelf Registration Statement hereunder unless such Holder (i)
agrees to sell such Holder's Securities on the basis provided in any
underwriting arrangements entered into in connection therewith and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount of Securities (or, after the consummation of any Exchange Offer
in accordance with Section 2 hereof, of Securities and New Securities); provided
that, with respect to any matter that directly or indirectly affects the rights
of any Initial Purchaser hereunder, the Company shall obtain the written consent
of each such Initial Purchaser against which such amendment, qualification,
supplement, waiver or consent is to be effective. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of
securities being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of this
Section 9(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective addresses set forth in
the Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
16
<PAGE> 17
All such notices and communications shall be deemed to have been
duly given when received.
The Initial Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company thereto, subsequent Holders of Securities and/or New Securities. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Securities
or New Securities is required hereunder, Securities or New Securities, as
applicable, held by the Company or its Affiliates (other than subsequent Holders
of Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
17
<PAGE> 18
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Initial Purchasers.
Very truly yours,
COGENTRIX ENERGY, INC.,
By: /s/ THOMAS F. SCHWARTZ
---------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and Treasurer
Accepted in New York, New York
October 20, 1998
SALOMON SMITH BARNEY INC.
GOLDMAN, SACHS & CO.
CIBC OPPENHEIMER CORP.
By: SALOMON SMITH BARNEY INC.
By: /s/ STEVE CUNNINGHAM
-------------------------
Name: Steve Cunningham
Title: Vice President
18
<PAGE> 19
ANNEX A
Each broker-dealer that receives New Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Securities where such
New Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date (as defined herein) and ending on the close of business on
the first anniversary of the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE> 20
ANNEX B
Each broker-dealer that receives New Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution."
<PAGE> 21
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 1 year after the Expiration Date, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
[If applicable, add information required by Regulation S-K Items
507 and/or 508.]
<PAGE> 22
ANNEX D
Rider A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: __________________________________
Address: __________________________________
__________________________________
Rider B
If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Securities. If the undersigned is a broker-dealer that will
receive New Securities for its own account in exchange for Securities, it
represents that the Securities to be exchanged for New Securities were acquired
by it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 1
Exhibit No. 5.1
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte NC 28202-4003
November 12, 1998
Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
RE: REGISTRATION STATEMENT ON FORM S-4,
REGISTRATION STATEMENT NO. 33-
-----------------------------------
Ladies and Gentlemen:
We refer to the above-referenced Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended, filed by Cogentrix
Energy, Inc., a North Carolina corporation (the "Company"), with the Securities
and Exchange Commission relating to the Company's offer to exchange $220 million
aggregate principal amount at maturity of its outstanding 8.75% Senior Notes due
2008 (the "Old Senior Notes") for an equal principal amount at maturity of 8.75%
Senior Notes due 2008 (the "Exchange Senior Notes"). The Exchange Senior Notes
will be issued under the Indenture dated as of October 20, 1998 between the
Company and First Union National Bank, as Trustee (the "Trustee"), a copy of
which is included as Exhibit 4.2 to the Registration Statement, as supplemented
by the First Supplemental Indenture dated as of October 20, 1998 between the
Company and the Trustee (the "Indenture"), a copy of which is included as
Exhibit 4.3 to the Registration Statement. All terms not otherwise defined
herein shall have the meanings set forth in the Registration Statement.
We have examined the originals or photocopies or certified copies of such
records of the Company, certificates of officers of the Company and public
officials and other documents as we have deemed relevant and necessary as the
basis for the opinions hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to originals of all documents
submitted to us as certified copies or photocopies and the authenticity of the
originals of such latter documents.
<PAGE> 2
Cogentrix Energy, Inc.
November 12, 1998
Page 2
Based upon our examination mentioned above, and relying upon statements of
fact contained in the documents which we have examined, it is our opinion that:
The Exchange Senior Notes have been duly and validly authorized and, when
executed and authenticated in accordance with the provisions of the Indenture
and when delivered in exchange for the Old Senior Notes, will constitute legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms except as the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of the
rights of creditors generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the related Prospectus.
Very truly yours,
MOORE & VAN ALLEN, PLLC
/s/ Moore & Van Allen, PLLC
<PAGE> 1
Exhibit No. 10.43(a)
AMENDMENT NO 1 TO CONTRACT CSXT-C-67123
---------------------------------------
SUBJECT TO 49 USC SECTION 10709 AND 49 CFR SECTION 1313.3(c)
COGENTRIX OF NORTH CAROLINA, INC., (Industry); and CSX TRANSPORTATION,
INC., (CSXT); agree to amend the aforementioned Contract, which has been in
effect since August 5, 1997.
1. This Amendment will be effective on JUNE 3, 1998.
2. The Contract is modified in the following manner:
(A) Paragraph 3, TRANSPORTATION PARTICULARS are amended, in part, by
adding the following:
Rates* Per Net Ton
--------------------------------
Origin Train Volume
District (75-Car) (40-Cars) Single Car
-------- -------- --------- ----------
Harlan $[xxx] $[xxx] $[xxx]
*Rates are subject to INCREASE IN RATES,
Paragraph No. 8.
3. All other provisions of the Contract are ratified and reaffirmed.
COGENTRIX OF
NORTH CAROLINA, INC. CSX TRANSPORTATION, INC.
By: /s/ J.E. FREEMAN, JR. By: /s/ S. WALTERS
--------------------- -------------------
J.E. Freeman, Jr. Scott Walters
Title: Vice President Title: Director - Non Utility Generation
- ----------
[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 1
Exhibit No. 10.49(c)
AMENDMENT NO 6 TO CONTRACT CSXT-C-04033
SUBJECT TO 49 USC Section 10709 AND 49 CFR Section 1313.3(c)
COGENTRIX OF RICHMOND, INC., (Industry); and CSX TRANSPORTATION, INC.,
(CSXT); agree to amend the aforementioned Contract, which has been in effect
since April 12, 1990.
1. This Amendment will be effective on JUNE 9, 1998.
2. The Contract is modified in the following manner:
(A) Paragraph 4, TRANSPORTATION PARTICULARS, EXHIBIT I, is amended, in
part, by adding the following:
Rates* Per Net Ton
---------------------------------------
75-Car Unit Train 90-Car Unit Train
(3)(4)(5) (3)(4)(6)
CSX Origin 24-Hr Loadouts 24 Hr Loadouts
District 24 Hr. Unload (1) 24 Hr. Unload (1)
-------- ----------------- -----------------
JM - Harlan $[xxx] $[xxx]
*Rates are subject to Paragraph 11, ADJUSTMENT OF RATES.
3. All other provisions of the Contract are ratified and reaffirmed.
COGENTRIX OF RICHMOND, INC. CSX TRANSPORTATION, INC.
By: /s/ J.E. FREEMAN, JR. By: /s/ S. WALTERS
----------------------- ---------------------
J.E. Freeman, Jr. Scott Walters
Title: Vice President Title: Director - Non Utility Generation
- ----------
[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 1
Exhibit No. 10.129
AMENDED AND RESTATED CREDIT AGREEMENT
among
COGENTRIX ENERGY, INC.,
The Several Lenders
from Time to Time Parties Hereto
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED,
THE BANK OF NOVA SCOTIA, AND
CIBC OPPENHEIMER CORPORATION
as Lead Arrangers
and
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED,
as Agent and as the Issuing Bank
DATED AS OF OCTOBER 29, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS........................................................1
1.1 Defined Terms...................................................1
1.2 Other Definitional Provisions..................................26
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................26
2.1 Revolving Credit Commitments...................................26
2.2 Procedure for Revolving Credit Borrowing.......................27
2.3 Fees...........................................................28
2.4 Termination or Reduction of Commitments........................28
2.5 Repayment of Revolving Credit Loans; Evidence of Debt..........28
2.6 Prepayments....................................................29
2.7 Conversion and Continuation Options............................30
2.8 Minimum Amounts and Maximum Number of Tranches.................31
2.9 Interest Rates and Payment Dates...............................31
2.10 Computation of Interest and Fees...............................31
2.11 Inability to Determine Interest Rate...........................32
2.12 Pro Rata Treatment and Payments................................32
2.13 Illegality.....................................................33
2.14 Requirements of Law............................................33
2.15 Taxes..........................................................35
2.16 Indemnity......................................................36
2.17 Change of Lending Office.......................................36
2.18 Use of Proceeds................................................37
2.19 Revolving Credit Commitment Increases..........................37
SECTION 3. LETTERS OF CREDIT.................................................38
3.1 L/C Commitment.................................................38
3.2 Procedure for Issuance of Letters of Credit....................39
3.3 Fees, Commissions and Other Charges............................39
3.4 L/C Participations.............................................40
3.5 Reimbursement Obligation of the Borrower.......................41
3.6 Obligations Absolute...........................................41
3.7 Letter of Credit Payments......................................42
3.8 Issuance Request...............................................42
3.9 Collateralization..............................................42
3.10 Substitution/Replacement of Issuing Bank.......................43
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................44
4.1 Financial Information..........................................44
4.2 No Change......................................................46
4.3 Corporate Existence; Compliance with Law.......................46
4.4 Corporate Power; Authorization; Enforceable Obligations........47
<PAGE> 3
Page
----
4.5 No Legal Bar...................................................47
4.6 No Material Litigation.........................................47
4.7 No Default.....................................................47
4.8 Ownership of Property; Liens...................................48
4.9 Taxes..........................................................48
4.10 Federal Regulations............................................48
4.11 ERISA..........................................................48
4.12 Investment Company Act; Public Utility Holding Company Act;
Other Regulations............................................49
4.13 Subsidiaries...................................................49
4.14 Purpose of the Revolving Credit Loans..........................49
4.15 Environmental Matters..........................................49
4.16 Accuracy of Information; Full Disclosure.......................50
4.17 Security Documents.............................................51
4.18 Year 2000 Matters..............................................51
SECTION 5. CONDITIONS PRECEDENT..............................................51
5.1 Conditions to Effectiveness of Agreement.......................51
5.2 Conditions to Each Revolving Credit Loan and
Each Letter of Credit........................................53
SECTION 6. AFFIRMATIVE COVENANTS.............................................54
6.1 Financial Statements...........................................54
6.2 Certificates; Other Information................................55
6.3 Payment of Obligations.........................................57
6.4 Conduct of Business and Maintenance of Existence...............57
6.5 Maintenance of Property; Insurance.............................57
6.6 Inspection of Property; Books and Records; Discussions.........57
6.7 Notices........................................................57
6.8 Environmental Laws.............................................58
6.9 Indemnification................................................58
SECTION 7. NEGATIVE COVENANTS................................................60
7.1 Financial Condition............................................60
7.2 Limitation on Debt.............................................60
7.3 Limitation on Subsidiary Debt..................................62
7.4 Limitation on Restricted Payments..............................64
7.5 Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries.......................................65
7.6 Restrictions on Dispositions...................................66
7.7 Limitations on Transactions with Affiliates....................66
7.8 Limitations on Liens...........................................67
7.9 Limitations on Mergers, Consolidations, Sales or
Transfers of Assets by or Involving Borrower.................68
7.10 Limitations on Certain Mergers, Consolidations and
Investments by Subsidiaries..................................68
7.11 CDH Permitted Investments......................................69
-ii-
<PAGE> 4
Page
----
SECTION 8. EVENTS OF DEFAULT.................................................69
SECTION 9. THE AGENT.........................................................73
9.1 Appointment....................................................73
9.2 Delegation of Duties...........................................73
9.3 Exculpatory Provisions.........................................74
9.4 Reliance by Agent..............................................74
9.5 Notice of Default..............................................74
9.6 Non-Reliance on Agent and Other Lenders........................75
9.7 Indemnification................................................75
9.8 Agent in Its Individual Capacity...............................76
9.9 Successor Agent................................................76
9.10 Lead Arrangers.................................................76
SECTION 10. MISCELLANEOUS....................................................76
10.1 Amendments and Waivers.........................................76
10.2 Notices........................................................77
10.3 No Waiver; Cumulative Remedies.................................78
10.4 Survival of Representations and Warranties;
Survival of Certain Agreements and Covenants.................78
10.5 Payment of Expenses and Taxes..................................78
10.6 Successors and Assigns; Participations and Assignments.........79
10.7 Adjustments; Set-off...........................................81
10.8 Counterparts...................................................81
10.9 Severability...................................................82
10.10 Integration....................................................82
10.11 GOVERNING LAW..................................................82
10.12 Submission To Jurisdiction; Waivers............................82
10.13 Acknowledgments................................................83
10.14 WAIVERS OF JURY TRIAL..........................................83
10.15 Confidentiality................................................83
10.16 Rank...........................................................84
SCHEDULES
Schedule I - Lenders' Commitment Percentages and Addresses for Notices
Schedule II - Applicable Margin
Schedule III - Financial Disclosure
Schedule IV - Material Litigation
Schedule V - Subsidiaries of the Borrower
Schedule VI - Environmental Matters
EXHIBITS
Exhibit A - Form of Note
-iii-
<PAGE> 5
Exhibit B - Form of New Lender Supplement
Exhibit C - Form of CDH Guarantee
Exhibit D - Form of Extension Agreement
Exhibit E-1 - Form of Borrowing Request
Exhibit E-2 - Form of Issuance Request
Exhibit F - Form of Opinion of Fennebresque, Clark, Swindell & Hay
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Account Pledge Agreement
Exhibit I - Form of Securities Account Control Agreement
-iv-
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 29,
1998, among (i) COGENTRIX ENERGY, INC., a North Carolina corporation (the
"Borrower"), (ii) the several banks and other financial institutions from time
to time parties to this Agreement (the "Lenders"), (iii) AUSTRALIA AND NEW
ZEALAND BANKING GROUP LIMITED ("ANZ"), CIBC OPPENHEIMER CORPORATION, AND THE
BANK OF NOVA SCOTIA, as the lead arrangers and (iv) AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, as the issuer hereunder of the Letters of Credit (as
hereinafter defined) and as agent for the Lenders hereunder.
W I T N E S S E T H :
WHEREAS, the Borrower, ANZ, CIBC Inc., Dresdner Bank AG, New York
Branch, and The Royal Bank of Scotland plc (the "Existing Lenders"), as Lenders,
and ANZ, as Agent and as Issuing Bank, are parties to the Credit Agreement,
dated as of May 22, 1997 (the "Existing Credit Agreement"); and
WHEREAS, the Borrower, the Existing Lenders and ANZ, as Agent and
as Issuing Bank, desire to amend and restate the Existing Credit Agreement in
its entirety and to add The Bank of Nova Scotia as a Lead Arranger and as a
Lender;
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 Closing Date, the Existing Credit
Agreement (including all Exhibits and Schedules thereto) shall be, and the same
hereby is, amended and restated in its entirety to read as follows:
1. SECTION I. DEFINITIONS
1.1 Defined Terms . As used in this Agreement, the following
terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the higher of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime
Rate" shall mean the rate of interest per annum publicly announced
from time to time by the Agent as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended
to be the lowest rate of interest charged by the Agent in connection
with extensions of credit to debtors); and "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions
received by the Agent from three federal funds brokers of recognized
standing selected by it. Any change in the ABR due to a change in the
<PAGE> 7
Prime Rate or the Federal Funds Effective Rate shall be effective as
of the opening of business on the effective day of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"ABR Loans": Revolving Credit Loans the rate of interest
applicable to which is based upon the ABR.
"Acceptable Acquisition Premium ": any Acquisition Premium with
respect to any Capital Stock acquired after the Closing Date by the
Borrower (or any of its Subsidiaries) in any Person owning one or more
Power Generation Facilities; provided, that such Acquisition Premium
may not exceed the excess (if any) of the Maximum Value with respect
to such Capital Stock over the book value of the net tangible assets
underlying such Capital Stock, all as determined in accordance with
GAAP; and "Maximum Value" shall mean an amount (as certified to the
Lenders by a Responsible Officer of the Borrower within thirty days of
the acquisition of such Capital Stock by the Borrower or such
Subsidiary) equal to the net present value of all dividends,
distributions and other payments reasonably projected (using
assumptions reasonably acceptable to the Agent) to be received by the
Borrower or such Subsidiary in respect of such Capital Stock after its
acquisition, calculated by discounting to the date of such acquisition
the amount of all such dividends, distributions and other payments
using an assumed discount rate proposed by the Borrower and reasonably
acceptable to the Agent; provided, that for purposes of projecting the
amount of such dividends, distributions and payments in respect of
such Capital Stock, revenue shall be assumed to be received by such
Person from the sale of power from such Power Generation Facilities
only to the extent that such revenue would be received pursuant to a
written power sales agreement and (even if pursuant to a written power
sales agreement) no revenue shall be assumed to be received by such
Person from the sale of electricity into any power exchange or to the
extent the price for such electricity is based on any power exchange
price.
"Account Pledge Agreement": as defined in subsection 3.9(b).
"Acquisition": the acquisition by the Borrower (through one or
more Wholly-Owned Subsidiaries) from Bechtel Generating Company, Inc.,
of its interests in twelve electric generating plants located in the
Eastern United States and in the Iroquois gas pipeline.
"Acquisition Debt": Debt of any Person existing at the time such
Person became a Subsidiary of the Borrower (or such Person is merged
into the Borrower or one of its Subsidiaries) or assumed in connection
with the acquisition of assets from any such Person (other than assets
acquired in the ordinary course of business), including Debt Incurred
in connection with, or in contemplation of, such Person becoming a
Subsidiary of the Borrower (but excluding Debt of such Person which is
extinguished, retired or repaid in connection with such Person
becoming a Subsidiary of the Borrower).
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<PAGE> 8
"Acquisition Premium": with respect to any Capital Stock owned by
the Borrower (or any of its Subsidiaries) in any Person (including,
without limitation, any Subsidiary or Affiliate of the Borrower or any
Joint Venture in which the Borrower or any of its Subsidiaries has an
interest), the cost of acquiring such Capital Stock in excess of the
net tangible assets underlying such Capital Stock, as determined in
accordance with GAAP.
"Adjusted Consolidated Net Income": for any period, for any
Person the aggregate Net Income (or loss) of such Person and its
consolidated Subsidiaries for such period determined in conformity
with GAAP plus the Net Income of any Subsidiary of such Person for
prior periods to the extent such Net Income is actually paid in cash
to such Person during such period plus the Net Income of such Person
(other than a Subsidiary thereof) in which any third Person has a
joint interest for prior periods to the extent such Net Income is
actually paid in cash to such Person during such period; provided that
the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the Net Income (or
loss) of such Person (other than a Subsidiary thereof) in which any
third Person has a joint interest, except to the extent of the amount
of dividends or other distributions actually paid in cash to such
Person during such period by such Person in which the joint interest
is held, which dividends and distributions shall be included in such
computation; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (c)(i) or
(c)(ii) of subsection 7.4 (and in such case, except to the extent
includable pursuant to clause (i) above), the Net Income (if positive)
of such Person accrued prior to the date it becomes a Subsidiary of
any other Person or is merged into or consolidated with such other
Person or any of its Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by such other Person
or any of its Subsidiaries; (iii) the Net Income of any Subsidiary of
such Person, except to the extent that (A) such Net Income (if
positive) is actually paid in cash to such Person during such period
and (B) such Net Income (if negative) is actually paid in cash to such
Subsidiary during such period; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) the cumulative
effect of a change in accounting principle; and (vi) any amounts paid
or accrued as dividends on Preferred Stock of such Person or Preferred
Stock of any Subsidiary of such Person.
"Adjusted Parent Operating Cash Flow": for any period, (i) Parent
Operating Cash Flow for such period less (ii) the sum of the following
expenses (determined without duplication), in each case to the extent
paid by the Borrower during such period and regardless of whether any
such amount was accrued during such period:
(a) development expenses for such period of the Borrower and
its Subsidiaries paid directly by the Borrower or paid indirectly
by the transferring of funds or other assets (whether through a
loan, capital contribution or otherwise) to any Subsidiary of the
Borrower (whether by the Borrower or by any of its Subsidiaries)
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<PAGE> 9
for the purpose of enabling such Subsidiary or another Subsidiary
to pay any such expense;
(b) income tax expenses of the Borrower and its Subsidiaries
(computed on a consolidated basis) for such period; and
(c) corporate overhead expenses of the Borrower and its
Subsidiaries for such period.
"Adjusted Tangible Net Worth ": with respect to the Borrower, as
of the date of determination, the Tangible Net Worth of the Borrower
at such date plus the sum of all Acquisition Premiums included in the
Net Worth of the Borrower as reflected in the Pro Forma Balance Sheet
plus the sum of all Acceptable Acquisition Premiums (if any) at such
date.
"Administration Fee": as defined in subsection 2.3(c).
"Affiliate": as to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") when
used with respect to any Person means the possession, directly or
indirectly, of the power either (a) to vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) to direct or cause the direction of the
management and policies of such Person, whether through the ownership
of voting securities, by contract or otherwise.
"Agent": ANZ in its capacity as the agent for the Lenders under
this Agreement and the other Loan Documents and its successors in such
capacity.
"Aggregate Outstanding Extensions of Credit ": as to any Lender
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then
outstanding and (b) such Lender's Commitment Percentage of the L/C
Obligations then outstanding.
"Agreement": this Amended and Restated Credit Agreement, as
amended, supplemented or otherwise modified from time to time.
"Applicable Margin": for the Commitment Fee, for each Type of
Revolving Credit Loan and for each Type of Letter of Credit, the rate
per annum as set forth under the relevant column heading on Schedule
II.
"Asset Acquisition": (i) an investment by the Borrower or any of
its Subsidiaries in any other Person pursuant to which such Person
shall become a Subsidiary of the Borrower or any of its Subsidiaries
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<PAGE> 10
or shall be merged into or consolidated with the Borrower or any of
its Subsidiaries or (ii) an acquisition by the Borrower or any of its
Subsidiaries of the Property of any Person other than the Borrower or
any of its Subsidiaries that constitutes substantially all of an
operating unit or business of such Person.
"Asset Disposition": with respect to any Person, any sale,
transfer, conveyance, lease or other disposition (including by way of
merger, consolidation or sale-leaseback) by such Person or any of its
Subsidiaries to any Person (other than to such Person or a Subsidiary
of such Person and other than in the ordinary course of business) of
(i) any Property of such Person or any of its Subsidiaries or (ii) any
shares of Capital Stock of such Person's Subsidiaries. For purposes of
this definition, any disposition in connection with directors'
qualifying shares or investments by foreign nationals mandated by
applicable law shall not constitute an Asset Disposition. In addition,
the term "Asset Disposition" shall not include (i) any sale, transfer,
conveyance, lease or other disposition of the Capital Stock or assets
of Subsidiaries pursuant to the terms of any power sales agreements or
steam sales agreements to which such Subsidiaries are parties as of
the date of this Agreement or pursuant to the terms of any power sales
agreements or steam sales agreements to which such Subsidiaries become
a party after such date if the Board of Directors determines in good
faith (evidenced by a Board resolution) that such provisions are
necessary in order to effect such agreements and are reasonable, (ii)
any sale, transfer, conveyance, lease or other disposition of assets
governed by subsection 7.9, (iii) the sale, transfer, conveyance,
lease or other disposition of the Capital Stock or assets of the
following: (A) Cogentrix of Pennsylvania, Inc. and (B) ReUse
Technology, Inc. and (iv) any transaction or series of related
transactions consisting of the sale, transfer, conveyance, lease or
other disposition of Capital Stock or assets with a Fair Market Value
aggregating less than $5 million. The term "Asset Disposition" also
shall not include (i) the grant of a Lien by any Person in any assets
or shares of Capital Stock securing a borrowing by, or contractual
performance obligation of, such Person or any Subsidiary of such
Person or any Joint Venture in which such Person has an interest,
which Lien is not prohibited under subsection 7.8 or under Section
10(a) of the CDH Guarantee or the exercise of remedies thereunder or
(ii) a sale-leaseback transaction involving substantially all of the
assets of a Power Generation Facility where a Subsidiary of the
Borrower sells the Power Generation Facility to a Person in exchange
for the assumption by that Person of the Debt financing the Power
Generation Facility and the Subsidiary leases the Power Generation
Facility from such Person.
"Asset Sale": the sale or other disposition by the Borrower or
any of its Subsidiaries (other than to the Borrower or another
Subsidiary of the Borrower) of (i) all or substantially all of the
Capital Stock of any Subsidiary of the Borrower or (ii) all or
substantially all of the Property of the Borrower or any of its
Subsidiaries.
"Assignee": as defined in subsection 10.6(c).
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<PAGE> 11
"Assignment and Acceptance": an Assignment and Acceptance
substantially in the form of Exhibit G.
"Attributable Value": as to a Capitalized Lease Obligation under
which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the capitalized amount thereof
that would appear on the face of a balance sheet of such Person in
accordance with GAAP.
"Available Commitment ": as to any Lender, at any time, an amount
equal to the excess, if any, of (a) such Lender's Commitment over (b)
such Lender's Aggregate Outstanding Extensions of Credit.
"Average Life": at any date of determination with respect to any
Debt security or Preferred Stock the quotient obtained by dividing (i)
the sum of the product of (A) the number of years from such date of
determination to the dates of each successive scheduled principal or
involuntary liquidation value payment of such Debt security or
Preferred Stock, respectively, multiplied by (B) the amount of such
principal or involuntary liquidation value payment by (ii) the sum of
all such principal or involuntary liquidation value payments.
"Board of Directors": either the Board of Directors of the
Borrower or any committee of such Board duly authorized to act on
behalf of such Board.
"Borrower Indenture Securities": the collective reference to the
2004 Senior Notes and the 2008 Senior Notes.
"Borrower Indentures": the collective reference to the 2004
Senior Note Indenture and the 2008 Senior Note Indenture.
"Borrowing Date": any Business Day specified in a Borrowing
Request pursuant to subsection 2.2 as a date on which the Borrower
requests the Lenders to make Revolving Credit Loans hereunder.
"Borrowing Request": a request and certificate of the Borrower
substantially in the form of Exhibit E-1 (with such changes thereto as
agreed upon from time to time by the Agent and the Borrower).
"Business": as defined in subsection 4.15(b).
"Business Day": a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required
by law to close.
"Capital Stock": with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated,
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<PAGE> 12
whether voting or non-voting) of, or interests in (however
designated), the equity of such Person which is outstanding or issued
on or after the date of this Agreement, including, without limitation,
all Common Stock and Preferred Stock and partnership and joint venture
interests of such Person.
"Capitalized Lease": as applied to any Person, any lease of any
Property of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person;
"Capitalized Lease Obligation" means the rental obligations, as
aforesaid, under such lease.
"Collateral Account": as defined in subsection 3.9(b).
"CDH": Cogentrix Delaware Holdings, Inc., a Delaware corporation
and a Wholly-Owned Subsidiary of the Borrower.
"CDH Guarantee": the Amended and Restated Guarantee to be
executed and delivered by CDH, substantially in the form of Exhibit C,
as amended, supplemented or otherwise modified from time to time.
"CDH Permitted Investments": as defined in the CDH Guarantee.
"Closing Date": the date on which the conditions precedent set
forth in subsection 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral": the collective reference to the "Collateral" and
the "Collateral Account" as defined in the Account Pledge Agreement.
"Commitment ": as to any Lender, the obligation of such Lender to
make Revolving Credit Loans to and/or issue or participate in Letters
of Credit issued hereunder in an aggregate principal and/or face
amount at any one time outstanding not to exceed the amount set forth
next to such Lender's name under the caption "Commitment" on Schedule
I or set forth in the Assignment and Acceptance executed by such
Lender by which such Lender became a Lender hereunder, in either such
case as such amount may be reduced from time to time pursuant to
subsection 2.4 and as such amount may be adjusted from time to time in
accordance with subsection 10.6 pursuant to any Assignment and
Acceptance executed by such Lender or otherwise in accordance with
this Agreement.
"Commitment Fee": as defined in subsection 2.3(a).
"Commitment Percentage": as to any Lender at any time, the
percentage set forth next to such Lender's name under the caption
"Commitment Percentage" on Schedule I or set forth in the Assignment
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<PAGE> 13
and Acceptance executed by such Lender by which such Lender became a
Lender hereunder, in either such case as such percentage may be
adjusted from time to time in accordance with subsection 10.6 pursuant
to any Assignment and Acceptance executed by such Lender or otherwise
in accordance with this Agreement.
"Commitment Period": the period from and including the Closing
Date to but not including the Final Maturity Date or such earlier date
on which the Commitments shall terminate as provided herein.
"Common Stock": with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as
to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Consolidated EBITDA": of any Person for any period, the Adjusted
Consolidated Net Income of such Person, plus (i) income taxes,
excluding income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or Asset Sales, all
determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP, (ii) Consolidated
Fixed Charges, (iii) depreciation and amortization expense, all
determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP, (iv) all other
non-cash items reducing Adjusted Consolidated Net Income for such
period, all determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP and (v) the
aggregate amount actually received in cash by such Person during such
period relating to non-cash items increasing Adjusted Consolidated Net
Income for prior periods, and less (i) all non-cash items increasing
Adjusted Consolidated Net Income during such period and (ii) the
aggregate amount actually paid in cash by such Person during such
period relating to non-cash items reducing Adjusted Consolidated Net
Income for prior periods; provided that depreciation and amortization
expense of any Subsidiary of such Person and any other non-cash item
of any Subsidiary of such Person that reduces Adjusted Consolidated
Net Income shall be excluded (without duplication) in computing
Consolidated EBITDA, except to the extent that the positive cash flow
associated with such depreciation and amortization expense and other
non-cash items is actually distributed in cash to such Person during
such period.
"Consolidated Fixed Charges": of any Person, for any period, the
aggregate of (i) Consolidated Interest Expense, (ii) the interest
component of Capitalized Leases, determined on a consolidated basis
for such Person and its consolidated Subsidiaries in accordance with
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<PAGE> 14
GAAP excluding any interest component of Capitalized Leases in respect
of that portion of a Capitalized Lease Obligation of a Subsidiary that
is Non-Recourse to such Person and (iii) cash and non-cash dividends
due (whether or not declared) on the Preferred Stock of any Subsidiary
of such Person and any Redeemable Stock of such Person.
"Consolidated Interest Expense": of any Person, for any period,
the aggregate interest expense in respect of Debt (including
amortization or original issue discount and non-cash interest payments
or accruals) of such Person and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, including
all commissions, discounts, other fees and charges owed with respect
to letters of credit and bankers' acceptance financing and net costs
associated with Interest Rate Protection Agreements and any amounts
paid during such period in respect of such interest expense,
commissions, discounts, other fees and charges that have been
capitalized; provided that Consolidated Interest Expense of the
Borrower shall not include any interest expense (including all
commissions, discounts, other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs
associated with Interest Rate Protection Agreements) in respect of
that portion of Debt of a Subsidiary of the Borrower that is
Non-Recourse to the Borrower; and provided further that Consolidated
Interest Expense of the Borrower in respect of a Guarantee by the
Borrower of Debt of a Subsidiary shall be equal to the commissions,
discounts, other fees and charges that would be due with respect to a
hypothetical letter of credit issued under a bank credit agreement
that can be drawn by the beneficiary thereof in the amount of the Debt
so guaranteed if (i) the Borrower is not actually making directly or
indirectly interest payments on such Debt and (ii) GAAP does not
require the Borrower on an unconsolidated basis to record such Debt as
a liability of the Borrower.
"Consolidated Total Assets": with respect to any Person at any
time, the total assets of such Person and its consolidated
Subsidiaries at such time determined in conformity with GAAP.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Currency Protection Agreement": with respect to any Person any
foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in currency values to or under which
such Person or any of its Subsidiaries is a party or a beneficiary on
the date of this Agreement or becomes a party or a beneficiary
thereafter.
"Debt": with respect to any Person at any date of determination
(without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all
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<PAGE> 15
obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations
with respect thereto), (iv) all obligations of such Person to pay the
deferred purchase price of property or services, except Trade
Payables, (v) the Attributable Value of all obligations of such Person
as lessee under Capitalized Leases, (vi) all Debt of others secured by
a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; provided that, for purposes of determining the
amount of any Debt of the type described in this clause, if recourse
with respect to such Debt is limited to such asset, the amount of such
Debt shall be limited to the lesser of the Fair Market Value of such
asset or the amount of such Debt, (vii) all Debt of others Guaranteed
by such Person to the extent such Debt is Guaranteed by such Person,
(viii) all Redeemable Stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends
and (ix) to the extent not otherwise included in this definition, all
obligations of such Person under Currency Protection Agreement and
Interest Rate Protection Agreements.
"Default": any of the events specified in Section 8, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Environmental Laws": any and all foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time hereafter
be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained
by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate at which the Agent is offered Dollar deposits at or
about 10:00 A.M., New York City time, two Eurodollar Business Days
prior to the beginning of such Interest Period in the London interbank
eurodollar market for delivery on the first day of such Interest
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Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding
during such Interest Period.
"Eurodollar Business Day": any Business Day on which dealings in
foreign currency and exchange between banks may be carried on in
London, England.
"Eurodollar Loans": Revolving Credit Loans the rate of interest
applicable to which is 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 upward
to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": of any Person for any period, Consolidated
EBITDA less Consolidated Fixed Charges less any income taxes actually
paid during such period.
"Existing Credit Agreement:": as defined in the recitals hereto.
"Existing Interest Rate Protection Agreement": the interest rate
protection agreement entered into by the Borrower with respect to the
2008 Senior Notes.
"Existing Letter of Credit:": the Letter of Credit No. 3362/8200
dated August 28, 1998 in the face amount of $54,000,000 issued for the
benefit of IBJ Schroder Bank & Trust Company by ANZ, as issuing bank
under the Existing Credit Agreement for the account of the Borrower
pursuant to the Existing Credit Agreement.
"Extension Date": as defined in subsection 2.1(c).
"Extension of Credit": any making of any Revolving Credit Loan by
a Lender and any issuance or extension by the Issuing Bank of any
Letter of Credit.
"Fair Market Value": with respect to any Capital Stock, asset or
other Property, the price obtainable for such Capital Stock, asset or
other Property in an arm's-length sale between an informed and willing
purchaser under no compulsion to purchase and an informed and willing
seller under no compulsion to sell.
"Fee Letter": as defined in subsection 2.3(b).
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"Final Maturity Date": the third anniversary of the Closing Date
or such later date to which the Final Maturity Date shall have been
extended pursuant to subsection 2.1(c); provided, that, if such later
date is not a Eurodollar Business Day, the Final Maturity Date shall
be the next succeeding Eurodollar Business Day.
"Financial Letter of Credit ": as defined in clause (i)(1) of
subsection 3.1(b).
"Fixed Charge Ratio": the ratio, on a pro forma basis, of (i) the
aggregate amount of Consolidated EBITDA of any Person for the
Reference Period immediately prior to the date of the transaction
giving rise to the need to calculate the Fixed Charge Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Fixed Charges
of such Person during such Reference Period; provided that for
purposes of such computation in calculating Consolidated EBITDA and
Consolidated Fixed Charges, (1) the Incurrence of the Debt giving rise
to the need to calculate the Fixed Charge Ratio and the application of
the proceeds therefrom shall be assumed to have occurred on the first
day of the Reference Period, (2) Asset Sales and Asset Acquisitions
which occur during the Reference Period or subsequent to the Reference
Period and prior to the Transaction Date (but including any Asset
Acquisition to be made with the Debt Incurred pursuant to (1) above)
shall be assumed to have occurred on the first day of the Reference
Period, (3) the Incurrence of any Debt during the Reference Period or
subsequent to the Reference Period and prior to the Transaction Date
and the application of the proceeds therefrom shall be assumed to have
occurred on the first day of such Reference Period, (4) Consolidated
Interest Expense attributable to any Debt (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period
unless such Person or any of its Subsidiaries is a party to an
Interest Rate Protection Agreement (which shall remain in effect for
the twelve month period after the Transaction Date) which has the
effect of fixing the interest rate on the date of computation, in
which case such rate (whether higher or lower) shall be used and (5)
there shall be excluded from Consolidated Fixed Charges any
Consolidated Fixed Charges related to any amount of Debt which was
outstanding during and subsequent to the Reference Period but is not
outstanding on the Transaction Date, except for Consolidated Fixed
Charges actually incurred with respect to Debt borrowed (as adjusted
pursuant to clause (4)) under a revolving credit or similar
arrangement to the extent the commitment thereunder remains in effect
on the Transaction Date. For the purpose of making this computation,
Asset Sales and Asset Acquisitions which have been made by any Person
which has become a Subsidiary of the Borrower or been merged with or
into the Borrower or any Subsidiary of the Borrower during the
Reference Period, or subsequent to the Reference Period and prior to
the Transaction Date shall be calculated on a pro forma basis
(including all of the calculations referred to in clauses (1) through
(5) above assuming such Asset Sales or Asset Acquisitions occurred on
the first day of the Reference Period).
"Fronting Fee": as defined in subsection 3.3(a).
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"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting
profession.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee" or "Guarantee Obligation": any obligation, contingent
or otherwise, of any Person directly or indirectly guaranteeing any
Debt or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or
other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, or to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Incur": with respect to any Debt, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise,
such Debt; provided that neither the accrual of interest (whether such
interest is payable in cash or kind) nor the accretion of original
issue discount shall be considered an Incurrence of Debt.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
each March, June, September and December, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day
of such Interest Period, and (c) as to any Eurodollar Loan having an
Interest Period longer than three months or 90 days, respectively,
each day which is three months or 90 days, respectively, or a whole
multiple thereof, after the first day of such Interest Period and the
last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
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<PAGE> 19
(i) initially, the period commencing on the Borrowing Date
or conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three, six, nine or twelve
months thereafter, as selected by the Borrower in its Borrowing
Request or notice of conversion, as the case may be, given with
respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Eurodollar
Loan and ending one, two, three, six, nine or twelve months
thereafter, as selected by the Borrower by irrevocable notice to
the Agent not less than three Eurodollar Business Days prior to
the last day of the then current Interest Period with respect
thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Eurodollar Business
Day, such Interest Period shall be extended to the next
succeeding Eurodollar Business Day unless the result of such
extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on
the immediately preceding Eurodollar Business Day;
(2) any Interest Period that would otherwise extend beyond
the Final Maturity Date shall end on the Final Maturity Date;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Eurodollar Business Day of a calendar month
(or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall
end on the last Eurodollar Business Day of a calendar month; and
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Revolving Credit Loan.
"Interest Rate Protection Agreement": with respect to any Person,
any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap
agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect such Person or any of its Subsidiaries
against fluctuations in interest rates to or under which such Person
or any of its Subsidiaries is a party or a beneficiary on the date of
this Agreement or becomes a party or a beneficiary thereafter.
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"Investment": in a Person, any investment in, loan or advance to,
Guarantee on behalf of, directly or indirectly, or other transfer of
assets to, such Person.
"Investment Grade": with respect to the Borrower Indenture
Securities, a rating of "Baa3" or better by Moody's Investors Service,
Inc. and a rating of "BBB-" or better by Standard and Poor's Rating
Group.
"Issuance Request": a request and certificate of the Borrower
substantially in the form of Exhibit E-2 (with such changes thereto as
agreed upon from time to time by the Agent and the Borrower), together
with a properly completed application for a Letter of Credit in such
form as the Issuing Bank may specify from time to time.
"Issuing Bank ": ANZ, in its capacity as issuer of any Letter of
Credit, and any L/C Participant issuing any Letter of Credit pursuant
to subsection 3.10(a) or succeeding ANZ as Issuing Bank pursuant to
subsection 3.10(b), in its capacity as the issuer of each Letter of
Credit issued by it.
"Joint Venture": a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form;
provided that, as to any such arrangement in corporate form, such
corporation shall not, as to any Person to which such corporation is a
Subsidiary, be considered to be a Joint Venture to which such Person
is a party.
"L/C Fee Payment Date ": the last day of each March, June,
September and December.
"L/C Obligations ": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been reimbursed pursuant
to subsection 3.5(a).
"L/C Participants ": the collective reference to all the Lenders.
"Lead Arrangers": the collective reference to ANZ, CIBC
Oppenheimer Corporation and The Bank of Nova Scotia, in their
capacities as the lead arrangers of the Commitments.
"Letter of Credit Availability": at any time, an amount equal to
the excess of (i) the aggregate Commitments of all the Lenders at such
time over (ii) the then Aggregate Outstanding Extensions of Credits of
all the Lenders.
"Letter of Credit Fee": as defined in subsection 3.3(b).
"Letters of Credit": as defined in subsection 3.1(a).
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"Leverage Ratio": as of any date, the ratio of (i) the aggregate
amount of all Debt of the Borrower at such date to (ii) the sum of (a)
the Adjusted Parent Operating Cash Flow for the six-month period
ending on such date plus (b) the projected Adjusted Parent Operating
Cash Flow for the immediately succeeding six-month period. The
projected Adjusted Parent Operating Cash Flow referred to in subclause
(b) of the preceding sentence shall be determined by using the same
amount for Adjusted Parent Operating Cash Flow for the immediately
preceding six months and then adjusting such amount for the effect
thereon (if any) of any planned or anticipated changes in the Adjusted
Parent Operating Cash Flow during such succeeding six months (as
determined in good faith by the Borrower and by using assumptions
reasonably acceptable to the Majority Lenders); provided that in no
event shall the projected Adjusted Parent Operating Cash Flow include
cash flows to be received by the Borrower in respect of any Power
Generating Facility or other asset which was not owned by a Subsidiary
of the Borrower or by an unconsolidated Affiliate of the Borrower at
any time during such preceding six-month period.
"Lien": with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement, the Borrower shall be
deemed to own subject to a Lien any Property which it has acquired or
holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention
agreement relating to such Property.
"Loan Documents": this Agreement, the Notes, all Borrowing
Requests, all Issuance Requests, the Fee Letter, the CDH Guarantee,
and the Security Documents.
"Loan Parties": the Borrower and CDH.
"Majority Lenders": at any time, Lenders the Commitment
Percentages of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole, (b)
the validity or enforceability of this or any of the other Loan
Documents or the rights or remedies of the Agent, the Issuing Bank or
the Lenders hereunder or thereunder or (c) any Loan Party's ability to
perform any Obligation.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or
regulated as such in or under any Environmental Law, including,
without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
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"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": from an Asset Disposition or Recovery Event,
cash payments received (including, without limitation, any cash
payment received by way of (a) a payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when
received (including any cash received upon sale or disposition of such
note or receivable) or (b) any dividend or other distribution on any
shares of any Person's Capital Stock representing directly or
indirectly all or part of the consideration in respect of any Asset
Disposition or Recovery Event, but only as and when received, but
excluding any other consideration received in the form of assumption
by the acquiring Person of Debt or other obligations relating to the
Property disposed of in such Asset Disposition or Recovery Event or
received in any other noncash form) therefrom, in each case, net of
all legal, title and recording tax expenses, commissions and other
fees and expenses incurred or payable and all federal, state,
provincial, foreign and local taxes required to be accrued as a
liability under GAAP (i) as a consequence of such Asset Disposition or
Recovery Event, (ii) as a result of the repayment of any Debt in any
jurisdiction other than the jurisdiction where the Property disposed
of was located or (iii) as a result of any repatriation to the United
States of America of any proceeds of such Asset Disposition or
Recovery Event, and in each case net of a reasonable reserve for the
after tax cost of any indemnification payments (fixed and contingent)
attributable to seller's indemnities to the purchaser undertaken by
the Borrower or any of its Subsidiaries in connection with such Asset
Disposition or Recovery Event (but excluding any payments, which by
the terms of the indemnities will not, under any circumstances, be
made prior to the then Final Maturity Date), and net of all payments
made on any Debt which is secured by such Property, in accordance with
the terms of any Lien upon or with respect to such Property or which
must by its terms or by applicable law be repaid out of the proceeds
from such Asset Disposition, and net of all distributions and other
payments made to holders of minority interests in Subsidiaries or
Joint Ventures as a result of such Asset Disposition.
"Net Income": of any Person for any period, the net income (loss)
of such Person for such period, determined in accordance with GAAP,
except that for any purpose hereunder (other than for computing Net
Income of the Borrower and its consolidated Subsidiaries for purposes
of subsection 7.1(c)(iii)) extraordinary and non-recurring gains and
losses as determined in accordance with GAAP shall be excluded.
"Net Worth": of any Person, as of any date the aggregate of
capital, surplus and retained earnings (including any cumulative
translation adjustment) of such Person and its consolidated
Subsidiaries as would be shown on a consolidated balance sheet of such
Person and its consolidated Subsidiaries prepared as of such date in
accordance with GAAP.
"Non-Excluded Taxes": as defined in subsection 2.15.
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"Non-Recourse": to a Person as applied to any Debt (or portion
thereof), that such Person is not, directly or indirectly, liable to
make any payments with respect to such Debt (or portion thereof), that
no Guarantee of such Debt (or portion thereof) has been made by such
Person other than a Guarantee limited in recourse to the Capital Stock
of the Person incurring such Debt (or any shareholder, partner, member
or participant of such Person) and that such Debt (or portion thereof)
is not secured by a Lien on any asset of such Person other than the
Capital Stock of the Person incurring such Debt or any shareholder,
partner, member or participant of such Person or of the Person whose
obligations were Guaranteed, provided that for purposes of this
definition the status of a Subsidiary as a general partner of a
partnership or Joint Venture shall not, without more, cause such
Person to be, directly or indirectly, liable to make payments with
respect to such Debt or constitute a Guarantee of such Debt for
purposes of determining whether Debt is Non-Recourse, and provided
further that none of the following shall cause any Debt to fail to be
Non-Recourse: the incurrence of Debt, Guarantees or Liens jointly by
(i) Cogentrix Eastern Carolina Corporation and Cogentrix of North
Carolina, Inc. (or successor to the merger or other combination of
such entities) with respect to the Power Generation Facilities located
at Elizabethtown, Kenansville, Lumberton, Southport and Roxboro, North
Carolina; (ii) Cogentrix Virginia Leasing Corporation and James River
Cogeneration Company (or successor to the merger or other combination
of such entities) with respect to the Power Generation Facilities
located at Portsmouth and Hopewell, Virginia; and (iii) Subsidiaries
of the Borrower or Joint Ventures in which the Borrower or one of its
Subsidiaries is a partner, shareholder, member or other participant,
which become such after the date of this Agreement, incurred
thereafter with respect to the development or acquisition by such
Subsidiaries or Joint Ventures of multiple Power Generation
Facilities, so long as no such Subsidiary or Joint Venture has any
direct or indirect interest in any Power Generation Facility other
than the Power Generation Facilities to be developed or acquired or in
any other business.
"Notes": as defined in Section 2.5(e).
"Obligations": all of the Debt, obligations and liabilities of
the Loan Parties to the Agent, the Lead Arrangers, the Issuing Bank,
the Lenders, or to any of them now or in the future existing under or
in connection with this Agreement, the Notes, the CDH Guarantee or any
other Loan Document (as any of the foregoing may from time to time be
amended, modified, substituted, extended, or renewed), direct or
indirect, absolute or contingent, due or to become due, now or
hereafter existing.
"Other Borrower Indebtedness": any Debt of the Borrower of the
types described in clause (i) and (ii) of the definition of Debt which
has a term of not less than 5 years (other than the Obligations but
including the Borrower Indenture Securities) and which the Borrower is
not prohibited from incurring hereunder or under the Borrower
Indentures.
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"Parent Cash Flow Coverage Ratio": for any period, the ratio of
(i) Adjusted Parent Operating Cash Flow for such period to (ii) Parent
Corporate Charges for such period.
"Parent Corporate Charges": for any period, the sum of the
following amounts (determined without duplication), in each case to
the extent paid by the Borrower during such period and regardless of
whether any such amount was accrued during such period:
(a) interest expenses of the Borrower for such period,
including without limitation all commissions, discounts, other
fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with
Interest Rate Protection Agreements; and
(b) rental payments and other expenses of the Borrower for
such period under any Capitalized Lease.
"Parent Operating Cash Flow": for any period, the sum of the
following amounts (determined without duplication), but only to the
extent received in cash by the Borrower during such period and
regardless of whether any such amount was accrued during such period:
(a) dividends and distributions paid to the Borrower by its
Subsidiaries during such period;
(b) development, consulting, management or other fees paid
to the Borrower during such period;
(c) tax-sharing payments made to the Borrower during such
period;
(d) interest, dividends and other distributions paid during
such period with respect to cash and cash investments of the
Borrower (other than with respect to amounts on deposit in the
Collateral Account except to the extent of any interest earnings
on cash deposited in the Collateral Account actually paid to the
Borrower pursuant to Section 3.9(c)); and
(e) other cash payments made to the Borrower by its
Subsidiaries other than (i) returns of invested capital upon
liquidation or sale, (ii) payments of the principal of Debt of
any such Subsidiary to the Borrower and (iii) payments in an
amount equal to the aggregate amount released from debt service
reserve accounts upon the issuance of Letters of Credit for the
benefit of the beneficiaries of such accounts.
"Participant": as defined in subsection 10.6(b).
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"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Performance Letter of Credit ": as defined in clause (i)(2) of
subsection 3.1(b).
"Permitted Holders": (a) George T. Lewis, Jr., Betty G. Lewis,
Robert W. Lewis, David J. Lewis and James E. Lewis (collectively, the
"Current Holders"), (b) members of the immediate families of the
Current Holders, (c) trusts for the benefit of Current Holders and
members of the immediate families of the Current Holders, and (d) a
non-profit corporation or foundation controlled by any of the Persons
described in (a), (b) or (c) of this definition. Members of a Person's
"immediate family" shall mean such Person's parents, brothers,
sisters, spouse and lineal descendants.
"Permitted Investment": any Investment of the type specified in
clause (iv) of the definition of Restricted Payment which is made
directly or indirectly by the Borrower and its Subsidiaries; provided
that the Person in which the Investment is made is (a) a Subsidiary
which, directly or indirectly, is or will be engaged in the
development, construction, marketing, management, acquisition,
ownership or operation of a Power Generation Facility or (b) a Joint
Venture; provided further, that, in the case of an Investment in a
Joint Venture, (i) at the time such Investment is made, the Borrower
could Incur at least $1 of Debt under subsection 7.2; (ii) at the time
such Investment is made, no Event of Default or event that, after the
giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing; and (iii) such
Investment is in a Joint Venture which, directly or indirectly, is or
will be engaged in the development, construction, marketing,
management, acquisition, ownership or operation of a Power Generation
Facility.
"Permitted Payments": with respect to the Borrower or any of its
Subsidiaries (i) any dividend on shares of Capital Stock payable (or
to the extent paid) solely in shares of Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Redeemable Stock); (ii) any dividend or
other distribution payable to the Borrower by any of its Subsidiaries
or by a Subsidiary to a Wholly-Owned Subsidiary; (iii) the repurchase
or other acquisition or retirement for value of any shares of the
Borrower's Capital Stock, or any option, warrant or other right to
purchase shares of the Borrower's Capital Stock with additional shares
of, or out of the proceeds of a substantially contemporaneous issuance
of, Capital Stock other than Redeemable Stock (unless the redemption
provisions of such Redeemable Stock prohibit the redemption thereof
prior to the date on which the Capital Stock to be acquired or retired
was by its terms required to be redeemed); (iv) any defeasance,
redemption, repurchase or other acquisition for value of any Debt
which by its terms ranks subordinate in right of payment to the
Obligations with the proceeds from the issuance of (x) Debt which is
also subordinate to the Obligations at least to the extent and in the
manner as the Debt to be defeased, redeemed, repurchased or otherwise
acquired is subordinate in right of payment to the Obligations;
provided that such subordinated Debt provides for no payments of
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<PAGE> 26
principal by way of sinking fund, mandatory redemption or otherwise
(including defeasance) by the Borrower (including, without limitation,
at the option of the holder thereof other than an option given to a
holder pursuant to an asset disposition or change of control covenant
which is no more favorable to the holders of such Debt than the
provisions contained in subsections 2.6(b), 7.6, 7.9, 7.10 and 8(j)
are to the Lenders and such Debt provides that the Borrower will not
repurchase such Debt pursuant to such provisions prior to the date
that all Obligations have been paid and performed in full) prior to,
or in an amount greater than, any Stated Maturity of the Debt being
replaced and the proceeds of such subordinated Debt are utilized for
such purpose within 45 days of issuance or (y) Capital Stock (other
than Redeemable Stock); (v) in respect of any actual payment on
account of an Investment (other than a Permitted Investment) which is
not fixed in amount at the time when made, the amount determined by
the Board of Directors to be a Restricted Payment on the date such
Investment was originally deemed to have been made (the "Original
Restricted Payment Charge") plus an amount equal to the interest on a
hypothetical investment in a principal amount equal to the Original
Restricted Payment Charge assuming interest at a rate of 7% per annum
compounded annually for a period beginning on the date the Investment
was originally deemed to have been made and ending with respect to any
portion of the Original Restricted Payment Charge actually paid on the
date of actual payment less any actual payments previously made on
account of such Investment; provided that the Permitted Payment under
this clause (v) shall in no event exceed the payment actually made;
(vi) any amount required to be paid with respect to an obligation
outstanding on the date of this Agreement; or (vii) a Permitted
Investment.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Power Generation Facility": an electric power or thermal energy
generation or cogeneration facility or related facilities (including
residual waste management and, to the extent such facilities are in
existence on the date of this Agreement or are required by contract or
applicable law, rule or regulation, facilities that use thermal energy
from a cogeneration facility), and its or their related electric power
transmission, fuel supply and fuel transportation facilities, together
with its or their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing,
development, construction, management or operation of the foregoing,
as well as other contractual arrangements with customers, suppliers
and contractors.
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"Preferred Stock": with respect to any Person, any and all
shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of preferred or preference
stock of such Person which is outstanding or issued on or after the
date of this Agreement.
"Pro Forma Balance Sheet": as defined in subsection 4.1(e).
"Project Properties": as defined in subsection 4.15.
"Property": as to any Person, all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or
not included in the most recent consolidated balance sheet of such
Person under GAAP.
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding
relating to any Property of the Borrower or any of its Subsidiaries.
"Redeemable Stock": any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed
prior to the later of the Final Maturity Date, the Stated Maturity of
the 2004 Senior Notes or the Stated Maturity of the 2008 Senior Notes,
(ii) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the later of the Final Maturity
Date or the Stated Maturity of the 2004 Senior Notes or the Stated
Maturity of the 2008 Senior Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above
or Debt having a scheduled maturity prior to the later of the Final
Maturity Date, the Stated Maturity of the 2004 Senior Notes or the
Stated Maturity of the 2008 Senior Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require the Borrower to
repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or a "change of control" occurring prior to the later of
the Final Maturity Date or the Stated Maturity of the 2004 Senior
Notes or the Stated Maturity of the 2008 Senior Notes shall not
constitute Redeemable Stock if the asset disposition or change of
control provision applicable to such Capital Stock is no more
favorable to the holders of such Capital Stock than the provisions
contained in subsections 2.6(b), 7.6, 7.9, 7.10 and 8(j) are to the
Lenders and such Capital Stock specifically provides that the Borrower
will not repurchase or redeem any such Capital Stock pursuant to such
provisions prior to the date that all Obligations have been paid and
performed in full.
"Reference Period": the four complete fiscal quarters for which
financial information is available preceding the date of a transaction
giving rise to the need to make a financial calculation; provided,
that for purposes of this definition financial information shall not
be considered unavailable for any fiscal quarter on any day that is 30
or more days after the last day of such fiscal quarter.
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"Refinance": to issue Debt in order to substantially concurrently
repay, redeem, defease, refund, refinance, discharge or otherwise
retire for value, in whole or in part, other Debt or securities.
"Register": as defined in subsection 10.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reimbursement Obligation ": the obligation of the Borrower to
reimburse the Issuing Bank pursuant to subsection for amounts drawn
under Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. ss. 2615.
"Required Lenders": at any time, Lenders the Commitment
Percentages of which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer or the
president of the Borrower or, with respect to financial matters, the
chief financial officer, the vice president-finance or the treasurer
of the Borrower.
"Restricted Payment": with respect to any Person, (i) any
dividend or other distribution on any shares of such Person's Capital
Stock; (ii) any payment on account of the purchase, redemption,
retirement or acquisition for value of such Person's Capital Stock;
(iii) any defeasance, redemption, repurchase or other acquisition or
retirement for value prior to the Stated Maturity of any Debt ranked
subordinate in right of payment to the Obligations; and (iv) any
Investment made in an Affiliate (other than the Borrower or CDH).
Notwithstanding the foregoing, "Restricted Payment" shall not include
any Permitted Payment.
"Revolving Credit Loans": as defined in subsection 2.1.
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"Security Documents": the Account Pledge Agreement and the
Securities Account Control Agreement.
"Secured Parties": the collective reference to the Agent, the
Issuing Bank, the Lenders and the L/C Participants.
"Securities Account Control Agreement": as defined in subsection
3.9(b).
"Significant Subsidiary": of a Person, as of any date, any
Subsidiary, or two or more Subsidiaries taken together in the event of
a cross-collateralization of such multiple Subsidiaries' Debt, which
has two or more of the following attributes: (i) it contributes 20% or
more of such Person's Excess Cash Flow for its most recently completed
fiscal quarter or (ii) it contributed 15% or more of Net Income before
tax of such Person and its consolidated Subsidiaries for such Person's
most recently completed fiscal quarter or (iii) it constituted 20% or
more of Consolidated Total Assets of such Person at the end of such
Person's most recently completed fiscal quarter.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Stated Maturity": with respect to any debt security or any
installment of interest thereon, the date specified in such debt
security as the fixed date on which any principal of such debt
security or any such installment of interest is due and payable.
"Subsidiary": with respect to any Person, any corporation or
other entity of which a majority of the Capital Stock or other
ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of
directors or other persons performing similar functions are at the
time directly or indirectly owned by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the
Borrower.
"Tangible Net Worth ": with respect to any Person, as of the date
of determination, the Net Worth of such Person at such date, after
deducting therefrom all intangible assets, including without
limitation the following:
(a) any surplus resulting from the write-up of assets subsequent
to June 30, 1998;
(b) goodwill, including any amounts (however designated on the
balance sheet) representing Acquisition Premiums;
(c) patents, trademarks, copyrights, franchises, licenses,
service marks and brand names;
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(d) leasehold improvements not recoverable at the expiration of a
lease; and
(e) deferred charges (including, but not limited to, unamortized
debt discount and expense, organization expenses and experimental
expenses and project and other development expenses, but excluding
prepaid expenses).
"Trade Payables": with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection
with the acquisition of goods or services.
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such
Revolving Credit Loans shall originally have been made on the same
day).
"Transferee": as defined in subsection 10.6(f).
"2004 Senior Note Indenture": the Indenture, dated as of March
15, 1994, between the Borrower and the First Union National Bank of
North Carolina, a National Banking Association, as trustee, as
amended, supplemented or otherwise modified from time to time.
"2004 Senior Notes": the 8.10% Senior Notes Due 2004 issued by
the Borrower pursuant to the 2004 Senior Note Indenture.
"2008 Senior Note Indenture": the Indenture, dated as of October
20, 1998, between the Borrower and First Union National Bank of North
Carolina, as trustee, as supplemented by the first Supplemental
Indenture thereto dated as of October 20, 1998, as amended,
supplemented or otherwise modified from time to time.
"2008 Senior Notes": the 8.75% Senior Notes Due 2008 issued by
the Borrower pursuant to the 2008 Senior Note Indenture.
"Type": (a) as to any Revolving Credit Loan, its nature as an ABR
Loan or a Eurodollar Loan and (b) as to any Letter of Credit, its
nature as a Financial Letter of Credit or a Performance Letter of
Credit.
"Uniform Customs ": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
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"Voting Stock": with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors (or persons fulfilling similar responsibilities) of such
Person.
"Wholly-Owned Subsidiary": with respect to any Person, any
Subsidiary of such Person if all of the Capital Stock or other
ownership interests in such Subsidiary having ordinary voting power
(other than stock or such other ownership interests having such power
only by reason of the happening of a contingency) to elect the entire
board of directors or entire group of other persons performing similar
functions (other than any director's qualifying shares or Investments
by foreign nationals mandated by applicable law) is owned directly or
indirectly, by one or more Wholly-Owned Subsidiaries of such Person's
Wholly-Owned Subsidiaries, by such Person.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Commitment Percentage of the then outstanding
L/C Obligations, does not exceed the amount of such Lender's Commitment at such
time. During the Commitment Period the Borrower may use the Commitments by
borrowing, prepaying and reborrowing the Revolving Credit Loans in whole or in
part, all in accordance with the terms and conditions hereof. At no time may the
aggregate outstanding principal amount of all Lenders' Revolving Credit Loans,
when added to then outstanding L/C Obligations, exceed the aggregate of all
Lenders' Commitments at such time.
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(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Agent in accordance with subsections 2.2 and
2.7, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan
after the day that is one month prior to the Final Maturity Date.
(c) The Final Maturity Date may be extended, in the manner set
forth in this subsection 2.1(c), on the first anniversary of the Closing Date
and each such anniversary thereafter (each, an "Extension Date"), in each case
for a period of one year after the Final Maturity Date theretofore in effect,
provided, that the Borrower shall be entitled to request no more than two such
one-year extensions. If the Borrower wishes to request an extension of the Final
Maturity Date on any Extension Date, it shall give written notice to that effect
to the Agent not less than 45 nor more than 90 days prior to such Extension
Date, whereupon the Agent shall notify each of the Lenders of such notice. Each
Lender will use reasonable efforts to respond to such request, whether
affirmatively or negatively, no later than 15 days prior to such Extension Date.
If all Lenders respond affirmatively (any Lender which does not respond being
deemed to have responded negatively), then, subject to receipt by the Agent
prior to such Extension Date of counterparts of an Extension Agreement in
substantially the form of Exhibit D duly completed and signed by all of the
parties hereto, the Final Maturity Date shall be extended, effective on such
Extension Date, for a period of one year to the date stated in such Extension
Agreement.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Commitments during the Commitment Period on any Business Day in
the case of ABR Loans and on any Eurodollar Business Day in the case of
Eurodollar Loans, provided that the Borrower shall have delivered to the Agent a
properly completed Borrowing Request, duly executed by a Responsible Officer of
the Borrower, which notice shall be irrevocable and must be received by the
Agent prior to 10:00 A.M., New York City time, (a) three Eurodollar Business
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans or (b) one Business
Day prior to the requested Borrowing Date, otherwise. In each such Borrowing
Request, the Borrower shall, in addition to any other information required to be
therein, specify (i) the amount to be borrowed, (ii) the requested Borrowing
Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a
combination thereof and (iv) if the borrowing is to be entirely or partly of
Eurodollar Loans, the respective amounts of each such Type of Revolving Credit
Loan and the respective lengths of the initial Interest Periods therefor. Each
borrowing under the Commitments of ABR Loans and each borrowing under the
Commitments of Eurodollar Loans shall be in an amount equal to $1,000,000 or a
whole multiple of $500,000 in excess thereof. Upon receipt of any such notice
from the Borrower, the Agent shall promptly notify each Lender thereof. Each
Lender will make the amount of its pro rata share of each borrowing available to
the Agent, by wire transfer using Fedwire or such other method as reasonably
specified by the Agent, for the account of the Borrower at the office of the
Agent specified in subsection 10.2 prior to 11:00 A.M., New York City time, on
the Borrowing Date requested by the Borrower in funds immediately available to
the Agent. Such borrowing will then be made available to the Borrower by the
Agent by wire transfer to the account specified in the Borrowing Request, in the
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amount of the aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
2.3 Fees. (a) Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Lender a commitment fee (a "Commitment Fee") for
the Commitment Period computed at a rate per annum equal to the Applicable
Margin in effect from time to time for the Commitment Fee, such fee to be paid
on the average daily amount of the Available Commitment of such Lender during
the period for which payment is made. The Commitment Fee shall be payable
quarterly in arrears on the last day of each March, June, September and December
and on the Final Maturity Date or such earlier date as the Commitments shall
terminate as provided herein, commencing on the first of such dates to occur
after the date hereof.
(b) Up-Front Fees. The Borrower agrees to pay to ANZ on or prior
to the Closing Date for its own account and for the account of the other Lenders
the non-refundable up-front fees in the amount set forth in the letter agreement
dated October 29, 1998, between the Borrower and ANZ (the "Fee Letter").
(c) Administration Fee. The Borrower agrees to pay to the Agent,
for its own account, a non-refundable fee (the "Administration Fee") for its
administration of this Agreement in the amount and at the times set forth in the
Fee Letter.
2.4 Termination or Reduction of Commitments.
(a) Optional. The Borrower shall have the right, upon not less
than thirty days' notice to the Agent, to terminate the Commitments or, from
time to time, to reduce the amount of the Commitments. Any such reduction shall
be in an amount equal to $1,000,000 or a whole multiple of $500,000 in excess
thereof and shall reduce permanently the Commitments then in effect.
(b) Mandatory. In the event that (i) the Borrower or any of its
Subsidiaries shall at any time before the day that is 366 days before the Final
Maturity Date receive any payment representing all or any part of the Net Cash
Proceeds of an Asset Disposition made by the Borrower or any of its Subsidiaries
or any Recovery Event and (ii) such payment shall not have been invested in its
entirety by the Borrower or its Subsidiaries in the business or businesses of
the Borrower or any of its Subsidiaries within 364 days of the receipt of such
payment, the amount of the Commitments shall be mandatorily reduced on the day
that is 365 days after the receipt of such payment in an amount equal to the
product of (x) the amount of the payment of Net Cash Proceeds not so invested
times (y) the fraction obtained by dividing (A) the amount of the Commitments
then in effect by (B) the sum of the amount of the Commitments then in effect
plus the aggregate principal amount of the Other Borrower Indebtedness then
outstanding.
2.5 Repayment of Revolving Credit Loans; Evidence of Debt. (a)
The Borrower hereby unconditionally promises to pay to the Agent for the account
of each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Final Maturity Date (or such earlier date on which the
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Revolving Credit Loans become due and payable pursuant to Section 8). The
Borrower hereby further agrees to pay interest on the unpaid principal amount of
the Revolving Credit Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in subsection 2.9.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Revolving Credit Loan of such Lender from time to
time, including the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement.
(c) The Agent shall maintain the Register pursuant to subsection
10.6(d), and a subaccount therein for each Lender, in which shall be recorded
(i) the amount of each Revolving Credit Loan made hereunder, the Type thereof
and each Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the Agent
hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.5(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Revolving Credit Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that it will execute and deliver to each
Lender upon the Closing Date, a promissory note of the Borrower evidencing the
Revolving Credit Loans of such Lender, substantially in the form of Exhibit A
with appropriate insertions as to date and principal amount (a " Note").
2.6 Prepayments.
(a) Optional. The Borrower may on the last day of any Interest
Period with respect thereto, in the case of Eurodollar Loans, or at any time and
from time to time, in the case of ABR Loans, prepay the Revolving Credit Loans,
in whole or in part, without premium or penalty, upon irrevocable notice to the
Agent, specifying the date and amount of prepayment and whether the prepayment
is of Eurodollar Loans, ABR Loans or a combination thereof, and, if of a
combination thereof, the amount allocable to each, which notice must be received
by the Agent at least (i) three Eurodollar Business Days prior to the date of
prepayment if any of the Revolving Credit Loans to be prepaid are Eurodollar
Loans and (ii) one Business Day prior to the date of prepayment, otherwise. Upon
receipt of any such notice the Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any amounts payable
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pursuant to subsection 2.16 and accrued interest to such date on the amount
prepaid. Partial prepayments shall be in an aggregate principal amount of
$1,000,000 or a whole multiple of $500,000 in excess thereof.
(b) Mandatory.
(i) In the event that the Commitments shall have been
reduced pursuant to subsection 2.4 and the aggregate principal
amount of the Revolving Credit Loans then outstanding, when added
to the then outstanding L/C Obligations, exceed the Commitments
in effect after such reduction less the aggregate amount then on
deposit in the Collateral Account (excluding any amounts then on
deposit representing interest or other earnings thereon), the
Borrower shall apply an amount equal to the amount of such excess
to prepay the Revolving Credit Loans or to collateralize the
Letters of Credit or both.
(ii) Amounts to be applied pursuant to clause (i) of this
subsection 2.6(b) shall be applied first to prepay the principal
amount of the Revolving Credit Loans then outstanding until all
such Revolving Credit Loans shall have been prepaid in full, and
if any excess then remains such excess shall be deposited in the
Collateral Account to be held, applied or released for
application as provided in subsection 3.9. The particular
Revolving Credit Loans to be prepaid shall be designated by the
Borrower (or, failing such designation, as the Agent may
determine). Each prepayment shall be applied to prepay ratably
the Revolving Credit Loans of the Lenders. Each payment of
principal shall be made together with interest accrued on the
amount prepaid to the date of payment.
2.7 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Agent at least two Eurodollar Business Days' prior irrevocable notice of such
election, provided that any such conversion of Eurodollar Loans may only be made
on the last day of an Interest Period with respect thereto. The Borrower may
elect from time to time to convert ABR Loans to Eurodollar Loans by giving the
Agent at least three Eurodollar Business Days' prior irrevocable notice of such
election. Any such notice of conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon receipt
of any such notice the Agent shall promptly notify each Lender thereof. All or
any part of outstanding Eurodollar Loans or ABR Loans may be converted as
provided herein, provided that (i) no Revolving Credit Loan may be converted
into a Eurodollar Loan when any Event of Default has occurred and is continuing
and (ii) no Revolving Credit Loan may be converted into a Eurodollar Loan after
the date that is one month prior to the Final Maturity Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such Revolving Credit
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Loans, provided that no Eurodollar Loan may be continued as such (i) when any
Event of Default has occurred and is continuing or (ii) after the date that is
one month prior to the Final Maturity Date and provided, further, that if the
Borrower shall fail to give such notice or if such continuation is not permitted
such Revolving Credit Loans shall be automatically converted to ABR Loans on the
last day of such then expiring Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All
borrowings, conversions and continuations of Revolving Credit Loans hereunder
and all selections of Interest Periods hereunder shall be in such amounts and be
made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Revolving Credit Loans comprising each Tranche
shall be equal to $1,000,000 or a whole multiple of $500,000 in excess thereof.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin for such Type of Revolving Credit Loan.
(b) Each ABR Loan shall bear interest at a rate per annum equal
to the ABR plus the Applicable Margin for such Type of Revolving Credit Loan.
(c) If all or a portion of (i) any principal of any Revolving
Credit Loan, (ii) any interest payable thereon, (iii) the Commitment Fee, the
Administration Fee, any Fronting Fee or any Letter of Credit Fee or (iv) any
other amount payable hereunder or under any other Loan Document shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
the principal of the Revolving Credit Loans and any such overdue interest,
Commitment Fee, Administration Fee, Fronting Fee, Letter of Credit Fee or other
amount shall bear interest at a rate per annum which is (x) in the case of
principal, the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection plus 2% or (y) in the case of any such
overdue interest, Commitment Fee, Administration Fee, Fronting Fee, Letter of
Credit Fee or other amount, the rate described in paragraph (b) of this
subsection plus 2%, in each case from the date of such non-payment until such
overdue principal, interest, Commitment Fee, Administration Fee, Fronting Fee,
Letter of Credit Fee or other amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) The Commitment Fee
and, whenever it is calculated on the basis of the Prime Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed; and, otherwise, interest shall be calculated on the basis
of a 360-day year for the actual days elapsed. The Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Revolving Credit Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
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shall become effective as of the opening of business on the day on which such
change becomes effective. The Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant
to any provision of this Agreement shall be conclusive and binding on the
Borrower and the Lenders in the absence of manifest error. The Agent shall, at
the request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
subsection 2.9(a) or (c).
2.11 Inability to Determine Interest Rate. If prior to the first
day of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Agent shall have received notice from the Majority
Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost
to such Lenders (as conclusively certified by such Lenders) of making
or maintaining their affected Revolving Credit Loans during such
Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Revolving Credit Loans that were to have
been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans that
were to have been continued as such on such first day shall be converted on such
day to ABR Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert ABR Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower of the
Commitment Fee or any Letter of Credit Fee and any reduction of the Commitments
of the Lenders shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each prepayment) by the
Borrower on account of principal of and interest on the Revolving Credit Loans
shall be made pro rata according to the respective outstanding principal amounts
of the Revolving Credit Loans then held by the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 11:00 a.m., New York City time, on the
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due date thereof to the Agent, for the account of the Lenders, at the Agent's
office specified in subsection 10.2, in Dollars and in immediately available
funds. The Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder (other than a
payment on any Eurodollar Loan) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Eurodollar
Business Day, the maturity thereof shall be extended to the next succeeding
Eurodollar Business Day (unless the result of such extension would be to extend
such payment into another calendar month, in which event such payment shall be
made on the immediately preceding Eurodollar Business Day) and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during any such extension.
(b) Unless the Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make the amount that would
constitute its Commitment Percentage of such borrowing available to the Agent,
the Agent may assume that such Lender is making such amount available to the
Agent, and the Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Agent, on demand, such amount with interest thereon at a rate equal to
the daily average Federal Funds Effective Rate for the period until such Lender
makes such amount immediately available to the Agent. A certificate of the Agent
submitted to any Lender with respect to any amounts owing under this subsection
shall be conclusive in the absence of manifest error. If such Lender's
Commitment Percentage of such borrowing is not made available to the Agent by
such Lender within three Business Days of such Borrowing Date, the Agent shall
also be entitled to recover such amount with interest thereon at the rate per
annum applicable to ABR Loans hereunder, on demand, from the Borrower.
2.13 Illegality. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Revolving Credit Loans then outstanding as Eurodollar Loans, if any,
shall be converted automatically to ABR Loans on the respective last days of the
then current Interest Periods with respect to such Revolving Credit Loans or
within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to subsection 2.16.
2.14 Requirements of Law. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof or
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compliance by any Lender or the Issuing Bank with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender or the Issuing Bank to any tax of
any kind whatsoever with respect to this Agreement or any other Loan
Document or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender or the Issuing Bank in respect
thereof (except for Non-Excluded Taxes covered by subsection 2.15 and
changes in the rate of tax on the overall net income of such Lender or
the Issuing Bank);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances,
loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Lender or the Issuing Bank which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender or the Issuing Bank any other
condition;
and the result of any of the foregoing is to increase the cost to such Lender or
the Issuing Bank, by an amount which such Lender or the Issuing Bank, as the
case may be, deems to be material, of making, converting into, continuing or
maintaining Eurodollar Loans or issuing or participating in Letters of Credit or
to reduce any amount receivable hereunder in respect thereof, then, in any such
case, the Borrower shall promptly pay such Lender or the Issuing Bank such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such increased cost or reduced amount receivable.
(b) If any Lender or the Issuing Bank shall have determined that
the adoption of or any change in any Requirement of Law regarding capital
adequacy or in the interpretation or application thereof or compliance by such
Lender or the Issuing Bank or any corporation controlling such Lender or the
Issuing Bank with any request or directive regarding capital adequacy (whether
or not having the force of law) from any Governmental Authority made subsequent
to the date hereof shall have the effect of reducing the rate of return on such
Lender's or the Issuing Bank's or such corporation's capital as a consequence of
its obligations hereunder or under any Letter of Credit to a level below that
which such Lender or the Issuing Bank or such corporation could have achieved
but for such adoption, change or compliance (taking into consideration such
Lender's or the Issuing Bank's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be
material, then from time to time, the Borrower shall promptly pay to such Lender
or the Issuing Bank such additional amount or amounts as will compensate such
Lender or the Issuing Bank, as the case may be, for such reduction.
(c) If any Lender or the Issuing Bank becomes entitled to claim
any additional amounts pursuant to this subsection, it shall promptly notify the
Borrower (with a copy to the Agent) of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable pursuant
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to this subsection submitted by such Lender or the Issuing Bank to the Borrower
(with a copy to the Agent) shall be conclusive in the absence of manifest error.
The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Notes, the Revolving Credit Loans and all other
Obligations.
2.15 Taxes. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or the Issuing Bank or any
Lender as a result of a present or former connection between the Agent or the
Issuing Bank or such Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from the Agent or the
Issuing Bank or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to the Agent or the Issuing Bank or any Lender
hereunder or under any Note, the amounts so payable to the Agent or the Issuing
Bank or such Lender shall be increased to the extent necessary to yield to the
Agent or the Issuing Bank or such Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement, provided, however, that the Borrower
shall not be required to increase any such amounts payable to any Lender that is
not organized under the laws of the United States of America or a state thereof
if such Lender fails to comply with the requirements of paragraph (b) of this
subsection. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Agent for its own
account or for the account of the Issuing Bank or such Lender, as the case may
be, a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Agent, the Issuing Bank and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Agent or the Issuing Bank
or any Lender as a result of any such failure. The agreements in this subsection
2.15(a) shall survive the termination of this Agreement and the payment of the
Notes, the Revolving Credit Loans and all other Obligations.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the
case may be;
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(ii) deliver to the Borrower and the Agent two further copies of
any such form or certification on or before the date that any such
form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower
or the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to subsection 10.6 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection, provided that in the case of a Participant such
Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
2.16 Indemnity. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Revolving
Credit Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Bank on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Notes, the Revolving Credit Loans and all
other Obligations.
2.17 Change of Lending Office. Each Lender agrees that if it
makes any demand for payment under subsection 2.14 or 2.15(a), or if any
adoption or change of the type described in subsection 2.13 shall occur with
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respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to designate
a different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 2.14 or
2.15(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 2.13.
2.18 Use of Proceeds. The Borrower shall use the proceeds of the
Revolving Credit Loans solely for working capital and general corporate purposes
in the ordinary course of business.
2.19 Revolving Credit Commitment Increases. (a) In the event that
the Borrower wishes to increase the aggregate Commitments, it shall notify the
Agent of the amount of such proposed increase (such amount, a "Commitment
Increase Amount"). Any additional bank, financial institution or other entity
which, with the consent of the Borrower and the Agent (which consent, in the
case of the Agent, shall not be unreasonably withheld), elects to become a party
to this Agreement and obtain a Commitment in an amount equal to all or any
portion of a Commitment Increase Amount shall execute a New Lender Supplement
(each, a "New Lender Supplement") with the Borrower and the Agent, substantially
in the form of Exhibit B, whereupon such bank, financial institution or other
entity (herein called a "New Lender") shall become a Lender for all purposes and
to the same extent as if originally a party hereto and shall be bound by and
entitled to the benefits of this Agreement, and Schedule 1 shall be deemed to be
deleted in its entirety and replaced with the Schedule 1 attached to such New
Lender Supplement, which Schedule 1 promptly shall be delivered to each Lender
at its address for notification as provided in Section 10.2.
(b) If on the date upon which a bank, financial institution or
other entity becomes a New Lender pursuant to Section 2.19(a) there is an unpaid
principal amount of Revolving Credit Loans, the Borrower shall borrow Revolving
Credit Loans from such New Lender in an amount determined by reference to the
amount of each Type of Revolving Credit Loan (and, in the case of Eurodollar
Loans, of each Eurodollar Tranche) which would then have been outstanding from
such New Lender if (i) each such Type or Eurodollar Tranche had been borrowed on
the date such bank, financial institution or other entity became a Lender after
giving effect to such transaction and (ii) the aggregate amount of each such
Type or Eurodollar Tranche requested to be so borrowed had been increased to the
extent necessary to give effect, with respect to such New Lender, to the
borrowing allocation provisions of Section 2.2. Any Eurodollar Loan borrowed
pursuant to the preceding sentence shall bear interest at a rate equal to the
respective interest rates then applicable to the Revolving Credit Loans of the
other Lenders in the same Eurodollar Tranche or such other rate as shall be
acceptable to the New Lender.
(c) Notwithstanding anything to the contrary in this Section
2.19, (i) in no event shall any transaction effected pursuant to this Section
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2.19 cause the aggregate Commitments to exceed $125,000,000 and (ii) no Lender
shall have any obligation to increase its Commitment unless it agrees to do so
in its sole discretion.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Bank agrees to issue standby letters of credit ("Letters of
Credit") for the account of the Borrower or, at the Borrower's request, any
Subsidiary of the Borrower on any Business Day during the Commitment Period in
such form as may be approved from time to time by the Issuing Bank; provided,
that the Issuing Bank shall have no obligation to issue any Letter of Credit if,
after giving effect to such issuance, the Available Commitment for any Lender,
or the Letter of Credit Availability, would be less than zero.
(b) Each Letter of Credit shall:
(i) be denominated in Dollars and shall be either (1) a standby
letter of credit issued to support financial obligations (incurred in
the ordinary course of business) of the Borrower or any Subsidiary of
the Borrower, contingent or otherwise, to pay money (a "Financial
Letter of Credit") or (2) a standby letter of credit issued to support
non-financial obligations of the Borrower or any Subsidiary of the
Borrower, contingent or otherwise, to provide goods or services in the
ordinary course of business (a "Performance Letter of Credit");
(ii) have a face amount of (1) not less than $300,000 and (2) not
more than the amount that would, after giving effect to the issuance
thereof, cause the Available Commitment of any Lender or the Letter of
Credit Availability to be less than zero; and
(iii) expire (1) no earlier than 30 days after its date of issue
and (2) no later than five Business Days prior to the then Final
Maturity Date.
(c) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(d) The Issuing Bank shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
(e) Each party hereto agrees that, on and at all times after the
Closing Date, the Existing Letter of Credit shall be deemed to be a Letter of
Credit issued by the Issuing Bank pursuant hereto for all purposes hereunder and
under the other Loan Documents.
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3.2 Procedure for Issuance of Letters of Credit. (a) The Borrower
may from time to time request that the Issuing Bank issue a Letter of Credit by
delivering to the Agent and the Issuing Bank a duly executed and completed
Issuance Request therefor, completed to the satisfaction of the Agent and the
Issuing Bank, and such other certificates, documents and other papers and
information relating to such Letter of Credit as the Issuing Bank may reasonably
request consistent with its current practices and procedures with respect to
letters of credit of the same type. In addition to such other information as is
required to be therein, the Borrower shall specify in any Issuance Request:
(i) the proposed party for whose account the requested Letter of
Credit would be issued (which shall be either the Borrower or a
Subsidiary of the Borrower);
(ii) the proposed beneficiary of the requested Letter of Credit;
(iii) the proposed date of issuance of the requested Letter of
Credit;
(iv) the proposed expiry date of the requested Letter of Credit;
(v) the proposed terms of the requested Letter of Credit,
including the proposed face amount thereof and whether it would
constitute a Financial Letter of Credit or a Performance Letter of
Credit; and
(vi) the transaction that is to be supported or financed with the
requested Letter of Credit, including identification of the Power
Generation Facility, if any, to which such Letter of Credit would
relate.
(b) Upon receipt of any Issuance Request, the Issuing Bank will
process such Issuance Request and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Bank be required to issue any Letter
of Credit earlier than three Business Days after its receipt of the Issuance
Request therefor and all such other certificates, documents and other papers and
information relating thereto) by issuing the original of such Letter of Credit
to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and
the Borrower. The Issuing Bank shall furnish a copy of such Letter of Credit to
the Borrower promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges. (a) The Borrower shall
pay to the Agent, for the account of the Issuing Bank, a fronting fee ("Fronting
Fee") with respect to each Letter of Credit in the amount and at the times set
forth in the Fee Letter.
(b) The Borrower shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit fee ("Letter of Credit
Fee") with respect to each Letter of Credit, computed for the period from and
including the date of the issuance of such Letter of Credit and to but excluding
the date such Letter of Credit expires, at a rate per annum, calculated on the
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basis of a 365- (or 366-, as the case may be) day year, equal to the Applicable
Margin in effect from time-to-time for the Type of such Letter of Credit and
calculated on the aggregate amount available for drawing under such Letter of
Credit for each day during the period for which such fee is then being
calculated. Each Letter of Credit Fee shall be payable to the L/C Participants
to be shared ratably among them in accordance with their respective Commitment
Percentages. Each Letter of Credit Fee shall be payable in arrears on each L/C
Fee Payment Date to occur after the date of issuance of each Letter of Credit
and shall be nonrefundable.
(c) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Bank for such normal and customary
costs and expenses as are incurred or charged by the Issuing Bank in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the L/C Participants all fees and commissions
received by the Agent for their respective accounts pursuant to this subsection.
3.4 L/C Participations. (a) The Issuing Bank irrevocably agrees
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Bank, on the terms and conditions hereinafter stated, for such L/C Participant's
own account and risk an undivided interest equal to such L/C Participant's
Commitment Percentage in the Issuing Bank's obligations and rights under each
Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit
for which the Issuing Bank is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Bank upon first demand at the Issuing Bank's address for notices
specified herein an amount equal to such L/C Participant's Commitment Percentage
of the amount of such draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to
the Issuing Bank pursuant to subsection in respect of any unreimbursed portion
of any payment made by the Issuing Bank under any Letter of Credit is paid to
the Issuing Bank within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Bank on demand an amount equal to
the product of such amount, times the daily average Federal funds rate, as
quoted by the Issuing Bank, during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Bank, times a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to subsection is
not in fact made available to the Issuing Bank by such L/C Participant within
three Business Days after the date such payment is due, the Issuing Bank shall
be entitled to recover from such L/C Participant, on demand, such amount with
interest thereon calculated from such due date at the rate per annum applicable
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to ABR Loans hereunder. A certificate of the Issuing Bank submitted to any L/C
Participant with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Bank has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with subsection , the Issuing Bank
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Bank), or any payment of interest on account thereof, the Issuing Bank
will distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by the Issuing Bank
shall be required to be returned by the Issuing Bank, such L/C Participant shall
return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower
agrees to reimburse the Issuing Bank on each date on which the Issuing Bank
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Bank for the amount of such draft so
paid. Each such payment shall be made to the Issuing Bank at its address for
notices specified herein in lawful money of the United States of America and in
immediately available funds.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this subsection from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full at the rate which would be payable on any outstanding ABR Loans which
were then overdue.
(c) Each drawing under any Letter of Credit during the Commitment
Period shall be deemed a request by the Borrower to the Agent for a borrowing
pursuant to subsection 2.2 (Procedure for Revolving Credit Borrowing) of ABR
Loans in the amount of such drawing. The Borrowing Date with respect to such
borrowing shall be the date of such drawing.
3.6 Obligations Absolute. (a) The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Bank or any
beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank that the
Issuing Bank shall not be responsible for, and the Borrower's Reimbursement
Obligations under subsection 3.5(a) shall not be affected by, among other
things, (i) the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or (ii) any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or (iii) any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee.
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(c) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct.
(d) The Borrower agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence of willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Bank to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Bank shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Bank to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are in conformity with such Letter of Credit.
3.8 Issuance Request. To the extent that any provision of any
Issuance Request related to any Letter of Credit is inconsistent with the
provisions of this Section 3, the provisions of this Section shall apply.
3.9 Collateralization. (a) All amounts required to be deposited
as Collateral with the Agent pursuant to subsection 2.6(b) or Section 8 shall be
deposited in a collateral account established by CDH with the Agent (the
"Collateral Account"), to be held, applied or released for application as
provided in this subsection 3.9. Promptly after being requested by the Agent,
the Borrower shall cause CDH to execute and deliver to the Agent, (i) an Account
Pledge Agreement substantially in the form of Exhibit H (the "Account Pledge
Agreement") pursuant to which, as provided therein, CDH shall grant to the
Agent, for the benefit of the Secured Parties, a security interest in, among
other things, all cash, securities and other financial instruments in the
Collateral Account to secure the Obligations, (ii) a securities account control
agreement substantially in the form of Exhibit I (the "Securities Account
Control Agreement") and (iii) such further documents and instruments as the
Agent may reasonably request to evidence the creation and perfection of such
security interest in the Collateral Account.
(b) In the event of a payment by the Issuing Bank of a draft
presented under any Letter of Credit, the amount of such drawing (but not more
than the amount in the Collateral Account at the time) shall be withdrawn by the
Agent from the Collateral Account and shall be paid to the Issuing Bank to be
applied against such drawing. If on any L/C Fee Payment Date the amount in the
Collateral Account exceeds the then outstanding L/C Obligations, the excess
amount shall, so long as no Default shall have occurred and be continuing, be
withdrawn by the Agent and paid to the Borrower on such L/C Fee Payment Date. If
an Event of Default shall have occurred and be continuing, such excess amount
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shall, if and when requested by the Required Lenders, be withdrawn by the Agent
and applied first to repay the Reimbursement Obligations, second to repay the
Revolving Credit Loans and other due and unpaid amounts required to be paid by
the Borrower hereunder and third any remaining excess shall be paid to the
Borrower.
(c) Interest and other payments and distributions made on or with
respect to the Collateral held in the Collateral Account shall be for the
account of CDH and shall constitute Collateral to be held by the Agent or
returned to the Borrower in accordance with subsection 3.9(b). Funds held in the
Collateral Account shall be invested in time deposits with the Agent which pay a
market rate of interest for a like deposit with a comparable financial
institution. Beyond the exercise of reasonable care in the custody thereof, the
Agent shall have no duty as to any Collateral in its possession or control or in
the possession or control of any agent or bailee or any income thereon or as to
the preservation of rights against prior parties or any other rights the
preservation of rights against prior parties or any other rights pertaining
thereto. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any agent or bailee selected by the Agent in good faith. All
expenses and liabilities incurred by the Agent in connection with taking,
holding and disposing of any Collateral (including customary custody and similar
fees with respect to any Collateral held directly by the Agent) shall be paid by
the Borrower or CDH from time to time upon demand. Upon a Default, the Agent
shall be entitled to apply (and, at the request of the Required Lenders but
subject to applicable law, shall apply) Collateral or the proceeds thereof to
payment of any such expenses, liabilities and fees.
3.10 Substitution/Replacement of Issuing Bank. (a) In the event
that the Issuing Bank shall refuse pursuant to subsection 3.1(d) to issue any
Letter of Credit requested by the Borrower, the Borrower may request any L/C
Participant to issue such Letter of Credit hereunder in substitution for the
Issuing Bank by delivering to such L/C Participant and to the Agent a duly
executed and completed Issuance Request in accordance with subsection 3.2, and
such L/C Participant may agree to issue such Letter of Credit (but no L/C
Participant shall be under any obligation to do so); provided, that the issuance
by such L/C Participant of such Letter of Credit would not conflict with any
Requirement of Law applicable to any other L/C Participant or cause any other
L/C Participant to exceed any limits imposed by any applicable Requirement of
Law. Any L/C Participant issuing a Letter of Credit pursuant to this subsection
3.10(a) shall be deemed hereunder and under the other Loan Documents to be, and
to have all rights, powers, duties and obligations of, the Issuing Bank for the
purposes of such Letter of Credit without any further act or deed on the part of
any of the L/C Participants or any other party to this Agreement.
(b) If at any time the senior unsecured long-term debt securities
of ANZ shall be rated less than "A1" by Moody's Investors Service, Inc. or less
than "A+" by Standard & Poor's Rating Group, the Borrower may request any L/C
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Participant, and such L/C Participant may agree, to succeed ANZ as Issuing Bank
hereunder (but no L/C Participant shall be under any obligation to do so). In
such event, upon 10 days' prior written notice to the Agent, ANZ and each L/C
Participant but without any further act or deed on the part of any of the L/C
Participants or any other party to this Agreement, such L/C Participant shall
succeed ANZ as Issuing Bank hereunder and be deemed hereunder and under the
other Loan Documents to be, and to have all rights, powers, duties and
obligations of, the Issuing Bank for the purposes of each Letter of Credit
issued thereafter by such L/C Participant; provided, that ANZ shall remain, and
have all rights, powers, duties and obligations of, the Issuing Bank with
respect to (i) any actions taken or omitted to be taken by it while it was
Issuing Bank and (ii) each Letter of Credit issued by ANZ as Issuing Bank that
shall not have been surrendered and returned to ANZ by the beneficiary thereof
in a manner acceptable to ANZ in its sole discretion.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Issuing Bank and the Lenders to enter
into this Agreement and to make the Revolving Credit Loans and issue or
participate in the Letters of Credit, the Borrower hereby represents and
warrants to the Agent, the Issuing Bank and each Lender that:
4.1 Financial Information. (a)(i) The audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at June 30,
1997 and December 31, 1997 and the related audited consolidated statements of
income, of retained earnings and of cash flows for the fiscal periods ended on
such dates, reported on by Arthur Anderson, LLP, copies of which have heretofore
been furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such dates, and the consolidated results of their operations
and their consolidated cash flows for the fiscal periods then ended.
(ii) The unaudited unconsolidated balance sheets of the Borrower
and of CDH as at June 30, 1997 and December 31, 1997 and the related unaudited
unconsolidated statements of income for the fiscal periods ended on such dates,
certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the
unconsolidated financial condition of the Borrower and CDH as at such dates, and
the unconsolidated results of their operations for the fiscal periods then
ended.
(iii) The unaudited consolidating balance sheet of the Borrower
and its consolidated Subsidiaries as at June 30, 1997 and December 31, 1997 and
the related unaudited consolidating statements of income for the fiscal periods
ended on such dates, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidating financial condition of the Borrower and its
consolidated Subsidiaries as at such dates, and the consolidating results of
their operations for the fiscal periods then ended.
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(iv) The unaudited statements of cash flow to the Borrower from
each of its consolidated Subsidiaries for the fiscal periods ended on June 30,
1997 and December 31, 1997, certified by a Responsible Officer, copies of which
have heretofore been furnished to each Lender, are complete and correct and
present fairly the cash flow to the Borrower from each of its consolidated
Subsidiaries for the fiscal periods then ended.
(b)(i) The unaudited consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at June 30, 1998 and the related unaudited
consolidated statements of income, of retained earnings and of cash flows for
the six-month period ended on such date, certified by a Responsible Officer,
copies of which have heretofore been furnished to each Lender, are complete and
correct and present fairly the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the six-month period
then ended (subject to normal year-end audit adjustments).
(ii) The unaudited unconsolidated balance sheets of the Borrower
and CDH as at June 30, 1998 and the related unaudited unconsolidated statements
of income for the six-month period then ended, certified by a Responsible
Officer, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly the unconsolidated financial condition
of the Borrower and CDH as at such dates, and the unconsolidated results of
their operations and their unconsolidated cash flows for the six-month period
then ended.
(iii) The unaudited consolidating balance sheet of the Borrower
and its consolidated Subsidiaries as at June 30, 1998 and the related unaudited
consolidating statement of income for the six-month period then ended, certified
by a Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct and present fairly the consolidating financial
condition of the Borrower and its consolidated Subsidiaries as at such date, and
the consolidating results of their operations for the six-month period then
ended.
(iv) The unaudited statements of cash flow to the Borrower from
each of its consolidated Subsidiaries for the six-month period ended on June 30,
1998, certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the cash
flow to the Borrower from each of its consolidated Subsidiaries for the
six-month period then ended.
(c) All of the financial statements referred to in clause (a) and
(b) above, including the related schedules and notes thereto, have been prepared
in accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer, as the case may
be, and as disclosed therein).
(d) Neither the Borrower nor any of its consolidated Subsidiaries
had, at the date of the most recent balance sheet referred to above, any
material Guarantee Obligation, contingent liability or liability for taxes, or
any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
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transaction (other than the Existing Interest Rate Protection Agreement), which
is not reflected in the foregoing statements or in the notes thereto. Except as
disclosed on Schedule III, during the period from June 30, 1998 to and including
the date of this Agreement there has been no sale, transfer or other disposition
by the Borrower or any of its consolidated Subsidiaries of any material part of
its business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of the Borrower and its consolidated
Subsidiaries at June 30, 1998 (other than the Acquisition).
(e) The unaudited pro forma consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at June 30, 1998 (including the
notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore
been furnished to each Lender, has been prepared giving effect (as if such
events had occurred on such date) to (i) the consummation of the Acquisition and
the issuance of 2008 Senior Notes in an aggregate principal amount of
$220,000,000, (ii) the Revolving Credit Loans and any other Extensions of Credit
to be made on the Closing Date and the use of proceeds thereof and (iii) the
payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to the
Borrower as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of the Borrower and its consolidated
Subsidiaries as at June 30, 1998, assuming that the events specified in the
preceding sentence had actually occurred at such date.
4.2 No Change. (a) Except as disclosed on Schedule III, since
December 31, 1997 there has been no development or event which has had or could
reasonably be expected to have a Material Adverse Effect, and (b) during the
period from June 30, 1998 to and including the date of this Agreement no
dividends or other distributions have been declared, paid or made upon the
Capital Stock of the Borrower nor has any of the Capital Stock of the Borrower
been redeemed, retired, purchased or otherwise acquired for value by the
Borrower or any of its Subsidiaries.
4.3 Corporate Existence; Compliance with Law. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization (except, in
the case of the Borrower's Subsidiaries, to the extent that the failure to be so
organized, validly existing or in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect), (b) has the corporate
or partnership power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged (except, in the case of the Borrower's
Subsidiaries, to the extent that the failure to have such power and authority or
legal right could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect), (c) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
(except, in the case of the Borrower's Subsidiaries, to the extent that the
failure to be so duly qualified or in good standing could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect) and, (d) is in
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compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and the Notes and to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party. No consent or authorization of, filing with, notice to or other
act by or in respect of, any Governmental Authority or any other Person (other
than those that have been given or made) is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which the Borrower is a party. This
Agreement has been, and each other Loan Document to which it is a party will be,
duly executed and delivered on behalf of the Borrower. This Agreement
constitutes, and each other Loan Document to which it is a party when executed
and delivered will constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
4.5 No Legal Bar. The execution, delivery and performance of the
Loan Documents to which the Borrower is a party, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien (other than
any Lien created by the Loan Documents) on any of its or their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation.
4.6 No Material Litigation. Except as disclosed on Schedule IV,
no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its Subsidiaries or against any
of its or their respective properties or revenues (a) with respect to any of the
Loan Documents or any of the transactions contemplated hereby or thereby or (b)
which could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. The Borrower is not in default under or in
respect of any of its obligations under the Borrower Indenture, and no "Event of
Default" (as defined in the Borrower Indenture) has occurred and is continuing
under the Borrower Indenture. Neither the Borrower nor any of its Subsidiaries
is in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
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4.8 Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of the Borrower's
property is subject to any Lien except as permitted by subsection 7.8.
4.9 Taxes. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.10 Federal Regulations. No part of the proceeds of any
Revolving Credit Loans will be used for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case
may be.
4.11 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. The
present value (determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees participating)
of the liability of the Borrower and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does
not, in the aggregate, exceed the assets under all such Plans allocable to such
benefits.
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4.12 Investment Company Act; Public Utility Holding Company Act;
Other Regulations. The Borrower is not (a) an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, or (b) a "holding company," a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Debt.
4.13 Subsidiaries. All the Subsidiaries of the Borrower at the
date of this Agreement are listed on Schedule V.
4.14 Purpose of the Revolving Credit Loans. The proceeds of the
Revolving Credit Loans shall be used by the Borrower for working capital and
general corporate purposes in the ordinary course of business.
4.15 Environmental Matters. Except as set forth on Schedule VI:
(a) To the best knowledge of the Borrower, the facilities and
properties owned, leased or operated by the Borrower or any of its
Subsidiaries (the "Project Properties") do not contain, and have not
previously contained, any Materials of Environmental Concern in
amounts or concentrations which (i) constitute or constituted a
violation of, or (ii) could reasonably be expected to give rise to
liability under, any Environmental Law, except in either case insofar
as such violation or liability, or any aggregation thereof, is not
reasonably likely to have a Material Adverse Effect.
(b) To the best knowledge of the Borrower, the Project Properties
and all operations at the Project Properties are in compliance, and
have been in compliance while owned, leased or operated by the
Borrower or any of its Subsidiaries, in all material respects with all
applicable Environmental Laws, and there is no contamination at, under
or about the Project Properties or violation of any Environmental Law
with respect to the Project Properties or the business operated by the
Borrower or any of its Subsidiaries (the "Business") which could
materially interfere with the continued operation of the Project
Properties or materially impair the fair saleable value thereof.
(c) Neither the Borrower nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Project Properties
or the Business, nor does the Borrower have knowledge or reason to
believe that any such notice will be received or is being threatened,
except insofar as such notice or threatened notice, or any aggregation
thereof, does not involve a matter or matters that is or are
reasonably likely to have a Material Adverse Effect.
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(d) To the best knowledge of the Borrower, Materials of
Environmental Concern have not been transported or disposed of from
the Project Properties in violation of, or in a manner or to a
location which could reasonably be expected to give rise to liability
under, any Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on or under
any of the Project Properties (i) in violation of any applicable
Environmental Law which violation, or any aggregation thereof, could
reasonably be expected to give rise to material liability to the
Borrower or any of its Subsidiaries under any applicable Environmental
Law or (ii) in a manner that could reasonably be expected to give rise
to material liability to the Borrower or any of its Subsidiaries under
any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary is
or will be named as a party with respect to the Project Properties or
the Business, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any
Environmental Law with respect to the Project Properties or the
Business that could reasonably be expected to give rise to material
liability to the Borrower or any of its Subsidiaries under any
applicable Environmental Law.
(f) To the best knowledge of the Borrower, there has been no
release or threat of release of Materials of Environmental Concern at
or from the Project Properties, or arising from or related to the
operations of the Borrower or any Subsidiary in connection with the
Project Properties or otherwise in connection with the Business, (i)
in violation of any applicable Environmental Law which violation, or
any aggregation thereof, could reasonably be expected to give rise to
material liability to the Borrower or any of its Subsidiaries under
any applicable Environmental Law or (ii) in amounts or in a manner
that could reasonably give rise to material liability to the Borrower
or any of its Subsidiaries under any applicable Environmental Law.
4.16 Accuracy of Information; Full Disclosure. No representation,
warranty or other statement made by any Loan Party in this Agreement, the CDH
Guarantee or any other Loan Document or in any certificate, written statement or
other document furnished to the Agent or any Lender by or on behalf of any Loan
Party pursuant to or in connection with this Agreement, the CDH Guarantee or any
other Loan Document or the transactions contemplated hereby or thereby, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading. There is no
fact known to the Borrower as of the date of this Agreement which the Borrower
has not disclosed to the Agent and the Lenders in writing prior to the date of
this Agreement which has had, or could reasonably be expected to have, a
Material Adverse Effect.
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4.17 Security Documents. The provisions of the Security
Documents, when executed and delivered, will be sufficient to create in favor of
the Agent for the benefit of the Secured Parties a legal, valid and enforceable
security interest in the Collateral and all proceeds thereof to the extent a
security interest can be created therein under the Uniform Commercial Code of
the State of New York.
4.18 Year 2000 Matters. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others to the Borrower or any
of its Subsidiaries), and the testing of all such systems and other equipment as
so reprogrammed, will be completed by September 30, 1999. The costs to the
Borrower and its Subsidiaries that have not been incurred as of the date hereof
for such reprogramming and testing and for the other reasonably foreseeable
consequences to them of any improper functioning of their computer systems and
other equipment containing embedded microchips due to the occurrence of the year
2000 could not reasonably be expected to result in a Default or Event of Default
or to have a Material Adverse Effect. Except for any reprogramming referred to
above, the computer systems of the Borrower and its Subsidiaries are and, with
ordinary course upgrading and maintenance, will continue for the term of this
Agreement to be, sufficient for the conduct of their business as currently
conducted.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness of Agreement. This Agreement
shall become effective on the date on which each of the following conditions
shall have been fulfilled, as such date is specified in a notice given by the
Agent to the other parties hereto:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (ii) for the account of
each Lender, a Note, dated the Closing Date, conforming to the
requirements hereof and executed and delivered by a duly authorized
officer of the Borrower, and (iii) the CDH Guarantee, executed and
delivered by a duly authorized officer of CDH, with a counterpart each
Lender.
(b) Related Agreements. The Agent shall have received, with a
copy for each Lender, a true and correct copy, certified as to
authenticity by the Borrower, of each of the Borrower Indentures.
(c) Corporate Proceedings of the Borrower. The Agent shall have
received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Agent, of the
Board of Directors of the Borrower authorizing (i) the execution,
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delivery and performance of this Agreement, the Notes and the other
Loan Documents to which it is a party and (ii) the borrowings
contemplated hereunder, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which certificate
shall be in form and substance satisfactory to the Agent and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The Agent shall have
received, with a counterpart for each Lender, a Certificate of the
Borrower, dated the Closing Date, as to the incumbency and signature
of the officers of the Borrower executing any Loan Document
satisfactory in form and substance to the Agent, executed by the
Secretary or any Assistant Secretary of the Borrower and countersigned
by one such officer of the Borrower.
(e) Corporate Proceedings of CDH. The Agent shall have received,
with a counterpart for each Lender, a copy of the resolutions, in form
and substance satisfactory to the Agent, of the Board of Directors of
CDH authorizing the execution, delivery and performance of the CDH
Guarantee, certified by the Secretary or an Assistant Secretary of CDH
as of the Closing Date, which certificate shall be in form and
substance satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(f) Incumbency Certificate of CDH. The Agent shall have received,
with a counterpart for each Lender, a certificate of CDH, dated the
Closing Date, as to the incumbency and signature of the officer of CDH
executing the CDH Guarantee, satisfactory in form and substance to the
Agent, executed by the Secretary or any Assistant Secretary of CDH and
countersigned by such officer of CDH.
(g) Corporate Documents. The Agent shall have received, with a
counterpart for each Lender, true and complete copies of the
certificate or articles of incorporation and by-laws of each Loan
Party, certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of such Loan Party.
(h) Fees and Expenses. ANZ shall have received all fees referred
to in subsection 2.3(b) to be received by them on the Closing Date and
(ii) the Lead Arrangers and the Lenders shall have received payment
for all of their costs and expenses then payable to them. The Agent
shall have received payment for all of its costs and expenses then
payable to it as the Agent pursuant to subsection 10.5 and all fees
then payable to it under the Fee Letter.
(i) Legal Opinion. The Agent shall have received, with a
counterpart for each Lender the executed legal opinion of
Fennebresque, Clark, Swindell & Hay, counsel to the Borrower and CDH,
substantially in the form of Exhibit F. Such legal opinion shall cover
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such other matters incident to the transactions contemplated by this
Agreement as the Agent may reasonably require.
(j) Lien Searches. The Agent shall have received the results of a
recent search by a Person satisfactory to the Agent of the Uniform
Commercial Code, judgement and tax lien filings which may have been
filed with respect to personal property of the Borrower and CDH, and
the results of such search shall be reasonably satisfactory to the
Agent.
(k) Acquisition. The Acquisition shall have been consummated on
terms and conditions reasonably satisfactory to the Lenders.
(l) Existing Credit Agreement. All accrued and unpaid fees under
the Existing Credit Agreement shall have been paid in full.
(m) Financial Statements. The Lenders shall have received all of
the financial statements described in subsection 4.1.
(n) 2008 Senior Notes. The Borrower shall have issued 2008 Senior
Notes in an aggregate principal amount of $220,000,000, and all
commitments for bridge financing in lieu of the 2008 Senior Notes
shall have been terminated or otherwise expired.
(o) Additional Matters. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with
the transactions contemplated by this Agreement and the other Loan
Documents shall be satisfactory in form and substance to the Agent,
and the Agent shall have received such other documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
5.2 Conditions to Each Revolving Credit Loan and Each Letter of
Credit. The agreement of each Lender to make any Revolving Credit Loan, and of
the Issuing Bank to issue any Letter of Credit, requested to be made or issued
by it on any date (including, without limitation, its initial Revolving Credit
Loan or Letter of Credit) is subject to the satisfaction of the following
conditions precedent:
(a) Borrowing or Issuance Request. Except in the case of a
request for a borrowing deemed to be made pursuant to subsection
3.5(c), the Agent and, in the case of a request for a Letter of
Credit, the Issuing Bank shall have received a Borrowing Request or
Issuance Request, as the case may be, for such Revolving Credit Loan
or Letter of Credit, duly executed by a Responsible Officer of the
Borrower and completed, with the appropriate insertions and
attachments, to the satisfaction of the Agent and, in the case of an
Issuance Request, the Issuing Bank.
(b) Representations and Warranties. Each of the representations
and warranties made by the Borrower or CDH in or pursuant to the Loan
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Documents shall be true and correct in all material respects on and as
of such date as if made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as of
a specific date, such specific date).
(c) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to all
Extensions of Credit requested to be made on such date.
(d) Financial Covenants. The Agent shall have received a
certificate of a Responsible Officer of the Borrower (i) setting forth
in reasonable detail the calculations and financial information
necessary to determine the Parent Cash Flow Coverage Ratio, for the
four most recent consecutive fiscal quarters of the Borrower and the
Leverage Ratio and the Adjusted Tangible Net Worth of the Borrower as
at the last day of the most recently ended fiscal quarter and (ii)
certifying that the Borrower is then in compliance with subsection
7.1.
Each borrowing of a Revolving Credit Loan by and Letter of Credit issued at the
request of the Borrower hereunder shall constitute a representation and warranty
by the Borrower as of the date thereof that the conditions contained in this
subsection have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, until the Commitments are
terminated, all Obligations have been paid and performed in full, no L/C
Obligations are outstanding and all Letters of Credit have expired and are no
longer outstanding, the Borrower shall:
6.1 Financial Statements . Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Borrower, (i) a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash
flows for such fiscal year, setting forth in each case in comparative
form the figures for the fiscal year immediately preceding such fiscal
year, reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by
Arthur Anderson, LLP or other independent certified public accountants
of nationally recognized standing, (ii) a copy of the unaudited
unconsolidated balance sheet of the Borrower as at the end of such
fiscal year and the related unconsolidated statements of income for
such fiscal year, setting forth in each case in comparative form the
figures for the fiscal year immediately preceding such fiscal year,
certified by a Responsible Officer as being fairly stated in all
material respects, (iii) a copy of the unaudited consolidating balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such fiscal year and the related consolidating statement of income
for such fiscal year, setting forth in each case in comparative form
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the figures for the fiscal year immediately preceding such fiscal
year, certified by a Responsible Officer as being fairly stated in all
material respects, (iv) a statement of cash flows for such fiscal year
to the Borrower from each of its Subsidiaries, setting forth in each
case in comparative form the figures for the fiscal year immediately
preceding such fiscal year, certified by a Responsible Officer as
being fairly stated in all material respects and (v) a copy of the
unaudited unconsolidated balance sheet of CDH as at the end of such
fiscal year and the related unconsolidated statements of income for
such fiscal year, setting forth in comparative figures for the fiscal
year immediately preceding such fiscal year, certified by a
Responsible Officer as being fairly stated in all material respects;
and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, (i) the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, (ii) the unaudited
unconsolidated balance sheet of the Borrower as at the end of such
quarter and the related unconsolidated statements of income for such
quarter and the portion of the fiscal year through the end of such
quarter, (iii) the unaudited consolidating balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such
quarter and the related consolidating statement of income for such
quarter and the portion of the fiscal year through the end of such
quarter, (iv) a statement of cash flows to the Borrower from each of
its Subsidiaries for such quarter and the portion of the fiscal year
through the end of such quarter and (v) the unaudited balance sheet of
CDH as at the end of such quarter and the related statements of income
of CDH for such quarter and the portion of the fiscal year through the
end of such quarter, setting forth in the case of each of subclause
(i), (ii), (iii), (iv) and (v) in comparative form the figures for the
corresponding quarter in the fiscal year immediately preceding such
fiscal year, certified by a Responsible Officer as being fairly stated
in all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information . Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in clause (i) of subsection 6.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
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(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and 6.1(b), a certificate of a
Responsible Officer (i) stating that, to the best of such Officer's
knowledge, during such period the Borrower has observed or performed
all of its covenants and other agreements, and satisfied every
condition, contained in this Agreement and the other Loan Documents to
be observed, performed or satisfied by it, and that such Officer has
obtained no knowledge of any Default or Event of Default except as
specified in such certificate, (ii) setting forth in reasonable detail
the calculations and financial information required to establish
whether the Borrower is in compliance with subsection 7.1 and (iii)
certifying the amount, as of the end of such period, of the sum of
clauses (i) through (v) of subsection 7.4(c) and setting forth in
reasonable detail the calculations and financial information required
to determine such sum;
(c) not later than thirty days prior to the end of each fiscal
year of the Borrower, a copy of the projections by the Borrower of the
consolidated operating budget and cash flow budget of the Borrower and
its consolidated Subsidiaries for the succeeding fiscal year, such
projections to be accompanied by a certificate of a Responsible
Officer to the effect that such projections have been prepared on the
basis of sound financial planning practice and that such Officer has
no reason to believe they are based on unreasonable assumptions or
misleading in any material respect;
(d) within five days after the same are filed, copies of all
financial statements and reports which the Borrower may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority;
(e) concurrently with the delivery thereof, copies of all
certificates, notices and other written communications which the
Borrower delivers pursuant to the Borrower Indenture to any party
thereto;
(f) not less than 10 days prior to the anticipated date of any
Asset Disposition by the Borrower or any of its Subsidiaries, or
promptly after the occurrence of any Recovery Event which will result
in Net Cash Proceeds, a certificate of a Responsible Officer of the
Borrower setting forth (i) in the case of any Asset Disposition, a
description of the transaction resulting in such Asset Disposition
(including, without limitation, an identification of the securities,
assets or other Property to be sold or otherwise disposed of) and a
description and valuation of the consideration to be received by the
Borrower or such Subsidiary for such Asset Disposition, (ii) in the
case of any Recovery Event, a description of such Recovery Event
(including, without limitation, an identification of the Property
which is the subject of such Recovery Event) and (iii) in the case of
any Asset Disposition or any Recovery Event, the date or dates upon
which any Net Cash Proceeds therefrom are anticipated to be received
by the Borrower or such Subsidiary and the amount of the Net Cash
Proceeds anticipated to be received on such date or each of such
dates; and
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(g) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, (a)
all of the Obligations and (b) all of its other obligations of whatever nature,
except in the case of this clause (b) where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower; provided, that no Default or Event of Default shall exist under
this subsection 6.3(b) at any time unless the aggregate amount of such unpaid,
undischarged or unsatisfied obligations outstanding at such time shall be equal
to at least $5 million.
6.4 Conduct of Business and Maintenance of Existence. Preserve,
renew and keep in full force and effect its corporate existence and take all
action necessary to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business; comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance . Keep or cause its
Subsidiaries to keep all property useful and necessary in its and its
Subsidiaries' businesses in good working order and condition and maintain and
operate such property in accordance with prudent engineering and business
practices no less rigorous than, in the case of Power Generation Facilities,
those customary in the independent power industry and, in the case of any other
property, those customary in the industry in which such property is used,
except, in either such case, to the extent that the failure to comply herewith
with respect to its Subsidiaries' businesses could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect; maintain or cause its
Subsidiaries to maintain with financially sound and reputable insurance
companies insurance on all its and its Subsidiaries' properties in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and furnish to each Lender, upon written request, full information as
to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Agent and each Lender
of:
(a) the occurrence of any Default or Event of Default;
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(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries (including,
without limitation, either Borrower Indenture) or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority,
which in either case, if not cured or if adversely determined, as the
case may be, could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding affecting the Borrower or any of
its Subsidiaries in which the amount involved is $3 million or more or
in which injunctive or similar relief is sought or that could
reasonably be expected to have a Material Adverse Effect; and
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of,
any Plan.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply with, and ensure compliance by
all tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply in all material respects with and maintain, and ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so could not be reasonably expected to have a Material Adverse
Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not be
reasonably expected to have a Material Adverse Effect.
6.9 Indemnification. The Borrower shall pay, and protect,
indemnify and save harmless the Agent, the Lead Arrangers, the Issuing Bank and
the Lenders and, in their capacity as such, their officers, directors,
shareholders, controlling persons, employees, agents and servants (individually
an "Indemnified Party," collectively the "Indemnified Parties") from and
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against, all liabilities, losses, claims, damages, penalties, causes of action,
suits, costs, expenses and disbursements of any kind whatsoever (including,
without limitation, reasonable attorneys' fees and expenses, but excluding
special, exemplary, punitive or consequential damages suffered by such
Indemnified Party) incurred by or asserted against any Indemnified Party arising
out of, in any way in connection with, or as a result of (a) the execution,
delivery, enforcement, performance or administration of this Agreement, the CDH
Guarantee, any other Loan Document or any document contemplated hereby or
thereby or any of the transactions contemplated by any Loan Document, (b) the
use of the proceeds of the Revolving Credit Loans, (c) the issuance or use of
the proceeds of, or any drawing under, any Letter of Credit or (d) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnified Party is a party thereto (including, without
limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Borrower, any of its Subsidiaries or any of the Project Properties);
provided that the Borrower will not be liable to any Indemnified Party for such
liabilities, losses, claims, damages, penalties, causes of action, suits, costs
and expenses (including, without limitation, attorneys' fees) or judgments
arising from such Indemnified Party's gross negligence or wilful misconduct.
With respect to any action, suit or proceeding against it, or any of its
officers, directors, shareholders, controlling persons, employees, agents and
servants, in respect of which indemnity may be sought hereunder, the Agent, the
Issuing Bank, each Lead Arranger and each Lender agrees that it will give
written notice of the commencement of such action, suit or proceeding to the
Borrower within a reasonable time after it is made a party to such action, suit
or proceeding; but the omission to so notify the Borrower will not relieve the
Borrower from any liability which it might have to any Indemnified Party, except
to the extent that the failure to give notice of the commencement of such
action, suit or proceeding shall preclude the Borrower from effectively
defending such action, suit or proceeding. Upon receipt of any such notice by
the Borrower, the Borrower shall be entitled to assume the defense of such
action, suit or proceeding, including the employment of counsel and the payment
of all expenses in connection with such defense, and shall have the right to
negotiate and consent to settlement. Any Indemnified Party shall have the right
to employ separate counsel in any such action, suit or proceeding against it and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the Borrower
or (ii) the Borrower shall have elected not to assume the defense of such
action, suit or proceeding or (iii) such Indemnified Party has been advised by
its own counsel that there are legal defenses available to such Indemnified
Party which are different from, additional to or in conflict with the defenses
available to the Borrower. The Borrower shall not be liable for any settlement
of any such action, suit or proceeding effected without its consent, which
consent shall not be unreasonably withheld; but if any such action, suit or
proceeding is settled with the consent of the Borrower or if there is a final
judgment for the plaintiff in any such action, suit or proceeding (of which the
Borrower shall have been notified), the Borrower shall indemnify and hold
harmless each Indemnified Party from and against any losses, claims, damages,
liabilities or expenses incurred or suffered by reason of such settlement or
judgment. This covenant shall survive the termination of this Agreement and the
payment of the Notes, the Revolving Credit Loans and all other Obligations.
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SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, until the Commitments are
terminated, all Obligations have been paid and performed in full, no L/C
Obligations are outstanding and all Letters of Credit have expired or are no
longer outstanding, the Borrower shall not do any of the following:
7.1 Financial Condition. (a) Parent Cash Flow Coverage Ratio. The
Borrower shall not permit the Parent Cash Flow Coverage Ratio to be less than
2.0 to 1 for any period of four consecutive fiscal quarters of the Borrower.
(b) Leverage Ratio . The Borrower shall not permit the Leverage
Ratio as at the last day of any fiscal quarter of the Borrower ending within any
calendar year set forth below to exceed the ratio set forth below opposite such
calendar year:
Calendar year Ratio
------------- -----
1998 8.5 to 1
1999 7.5 to 1
2000 6.1 to 1
2001 5.5 to 1
(c) Adjusted Tangible Net Worth. The Borrower shall not permit
its Adjusted Tangible Net Worth at any time to be less than the sum of (i)
$42,448,000 less (ii) the aggregate amount of all deferred financing costs
reasonably incurred by the Borrower in connection with this Credit Agreement and
the issuance of the 2008 Senior Notes as reflected in the most recent financial
statements of the Borrower prepared in accordance with GAAP, plus (iii) 65% of
cumulative Net Income of the Borrower and its consolidated Subsidiaries for each
fiscal quarter (beginning with the fiscal quarter ending September 30, 1998) for
which Net Income is positive plus (iv) 100% of the Net Cash Proceeds of any
offering by the Borrower of Capital Stock consummated after the Closing Date
plus (v) 100% of any capital contribution made to the Borrower or any of its
Subsidiaries after the Closing Date by any holder of the Borrower's Capital
Stock.
7.2 Limitation on Debt. (a) The Borrower shall not Incur any
Debt, including Acquisition Debt, unless after giving effect to the Incurrence
of such Debt and the receipt and application of the proceeds therefrom, the
Fixed Charge Ratio of the Borrower would be equal to or greater than 2.0 to 1.
(b) Notwithstanding the foregoing, the Borrower may Incur each
and all of the following:
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(i) Debt issued in exchange for, or the proceeds of which are
used to Refinance, Debt of the Borrower in an amount (or, if such new
Debt provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses related to
such exchange or Refinancing), the amount so exchanged or Refinanced
being equal to the lesser of (x) the principal amount or involuntary
liquidation preference of the Debt so exchanged or Refinanced and (y)
if the Debt being exchanged or Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing; provided that
such Debt of the Borrower will rank pari passu with or expressly
subordinated in right of payment to the Obligations and the Average
Life of the new Debt shall be equal to or greater than the Average
Life of the Debt to be exchanged or Refinanced;
(ii) Debt of the Borrower to any of its Subsidiaries and to any
Joint Ventures in which the Borrower is a direct or indirect partner,
shareholder, member or other participant if such Debt of the Borrower
is expressly subordinated in right of payment to the Obligations;
provided that any transfer of such Debt by a Subsidiary or a Joint
Venture (other than to another Subsidiary or Joint Venture) will be
deemed to be an Incurrence of Debt unless (x) such Debt has an Average
Life which is greater than that of the Borrower Indenture Securities
and which extends to a date later than the then Final Maturity Date or
(y) the aggregate amount of such Debt which has an Average Life which
is equal to or less than that of the Borrower Indenture Securities or
which extends to, or to a date earlier than, the then Final Maturity
Date does not exceed $3 million;
(iii) Debt in an aggregate principal amount not to exceed $10
million at any one time outstanding;
(iv) Debt in respect of Currency Protection Agreements or
Interest Rate Protection Agreements; and
(v) Debt outstanding as of the date of this Agreement.
For purposes of determining any particular amount of Debt under
this subsection 7.2, Guarantees of, or obligations with respect to letters of
credit supporting, Debt otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with the provisions of this subsection 7.2, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, the Borrower, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses.
(c) Notwithstanding any other provision hereof, including without
limitation any other provision of this subsection 7.2, the Borrower shall not
Incur any Debt at any time unless (i) no payment or prepayment in respect of
principal of such Debt (including, without limitation, any payments in respect
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of any sinking fund) shall be due or can become due (other than as a result of
the acceleration thereof) on or prior to the then Final Maturity Date and (ii)
the aggregate outstanding principal amount of Debt Incurred by the Borrower at
such time (after giving effect to the Incurrence of such Debt) shall not exceed
$480,000,000, to the extent such Debt is Incurred in calendar year 1999, or
$490,000,000 to the extent such Debt is Incurred in calendar year 2000 or 2001.
7.3 Limitation on Subsidiary Debt. The Borrower shall not permit
any Subsidiary to Incur, assume or otherwise cause or suffer to exist, directly
or indirectly, any Debt.
(b) Notwithstanding the foregoing, each and all of the following
Debt may be Incurred by a Subsidiary:
(i) Debt outstanding as of the date of this Agreement;
(ii) Debt owed by a Subsidiary to the Borrower;
(iii) Debt Incurred to finance the development, acquisition,
construction or operation of a Power Generation Facility in which such
Subsidiary has a direct or indirect interest; provided that such Debt
shall be permitted under this clause (iii) only to the extent of the
amount thereof which is Non-Recourse to the Borrower and is
Non-Recourse to any other Subsidiary with a direct or indirect
interest in any other Power Generation Facility;
(iv) Debt issued in exchange for, or the proceeds of which are
used to Refinance, outstanding Debt of such Subsidiary otherwise
permitted under this Agreement in an amount (or, if such new Debt
provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses related to
such exchange or Refinancing), the amount so exchanged or Refinanced
being equal to the lesser of (x) the principal amount or involuntary
liquidation preference of the Debt so exchanged or Refinanced and (y)
if the Debt being exchanged or Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing; provided that
(A) the new Debt shall be Non-Recourse to the Borrower to no lesser
extent than the Debt to be exchanged or Refinanced, (B) the new Debt
shall be Non-Recourse to any other Subsidiary with a direct or
indirect interest in any other Power Generation Facility to no lesser
extent than the Debt to be exchanged or Refinanced, and (C) the
Average Life of the new Debt shall be equal to or greater than the
Average Life of the Debt to be exchanged or Refinanced;
(v) Debt issued in exchange for, or the proceeds of which are
used to Refinance, outstanding Debt of such Subsidiary otherwise
permitted under this Agreement in an amount (or, if such new Debt
provides for an amount less than the principal amount thereof to be
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due and payable upon a declaration of acceleration thereof, with an
original issue price) in excess of the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses related to
such exchange or Refinancing); provided that (A) the new Debt shall be
Non-Recourse to the Borrower to no lesser extent than the Debt to be
exchanged or Refinanced, (B) the new Debt shall be Non-Recourse to any
other Subsidiary with a direct or indirect interest in any other Power
Generation Facility to no lesser extent than the Debt to be exchanged
or Refinanced, and (C) the Average Life of the new Debt shall be equal
to or greater than the Average Life of the Debt to be exchanged or
Refinanced; provided further that, after giving effect to the
Incurrence of such new Debt and the retirement of the Debt to be
exchanged or Refinanced, the Fixed Charge Ratio of the Borrower would
be equal to or greater than 2.0 to 1;
(vi) Debt issued in exchange for, or the proceeds of which are
used to Refinance, outstanding Debt which is not Non-Recourse to the
Borrower or to any other Subsidiary in an amount (or if such new Debt
provides for an amount less than the principal amount thereof to be
due and payable upon a declaration or acceleration thereof, with an
original issue price) not to exceed the amount so exchanged or
Refinanced (plus accrued interest and fees and expenses related to
such exchange or Refinancing), the amount so exchanged or Refinanced
being equal to the lesser of (x) the principal amount of the Debt so
exchanged or Refinanced and (y) if the Debt being so exchanged or
Refinanced was issued with an original issue discount, the accreted
value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided that the Average Life of the new Debt shall
be equal to or greater than the Average Life of the Debt to be
exchanged or Refinanced;
(vii) Debt Incurred to support the performance obligations of a
Subsidiary engaged in providing construction management or operating
services to a Power Generation Facility; provided that such Debt shall
be permitted under this clause (vii) only to the extent of the amount
thereof which is Non-Recourse to the Borrower and is Non-Recourse to
any other Subsidiary with a direct or indirect interest in any other
Power Generation Facility;
(viii) Debt of a Subsidiary Incurred solely to finance the
development, acquisition, construction or operation of a Power
Generation Facility in which such Subsidiary, the Borrower or another
Subsidiary has a direct or indirect interest; provided, that after
giving effect to the Incurrence of such new Debt and the retirement of
any Debt to be exchanged or Refinanced, the Fixed Charge Ratio of the
Borrower would be equal to or greater than 2.0 to 1;
(ix) Debt Incurred by a Person prior to the time: (A) such Person
became a Subsidiary of the Borrower; (B) such Person merges with or
into a Subsidiary of the Borrower; or (C) another Subsidiary of the
Borrower merges with or into such Person (in a transaction in which
such Person becomes a Subsidiary of the Borrower); provided that,
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giving effect to such transaction, such Debt could have been Incurred
at the time of such merger or acquisition by the Borrower pursuant to
subsection 7.2 or by the Subsidiary pursuant to either of clauses
(iii) or (iv) of this paragraph (b) of this subsection 7.3; and
(x) Debt Incurred by a Subsidiary of which at least 80% of each
class of Common Stock is owned, directly or indirectly, by the
Borrower, to another Subsidiary of which at least 80% of each class of
Common Stock is owned, directly or indirectly, by the Borrower.
For purposes of determining any particular amount of Debt under
this subsection 7.3, Guarantees of, or obligations with respect to letters of
credit supporting, Debt otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with the provisions of this subsection 7.3, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, the Borrower, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses.
7.4 Limitation on Restricted Payments. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, make any Restricted
Payment if at the time of such Restricted Payment and after giving effect
thereto:
(a) an Event of Default or an event that, after the giving of
notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing;
(b) the Borrower could not Incur at least $1 of Debt under
subsection 7.2(a);
(c) the aggregate amount of all Restricted Payments made by the
Borrower and its Subsidiaries after March 15, 1994 (the amount so
made, if other than in cash, to be determined in good faith by the
Board of Directors, as evidenced by a Board resolution) shall exceed
the sum (without duplication) of: (i) $5 million plus 50% of the Net
Income of the Borrower and its consolidated Subsidiaries for the
period (taken as one accounting period) beginning on March 15, 1994
and ending on the last day of the fiscal quarter immediately prior to
the date of such calculation; provided that if Net Income for such
period is less than zero, then minus 100% of the amount of such net
loss; plus (ii) if the Borrower Indenture Securities are Investment
Grade at the time of and after giving effect to the Restricted Payment
(or in the case of a dividend, its declaration) in connection with
which the calculation is made, an additional 25% of Net Income of the
Borrower and its consolidated Subsidiaries for any period of one or
more completed fiscal quarters ending with the last fiscal quarter
completed prior to the date of such Restricted Payment during which
the Borrower Indenture Securities were Investment Grade for the entire
period; plus (iii) the aggregate net proceeds (including the Fair
Market Value of proceeds other than cash) received by the Borrower
from and after March 15, 1994 from the issuance and sale (other than
to a Subsidiary) of its Capital Stock (excluding Redeemable Stock, but
including Capital Stock other than Redeemable Stock issued upon
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conversion of, or in exchange for, Redeemable Stock or securities
other than its Capital Stock), and warrants, options and rights to
purchase its Capital Stock (other than Redeemable Stock), but
excluding the net proceeds from the issuance, sale, exchange,
conversion or other disposition of its Capital Stock convertible
(whether at the option of the Borrower or the holder thereof or upon
the happening of any event) into (x) any security other than its
Capital Stock or (y) its Redeemable Stock; plus (iv) the net reduction
in Investments of the type specified in clause (iv) of the definition
of "Restricted Payment" resulting from payments of interest on Debt,
dividends, repayments of loans or advances, or other transfers of
assets to the Borrower or other Person that made the original
Investment from the Person in which such Investment was made; provided
that such payment shall not exceed the amount of the original
Investment; plus (v) any amount previously included as a Restricted
Payment on account of an obligation by the Borrower or any Subsidiary
to make a Restricted Payment which has not actually been made by the
Borrower or any Subsidiary; provided that this clause (c) shall not
prevent the payment of any dividend within 60 days after the date of
its declaration if such dividend could have been made on the date of
its declaration without violation of the provisions of this subsection
7.4.
7.5 Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Subsidiary to (a) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Subsidiary owned by the Borrower or
any other Subsidiary, (b) make payments in respect of any Debt owed to the
Borrower or any other Subsidiary of the Borrower, (c) make loans or advances to
the Borrower or any other Subsidiary of the Borrower or (d) transfer any of its
Property to the Borrower or any other Subsidiary, other than those encumbrances
and restrictions created or existing (i) on the date of this Agreement, (ii)
pursuant to this Agreement, the CDH Guarantee or either Borrower Indenture,
(iii) in connection with the Incurrence of any Debt permitted under clauses
(iii) and (vii) of subsection 7.3(b) hereof; provided that such encumbrances or
restrictions are required in order to effect such financing and are not
materially more restrictive, taken as a whole, on the ability of the applicable
Subsidiary to make the payments, distributions, loans, advances or transfers
referred to in clauses (a) through (d) above than encumbrances and restrictions,
taken as a whole, customarily accepted (or, in the absence of any industry
custom, reasonably acceptable) in substantially Non-Recourse financing, (iv) in
connection with the execution and delivery of an electric power or thermal
energy purchase contract to which such Subsidiary is the supplying party or
other contracts with customers, suppliers and contractors to which such
Subsidiary is a party and where such Subsidiary is engaged, directly or
indirectly, in the development, construction, acquisition or operation of a
Power Generation Facility; provided that such encumbrances or restrictions are
required in order to effect such contracts and are not materially more
restrictive, taken as a whole, on the ability of the applicable Subsidiary to
make the payments, distributions, loans, advances or transfers referred to in
clauses (a) through (d) above than encumbrances and restrictions, taken as a
whole, customarily accepted (or, in the absence of any industry custom,
reasonably acceptable) in comparable transactions, (v) in connection with any
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Debt of a Person outstanding when such Person becomes a Subsidiary permitted
under clause (ix) of subsection 7.3(b); provided that such encumbrance or
restriction was not Incurred in contemplation of such Subsidiary becoming a
Subsidiary, (vi) in connection with the Incurrence of any Debt permitted under
clause (iv), (v), (vi), (viii) or (to the extent not covered by (iii) above)
(iii) of subsection 7.3(b) hereof; provided that such encumbrances or
restrictions taken as a whole are not materially more restrictive on the ability
of the applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (a) through (d) above than those,
taken as a whole, customarily accepted (or, in the absence of any industry
custom, reasonably acceptable) in comparable financing transactions of the same
nature as the Debt being Incurred, (vii) customary non-assignment provisions in
leases or other contracts entered into in the ordinary course of business of the
Borrower or any Subsidiary and (viii) any restrictions imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of any Subsidiary or Joint Venture that apply
pending the closing of such sale or disposition.
7.6 Restrictions on Dispositions. Subject to the provisions of
subsections 7.9 and 7.10, the Borrower will not make and will not permit any of
its Subsidiaries to make, any Asset Disposition unless the Borrower (or the
Subsidiary, as the case may be) receives, at the time of such Asset Disposition,
consideration with a Fair Market Value at least equal to the Fair Market Value
of the securities, assets or other Property sold or otherwise disposed of. In
determining the Fair Market Value of the consideration received for any Asset
Disposition, in addition to any other adjustment necessary to determine such
consideration's Fair Market Value, any payment or other amount that is to be
received after the date of such Asset Disposition (whether paid pursuant to a
note or installment receivable or otherwise or in the form of a dividend or
distribution on any shares of any Person's Capital Stock) shall be valued at the
net present value of such payment or other amount calculated by discounting such
payment or other amount to the date of such Asset Disposition using an assumed
discount rate proposed by the Borrower and reasonably acceptable to the Agent.
7.7 Limitations on Transactions with Affiliates. The Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction after the date of this Agreement
(including, without limitation, the sale, purchase or lease of any assets or
properties or the rendering of any services) involving aggregate consideration
with respect to such transaction in excess of $1 million with any Affiliate or
holder of 5% or more of any class of Capital Stock of the Borrower except for
transactions (including, subject to subsection 7.4, any loans or advances by or
to, or guarantee on behalf of, any Affiliate or holder) made in good faith the
terms of which are fair and reasonable to the Borrower or such Subsidiary, as
the case may be, and are at least as favorable as the terms which could be
obtained by the Borrower or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis with Persons who are not such a holder
or Affiliate; provided that the fairness, reasonableness and arm's-length nature
of the terms of any transaction which is part of a series of related
transactions may be determined on the basis of the terms of the series of
related transactions taken as a whole. This covenant shall not apply to (a) the
payment of reasonable and customary regular fees to directors of the Borrower or
a Subsidiary of the
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Borrower (including directors who are employees), (b) any transaction between
the Borrower and any of its Subsidiaries the terms of which are not unfair or
unreasonable to the Borrower, (c) any Permitted Payment, and any Restricted
Payment not otherwise prohibited by subsection 7.4 or (d) equipment and real
property lease transactions with and loans to Equipment Leasing Partners, a
North Carolina general partnership, outstanding on the date of this Agreement,
indebtedness of the shareholders of the Borrower outstanding on the date of this
Agreement and the agreements between the Borrower and George T. Lewis, Jr.,
David J. Lewis and Robert W. Lewis, in each case as in effect on the date of
this Agreement.
7.8 Limitations on Liens. The Borrower may not Incur any Debt
which is secured, directly or indirectly, with, nor will the Borrower grant or
cause or suffer to exist, a Lien on the Property of the Borrower now owned or
hereafter acquired unless contemporaneous therewith or prior thereto the
Obligations are equally and ratably secured thereof except for (a) any such Debt
secured by Liens existing on the assets of any entity at the time such assets
are acquired by the Borrower, whether by merger, consolidation, purchase of
assets or otherwise; provided that such Liens (x) are not created, incurred or
assumed in contemplation of such assets being acquired by the Borrower and (y)
do not extend to any other Property of the Borrower; (b) Liens granted to secure
any other Debt required by its terms to be equally and ratably secured as a
result of the Incurrence of such Debt; (c) Liens on the Borrower's interests in
Subsidiaries and Joint Ventures in which the Borrower is a partner, shareholder,
member or other participant, which Liens are granted in good faith in connection
with the acquisition of such assets or as part of the financing of a Power
Generation Facility; provided that such Liens are required in order to effect
such financing and are not materially more restrictive, taken as a whole, than
Liens, taken as a whole, customarily accepted (or in the absence of any industry
custom, reasonably acceptable) in substantially Non-Recourse project financing;
(d) Liens on the stock or partnership interest of Subsidiaries and interests in
Joint Ventures in which the Borrower becomes a partner, shareholder, member or
other participant which Liens are granted in good faith as part of a project
financing or the development of a project; provided that such Liens are required
in order to effect such transaction and are not materially more restrictive,
taken as a whole, than Liens, taken as a whole, customarily accepted (or in the
absence of any industry custom, reasonably acceptable) in substantially
Non-Recourse project financing; (e) Liens in existence on the date of this
Agreement or established pursuant to this Agreement; (f) purchase money Liens
incurred to secure Debt incurred by the Borrower as permitted by subsection 7.2,
which Debt finances the purchase price of Property acquired in the ordinary
course of business, and which Liens will not cover any Property other than that
being purchased, improved or constructed; (g) [intentionally omitted]; (h) Liens
incurred in connection with Capitalized Lease Obligations incurred by the
Borrower as permitted by subsection 7.2; (i) Liens in respect of extensions,
renewals, refunding or Refinancing of any Debt secured by the Liens referred to
in clauses (a), (b), (c), (d), (e), (f) or (h) above, provided that the Liens in
connection with such renewal, extension, refunding or Refinancing shall be
limited to all or part of the specific Property which was subject to the
original Lien; (j) any Lien arising by reason of (A) any judgment, decree or
order or any court, so long as such Lien is being contested in good faith and is
adequately bonded, and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment, decree or order shall not have
been finally terminated or the period within which such proceedings may be
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initiated shall not have expired, (B) taxes not yet delinquent or which are
being contested in good faith, (C) security for payment of worker's compensation
or other insurance, (D) security for the performance of tenders, contracts
(other than contracts for the payment of money) or leases, (E) deposits to
secure public or statutory obligations, or to secure permitted contracts for the
purchase or sale of any currency entered into in the ordinary course of
business, (F) operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business for sums which are not yet delinquent or which are
being contested in good faith by negotiations or by appropriate proceedings
which suspend the collection thereof, (G) easements, rights-of-way, zoning and
similar covenants and restrictions and other similar encumbrances or title
defects which, in the aggregate, are not material, and which do not in any case
materially detract from the value of the Property subject thereto or materially
interfere with the ordinary conduct of the business of the Borrower or (H)
leases and subleases of property which do not interfere with the ordinary
conduct of the business of the Borrower, and which are made on customary and
usual terms applicable to similar properties; or (I) Liens in addition to the
foregoing, provided that the amount of the obligations secured by such Liens
does not exceed in the aggregate $1 million.
7.9 Limitations on Mergers, Consolidations, Sales or Transfers of
Assets by or Involving Borrower. The Borrower shall not consolidate with, merge
with or into, or transfer all or substantially all of its assets (as an entirety
or substantially an entirety in one transaction or a series of related
transactions), to any Person unless:
(a) the Borrower shall be the continuing Person, or the Person
(if other than the Borrower) formed by such consolidation or into
which the Borrower is merged or to which properties and assets of the
Borrower are transferred shall be a corporation organized and existing
under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume in a writing
acceptable to the Lenders all of the Obligations of the Borrower;
(b) immediately after giving effect to such transaction no Event
of Default or event or condition which through the giving of notice or
lapse of time or both would become an Event of Default shall have
occurred and be continuing;
(c) the Net Worth of the Borrower or the surviving entity, as the
case may be, on a pro forma basis after giving effect to such
transaction is not less than the Net Worth of the Borrower immediately
prior to such transaction; and
(d) immediately after giving effect to such transaction on a pro
forma basis, the Borrower or the surviving entity would be able to
incur at least $1 of Debt under subsection 7.2(a).
7.10 Limitations on Certain Mergers, Consolidations and
Investments by Subsidiaries. Without the prior written consent of the Required
Lenders (which shall not be unreasonably withheld), the Borrower shall not
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permit any Subsidiary with any direct or indirect interest in (a) a Power
Generation Facility to make any Investment in, or to consolidate or merge with,
any other Person with a direct or indirect interest in any other Power
Generation Facility or any unrelated business or (b) any unrelated business to
make any Investment in, or to consolidate or merge with, any other Person with a
direct or indirect interest in any Power Generation Facility; provided, that to
the extent otherwise permitted under this Agreement and the other Loan Documents
(i) Cogentrix Virginia Leasing Corporation and James River Cogeneration Company
may each make Investments in and consolidate or merge with each other and (ii)
CDH, Cogentrix International Holdings, Inc., Cogentrix International Ltd., and
Cogentrix International Holdings, B.V. may each make any Investment in any
Person.
7.11 CDH Permitted Investments. Notwithstanding any other
provision of this Agreement, the Borrower shall not make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other Investment in, any Person, other than (i) Investments
in any Subsidiary of the Borrower (or any Person that will become a Subsidiary
of the Borrower as a result of such Investment) otherwise permitted hereunder
(including, without limitation, subsection 7.4) and under the other Loan
Documents and (ii) CDH Permitted Investments; provided, that so long as the
total of the aggregate amount of CDH Permitted Investments owned by the Borrower
plus the aggregate amount of CDH Permitted Investments owned by CDH (exclusive
of, in the case of both the Borrower and CDH, any CDH Permitted Investments
subject to or otherwise covered by any Lien other than the Lien created under
this Agreement in the Collateral Account) shall have a value of $50 million or
more, the Borrower may make any Investment that the Borrower is otherwise
permitted to make hereunder (including, without limitation, subsection 7.4) and
under the other Loan Documents.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay when due any principal of any
Revolving Credit Loan or any Reimbursement Obligation in accordance
with the terms hereof; or the Borrower shall fail to make in full any
deposit required to be made hereunder into the Collateral Account on
the day such deposit is due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Revolving Credit
Loan, or any fee or other amount payable hereunder or under any other
Loan Document (including, without limitation, any Commitment Fee,
Administration Fee, Fronting Fee or Letter of Credit Fee), when due in
accordance with the terms hereof, and such interest or fee or other
amount shall remain unpaid for a period of five or more Business Days
after notice to the Borrower by the party to whom such payment was due
(or by the Agent on behalf of such party); or
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(b) Any representation or warranty made or deemed made by any
Loan Party herein, the CDH Guarantee or in any other Loan Document or
which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this
Agreement, the CDH Guarantee or any other Loan Document shall prove to
have been false or misleading as of the time made or furnished in any
material respect and either such false or misleading representation or
warranty (i) has resulted in a Material Adverse Effect or (ii) could
reasonably be expected to result in a Material Adverse Effect; or
(c) The Borrower shall default in the observance or performance
of any covenant contained in subsection 7.1, 7.9 or 7.10; or the
Borrower shall default in the observance or performance of any other
covenant contained in Section 7 or CDH shall default in the observance
or performance of any covenant in Section 10 of the CDH Guarantee, and
in either case such default shall continue unremedied for a period of
10 days after the earlier to occur of (i) the date the Agent shall
have provided notice to the Borrower of such default and (ii) the date
a Responsible Officer of the Borrower shall have learned or reasonably
should have learned of such default; or
(d) The Borrower shall default in the observance or performance
of any other covenant contained in this Agreement (other than as
provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 Business Days
after notice to the Borrower by the Agent of such default; or
(e) The Borrower or CDH shall (i) default in any payment of
principal of or interest on any Debt (other than the Revolving Credit
Loans) or in the payment of any Guarantee Obligation, beyond the
period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Debt or Guarantee Obligation
was created and such default permits the holder or holders of such
Debt or beneficiary or beneficiaries of such Guarantee Obligation (or
a trustee or agent on behalf of such holder or holders or beneficiary
or beneficiaries) to cause, with the giving of notice if required,
such Debt to become due prior to its stated maturity or such Guarantee
Obligation to become payable; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Debt or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause such Debt to become due prior to its
stated maturity or such Guarantee Obligation to become payable;
provided, however, that no Default or Event of Default shall exist
under this paragraph unless the aggregate amount of Debt and/or
Guarantee Obligations in respect of which any default or other event
or condition referred to in this paragraph shall have occurred shall
be equal to at least $5 million; or
(f) (i) The Borrower or CDH shall commence any case, proceeding
or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
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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, conservator or other similar official
for it or for all or any substantial part of its assets, or the
Borrower or CDH shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or
CDH any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall
be commenced against the Borrower or CDH any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or CDH shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower or CDH
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate
for purposes of Title IV of ERISA, (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could reasonably be expected to have a
Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any Significant Subsidiary involving in the aggregate a
liability (not paid or fully covered by insurance) of $3 million or
more, and all such judgments or decrees shall not have been vacated,
satisfied, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; provided, that no Default or Event of Default
shall exist under this paragraph (h) as a result of any such judgment
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or decree if such judgment or decree is not against the Borrower and
the Borrower is not liable, by contract or otherwise, to make any
payment in respect of such judgment or decree; or
(i) (i) The CDH Guarantee shall cease, for any reason, to be in
full force and effect or CDH shall so assert or (ii) CDH shall fail,
at any time, to be a direct Wholly-Owned Subsidiary of the Borrower;
or
(j) (i) Any Person not a Permitted Holder, or any "group" (within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) not composed entirely of Permitted Holders, (A)
shall have acquired beneficial ownership of more than 50% of any
outstanding class of Capital Stock having ordinary voting power in the
election of directors of the Borrower or (B) shall obtain the power
(whether or not exercised) to elect a majority of the Borrower's
directors or (ii) during any period of twelve consecutive calendar
months, individuals who were either (x) directors of the Borrower on
the first day of such period (or who were appointed or nominated for
election as directors of the Borrower by at least a majority of the
individuals who were directors of the Borrower on the first day of
such period) or (y) appointed directors to replace directors removed
solely as a result of death or mental or physical disability, shall
cease to constitute a majority of the Board of Directors;
(k) an event of default, as defined in any indenture or
instrument evidencing or under which any Significant Subsidiary has at
the date of this Agreement or shall hereafter have outstanding any
Debt, shall happen and be continuing and either (i) such default
results from the failure to pay principal of such Debt in excess of
$10 million at final maturity of such Debt or (ii) as a result of such
default, the maturity of such Debt shall have been accelerated so that
the same shall be or become due and payable prior to the date on which
the same would otherwise have become due and payable, and such
acceleration shall not be rescinded or annulled within 30 days and the
principal amount of such Debt of any Significant Subsidiary in
default, or the maturity of which has been accelerated aggregates $10
million or more; provided that such default shall not be an Event of
Default if such Debt is Non-Recourse to the Borrower in respect of the
amounts not paid or due upon acceleration and the Borrower could, at
the time of default, Incur at least $1 of Debt under subsection
7.2(a); or
(l) any of the Security Documents shall cease, for any reason
after the execution and delivery thereof, to be in full force and
effect (other than as a result of the expiration or termination of
such Security Document in accordance with its terms), or any Loan
Party shall so assert, or any Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and
priority purported to be created thereby (other than as a result of
the expiration or termination of such Security Document in accordance
with its terms);
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
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Revolving Credit Loans hereunder (with accrued interest thereon), the Notes and
all other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Required Lenders, the Agent may, or upon the
request of the Required Lenders, the Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) with the consent of the Required Lenders,
the Agent may, or upon the request of the Required Lenders, the Agent shall, by
notice to the Borrower, declare the Revolving Credit Loans hereunder (with
accrued interest thereon), the Notes and all other amounts owing under this
Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
the Collateral Account an amount equal to the aggregate then undrawn and
unexpired amount of such Letters of Credit, to be held, applied or released for
application as Collateral as provided in subsection 3.9.
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENT
9.1 Appointment. Each Lender and the Issuing Bank hereby
irrevocably designates and appoints the Agent as the agent of such Lender and
the Issuing Bank under this Agreement and the other Loan Documents, and each
such Lender and the Issuing Bank irrevocably authorizes the Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender or the Issuing Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent.
9.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
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negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders or the Issuing Bank for any
recitals, statements, representations or warranties made by the Borrower or any
officer thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender or the
Issuing Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Borrower.
9.4 Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Loan Documents
in accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders, the Issuing Bank and all future holders of the Revolving Credit Loans.
9.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender, the Issuing Bank
or the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
the Agent receives such a notice, the Agent shall give notice thereof to the
Lenders and the Issuing Bank. The Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
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<PAGE> 80
Lenders; provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders and the
Issuing Bank.
9.6 Non-Reliance on Agent and Other Lenders. Each Lender and the
Issuing Bank expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender or the
Issuing Bank. Each Lender and the Issuing Bank represents to the Agent that it
has, independently and without reliance upon the Agent or any other Lender or
the Issuing Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Revolving Credit Loans hereunder
and enter into this Agreement. Each Lender and the Issuing Bank also represents
that it will, independently and without reliance upon the Agent or any other
Lender or the Issuing Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders and the
Issuing Bank by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender or the Issuing Bank with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Borrower which
may come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which indemnification
is sought, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Revolving Credit Loans) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this subsection shall survive the termination of this Agreement
and payment of the Notes, the Revolving Credit Loans and all other Obligations.
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<PAGE> 81
9.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the Agent
hereunder and under the other Loan Documents. With respect to the Revolving
Credit Loans made by it and any Note issued to it and with respect to any Letter
of Credit issued or participated in by it, the Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not the Agent, and the terms "Lender"
and "Lenders" shall include the Agent in its individual capacity.
9.9 Successor Agent. The Agent may resign as Agent upon 10 days'
notice to the Lenders and the Issuing Bank. If the Agent shall resign as Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders and the
Issuing Bank, which successor agent (provided that it shall have been approved
by the Borrower), shall succeed to the rights, powers and duties of the Agent
hereunder. Effective upon such appointment and approval, the term "Agent" shall
mean such successor agent, and the former Agent's rights, powers and duties as
Agent shall be terminated, without any other or further act or deed on the part
of such former Agent or any of the parties to this Agreement or any holders of
the Revolving Credit Loans. After any retiring Agent's resignation as Agent, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
9.10 Lead Arrangers. None of the Lead Arrangers shall have any
duties or responsibilities hereunder or under any other Loan Document in its
capacity as such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement nor any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Agent may, from time to time, (a) enter into with the Borrower written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Borrower
hereunder or thereunder or (b) waive, on such terms and conditions as the
Required Lenders or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of maturity of any
Revolving Credit Loan or reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof or increase the
amount or extend the expiration date of any Commitment of any Lender, in each
case without the consent of each Lender affected thereby, or (ii) amend, modify
or waive any provision of this subsection or reduce the percentage specified in
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<PAGE> 82
the definition of Required Lenders or Majority Lenders, or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, in each case without the
written consent of all the Lenders, or (iii) amend, modify or waive any
provision of Section 9 without the written consent of the Agent. Any such waiver
and any such amendment, supplement or modification shall apply equally to each
of the Lenders and shall be binding upon the Borrower, the Lenders, the Lead
Arrangers, the Issuing Bank, the Agent and all future holders of the Revolving
Credit Loans. In the case of any waiver, the Borrower, the Lenders, the Lead
Arrangers, and the Agent shall be restored to their former positions and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon. Notwithstanding any provision of this Agreement
(including, without limitation, any provision of this subsection 10.1), the
provisions of this subsection 10.1 shall not apply to any amendment, supplement,
modification, or waiver with respect to the Fee Letter, and the Fee Letter and
any term thereof may be amended, supplemented or modified, and any requirement
or other provision thereof may be waived, as permitted under the Fee Letter
without meeting any requirement (including, without limitation, any requirement
to obtain the agreement or consent of any Person) other than as may be imposed
by the Fee Letter.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and delivered by hand or courier or sent by certified
mail or facsimile transmission and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made (a) in the case of delivery by
hand or courier, when delivered, (b) in the case of delivery by certified mail,
three Business Days after being deposited in the mails, postage prepaid, or (c)
in the case of delivery by facsimile transmission, when sent and receipt has
been confirmed, addressed as follows in the case of the Borrower, the Issuing
Bank and the Agent, and as set forth in Schedule I in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273-8110
Attention: Chief Financial Officer
with copy to General Counsel
Fax: 704-529-1006
The Agent and the
Issuing Bank: Australia and New Zealand Banking Group Limited
1177 Avenue of the Americas
New York, New York 10036-2798
Attention: Geoffrey Pack/Elizabeth M. Waters
Fax: 212-801-9131
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provided that any notice, request or demand to or upon the Agent, the Issuing
Bank or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.7, 2.12, 2.19 or 3.2
shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties; Survival of
Certain Agreements and Covenants. All representations and warranties made
hereunder, in the other Loan Documents and in any document, certificate or
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the Revolving Credit
Loans hereunder. To the extent provided in such subsections, the agreements and
covenants in subsections 2.14, 2.15(a), 2.16, 6.9, 9.7 and 10.5 shall survive
the termination of this Agreement and the payment of the Notes, the Revolving
Credit Loans and all other Obligations.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agent and the Lead Arrangers for all their reasonable
out-of-pocket costs and expenses incurred in connection with the syndication of
the Commitments and the Revolving Credit Loans, including, without limitation,
all such expenses relating to the preparation and distribution of information
memoranda relating thereto, the hosting of meetings of prospective Lenders and
the promotion and advertising of the syndication, (b) to pay or reimburse the
Agent for all its out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, and, in the case of the Agent,
any amendment, supplement or modification to, or waiver or consent under or in
respect of, this Agreement and the other Loan Documents and any other documents
prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent, (c) to pay or reimburse each Lender, the Issuing Bank and the Agent for
all its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the fees and
disbursements of counsel (including without limitation the allocated fees and
expenses of in-house counsel, if applicable) to each Lender and of counsel to
the Agent and (d) to pay, indemnify, and hold each Lender, the Issuing Bank and
the Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents. The
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agreements in this subsection 10.5 shall survive the termination of this
Agreement and the payment of the Notes, the Revolving Credit Loans and all other
Obligations.
10.6 Successors and Assigns; Participations and Assignments. This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Issuing Bank, the Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender and the Issuing Bank (except as otherwise may be permitted by subsection
7.9).
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Revolving Credit Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Revolving Credit Loan for all purposes under this Agreement and the
other Loan Documents, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. No Lender shall
be entitled to create in favor of any Participant, in the participation
agreement pursuant to which such Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any matter
relating to this Agreement or any other Loan Document except for those specified
in clauses (i) and (ii) of the proviso to subsection 10.1. The Borrower agrees
that if amounts outstanding under this Agreement are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in subsection 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.14, 2.15 and 2.16 with respect to its
participation in the Commitments and the Revolving Credit Loans outstanding from
time to time as if it was a Lender; provided that, in the case of subsection
2.15, such Participant shall have complied with the requirements of said
subsection and provided, further, that no Participant shall be entitled to
receive any greater amount pursuant to any such subsection than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the consent
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of the Borrower and the Agent (which in each case shall not be unreasonably
withheld), to an additional bank or financial institution (an "Assignee") all or
any part of its rights and obligations under this Agreement and the other Loan
Documents pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit G, executed by such Assignee, such assigning Lender (and, in the case of
an Assignee that is not then a Lender or an affiliate thereof, by the Borrower
and the Agent) and delivered to the Agent for its acceptance and recording in
the Register, provided that, in the case of any such assignment to an additional
bank or financial institution, the sum of the aggregate principal amount of the
Revolving Credit Loans, the aggregate amount of the L/C Obligations and the
aggregate amount of the unused Available Commitment being assigned is not less
than $10 million (or such lesser amount as may be agreed to by the Borrower and
the Agent). Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment and Commitment Percentage as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto).
(d) The Agent, on behalf of the Borrower, shall maintain at the
address of the Agent referred to in subsection 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amounts of the Revolving Credit Loans owing to, each Lender from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Agent and the Lenders may (and, in the
case of any Revolving Credit Loan or other obligation hereunder not evidenced by
a Note, shall) treat each Person whose name is recorded in the Register as the
owner of a Revolving Credit Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Revolving
Credit Loan or other obligation hereunder not evidenced by a Note shall be
effective only upon appropriate entries with respect thereto being made in the
Register.
(e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent) together
with payment to the Agent of a registration and processing fee of $2,500, the
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
subject to the provisions of subsection 10.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which has
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been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Revolving Credit Loans and Notes relate only to absolute assignments and that
such provisions do not prohibit assignments creating security interests,
including, without limitation, any pledge or assignment by a Lender of any
Revolving Credit Loan or Note to any Federal Reserve Bank in accordance with
applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of its Revolving
Credit Loans or the Reimbursement Obligations owing to it, or interest thereon,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8, or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in respect of
such other Lender's Revolving Credit Loans or the Reimbursement Obligations
owing to it, or interest thereon, such benefitted Lender shall purchase for cash
from the other Lenders a participating interest in such portion of each such
other Lender's Revolving Credit Loan or the Reimbursement Obligations owing to
it, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. Each Lender agrees
promptly to notify the Borrower and the Agent after any such set-off and
application made by such Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
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together shall be deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any
judgement in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 10.2
or at such other address of which the Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
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(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
10.13 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each Lender agrees to keep confidential
all non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower in writing as confidential;
provided that nothing herein shall prevent any Lender from disclosing any such
information (i) to the Agent or any other Lender, (ii) to any Transferee which
receives such information having been made aware of the confidential nature
thereof, (iii) to its employees, directors, agents, attorneys, accountants and
other professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over such Lender, (v) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (vi) which has been publicly disclosed other
than in breach of this Agreement, or (vii) in connection with the exercise of
any remedy hereunder.
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10.16 Rank. The parties hereto, for their own benefit and not for
the benefit of or for the purpose of creating any duty, obligation or liability
to any other Person (including, without limitation, any party to the Borrower
Indenture or any holder of any Borrower Indenture Security), specifically
designate that the Extensions of Credit made by the Lenders and the Issuing Bank
to the Borrower under this Agreement are neither senior nor subordinate to the
Borrower Indenture Securities in right of payment, except to the extent that the
Extensions of Credit are senior to the Borrower Indenture Securities as a result
of the Liens granted by CDH to the Agent pursuant to the Security Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
COGENTRIX ENERGY, INC.
By: /s/ THOMAS F. SCHWARTZ
--------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President-Finance
and Treasurer
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED,
as Agent, as a Lead Arranger, as the
Issuing Bank and as a Lender
By: /s/ GEOFFREY PACK
----------------------
Name: Geoffrey Pack
Title: Senior Vice President
THE BANK OF NOVA SCOTIA,
as a Lead Arranger and a Lender
By: /s/ PAMELA MCDOUGALL
-------------------------
Name: Pamela McDougall
Title: Relationship Manager
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CIBC OPPENHEIMER CORPORATION,
as a Lead Arranger
By: /s/ DENIS O'MEARA
--------------------------
Name: Denis O'Meara
Title: Executive Director
By:
--------------------------
Name:
Title:
CIBC INC.,
as a Lender
By: /s/ DENIS O'MEARA
--------------------------
Name: Denis O'Meara
Title: Executive Director
By:
--------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH,
as a Lender
By: /s/ ROBERT PREMINGER
-------------------------
Name: Robert Preminger
Title: Assistant Treasurer
By: /s/ HENRY J. KARSCH, JR.
-----------------------------
Name: Henry J. Karsch, Jr.
Title: Assistant Treasurer
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THE ROYAL BANK OF SCOTLAND PLC,
as a Lender
By: /s/ SCOTT BARTON
-------------------------
Name: Scott Barton
Title: Vice President
By:
-------------------------
Name:
Title:
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Schedule I to
Credit Agreement
----------------
LENDERS' COMMITMENTS
AND ADDRESSES FOR NOTICES
-------------------------
COMMITMENT
LENDER PERCENTAGE COMMITMENT
- ------ ---------- ----------
AUSTRALIA AND NEW ZEALAND BANKING GROUP 30.000% $30,000,000
LIMITED
ADDRESS FOR NOTICES:
1177 Avenue of the Americas
New York, NY 10036-2798
Attention: Geoffrey Pack/
Elizabeth Waters
Telephone: 212-801-9713/212-801-9794
Telecopier: 212-801-9131
THE BANK OF NOVA SCOTIA 25.000% $25,000,000
ADDRESS FOR NOTICES:
One Liberty Plaza
New York, NY 10006
Attention: Pamela McDougall/
Roger Abustan
Telephone: 212-225-5073/212-225-5082
Telecopier: 212-225-5090/212-225-5145
CIBC INC. 25.000% $25,000,000
ADDRESS FOR NOTICES:
425 Lexington Avenue
New York, NY 10017
Attention: Denis O'Meara
Telephone: 212-856-3758
Telecopier: 212-856-3991
with a copy to:
CIBC, Inc.
2 Paces West
2727 Paces Ferry Rd., Suite 1200
Atlanta, Georgia 30339
Attention: Patrice Kellaher
Telephone: 770-319-4832
Telecopier: 770-319-4950
DRESDNER BANK AG, NEW YORK BRANCH 10.000% $10,000,000
ADDRESS FOR NOTICES:
North America LLC
75 Wall Street
New York, NY 10005-2888
Attention: Andrew Schroeder
Robert Preminger
Telephone: 212-429-2203/212-429-2752
Telecopier: 212-429-2081
THE ROYAL BANK OF SCOTLAND 10.000% $10,000,000.00
ADDRESS FOR NOTICES:
Wall Street Plaza
New York, NY 10005
Attention: Siobhan Smyth
Telephone: 212-269-1717
Telecopier: 212-480-0791
<PAGE> 94
Schedule II to
Credit Agreement
----------------
REVOLVING CREDIT FACILITY
APPLICABLE MARGIN
-----------------
STATUS: LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
Commitment Fee: 0.45% 0.50% 0.60 % 0.70% 0.80 %
Eurodollar Loans: 1.25% 1.50% 1.875% 2.25% 2.625%
ABR Loans: 0.60% 0.85% 1.225% 1.60% 1.975%
Financial Letters
of Credit: 1.25% 1.50% 1.875% 2.25% 2.625%
Performance Letters
of Credit: 1.05% 1.30% 1.675% 2.05% 2.425%
For purposes of this Schedule, capitalized terms shall have the meanings
assigned to them in the Credit Agreement (as amended from time to time) to which
this Schedule is appended, provided that the following terms shall have the
following meanings:
"Level 1 Status" exists at any date if, at such date, the Borrower Indenture
Securities are rated BBB- or higher by S&P and Baa3 or higher by Moody's.
"Level 2 Status" exists at any date if, at such date, (i) the Borrower Indenture
Securities are rated BB+ or higher by S&P and Ba1 or higher by Moody's and (ii)
Level 1 Status does not exist.
"Level 3 Status" exists at any date if, at such date, (i) the Borrower Indenture
Securities are rated BB or higher by S&P and Ba2 or higher by Moody's and (ii)
neither Level 1 Status nor Level 2 Status exists.
"Level 4 Status" exists at any date if, at such date, (i) the Borrower Indenture
Securities are rated BB- or higher by S&P and Ba3 or higher by Moody's and (ii)
none of Level 1 Status, Level 2 Status nor Level 3 Status exists.
"Level 5 Status" exists at any date if, at such date, no other Status exists or
the Borrower Indenture Securities are not rated by both S&P and Moody's or no
Borrower Indenture Securities are outstanding.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Rating Group.
"Status" refers to the determination which of Level 1 Status, Level 2 Status,
Level 3 Status, Level 4 Status or Level 5 Status exists at any date. For
purposes of this determination, the credit rating in effect at any date is that
in effect at the close of business on such date.
<PAGE> 1
Exhibit No. 10.130
AMENDED AND RESTATED GUARANTEE
AMENDED AND RESTATED GUARANTEE, dated as of October 29, 1998, made by
COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation (the "Guarantor"), in
favor of the Borrower Creditors (as defined below).
WHEREAS, it was a condition precedent to the obligation of the
Existing Lenders and the Issuing Bank to make their respective Extensions of
Credit under the Existing Credit Agreement that the Guarantor shall have
executed and delivered the Guarantee, dated as of May 22, 1997 (the "Existing
Guarantee"), in favor of the Borrower Creditors;
WHEREAS, the Borrower and the Existing Lenders desire to amend and
restate the Existing Credit Agreement in its entirety;
WHEREAS, it is a condition precedent to the obligation of the Lenders
and the Issuing Bank to make their respective Extensions of Credit under the
Credit Agreement that the Guarantor shall have amended and restated the Existing
Guarantee;
NOW, THEREFORE, in consideration of the premises and to induce the
Agent, the Issuing Bank and the Lenders to enter into the Credit Agreement and
to induce the Lenders and the Issuing Bank to make their respective Extensions
of Credit to the Borrower under the Credit Agreement, the Guarantor hereby
agrees to amend and restate the Existing Gurantee in its entirety to read as
follows:
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated
as of October 29, 1998 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among (i) Cogentrix Energy, Inc. (the
"Borrower"), (ii) the lenders from time to time parties thereto (the "Lenders"),
(iii) Australia and New Zealand Banking Group Limited and certain other banks
and financial institutions, as the lead arrangers (the "Lead Arrangers") and
(iv) Australia and New Zealand Banking Group Limited, as the issuing bank
thereunder (in such capacity, the "Issuing Bank") and as agent for the Lenders
(in such capacity, the "Agent"), the Lenders have severally agreed to make
certain loans to the Borrower (the "Loans") and the Issuing Bank has agreed to
issue certain letters of credit for the account of the Borrower (the "Letters of
Credit"; the Loans and the Letters of Credit, collectively, the "Extensions of
Credit") upon the terms and subject to the conditions set forth therein, the
<PAGE> 2
Loans to be evidenced by certain notes issued by the Borrower under the Credit
Agreement;
WHEREAS, the Borrower owns directly all of the issued and outstanding
stock of the Guarantor;
WHEREAS, the proceeds of the Loans will be used in part to enable the
Borrower to make valuable transfers (as determined as provided herein) to the
Guarantor in connection with the operation of its business;
WHEREAS, the Guarantor will derive substantial direct and indirect
benefit from the making of the Extensions of Credit; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
and the Issuing Bank to make their respective Extensions of Credit under the
Credit Agreement that the Guarantor shall have executed and delivered this
Guarantee.
NOW, THEREFORE, in consideration of the premises and to induce the
Agent, the Issuing Bank, the Lead Arrangers and the Lenders to enter into the
Credit Agreement and to induce the Lenders and the Issuing Bank to make their
respective Extensions of Credit to the Borrower under the Credit Agreement, the
Guarantor hereby agrees as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) As used herein, the following terms shall have the following
meanings:
"Borrower Creditors": the collective reference to the Credit Agreement
Creditors, the Trustees, the Holders, the holders of Other Indebtedness and
their respective successors, indorsees, transferees and assigns.
"CDH Permitted Investments":
(i)(A) commercial paper of issuers organized under the laws of any
state of the United States of America rated at least "A-1" by Standard and
Poor's Rating Group ("S&P") and "Prime-1" by Moody's Investors Service,
Inc. ("Moody's");
(B) marketable direct obligations of the United States of America with
maturities of three years or less from the date of acquisition;
(C) marketable obligations directly and fully guaranteed as to
interest and principal by the United States of America with maturities of
three years or less from the date of acquisition;
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<PAGE> 3
(D) demand deposits with the Agent, and time deposits, certificates of
deposit and banker's acceptances issued by (1) the Agent or (2) any member
bank of the Federal Reserve System which is organized under the laws of the
United States of America or any state thereof or any United States branch
of a foreign bank, in each case whose long-term debt securities are rated
"A" or better by S&P and "A2" or better by Moody's;
(E) obligations of the Agent, any bank described in clause (D) above
or any financial institution, in respect of the repurchase of obligations
of the type as described in clauses (B) and (C) above, provided that such
repurchase obligations shall be fully secured by obligations of the type
described in said clauses (B) and (C) and the possession of such
obligations shall be transferred to, and segregated from other obligations
owned by, the Agent, any such bank or such financial institution;
(F) eurodollar certificates of deposit issued by the Agent or any bank
described in clause (D) above;
(G) marketable asset-backed securities rated at least "AA" by S&P and
"Aa2" by Moody's;
(H) marketable debt obligations of the Federal National Mortgage
Association, the Government National Mortgage Association or the Federal
Home Loan Mortgage Association secured by a pool of mortgage loans with an
average life of three years or less from the date of acquisition and rated
at least "AA" by S&P and at least "Aa2" by Moody's; and
(I) corporate debt securities of issuers organized under the laws of
any state of the United States of America with maturities of three years or
less from the date of acquisition rated not less than "A" by S&P and "A2"
by Moody's;
provided, that for any of the securities of the types described in
subclauses (A), (B), (C), (D), (E), (F), (G), (H) or (I) above to be CDH
Permitted Investments in the hands of any Person (x) the weighted average
maturity from any date of the securities of such types owned on such date
by such Person shall not be more than one year; and (y) the value of the
securities of any single issuer rated less than "AAA" by S&P and "Aaa" by
Moody's (other than the United States of America or any agency thereof)
owned by such Person at any time shall not constitute more than 5% of the
value of all of the securities of such types owned by such Person at such
time; and
(ii) shares of money market mutual funds which invest exclusively in
assets satisfying the requirements of subclauses (A), (B), (C), (D) or (F)
of clause (i) of this definition; provided, that for any such shares of
such a fund to be CDH Permitted Investments in the hands of any Person, the
weighted average maturity from any date of the securities owned on such
date by such fund shall not be more than one year.
3
<PAGE> 4
"Credit Agreement Creditors": the collective reference to the Agent,
the Issuing Bank, the Lead Arrangers, and the Lenders.
"Credit Agreement Obligations": the collective reference to the unpaid
principal of and interest on the Notes issued by the Borrower under the
Credit Agreement and all other obligations and liabilities of the Borrower
in respect of the payment of any amount by the Borrower to, or deposit of
any amount by the Borrower with, the Credit Agreement Creditors or any of
them (including, without limitation, (i) interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of the
Loans and interest accruing at the then applicable rate provided in the
Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and (ii) the obligations of the
Borrower to make deposits into the Cash Collateral Account), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in connection with,
the Credit Agreement, the notes issued by the Borrower thereunder, the
Letters of Credit, or any other document made, delivered or given in
connection therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
the Agent, the Issuing Bank or to the Lenders that are required to be paid
by the Borrower or the Guarantor pursuant to the terms of the Credit
Agreement or this Guarantee).
"Guaranteed Obligations": the collective reference to (a) the Credit
Agreement Obligations, (b) the Indenture Obligations and (c) all Other
Indebtedness.
"Holders": the collective reference to the holders of the Borrower
Indenture Securities.
"Indenture Obligations": the collective reference to the unpaid
principal of and interest on the Borrower Indenture Securities and all
other obligations and liabilities of the Borrower in respect of the payment
of any amount by the Borrower to, or deposit of any amount by the Borrower
with either Trustee, or any of the Holders (including, without limitation,
(i) interest accruing at the then applicable rate provided in the
applicable Borrower Indenture after the maturity of any of the Borrower
Indenture Securities and interest accruing at the then applicable rate
provided in the applicable Borrower Indenture after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not
a claim for post-filing or post-petition interest is allowed in such
proceeding and (ii) any obligations of the Borrower to make deposits
pursuant to either Borrower Indenture into a "Sinking Fund" for the
retirement of the any of the Borrower Indenture Securities) whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in connection with,
either of the Borrower Indentures, any of the Borrower Indenture Securities
or any other document made, delivered or given in connection therewith,
4
<PAGE> 5
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to either Trustee or to any of the
Holders that are required to be paid by the Borrower or the Guarantor
pursuant to the terms of the either Borrower Indenture or this Guarantee).
"Other Indebtedness": any unsecured indebtedness of the Borrower for
borrowed money, other than indebtedness constituting a Credit Agreement
Obligation or Indenture Obligation, existing on the date hereof or
hereafter incurred by the Borrower, but only to the extent the Borrower is
permitted to Incur such indebtedness under the Borrower Indentures and the
Credit Agreement.
"Trustees": the collective reference to the 2004 Trustee and the 2008
Trustee.
"2004 Trustee": the trustee under the 2004 Senior Note Indenture.
"2008 Trustee": the trustee under the 2008 Senior Note Indenture.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) Subject to the provisions of paragraph 2(b), the
Guarantor hereby, unconditionally and irrevocably, guarantees to (i) the Agent,
for the ratable benefit of the Credit Agreement Creditors and their respective
successors, indorsees, transferees and assigns, the prompt and complete payment
(and performance, in the case of deposits) by the Borrower when due (whether at
the stated maturity, by acceleration or otherwise) of the Credit Agreement
Obligations, (ii) the 2004 Trustee, for the ratable benefit of the Holders of
the 2004 Senior Notes and their respective successors, indorsees, transferees
and assigns, the prompt and complete payment (and performance, in the case of
deposits) by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Indenture Obligations in respect of the 2004
Senior Notes, (iii) the 2008 Trustee, for the ratable benefit of the Holders of
the 2008 Senior Notes and their respective successors, indorsees, transferees
and assigns, the prompt and complete payment (and performance, in the case of
deposits) by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Indenture Obligations in respect of the 2008
Senior Notes and (iv) each holder of Other Indebtedness and such holder's
successors, indorsees, transferees and assigns, the prompt and complete payment
by the Borrower when due (whether at the stated maturity, by acceleration or
otherwise) of the Other Indebtedness owed to such holder.
(b) Anything herein or in the Credit Agreement, either of the
Borrower Indentures, any agreement in respect of Other Indebtedness or any other
5
<PAGE> 6
document to the contrary notwithstanding, (i) the maximum liability of the
Guarantor hereunder and under the Credit Agreement, the Borrower Indentures or
any agreement in respect of Other Indebtedness shall in no event exceed the
amount which can be guaranteed by the Guarantor under applicable federal and
state laws relating to the insolvency of debtors and (ii) the Guarantor shall
not be liable, on account of the Borrower's failure to pay or perform any
Guaranteed Obligation owed to any Borrower Creditor when due, to pay to such
Borrower Creditor any amount hereunder or under the Credit Agreement, the
Borrower Indentures or any agreement in respect of Other Indebtedness unless the
Guarantor shall have more than $150,000 in assets (other than assets
constituting Investments in Subsidiaries but including, without limitation, CDH
Permitted Investments) on the day that such failure occurred or thereafter.
(c) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by any Borrower Creditor in enforcing, or obtaining advice
of counsel in respect of, any rights with respect to, or collecting, any or all
of the Guaranteed Obligations and/or enforcing any rights with respect to, or
collecting against, the Guarantor under this Guarantee.
(d) No payment or payments made by the Borrower, the Guarantor,
any other guarantor or any other Person or received or collected by any Borrower
Creditor from the Borrower, the Guarantor, any other guarantor or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
any of the Guaranteed Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of the Guarantor hereunder which shall,
notwithstanding any such payment or payments other than payments made by the
Guarantor in respect of the Guaranteed Obligations or payments received or
collected from such Guarantor in respect of the Guaranteed Obligations, remain
liable for the Guaranteed Obligations up to the maximum liability of the
Guarantor hereunder.
3. Right of Set-off. The Guarantor hereby irrevocably authorizes
each Borrower Creditor at any time and from time to time without notice to the
Guarantor, any such notice being expressly waived by the Guarantor, to set-off
and appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Borrower Creditor to or for the credit or the account of the
Guarantor, or any part thereof in such amounts as such Borrower Creditor may
elect, against and on account of the obligations and liabilities of the
Guarantor to the Borrower Creditor hereunder, in any currency, whether arising
hereunder, under the Credit Agreement, either of the Borrower Indentures, any
note issued by the Borrower under the Credit Agreement or either of the Borrower
Indentures, any agreement in respect of Other Indebtedness or otherwise, as such
Borrower Creditor may elect, whether or not any Borrower Creditor has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Borrower Creditor shall notify the Guarantor
promptly of any such set-off and the application made by such Borrower Creditor,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Borrower Creditor under this
6
<PAGE> 7
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Borrower Creditor may have.
4. No Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder or any set-off or application of funds of any of the
Guarantor by any Borrower Creditor, the Guarantor shall not be entitled to be
subrogated to any of the rights of any Borrower Creditor against the Borrower or
any collateral security or guarantee or right of offset held by any Borrower
Creditor for the payment of any of the Guaranteed Obligations, nor shall the
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Borrower in respect of payments made by the Guarantor hereunder.
5. Amendments, etc. with respect to the Guaranteed Obligations;
Waiver of Rights. The Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against the Guarantor and without notice
to or further assent by the Guarantor, any demand for payment of any of the
Guaranteed Obligations made by any Borrower Creditor may be rescinded by such
party and any of the Guaranteed Obligations continued, and the Guaranteed
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
any Borrower Creditor, and the Credit Agreement, either of the Borrower
Indentures, any note issued by the Borrower under the Credit Agreement or either
of the Borrower Indentures, any agreement in respect of Other Indebtedness and
any other documents executed and delivered in connection with the Credit
Agreement, either of the Borrower Indentures, or any agreement in respect of
Other Indebtedness, may be amended, modified, supplemented or terminated, in
whole or in part, as the parties thereto may deem advisable from time to time,
and any collateral security, guarantee or right of offset at any time held by
any Borrower Creditor for the payment of any of the Guaranteed Obligations may
be sold, exchanged, waived, surrendered or released. When making any demand
hereunder against the Guarantor, a Borrower Creditor may, but shall be under no
obligation to, make a similar demand on the Borrower or any other guarantor, and
any failure by any Borrower Creditor to make any such demand or to collect any
payments from the Borrower or any such guarantor or any release of the Borrower
or such other guarantor shall not relieve the Guarantor of its obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of any Borrower Creditor against the
Guarantor. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. The Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by any Borrower
Creditor upon this Guarantee or acceptance of this Guarantee, the Guaranteed
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Guarantee (subject in each case to the right of the Guarantor and the
Agent to waive, amend, supplement and modify this Guarantee as provided in
paragraph 14(a) hereof and the termination of this Guarantee and the discharge
of the Guarantor's obligations hereunder as provided in Section 15); and all
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<PAGE> 8
dealings between the Borrower and the Guarantor, on the one hand, and any of the
Borrower Creditors, on the other hand, likewise shall be conclusively presumed
to have been had or consummated in reliance upon this Guarantee (subject in each
case to the right of the Guarantor and the Agent to waive, amend, supplement and
modify this Guarantee as provided in paragraph 14(a) hereof and the termination
of this Guarantee and the discharge of the Guarantor's obligations hereunder as
provided in Section 15). The Guarantor waives diligence, presentment, protest,
demand for payment and notice of default or nonpayment to or upon the Borrower
or the Guarantor with respect to any of the Guaranteed Obligations. The
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Credit Agreement, either
of the Borrower Indentures, any note issued by the Borrower under the Credit
Agreement either of the Borrower Indentures, any agreement in respect of any
Other Indebtedness, any of the Guaranteed Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by any Borrower Creditor, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Borrower against any
Borrower Creditor, or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or the Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Borrower for any of the Guaranteed Obligations, or of the Guarantor under this
Guarantee, in bankruptcy or in any other instance. When pursuing its rights and
remedies hereunder against the Guarantor, any Borrower Creditor may, but shall
be under no obligation to, pursue such rights and remedies as it may have
against the Borrower or any other Person or against any collateral security or
guarantee for any of the Guaranteed Obligations or any right of offset with
respect thereto, and any failure by any Borrower Creditor to pursue such other
rights or remedies or to collect any payments from the Borrower or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower or any such
other Person or any such collateral security, guarantee or right of offset,
shall not relieve the Guarantor of any liability hereunder, and shall not impair
or affect the rights and remedies, whether express, implied or available as a
matter of law, of any Borrower Creditor against the Guarantor.
7. Reinstatement. This Guarantee shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be
restored or returned by any Borrower Creditor upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or the Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or the Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
8. Payments. The Guarantor hereby guarantees to each of the
Credit Agreement Creditors that payments hereunder in respect of the Credit
Agreement Obligations will be paid to the Agent without set-off or counterclaim
in U.S. Dollars at the office of the Agent located at 1177 Avenue of the
Americas, New York, New York 10036-9715.
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<PAGE> 9
9. Representations and Warranties. The Guarantor hereby
represents and warrants to each of the Credit Agreement Creditors (and not to
any other Borrower Creditor): 15.
(a) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority and the legal right to
own and operate its property, to lease the property it operates and to conduct
the business in which it is currently engaged.
(b) The Guarantor has the corporate power and authority and the
legal right to execute and deliver, and to perform its obligations under, this
Guarantee, and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Guarantee.
(c) This Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an implied
covenant of good faith and fair dealing.
(d) The execution, delivery and performance of this Guarantee
will not violate any provision of any Requirement of Law or Contractual
Obligation of the Guarantor and will not result in or require the creation or
imposition of any Lien on any of the properties or revenues of such Guarantor
pursuant to any Requirement of Law or Contractual Obligation of the Guarantor.
(e) No consent or authorization of, filing with, or other act by
or in respect of, any arbitrator or Governmental Authority and no consent of any
other Person (including, without limitation, any stockholder or creditor of the
Guarantor) is required in connection with the execution, delivery, performance,
validity or enforceability of this Guarantee.
(f) No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or against any of its
properties or revenues with respect to this Guarantee or any of the transactions
contemplated hereby or which could have a material adverse effect on the
business, operations, property or financial or other condition of the Guarantor.
(g) The Guarantor has good title in all its property, and none of
its property is subject to any Lien of any nature whatsoever except as permitted
under paragraph 10(a) hereof.
(h) The Guarantor has filed or caused to be filed all tax returns
which, to its knowledge, are required to be filed and has paid all taxes shown
to be due and payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
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proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of such Guarantor). No tax Lien has been filed, and, to
the knowledge of the Guarantor, no claim is being asserted, with respect to any
such tax, fee or other charge.
(i) The unaudited balance sheet of the Guarantor as at December
31, 1997 and the related unaudited statement of income for the fiscal period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the financial condition of the Guarantor as at such date, and the results
of its operations for the fiscal year then ended. The unaudited balance sheet of
such Guarantor as at June 30, 1998 and the related unaudited statement of income
for the six-month period ended on such date, certified by a Responsible Officer,
copies of which have heretofore been furnished to each Lender, are complete and
correct and present fairly the financial condition of the Guarantor as at such
date, and the results of its operations for the six-month period then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved. At
the date of the most recent balance sheet referred to above, the Guarantor had
no material Guarantee Obligation, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction or other financial derivative, which is not reflected in the
foregoing statements or in the notes thereto. During the period from June 30,
1998, to and including the date of this Guarantee there has been no sale,
transfer or other disposition by the Guarantor of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any Capital Stock of any other Person) material in relation
to the financial condition of the Guarantor at June 30, 1998.
(j) The Borrower directly owns 100% of the outstanding shares of
Capital Stock of the Guarantor.
10. Covenants. The Guarantor hereby covenants and agrees with
each of the Credit Agreement Creditors (and not with any other Borrower
Creditor) as follows:
(a) The Guarantor shall not Incur, assume, create or otherwise
cause or suffer to exist, directly or indirectly, any Debt (other than Debt
under this Guarantee) and shall not grant or cause or suffer to exist any Lien
on any property of the Guarantor now owned or hereafter acquired by the
Guarantor (other than the Liens granted under the Cash Collateral Agreement).
Notwithstanding the previous sentence of this paragraph 10(a), so long as all
Debt secured by each such Lien described below in clauses (i), (ii) and (iii) of
this sentence is Non-Recourse to the Guarantor, the Guarantor may grant or cause
or suffer to exist: (i) Liens on the Guarantor's interests in Subsidiaries and
Joint Ventures in which the Guarantor is a partner, shareholder, member or other
participant, which Liens are granted in good faith in connection with the
acquisition of such assets or as part of the financing of a Power Generation
Facility; provided that such Liens are required in order to effect such
financing and are not materially more restrictive, taken as a whole, than Liens,
taken as a whole, customarily accepted (or in the absence of any industry
custom, reasonably acceptable) in substantially Non-Recourse project financing;
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<PAGE> 11
(ii) Liens on the stock or partnership interest of Subsidiaries of the Guarantor
and interests in Joint Ventures in which the Guarantor becomes a partner,
shareholder, member or other participant which Liens are granted in good faith
as part of a project financing or the development of a project; provided that
such Liens are required in order to effect such transaction and are not
materially more restrictive, taken as a whole, than Liens, taken as a whole,
customarily accepted (or in the absence of any industry custom, reasonably
acceptable) in substantially Non-Recourse project financing; and (iii) Liens in
respect of extensions, renewals, refunding or Refinancing of any Debt secured by
the Liens referred to in clauses (i) or (ii) above, provided that the Liens in
connection with such renewal, extension, refunding or Refinancing shall be
limited to all or part of the specific Property which was subject to the
original Lien.
(b) The Guarantor shall not create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on its ability to (i) pay dividends or make other distributions permitted
by applicable law on any of its Capital Stock, (ii) make payments in respect of
any Debt owed to the Borrower, (iii) make loans or other advances to the
Borrower or (iv) transfer any of its property to the Borrower, other than those
encumbrances and restrictions created or existing (1) pursuant to either of the
Borrower Indentures as in effect on the date hereof, the Credit Agreement or
this Guarantee; (2) customary non-assignment provisions in leases or other
contracts entered into in the ordinary course of business of the Guarantor; and
(3) as a result of any Lien on the property of the Guarantor permitted under
paragraph 10(a) hereof.
(c) The Guarantor shall not make any advance, loan, extension of
credit or capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities of or any assets constituting a business unit of,
or make any other Investment in, any Person, other than (i) Investments in any
Subsidiary of the Guarantor (or any Person that will become a Subsidiary of the
Guarantor as a result of such Investment) that the Borrower is permitted to
allow the Guarantor to make under the Credit Agreement (including, without
limitation, subsection 7.4 thereof), and the Borrower Indentures and (ii) CDH
Permitted Investments; provided, that (1) so long as the total of the aggregate
amount of CDH Permitted Investments owned by the Borrower plus the aggregate
amount of CDH Permitted Investments owned by the Guarantor (exclusive of, in the
case of both the Borrower and the Guarantor, any CDH Permitted Investments
subject to or otherwise covered by any Lien other than the Lien created under
the Credit Agreement in the Cash Collateral Account) shall have a value of $50
million or more, the Guarantor may make any Investment that the Borrower is
permitted to allow the Guarantor to make under the Credit Agreement (including,
without limitation, subsection 7.4 thereof), and the Borrower Indentures and (2)
the Guarantor may make loans to AGRO Power Development, Inc. and its Affiliates,
for purposes of financing its or their acquisition, construction, operation or
development of greenhouses in which the Borrower or one of its Subsidiaries has
or will have an interest, in an aggregate principal amount not to exceed $10
million at any time, but only to the extent that the Borrower is permitted to
allow the Guarantor to make such loans under the Credit Agreement (including,
without limitation, subsection 7.4 thereof) and the Borrower Indentures.
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11. Authority of Agent. The Guarantor acknowledges that the
rights and responsibilities of the Agent under this Guarantee with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guarantee shall, as between the Agent
and the other Credit Agreement Creditors, be governed by the Credit Agreement
and by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Agent and such Guarantor, the Agent shall be
conclusively presumed to be acting as agent for the other Credit Agreement
Creditors with full and valid authority so to act or refrain from acting, and
the Guarantor shall not be under any obligation, or entitlement, to make any
inquiry respecting such authority.
12. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Integration. This Guarantee represents the agreement of the
Guarantor with respect to the subject matter hereof and there are no promises or
representations by any Borrower Creditor relative to the subject matter hereof
not reflected herein.
14. Amendments in Writing; No Waiver; Cumulative Remedies. (a)
The terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified at any time and from time to time by a written instrument
executed by the Guarantor and the Agent but not by any other means. Any waiver,
amendment, supplement or modification pursuant to this paragraph 14(a) shall be
effective as against all of the Borrower Creditors notwithstanding any reliance
by the Borrower Creditors or any of them on this Guarantee prior thereto.
(b) Neither the Agent nor any other Credit Agreement Creditor nor
the Trustee nor any Holder nor any other Borrower Creditor shall by any act,
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of the Agent, any other Credit Agreement Creditor, either Trustee, any
Holder or any other Borrower Creditor, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Agent, any other Credit Agreement Creditor, either Trustee, any Holder or any
other Borrower Creditor of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Agent, such
other Credit Agreement Creditor, either Trustee, such Holder or such other
Borrower Creditor would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
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15. Discharge. This Guarantee and the Guarantor's obligations
hereunder shall remain in full force and effect until all Credit Agreement
Obligations shall have been paid and performed in full and all Letters of Credit
shall have expired or been terminated (notwithstanding that from time to time
the Borrower may be free from any Credit Agreement Obligations) and, except as
otherwise provided in Section 7 hereof, thereafter this Guarantee shall
terminate and all of the Guarantor's obligations hereunder shall be discharged
in full.
16. Section Headings. The section headings used in this Guarantee
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
17. Successors and Assigns. This Guarantee shall be binding upon
the successors and assigns of the Guarantor and shall inure to the benefit of
each Borrower Creditor and each Borrower Creditor's successors, indorsees,
transferees and assigns.
18. Governing Law. This Guarantee shall be governed by, and
construed and interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.
COGENTRIX DELAWARE HOLDINGS, INC.
By: /s/ THOMAS F. SCHWARTZ
----------------------------
Title: Senior Vice President -
Finance and Treasurer
<PAGE> 1
Exhibit No. 10.140
EQUITY CONTRIBUTION AGREEMENT
-----------------------------
This EQUITY CONTRIBUTION AGREEMENT is dated as of August 28, 1998
among LSP BATESVILLE HOLDING, LLC (the "Equity Contributor"), LSP ENERGY LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Partnership") and IBJ SCHRODER
BANK & TRUST COMPANY, as collateral agent (together with its successors in such
capacity, the "Collateral Agent") for the Secured Parties pursuant to the
Collateral Agency Agreement, dated as of August 28, 1998 (as amended, restated,
modified or otherwise supplemented from time to time in accordance with the
terms thereof, the "Collateral Agency Agreement"), among the Partnership, LSP
Batesville Funding Corporation (the "Funding Corporation"), the Administrative
Agent, the Collateral Agent, the Intercreditor Agent, the Securities
Intermediary and the other Secured Parties party thereto.
RECITALS
--------
A. The Partnership has entered or will enter into certain Project
Documents and Credit Documents providing for, among other things, the ownership,
development, construction, operation, maintenance and financing of a nominal 800
MW gas-fired combined cycle electric generating facility to be located in
Batesville, Mississippi.
B. Pursuant to the Power Purchase Agreements, the Partnership has
agreed to render, and Aquila and VEPCO, respectively, have agreed to receive and
pay for, the service of providing capacity and energy for the term of each of
the Power Purchase Agreements on the terms and conditions set forth therein.
C. The Partnership and the Contractor have entered into the
Construction Contract, providing for the construction of the Project on a fixed
price, date certain basis on the terms and conditions set forth therein.
D. Pursuant to the Tranche A Facility Credit Agreement, the
Tranche A Facility Lenders will make Construction Loans and Term Loans to the
Partnership on the terms and conditions set forth therein.
E. Pursuant to the Tranche B Facility Purchase Agreement and the
Tranche B Facility Indenture, the Funding Corporation and the Partnership will
issue and sell the Tranche B Facility Bonds to the Initial Purchaser. It is
currently contemplated that the Tranche B Facility Bonds will be refinanced as
<PAGE> 2
contemplated in the Letter Agreement, dated as of August 28, 1998 (the
"Refinancing Letter"), among the Partnership, the Funding Corporation, Holding
and the Initial Purchaser.
F. Pursuant to the Tranche C Facility Purchase Agreement and the
Tranche C Facility Indenture, Holding will issue and sell the Tranche C Facility
Bonds to the Initial Purchaser. It is currently contemplated that the Tranche C
Facility Bonds will be refinanced as contemplated in the Refinancing Letter.
Holding will use the net proceeds of the Tranche C Facility Bonds to make an
equity contribution to the Partnership.
G. Pursuant to the Letter of Credit Agreement, the Letter of
Credit Issuer has agreed to issue, for the account of the Partnership, the
Letters of Credit for use by the Partnership as security in connection with the
Project.
H. The Partnership, the Funding Corporation, Holding, the Secured
Parties, the Administrative Agent, the Collateral Agent, the Intercreditor
Agent, the Securities Intermediary and the Facility Agents have entered into the
Common Agreement, dated as of August __, 1998 (as amended, restated, modified or
otherwise supplemented from time to time in accordance with the terms thereof,
the "Common Agreement"), to provide for, among other things, (i) the mechanics
for and allocation of the Partnership's request for drawdowns among the various
Facility Agreements, (ii) the conditions precedent to the Closing and to the
initial and each subsequent drawdown under the Facility Agreements, (iii) common
representations and warranties of the Partnership, the Funding Corporation and
Holding running in favor of the Secured Parties, (iv) common covenants and
Events of Default of the Partnership, the Funding Corporation and Holding
running in favor of the Secured Parties and (v) the mechanics for the deposit
and application of Project Revenues and other proceeds.
I. The Partnership, the Funding Corporation, the Administrative
Agent, the Collateral Agent, the Intercreditor Agent, the Securities
Intermediary and the Senior Secured Parties have entered into the Collateral
Agency Agreement which authorizes and directs the Collateral Agent to (i) enter
into the individual Senior Collateral Documents on behalf of the Senior Secured
Parties and (ii) take action under the individual Senior Collateral Documents in
accordance with instructions given by the Intercreditor Agent, acting pursuant
to the Intercreditor Agreement.
J. The Partnership, the Funding Corporation, Holding, the
Administrative Agent, the Collateral Agent, the Intercreditor Agent, the
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Securities Intermediary and the Facility Agents have entered into the
Intercreditor Agreement pursuant to which the parties to the Credit Documents
set forth certain intercreditor provisions, including the method of voting and
decision making for the Senior Secured Parties, the arrangements applicable to
joint consultation and actions in respect of approval rights and waivers, the
limitations on rights of enforcement upon default, the application of proceeds
upon enforcement and the appointment of the Intercreditor Agent for the purposes
set forth therein.
K. The Equity Contributor owns, directly or indirectly, 100% of
the equity interests in the Partnership.
L. The Common Agreement contemplates the execution, delivery and
implementation of this Agreement and it is a condition precedent to the Closing
and to the making of Disbursements under the Common Agreement and the Facility
Agreements that the Equity Contributor shall have entered into this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the Senior Secured Parties
entering into the Credit Documents and to induce the Senior Secured Parties to
make the Loans, release the proceeds of the issuance and sale of the Tranche B
Facility Bonds, issue the Letters of Credit and extend certain other credit to
the Partnership and the Funding Corporation under the Credit Documents, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. (a) Unless otherwise defined herein, terms
defined in Exhibit A to the Common Agreement shall have such defined meanings
when used herein.
(b) The following terms shall have the following respective
meanings:
"Equity Amount" shall mean $50,000,000.
"Equity Contribution" shall mean a cash capital contribution or
any other cash payment to the Partnership required to be made by the Equity
Contributor to the Partnership in accordance with Section 2.
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"Equity Letter of Credit" shall mean an irrevocable letter of
credit issued by a Qualified Letter of Credit Issuer, naming
Cogentrix/Batesville as the account party and the Collateral Agent as
beneficiary, which (a) shall be substantially in the form of Exhibit A hereto,
(b) shall have a face amount equal to the Equity Amount and (c) shall expire on
the date upon which the Equity Contributor has indefeasibly paid in full an
Equity Contribution equal to the Equity Amount pursuant to Section 2.
"Equity Requisition Certificate" shall mean a certificate in the
form of Exhibit B attached hereto.
"Qualified Letter of Credit Issuer" shall mean a bank or other
financial institution whose long-term unsecured debt is rated "A" or higher by
S&P and "A2" or higher by Moody's.
2. Capital Contributions. (a) The Equity Contributor shall
contribute or cause to be contributed to the Partnership from time to time an
Equity Contribution on the date and in an amount specified in any Equity
Requisition Certificate delivered by the Partnership to the Equity Contributor;
provided, however, that the aggregate amount of such Equity Contribution,
together with the amount of all previous Equity Contributions made pursuant to
this Section 2(a), shall not exceed the Equity Amount.
(b) The Equity Contributor shall contribute or cause to be
contributed to the Partnership, for the benefit of the Senior Secured Parties,
an Equity Contribution in an amount equal to the Equity Amount less the
aggregate amount of all previous Equity Contributions, if any, made pursuant to
Section 2(a), on the earliest to occur of the following:
(i) the date on which an Event of Default under the Common
Agreement shall have occurred;
(ii) the date on which a Bankruptcy Event shall have occurred
with respect to the Equity Contributor;
(iii) the date on which all proceeds of the Construction Loans
and the Bonds shall have been disbursed from the Construction Account to pay
Project Costs in accordance with Section 7.2 of the Common Agreement, if the
Partnership has not requested an Equity Contribution in an amount necessary to
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pay all or a portion of the remaining Project Costs pursuant to Section 2(a)
within forty-five (45) days after the date of the final disbursement of
Construction Loan and Bond proceeds from the Construction Account;
(iv) the date on which Completion shall have occurred;
(v) the Date Certain;
(vi) the date which is thirty (30) days after the date on which
the Letter of Credit Issuer fails to be a Qualified Letter of Credit Issuer;
provided that the Equity Contributor shall not be required to make an Equity
Contribution pursuant to this clause (vi) if, during the thirty (30) day period
after the date on which the Letter of Credit Issuer fails to be a Qualified
Letter of Credit Issuer, the Equity Contributor shall provide the Collateral
Agent with a replacement Equity Letter of Credit, satisfactory in all respects
to the Collateral Agent, from a Qualified Letter of Credit Issuer; and
(vii) the date which is thirty (30) days prior to the date of
expiration of the Equity Letter of Credit; provided that the Equity Contributor
shall not be required to make an Equity Contribution pursuant to this clause
(vii) if on or prior to such date the Equity Contributor shall have provided to
the Collateral Agent a replacement Equity Letter of Credit, satisfactory in all
respects to the Collateral Agent, issued by a Qualified Letter of Credit Issuer.
3. Application of Funds.
(a) Any Equity Contributions made pursuant to clause (a) or
clause (b)(iii), (iv), (v), (vi) or (vii) of Section 2 shall be paid directly to
the Construction Account.
(b) Any Equity Contributions made pursuant to clause (b)(i) or
(ii) of Section 2 shall be paid directly to the Collateral Agent for the benefit
of the Senior Secured Parties. The Collateral Agent, acting at the direction of
(x) the Intercreditor Agent acting pursuant to the Intercreditor Agreement or
(y) the Senior Secured Parties acting pursuant to Section 7.16 of the
Intercreditor Agreement, shall apply such amounts to (i) the payment of Project
Costs and/or (ii) the prepayment of outstanding Senior Secured Obligations, in
such proportions as Intercreditor Agent or the Senior Secured Parties, as the
case may be, shall specify.
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4. Interest. Any amount which is not paid when due pursuant to
Section 2 shall bear interest at a rate equal to the Default Rate (calculated
quarterly in arrears and based upon a 360 day year) until paid in full.
5. Equity Letter of Credit. (a) On or before the Closing Date,
the Equity Contributor shall deliver to the Collateral Agent an Equity Letter of
Credit issued by a Qualified Letter of Credit Issuer in support of its
obligations under this Agreement.
(b) In the event that the Equity Contributor shall fail to make
an Equity Contribution when due in accordance with Section 2, the Collateral
Agent, upon receipt of notice from the Administrative Agent that such failure
has occurred, shall make a demand for payment under the Equity Letter of Credit
in the amount of such Equity Contribution; provided that the Collateral Agent's
failure to make such demand for payment under the Equity Letter of Credit shall
not relieve the Equity Contributor of its obligations under this Agreement. Any
payment made directly to the Collateral Agent under the Equity Letter of Credit
shall be deemed to be an Equity Contribution under Section 2 and shall satisfy
the obligation of the Equity Contributor to the Partnership hereunder.
(c) The Equity Contributor shall cause the Equity Letter of
Credit (and all renewals, extensions and replacements thereof) to be outstanding
until the date on which the Equity Contributor's obligations under this
Agreement shall have been indefeasibly satisfied and performed in full.
(d) Until the expiration date of the Equity Letter of Credit set
forth in clause (c) immediately above, the Equity Contributor shall cause to be
renewed, extended or replaced the Equity Letter of Credit (or any renewed,
extended or replaced Equity Letter of Credit) within thirty (30) days prior to
any expiration date thereof with a new, extended or replacement Equity Letter of
Credit of like tenor with and substantially in the form of the original Equity
Letter of Credit and otherwise satisfying all requirements of the Credit
Documents relating to the Equity Letter of Credit. Any such renewed, extended or
replacement Equity Letter of Credit shall be issued by a Qualified Letter of
Credit Issuer.
6. Obligations Unconditional; Waivers. (a) The obligation of the
Equity Contributor under Section 2 shall be absolute, unconditional and
irrevocable under any and all circumstances, and shall be performed by the
Equity Contributor regardless of:
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<PAGE> 7
(i) the existence of any indebtedness owing by the Partnership,
any Partner or any Affiliate thereof to the Equity Contributor or of any setoff,
abatement, counterclaim, recoupment, defense or other right or claim which the
Equity Contributor may have against the Partnership, any Partner, any Affiliate
thereof or any other Person;
(ii) the occurrence of a Bankruptcy Event of the Partnership, any
Partner, any Affiliate thereof or any other Person or the pendency against the
Partnership, any Partner, any Affiliate thereof or any other Person of any case,
suit or proceeding under any Bankruptcy Law;
(iii) the invalidity, irregularity or unenforceability of or any
change in or amendment to, any Operative Document, including, without
limitation, the Partnership Agreement;
(iv) the institution or absence of any action to enforce any
Operative Document or the waiver or consent by the Equity Contributor or any
Senior Secured Party with respect to the provisions thereof, the obtaining of
any judgment against the Partnership, any Partner or any Affiliate thereof, or
any action to enforce such judgment, or the inability to recover from the
Partnership, any Partner or any Affiliate thereof because of any statue of
limitations, laches or otherwise; or
(v) the failure to complete or the destruction of the Project or
any other circumstance which might otherwise constitute a legal or equitable
discharge of or a defense to the Equity Contributor's undertakings hereunder; or
(vi) any other circumstances whatsoever which might otherwise
constitute an excuse for nonperformance of the obligations of the Equity
Contributor under Section 2, whether similar or dissimilar to any of the
circumstances herein specified.
(b) The obligation of the Equity Contributor to make or cause to
be made an Equity Contribution as provided in Section 2 shall not be affected by
any abatement, reduction, limitation, impairment, termination, setoff, defense,
counterclaim or recoupment whatsoever or any right to any thereof, and shall not
be released, discharged or in any way affected by any reorganization,
arrangement, compromise or plan affecting the Partnership, any Partner or any
Affiliate thereof.
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<PAGE> 8
(c) The Equity Contributor hereby unconditionally:
(i) waives notice of acceptance hereof, of any action taken or
omitted in reliance hereon and of any defaults by the Partnership, any Partner
or any Affiliate thereof in the payment of any amounts due, diligence, protest,
presentment, filing of claims with a court in connection with a Bankruptcy Event
of the Partnership, any Partner or any Affiliate thereof, any right to require a
proceeding first against the Partnership, any Partner or any Affiliate thereof
or that the Partnership, any Partner or any Affiliate thereof be joined in any
bankruptcy or similar proceeding, any marshalling of assets of the Partnership,
any Partner or any Affiliate thereof, the Partnership's, any Partner's or any
such Affiliate's providing security for the Credit Documents or any notice of
default with respect thereto, or any other act or omission or thing or delay to
do any other act or thing which might in any manner or to any extent vary the
risk of the Equity Contributor or which might otherwise operate as a discharge
to the Equity Contributor;
(ii) agrees that this Agreement shall remain in full force and
effect without regard to, and shall not be affected or impaired by, any
invalidity, irregularity or unenforceability in whole or in part of any of the
Operative Documents, including, without limitation, the Partnership Agreement,
which may now or hereafter be caused or imposed in any manner whatsoever;
(iii) agrees that no failure or delay on the part of the
Partnership or any Senior Secured Party or any other Person in exercising any
right, power or privilege hereunder or under any other Operative Document and no
course of dealing between the Equity Contributor on the one hand, and the
Partnership, any Partner, any Affiliate thereof or any Senior Secured Party, on
the other hand, 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 hereunder;
(iv) agrees that the rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies which the Partnership,
any Partner, any Affiliate thereof or any Senior Secured Party would otherwise
have; and
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(v) agrees that this Agreement shall be discharged only by
complete performance and payment in full of the obligations contained herein and
that the Equity Contributor shall have no right to withhold or set-off against
any payments due for any reason.
7. Bankruptcy. Unless and until all of the Senior Secured
Obligations shall have been paid in full, the Equity Contributor agrees not to
bring any proceeding or join with any creditor in bringing any proceeding
against the Partnership under any Bankruptcy Law. If the Equity Contributor in
violation of the provisions set forth herein, shall commence, prosecute or
participate in any suit, action or proceeding against the Partnership, the
Collateral Agent may (but shall not be obligated to) intervene and interpose
such defense or plea in its own name or in the name of the Partnership and may,
in any event, have standing to restrain the enforcement of any right or remedy
of the Equity Contributor, insofar as any such right or remedy is being
exercised by the Equity Contributor against assets of the Partnership, in its
own name or in the name of the Partnership, in the same suit, action or
proceeding or in any independent suit, action or proceeding.
8. Modification of Obligations. The Equity Contributor agrees
that the Senior Secured Parties may, at any time and from time to time, without
the consent of or notice to the Equity Contributor, without incurring
responsibility to the Equity Contributor and without impairing or releasing any
of the Senior Secured Parties' rights or any of the obligations of the Equity
Contributor under this Agreement:
(a) change the amount, manner, place or terms of payment or
change or extend the time of payment or renew or alter the Senior Secured
Obligations in any manner or enter into or amend in any manner any agreement
relating to the Senior Secured Obligations;
(b) sell, exchange, release or otherwise deal with any property
by whomsoever at any time pledged or mortgaged to secure, or howsoever securing,
any of the Senior Secured Obligations;
(c) release anyone liable in any manner for payment or collection
of the Senior Secured Obligations; and
(d) exercise or refrain from exercising any rights against the
Partnership or any other Person.
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9. Representations and Warranties: The Equity Contributor hereby
represents and warrants that:
(a) it is a limited liability company duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
formation, and it is duly qualified and authorized to do business and is in good
standing as a foreign limited liability company in each jurisdiction in which it
owns or leases real property or in which the nature of its business requires it
to be so qualified;
(b) it has all necessary power and authority to execute and
deliver this Agreement and to perform all of its obligations hereunder, and its
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on its part and do not require any approval or consent
of any holder (or any trustee for or agent of any holder) of any indebtedness or
other obligation of it or any other person or entity, other than approvals or
consents which have previously been obtained and which are in full force and
effect;
(c) it has duly executed and delivered this Agreement and this
Agreement constitutes the valid and binding obligation of it enforceable against
it in accordance with its terms, except as enforceability may be limited by
general equitable principals and applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally;
(d) the execution and delivery by it and the performance by it of
its obligations hereunder do not (i) conflict with its certificate of formation
or operating agreement, (ii) conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of its properties or assets pursuant to the terms of, any
indenture, mortgage, deed of trust, agreement or other instrument to which it is
a party or by which it or any of its properties or assets is bound, or (iii)
conflict with any Governmental Rules applicable to it or any of its properties
or assets, or any order, writ, injunction or decree of any court or Governmental
Authority binding on it or its properties or assets;
(e) no Permits or other consents or approvals are required in
connection with the execution, delivery and performance by it of this Agreement;
10
<PAGE> 11
(f) it is in compliance with all Governmental Rules applicable to
it except to the extent that the failure to comply therewith could not
materially affect its ability to perform its obligations under this Agreement;
and
(g) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best of its
knowledge, threatened against it or any of its properties, rights, revenues or
assets which could reasonably be expected to material adversely affect its
ability to perform its obligations under this Agreement.
10. Expenses. The Equity Contributor shall pay to the Collateral
Agent, on or prior to five (5) days after the Collateral Agent makes a demand
for such payment, the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel, which the Collateral Agent may
incur in connection with (a) the exercise or enforcement of any of the rights of
the Collateral Agent hereunder or (b) the failure by the Equity Contributor to
perform or observe any of the provisions hereof, together with interest thereon
from the date when due at a rate per annum equal to the Default Rate. Any amount
payable by the Equity Contributor pursuant to this Section 10 shall be payable
as specified in the preceding sentence and shall constitute Senior Secured
Obligations.
11. Notices. Unless otherwise specifically herein provided, all
notices required or permitted under the terms and provisions hereof shall be in
writing and any such notice shall become effective if given in accordance with,
and at the addresses specified in, the provisions of Section 12.1 of the Common
Agreement.
12. Reinstatement. This Agreement shall continue to be effective
or be reinstated, as the case may be, if at any time any amount received by the
Collateral Agent hereunder or pursuant hereto is rescinded or must otherwise be
restored or returned by the Collateral Agent upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Equity Contributor, the
Partnership, any Partner or any Affiliate thereof or upon the appointment of any
intervenor or conservator of, or trustee or similar official for, the Equity
Contributor, the Partnership, any Partner or any Affiliate thereof, or any
substantial part of the Equity Contributor's, the Partnership's, any Partner's
or any such Affiliate's assets, or upon the entry of an order by any court
avoiding the payment of such amount, or otherwise, all as though such payments
had not been made.
11
<PAGE> 12
13. Amendments. No waiver, amendment, modification or termination
of any provision of this Agreement, or consent to any departure by the Equity
Contributor therefrom, shall in any event be effective without the prior written
consent of the Collateral Agent, acting upon directions from (x) the
Intercreditor Agent acting pursuant to the Intercreditor Agreement or (y) the
Senior Secured Parties acting pursuant to Section 7.16 of the Intercreditor
Agreement, or as otherwise expressly provided herein. Any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
14. Successors and Assigns. This Agreement shall be binding upon
the Equity Contributor and its successors and assigns and shall inure to the
benefit of the Partnership and the Collateral Agent and their respective
successors and assigns. The Equity Contributor may not assign or otherwise
transfer any of their respective rights or obligations under this Agreement
without the written consent of the Collateral Agent, acting upon directions from
(x) the Intercreditor Agent acting pursuant to the Intercreditor Agreement or
(y) the Senior Secured Parties acting pursuant to Section 7.16 of the
Intercreditor Agreement, or as otherwise expressly provided herein.
15. Survival. All agreements, statements, representations and
warranties made by the Equity Contributor herein or in any certificate or other
instrument delivered by the Equity Contributor or on its behalf under this
Agreement shall be considered to have been relied upon by the Collateral Agent
and the other Senior Secured Parties and shall survive the execution and
delivery of this Agreement until the satisfaction in full by the Equity
Contributor of its obligations hereunder.
16. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
17. Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
18. Severability. In case any provision contained in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
12
<PAGE> 13
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
19. Governing Law. This Agreement shall be governed by the laws
of the State of New York of the United States of America and shall for all
purposes be governed by and construed in accordance with the laws of such state
without regard to the conflict of law rules thereof other than Section 5-1401 of
the New York General Obligations Law.
20. Consent to Jurisdiction. Any legal action or proceeding by or
against the Equity Contributor with respect to or arising out of this Agreement
may be brought in or removed to the courts of the State of New York, in and for
the County of New York, or of the United States of America for the Southern
District of New York. By execution and delivery of this Agreement, the Equity
Contributor accepts, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts for legal proceedings
arising out of or in connection with this Agreement and irrevocably consents to
the appointment of CT Corporation System, with offices on the date hereof at
1633 Broadway, New York, New York 10019, as its agent to receive service of
process in New York, New York. If for any reason such agent shall cease to be
available to act as such, the Equity Contributor agrees to appoint a new agent
satisfactory to the Collateral Agent on the terms and for the purposes of this
provision. Nothing herein shall affect the right to serve process in any other
manner permitted by law or any right to bring legal action or proceedings in any
other competent jurisdiction. The Equity Contributor further agrees that the
aforesaid courts of the State of New York and of the United States of America
for the Southern District of New York shall have exclusive jurisdiction with
respect to any claim or counterclaim of the Equity Contributor based upon the
assertion that the rate of interest charged by or under this Agreement or under
the other Credit Documents is usurious. The Equity Contributor hereby waives any
right to stay or dismiss any action or proceeding under or in connection with
the Project, this Agreement or any other Operative Document brought before the
foregoing courts on the basis of forum non-conveniens or improper venue.
Section 20.a Waiver of Jury Trial. EACH OF THE EQUITY
CONTRIBUTOR, THE PARTNERSHIP AND THE COLLATERAL AGENT HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
13
<PAGE> 14
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE OTHER PARTIES HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO ENTER INTO
THIS AGREEMENT.
21. Entire Agreement. This Agreement, together with any other
agreement executed in connection herewith, is intended by the parties as a final
expression of their agreement as to the matters covered hereby and is intended
as a complete and exclusive statement of the terms and conditions thereof.
22. Third Party Beneficiaries. The agreements of the parties
hereto are intended to benefit the Senior Secured Parties and their respective
successors and assigns.
23. Consent. By its execution and delivery hereof, each of the
Equity Contributor and the Partnership consents to the assignment of this
Agreement to the Collateral Agent for the benefit of the Senior Secured Parties,
and the grant to the Collateral Agent of a security interest in all of the
Partnership's right, title and interest in and to this Agreement, pursuant to
the Collateral Documents. The Partnership and the Equity Contributor hereby
agree that (a) pursuant to the exercise of remedies the Collateral Agent or its
designee or transferee may succeed to the rights, powers, privileges, interests
and remedies of the Partnership, whether arising under this Agreement or by
statute or in law or in equity or otherwise and (b) the Collateral Agent shall
have the right to enforce directly the provisions hereof against each of the
parties hereto. In addition to, and not in derogation of, the foregoing, the
Collateral Agent may, in addition to proceeding in its name, or otherwise,
proceed to protect and enforce the rights of the Partnership under this
Agreement by suit in equity, action at law or other appropriate proceedings,
whether for the specific performance of any covenant or agreement contained in
this Agreement or otherwise. Each and every right of the Collateral Agent shall,
to the extent permitted by law, be cumulative and shall be in addition to any
right or remedy granted in any Credit Document or now or hereafter existing at
law or in equity or by statute.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first written above.
LSP BATESVILLE HOLDING, LLC
By: LS Power Management, LLC,
its manager
By: /s/ MIKHAIL SEGAL
-----------------------
Name: Mikhail Segal
Title: President
LSP ENERGY LIMITED PARTNERSHIP
By: LSP Energy, Inc.,
its general partner
By: /s/ MIKHAIL SEGAL
-----------------------
Name: Mikhail Segal
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as the Collateral Agent
By: /s/ J.R. LEWIS
--------------------
Name: J.R. Lewis
Title: Vice President
Signature Page to Equity Contribution Agreement
15
<PAGE> 16
Exhibit B to
Equity Contribution Agreement
FORM OF EQUITY REQUISITION CERTIFICATE
[DATE]
LSP Batesville Holding, LLC
c/o LS Power, LLC
Two Tower Center
10th Floor
East Brunswick, New Jersey 08816
Ladies and Gentlemen:
This Equity Requisition Certificate is delivered to you pursuant to Section
2(a) of that certain Equity Contribution Agreement, dated as of August __, 1998
(the "Equity Contribution Agreement"), by and among you (the "Equity
Contributor"), the undersigned (the "Partnership") and IBJ Schroder Bank & Trust
Company, in its capacity as Collateral Agent (the "Collateral Agent").
Capitalized terms used herein but not otherwise defined herein shall have the
meanings assigned to them in the Equity Contribution Agreement.
The Partnership hereby certifies as follows:
1. The aggregate amount of the Equity Contribution requested pursuant
to this Equity Requisition Certificate and all Equity Contributions
previously made by you pursuant to Section 2 of the Equity Contribution
Agreement is $_______________; and
2. The Equity Amount less the amount specified in clause (1)
immediately above is $_______________.
The Partnership hereby requests that the Equity Contributor make an Equity
Contribution to the Partnership on the date and in the amount requested below
16
<PAGE> 17
(the "Requested Equity Contribution Amount"), which amount is to be paid to
the Construction Account:
Date of funding: _________________________
Amount of
Contribution: $________________________
Very truly yours,
LSP ENERGY LIMITED PARTNERSHIP
By: LSP Energy, Inc.,
its Managing General Partner
By: ______________________
Name:
Title:
17
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: September 25, 1998 AMP Incorporated
By: _______________________
Name: Robert Ripp
Title: Chairman and Chief
Executive Officer
<PAGE> 1
Exhibit No. 21.1
COGENTRIX ENERGY, INC.
SUBSIDIARIES
Cogentrix Energy, Inc. (NC)
Cogentrix Delaware Holdings, Inc. (DE)
Cogentrix Holdings Corporation (NC)
Cogentrix, Inc. (NC)
Cogentrix Eastern Carolina Corporation (NC)
Cogentrix of North Carolina Holdings, Inc. (NC)
Cogentrix of North Carolina, Inc. (NC)
Roxboro/Southport I, Inc. (NC)
Roxboro/Southport II, Inc. (NC)
Roxboro/Southport General
Partnership (NC)*
Cogentrix of Virginia, Inc. (VA)
Cogentrix Virginia Leasing Corporation (NC)
Cogentrix of Richmond, Inc. (NC)
Cogentrix of Rocky Mount, Inc. (NC)
Cogentrix of Pennsylvania, Inc. (DE)
ReUse Technology, Inc. (NC)
(doing business as RT 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)
Rathdrum Power, LLC (DE)
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 Fort Davis I, Inc. (DE)
Cogentrix Greenhouse Investments, Inc. (DE)
Cogentrix of Pocono, Inc. (DE)
Cogentrix of Marfa, Inc. (DE)
Cogentrix of Buffalo, Inc. (DE)
Arcanum, Inc. (DE)
<PAGE> 2
Cogentrix Eastern America, Inc. (DE)
Cogentrix/Logan, Inc. (DE)
Cogentrix/Northampton, Inc. (DE)
Cogentrix/Carneys Point, Inc. (DE)
Cogentrix/Scrubgrass, Inc. (DE)
Palm Power Corporation (DE)
Cedar Power Corporation (DE)
Hickory Power Corporation (DE)
Birch Power Corporation (PA)
Panther Creek Leasing, Inc. (DE)
Cogentrix Mid-America, Inc. (DE)
FloriCulture, Inc. (DE)
Cogentrix Cottage Grove, LLC (DE)
LSP-Cottage Grove, Inc. (DE)
LSP-Cottage Grove, LP (DE)*
LS Power Funding Corporation (DE)
Cogentrix Whitewater, LLC (DE)
LSP-Whitewater I, Inc. (DE)
LSP-Whitewater Limited Partnership (DE)*
LS Power Funding Corporation (DE)
Cogentrix/Batesville Holdings, Inc. (DE)
Cogentrix/Batesville, Inc. (DE)
Cogentrix Batesville Operations, LLC (DE)
Cogentrix/Batesville, LLC (DE)
LSP-Batesville Holdings, LLC (DE)
LSP Batesville Funding Corporation (DE)
LSP Energy, Inc. (DE)
LSP Energy Limited Partnership (DE)*
Cogentrix International Holdings, Inc. (DE)
Cogentrix International, Ltd. (Grand Cayman)
La Compania de Electricidad de San Pedro de Macoris
(Grand Cayman)
Cogera Cogeracao e Comercializacao de Energia Ltda.
(Brazil)
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)
(PARTNERSHIPS DENOTED BY ASTERISK)
<PAGE> 1
Exhibit No. 23.2
INDEPENDENT AUDITORS' CONSENT
As Independent Public Accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
November 12, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Cogentrix Energy, Inc., our report dated
June 8, 1998 relating to the combined financial statements of Birch Power
Corporation, Cedar Power Corporation, Hickory Power Corporation, Palm Power
Corporation, and Panther Creek Leasing, Inc. which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
San Francisco, California
November 12, 1998
<PAGE> 1
Exhibit No. 23.4
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
-------------------------------------------------
Board of Directors
Cogentrix Energy, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Independent Public Accountants" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Billings, Montana
November 12, 1998
<PAGE> 1
Exhibit No. 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 16, 1998, included in the
Registration Statement (Form S-4, No. 333- ) and related Prospectus of Cogentrix
Energy, Inc., dated November 12, 1998, with respect to the financial statements
of Gilberton Power Company (not separately presented herein).
/s/ ERNST & YOUNG LLP
Harrisburg, Pennsylvania
November 6, 1998
<PAGE> 1
Exhibit No. 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cogentrix Energy, Inc.
on Form S-4 of our report on Morgantown Energy Associates dated February 25,
1998, appearing in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Richmond, Virginia
November 12, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------
FIRST UNION NATIONAL BANK
(Exact name of trustee as specified in its charter)
United States National Bank 22-1147033
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)
First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
(Address of principal (Zip Code)
executive offices)
Same as above
- --------------------------------------------------------------------------------
(Name, address and telephone number, including
area code, of trustee's agent for service)
Cogentrix Energy, Inc.
- --------------------------------------------------------------------------------
(Exact name of obligor as specified in its charter)
The State of North Carolina
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
56-1853081
- --------------------------------------------------------------------------------
(I.R.S. employer identification no.)
Thomas F. Schwartz
Senior Vice President and Treasurer
9405 Arrowpoint Boulevard
Charlotte, NC 28273-8110
(704)525-3800
- --------------------------------------------------------------------------------
(Address, including zip code, of principal executive offices)
--------------------
8.75% Senior Notes Due 2008
- --------------------------------------------------------------------------------
(Title of the indenture securities)
------------------------------------------------
<PAGE> 2
1. General information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising
authority to which it is subject
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Federal Reserve Bank of Richmond, VA Richmond, VA
Comptroller of the Currency Washington, D.C.
Securities and Exchange Commission
Division of Market Regulation Washington, D.C.
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
2. Affiliations with obligor and underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe
each such affiliation.
None.
(See Note 1 on Page 4.)
Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.
16. List of Exhibits.
All exhibits identified below are filed as a part of this statement of
eligibility.
1. A copy of the Articles of Association of First Union National
Bank as now in effect, which contain the authority to commence
business and a grant of powers to exercise corporate trust
powers.
2
<PAGE> 3
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in exhibits (1) or (2) above.
4. A copy of the existing By-laws of First Union National Bank,
or instruments corresponding thereto.
5. Inapplicable.
6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939 is included at Page 4 of this Form
T-1 Statement.
7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority is attached hereto.
8. Inapplicable.
9. Inapplicable.
3
<PAGE> 4
NOTE
Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union National Bank, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Charlotte, and State of North Carolina, on the 29th day of October, 1998.
FIRST UNION NATIONAL BANK
(trustee)
By: /s/ Donna Flanagan
-------------------------------
Its:
---------------------------
CONSENT OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by Cogentrix Energy, Inc. Senior
Notes, First Union National Bank as the trustee herein named, hereby consents
that reports of examinations of said Trustee by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
By: /s/ Donna Flanagan
-------------------------------
Name: Donna Flanagan
------------------------
Title:
------------------------
Dated: October 29, 1998
4
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED
COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998
ALL schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
----
C400
------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1)................................. 0081 9,898,292 1.a
b. Interest bearing balances(2).......................................................... 0071 1,785,499 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 2,105,131 2.a
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 36,130,513 2.b
3. Federal funds sold and securities purchased under agreements to resell..................... 1350 4,551,009 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)... RCFD 2122 136,146,280 4.a
b. LESS: Allowance for loan and lease losses....................... RCFD 3123 1,814,169 4.b
c. LESS: Allocated transfer risk reserve........................... RCFD 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b
and 4.c).............................................................................. 2126 134,332,111 4.d
5. Trading assets (from Schedule RC-D)........................................................ 3545 5,786,208 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 3,278,523 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 125,154 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2180 345,634 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 1,091,060 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 5,221,760 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 8,649,274 11.
12. Total assets (sum of items 1 through 11)................................................... 2170 213,300,168 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/98 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State, Zip: Charlotte, NC 28288-0201
FDIC Certificate #: 33869
</TABLE>
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E
part I)...................................................................... RCON 2200 133,606,970 13.a.
(1) Noninterest-bearing(1)...........................RCON 6631 26,221,093 13.a.(1)
(2) Interest-bearing.................................RCON 6636 107,385,877 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(from Schedule RC-E, part II)................................................ RCFN 2200 9,377,311 13.b.
(1) Noninterest-bearing..............................RCFN 6631 581,219 13.b.(1)
(2) Interest-bearing.................................RCFN 6636 8,796,092 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase...... RCFD 2800 22,988,933 14.
15. a. Demand notes issued to the U.S. Treasury..................................... RCON 2840 850,539 15.a.
b. Trading liabilities (from Schedule RC-D)..................................... RCFD 3548 4,824,321 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less............................... RCFD 2332 11,459,244 16.a.
b. With a remaining maturity of more than one year through three years......... RCFD A547 590,270 16.b.
c. With a remaining maturity of more than three years........................... RCFD A548 437,360 16.c.
17. Not applicable
18. Bank's liability on acceptances executed and outstanding....................... RCFD 2920 1,5106,327 18.
19. Subordinated notes and debentures(2)........................................... RCFD 3200 3,512,216 19.
20. Other liabilities (from Schedule RC-G)......................................... RCFD 2930 7,361,602 20.
21. Total liabilities (sum of items 13 through 20)................................. RCFD 2948 196,115,093 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................. RCFD 3838 160,540 23.
24. Common stock................................................................... RCFD 3230 454,543 24.
25. Surplus (exclude all surplus related to preferred stock)....................... RCFD 3839 13,225,076 25.
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,015,429 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 330,722 26.b.
27. Cumulative foreign currency translation adjustments............................ RCFD 3284 (1,235) 27.
28. Total equity capital (sum of items 23 through 27).............................. RCFD 3210 17,185,075 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................. RCFD 3300 213,300,168 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank Number
------
by independent external auditors as of any date during 1994.................... RCFD 6724 N/A M.1
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required
by state chartering authority)
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
12
<PAGE> 7
Charter No. 22693
FIRST UNION NATIONAL BANK
ARTICLES OF ASSOCIATION
-----------------------
(as restated effective February 26, 1998)
For the purpose of organizing an Association to carry on the business of banking
under the laws of the United States, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this Association shall be FIRST UNION NATIONAL BANK.
SECOND. The main office of the Association shall be in Charlotte, County of
Mecklenburg, State of North Carolina. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five directors, the exact number of directors
within such minimum and maximum limits to be fixed and determined from time to
time by resolution of a majority of the full Board of Directors or by resolution
of the shareholders at any annual or special meeting thereof. Unless otherwise
provided by the laws of the United States, any vacancy in the Board of Directors
for any reason, including an increase in the number thereof, may be filled by
action of the Board of Directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the Board of
Directors may designate, on the day of each year specified therefor in the
By-Laws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors.
Nominations for election to the Board of Directors may be made by the Board of
Directors or by any stockholder of any outstanding class of capital stock of the
bank entitled to vote for election of directors. Nominations, other than those
made by or on behalf of the existing management of the bank, shall be made in
writing and shall be delivered or mailed to the President of the bank
<PAGE> 8
and to the Comptroller of the Currency, Washington, D.C., not less than 14 days
nor more than 50 days prior to any meeting of stockholders called for the
election of directors, provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Bank and to the Comptroller of the Currency
not later than the close of business on the seventh day following the day on
which the notice of meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the bank
that will be voted for each proposed nominee; (d) the name and residence address
of the notifying shareholder; and (e) the number of shares of capital stock of
the bank owned by the notifying shareholder. Nominations not made in accordance
herewith may, in his discretion, be disregarded by the Chairman of the meeting,
and upon his instructions, the vote tellers may disregard all votes cast for
each such nominee.
FIFTH.
(a) General. The amount of capital stock of this Association shall be (I)
25,000,000 shares of common stock of the par value of twenty dollars ($20.00)
each (the "Common Stock") and (ii) 160,540 shares of preferred stock of the par
value of one dollar ($ 1. 00) each (the "Non-Cumulative Preferred Stock"),
having the rights, privileges and preferences set forth below, but said capital
stock may be increased or decreased from time to time in accordance with the
provisions of the laws of the United States.
(b) Terms of the Non-Cumulative Preferred Stock.
1. General. Each share of Non-Cumulative Preferred Stock shall be identical
in all respects with the other shares of Non-Cumulative Preferred Stock.
The authorized number of shares of Non-Cumulative Preferred Stock may from
time to time be increased or decreased (but not below the number then
outstanding) by the Board of Directors. Shares of Non-Cumulative Preferred
Stock redeemed by the Association shall be canceled and shall revert to
authorized but unissued shares of Non-Cumulative Preferred Stock.
2. Dividends.
(a) General. The holders of Non-Cumulative Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors,
but only out of funds legally available therefor, non-cumulative cash
dividends at the annual rate of $83.75 per share, and no more, payable
quarterly on
2
<PAGE> 9
the first days of December, March, June and September, respectively, in
each year with respect to the quarterly dividend period (or portion
thereof) ending on the day preceding such respective dividend payment date,
to shareholders of record on the respective date, not exceeding fifty days
preceding such dividend payment date, fixed for that purpose by the Board
of Directors in advance of payment of each particular dividend.
Notwithstanding the foregoing, the cash dividend to be paid on the first
dividend payment date after the initial issuance of Non-Cumulative
Preferred Stock and on any dividend payment date with respect to a partial
dividend period shall be $83.75 per share multiplied by the fraction
produced by dividing the number of days since such initial issuance or in
such partial dividend period, as the case may be, by 360.
(b) Non-cumulative Dividends. Dividends on the shares of Non-cumulative
Stock shall not be cumulative and no rights shall accrue to the holders of
shares of Non-Cumulative Preferred Stock by reason of the fact that the
Association may fail to declare or pay dividends on the shares of
Non-Cumulative Preferred Stock in any amount in any quarterly dividend
period, whether or not the earnings of the Association in any quarterly
dividend period were sufficient to pay such dividends in whole or in part,
and the Association shall have no obligation at any time to pay any such
dividend.
(c) Payment of Dividends. So long as any share of Non-Cumulative Preferred
Stock remains outstanding, no dividend whatsoever shall be paid or declared
and no distribution made on any junior stock other than a dividend payable
in junior stock, and no shares of junior stock shall be purchased, redeemed
or otherwise acquired for consideration by the Association, directly or
indirectly (other than as a result of a reclassification of junior stock,
or the exchange or conversion of one junior stock for or into another
junior stock, or other than through the use of the proceeds of a
substantially contemporaneous sale of other junior stock), unless all
dividends on all shares of non-cumulative Preferred Stock and
non-cumulative Preferred Stock ranking on a parity as to dividends with the
shares of Non-Cumulative Preferred Stock for the most recent dividend
period ended prior to the date of such payment or declaration shall have
been paid in full and all dividends on all shares of cumulative Preferred
Stock ranking on a parity as to dividends with the shares of Non-Cumulative
Stock (notwithstanding that dividends on such stock are cumulative) for all
past dividend periods shall have been paid in full. Subject to the
foregoing, and not otherwise, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of Directors may be declared
and paid on any junior stock from time to time out of
3
<PAGE> 10
any funds legally available therefor, and the Non-Cumulative Preferred
Stock shall not be entitled to participate in any such dividends, whether
payable in cash, stock or otherwise. No dividends shall be paid or declared
upon any shares of any class or series of stock of the Association ranking
on a parity (whether dividends on such stock are cumulative or
non-cumulative) with the Non-Cumulative Preferred Stock in the payment of
dividends for any period unless at or prior to the time of such payment or
declaration all dividends payable on the Non-cumulative Preferred Stock for
the most recent dividend period ended prior to the date of such payment or
declaration shall have been paid in full. When dividends are not paid in
full, as aforesaid, upon the Non-Cumulative Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends (whether
dividends on such stock are cumulative or non-cumulative) with the
Non-Cumulative Preferred Stock, all dividends declared upon the
Non-Cumulative Preferred Stock and any other series of Preferred Stock
ranking on a parity as to dividends with the Non-Cumulative Preferred Stock
shall be declared pro rata so that the amount of dividends declared per
share on the Non-cumulative Preferred Stock and such other Preferred Stock
shall in all cases bear to each other the same ratio that accrued dividends
per share on the Non-Cumulative Preferred Stock (but without any
accumulation in respect of any unpaid dividends for prior dividend periods
on the shares of Non-Cumulative Stock) and such other Preferred Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the
Non-Cumulative Preferred Stock which may be in arrears.
3. Voting. The holders of Non-Cumulative Preferred Stock shall not have any
right to vote for the election of directors or for any other purpose.
4. Redemption.
(a) Optional Redemption. The Association, at the option of the Board of
Directors, may redeem the whole or any part of the shares of Non-Cumulative
Preferred Stock at the time outstanding, at any time or from time to time
after the fifth anniversary of the date of original issuance of the
Non-Cumulative Preferred Stock, upon notice given as hereinafter specified,
at the redemption price per share equal to $1,000 plus an amount equal to
the amount of accrued and unpaid dividends from the immediately preceding
dividend payment date (but without any accumulation for unpaid dividends
for prior dividend periods on the shares of Non-Cumulative Preferred Stock)
to the redemption date.
4
<PAGE> 11
(b) Procedures. Notice of every redemption of shares of Non-Cumulative
Preferred Stock shall be mailed by first class mail, postage prepaid,
addressed to the holders of record of the shares to be redeemed at their
respective last addresses as they shall appear on the books of the
Association. Such mailing shall be at least 10 days and not more than 60
days prior to the date fixed for redemption. Any notice which is mailed in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the shareholder receives such notice, and failure
duly to give such notice by mail, or any defect in such notice, to any
holder of shares of Non-Cumulative Preferred Stock designated for
redemption shall not affect the validity of the proceedings for the
redemption of any other shares of Non-Cumulative Preferred Stock.
In case of redemption of a part only of the shares of Non-Cumulative
Preferred Stock at the time outstanding the redemption may be either pro
rata or by lot or by such other means as the Board of Directors of the
Association in its discretion shall determine. The Board of Directors shall
have full power and authority, subject to the provisions herein contained,
to prescribe the terms and conditions upon which shares of the
Non-Cumulative Preferred Stock shall be redeemed from time to time.
If notice of redemption shall have been duly given, and, if on or before
the redemption date specified therein, all funds necessary for such
redemption shall have been set aside by the Association, separate and apart
from its other funds, in trust for the pro rata benefit of the holders of
the shares called for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares so called
for redemption shall not have been surrendered for cancellation, all shares
so called for redemption shall no longer be deemed outstanding on and after
such redemption date, and all rights with respect to such shares shall
forthwith on such redemption date cease and terminate, except only the
right of the holders thereof to, receive the amount payable on redemption
thereof, without interest.
If such notice of redemption shall have been duly given or if the
Association shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice, and, if
on or before the redemption date specified therein, the funds necessary for
such redemption shall have been deposited by the Association with such bank
or trust company in trust for the pro rata benefit of the holders of the
shares called for redemption, then, notwithstanding that any certificate
for shares so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares so called
5
<PAGE> 12
for redemption shall no longer be deemed to be outstanding and all rights
with respect to such shares shall forthwith cease and terminate, except
only the right of the holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without interest. The aforesaid bank or trust company shall be organized
and in good standing under the laws of the United States of America or any
state thereof, shall have capital, surplus and undivided profits
aggregating at least $50,000,000 according to its last published statement
of condition, and shall be identified in the notice of redemption. Any
interest accrued on such funds shall be paid to the Association from time
to time. In case fewer than all the shares of Non-Cumulative Preferred
Stock represented by a stock certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the
holder thereof.
Any funds so set aside or deposited, as the case may be, and unclaimed at
the end of the relevant escheat period under applicable state law from such
redemption date shall, to the extent permitted by law, be released or
repaid to the Association, after which repayment the holders of the shares
so called for redemption shall look only to the Association for payment
thereof.
5. Liquidation.
(a) Liquidation Preference. In the event of any voluntary liquidation,
dissolution or winding up of the affairs of the Association, the holders of
Non-cumulative Preferred Stock shall be entitled, before any distribution
or payment is made to the holders of any junior stock, to be paid in full
an amount per share equal to an amount equal to $1,000 plus an amount equal
to the amount of accrued and unpaid dividends per share from the
immediately preceding dividend payment date (but without any accumulation
for unpaid dividends for prior dividend periods on the shares of
Non-cumulative Preferred Stock) per share to such distribution or payment
date (the "liquidation amount").
In the event of any involuntary liquidation, dissolution or winding up of
the affairs of the Association, then, before any distribution or payment
shall be made to the holders of any junior stock, the holders of
Non-Cumulative Preferred Stock shall be entitled to be paid in full an
amount per share equal to the liquidation amount.
If such payment shall have been made in full to all holders of shares of
Non-Cumulative Preferred Stock, the remaining assets of the Association
6
<PAGE> 13
shall be distributed among the holders of junior stock, according to their
respective rights and preferences and in each case according to their
respective numbers of shares.
(b) Insufficient Assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
the Association are insufficient to pay such liquidation amount on all
outstanding shares of Non-cumulative Preferred Stock, then the holders of
Non-Cumulative Preferred Stock shall share ratably in any distribution of
assets in proportion to the full amounts to which they would otherwise be
respectively entitled.
(c) Interpretation. For the purposes of this paragraph 5, the consolidation
or merger of the Association with any other corporation or association
shall not be deemed to constitute a liquidation, dissolution or winding up
of the Association.
6. Preemptive Rights. The Non-Cumulative Preferred Stock is not entitled to
any preemptive, subscription, conversion or exchange rights in respect of
any securities of the Association.
7. Definitions. As used herein with respect to the Non-Cumulative Preferred
Stock, the following terms shall have the following meanings:
(a) The term "junior stock" shall mean the Common Stock and any other class
or series of shares of the Association hereafter authorized over which the
Non-Cumulative Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Association.
(b) The term "accrued dividends", with respect to any share of any class or
series, shall mean an amount computed at the annual dividend rate for the
class or series of which the particular share is a part, from, if such
share is cumulative, the date on which dividends on such share became
cumulative to and including the date to which such dividends are to be
accrued, less the aggregate amount of all dividends theretofore paid
thereon and, if such share is noncumulative, the relevant date designated
to and including the date to which such dividends are accrued, less the
aggregate amount of all dividends theretofore paid with respect to such
period.
7
<PAGE> 14
(c) The term "Preferred Stock" shall mean all outstanding shares of all
series of preferred stock of the Association as defined in this Article
Fifth of the Articles of Association, as amended, of the Association.
8. Restriction on Transfer. No shares of Non-Cumulative Preferred Stock, or
any interest therein, may be sold, pledged, transferred or otherwise
disposed of without the prior written consent of the Association. The
foregoing restriction shall be stated on any certificate for any shares of
Non-Cumulative Preferred Stock.
9. Additional Rights. The shares of Non-Cumulative Preferred Stock shall not
have any relative, participating, optional or other special rights and
powers other than as set forth herein.
SIXTH. The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairman of the Board, unless the Board appoints
another director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents; and to appoint a cashier or such other
officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association, to fix the salaries to be paid to
them; to dismiss them, to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all By-Laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location of
the main office to any other place within the limits of Charlotte, North
Carolina, without the approval of the shareholders but subject to the approval
of the Comptroller of the Currency; and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location, without the approval of the shareholders but subject to the approval
of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
8
<PAGE> 15
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. Each director and executive officer of this Association shall be
indemnified by the association against liability in any proceeding (including
without limitation a proceeding brought by or on behalf of the Association
itself) arising out of his status as such or his activities in either of the
foregoing capacities, except for any liability incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of the Association. Liabilities incurred by a
director or executive officer of the Association in defending a proceeding shall
be paid by the Association in advance of the final disposition of such
proceeding upon receipt of an undertaking by the director or executive officer
to repay such amount if it shall be determined, as provided in the last
paragraph of this Article Tenth, that he is not entitled to be indemnified by
the Association against such liabilities.
The indemnity against liability in the preceding paragraph of this Article
Tenth, including liabilities incurred in defending a proceeding, shall be
automatic and self-operative.
Any director, officer or employee of this Association who serves at the
request of the Association as a director, officer, employee or agent of a
charitable, not-for-profit, religious, educational or hospital corporation,
partnership, joint venture, trust or other enterprise, or a trade association,
or as a trustee or administrator under an employee benefit plan, or who serves
at the request of the Association as a director, officer or employee of a
business corporation in connection with the administration of an estate or trust
by the Association, shall have the right to be indemnified by the Association,
subject to the provisions set forth in the following paragraph of this Article
Tenth, against liabilities in any manner arising out of or attributable to such
status or activities in any such capacity, except for any liability incurred on
account of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of the Association, or
of the corporation, partnership, joint venture, trust, enterprise, Association
or plan being served by such person.
In the case of all persons except the directors and executive officers of the
Association, the determination of whether a person is entitled to
indemnification
9
<PAGE> 16
under the preceding paragraph of this Article Tenth shall be made by and in the
sole discretion of the Chief Executive Officer of the Association. In the case
of the directors and executive officers of the Association, the indemnity
against liability in the preceding paragraph of this Article Tenth shall be
automatic and self-operative.
For purposes of this Article Tenth of these Articles of Association only,
the following terms shall have the meanings indicated:
(a) "Association" means First Union National Bank and its direct and indirect
wholly-owned subsidiaries.
(b) "Director" means an individual who is or was a director of the
Association.
(c) "Executive officer" means an officer of the Association who by resolution
of the Board of Directors of the Association has been determined to be an
executive officer of the Association for purposes of Regulation O of the Federal
Reserve Board.
(d) "Liability" means the obligation to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee benefit
plan), or reasonable expenses, including counsel fees and expenses, incurred
with respect to a proceeding.
(e) "Party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
The Association shall have no obligation to indemnify any person for an amount
paid in settlement of a proceeding unless the Association consents in writing to
such settlement.
The right to indemnification herein provided for shall apply to persons who
are directors, officers, or employees of banks or other entities that are
hereafter merged or otherwise combined with the Association only after the
effective date of such merger or other combination and only as to their status
and activities after such date.
10
<PAGE> 17
The right to indemnification herein provided for shall inure to the benefit of
the heirs and legal representatives of any person entitled to such right.
No revocation of, change in, or adoption of any resolution or provision in the
Articles of Association or By-laws of the Association inconsistent with, this
Article Tenth shall adversely affect the rights of any director, officer, or
employee of the Association with respect to (i) any proceeding commenced or
threatened prior to such revocation, change, or adoption, or (ii) any proceeding
arising out of any act or omission occurring prior to such revocation, change,
or adoption, in either case, without the written consent of such director,
officer, or employee.
The rights hereunder shall be in addition to and not exclusive of any other
rights to which a director, officer, or employee of the Association may be
entitled under any statute, agreement, insurance policy, or otherwise.
The Association shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of the
Association, or is or was serving at the request of the Association as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, trade association, employee benefit plan, or other enterprise,
against any liability asserted against such director, officer, or employee in
any such capacity, or arising out of their status as such, whether or not the
Association would have the power to indemnify such director, officer, or
employee against such liability, excluding insurance coverage for a formal order
assessing civil money penalties against an Association director or employee.
Notwithstanding anything to the contrary provided herein, no person shall have
a right to indemnification with respect to any liability (i) incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to the Association, (ii) to the extent such person is entitled
to receive payment therefor under any insurance policy or from any corporation,
partnership, joint venture, trust, trade association, employee benefit plan, or
other enterprise other than the Association, or (iii) to the extent that a court
of competent jurisdiction determines that such indemnification is void or
prohibited under state or federal law.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of holders of a
greater
11
<PAGE> 18
amount of stock is required by law, and in that case, by the vote of the holders
of such greater amount.
12
<PAGE> 19
BY-LAWS OF
FIRST UNION NATIONAL BANK
Charter No. 22693
As Restated Effective February 26, 1998
<PAGE> 20
BY-LAWS OF
FIRST UNION NATIONAL BANK
ARTICLE I
Meetings of Shareholders
------------------------
Section 1.1 Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday of April in
each year, commencing with the year 1998, except that the Board of Directors
may, from time to time and upon passage of a resolution specifically setting
forth its reasons, set such other date for such meeting during the month of
April as the Board of Directors may deem necessary or appropriate; provided,
however, that if an annual meeting would otherwise fall on a legal holiday, then
such annual meeting shall be held on the second business day following such
legal holiday. The holders of a majority of the outstanding shares entitled to
vote which are represented at any meeting of the shareholders may choose persons
to act as Chairman and as Secretary of the meeting.
Section 1.2 Special Meetings. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any three or more shareholders owning,
in the aggregate, not less than ten percent of the stock of the Association.
Every such special meeting, unless otherwise provided by law, shall be called by
mailing, postage prepaid, not less than ten days prior to the date fixed for
such meeting, to each shareholder at his address appearing on the books of the
Association, a notice stating the purpose of the meeting.
Section 1.3 Nominations for Directors. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the bank, shall be made in writing and shall be delivered
or mailed to the President of the Bank and to the Comptroller of the Currency,
Washington, D. C., not less than 14 days nor more than 50 days prior to any
meeting of stockholders called for the election of directors, provided however,
that if less than 21 days' notice of such meeting is given to
2
<PAGE> 21
shareholders, such nomination shall be mailed or delivered to the President of
the Bank and to the Comptroller of the Currency not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed. Such notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the bank that will be voted for each
proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the bank owned by
the notifying shareholder. Nominations not made in accordance herewith may, in
his discretion, be disregarded by the chairman of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for each such
nominee.
Section 1.4 Judges of Election. The Board may at any time appoint from
among the shareholders three or more persons to serve as Judges of Election at
any meeting of shareholders; to act as judges and tellers with respect to all
votes by ballot at such meeting and to file with the Secretary of the meeting a
Certificate under their hands, certifying the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this Association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and shall be filed with the records of the meeting.
Section 1.6 Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
---------
Section 2.1 Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have power to manage and administer the
business and affairs of the Association. Except as expressly limited by law, all
corporate powers of the Association shall be vested in and may be exercised by
said Board.
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Section 2.2 Number. The Board shall consist of not less than five nor more
than twenty-five directors, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full Board or by resolution of the shareholders at any meeting thereof;
provided, however, that a majority of the full Board of Directors may not
increase the number of directors to a number which, (1) exceeds by more than two
the number of directors last elected by shareholders where such number was
fifteen or less, and (2) to a number which exceeds by more than four the number
of directors last elected by shareholders where such number was sixteen or more,
but in no event shall the number of directors exceed twenty-five.
Section 2.3 Organization Meeting. The Secretary of the meeting upon
receiving the certificate of the judges, of the result of any election, shall
notify the directors-elect of their election and of the time at which they are
required to meet at the Main Office of the Association for the purpose of
organizing the new Board and electing and appointing officers of the Association
for the succeeding year. Such meeting shall be held as soon thereafter as
practicable. If, at the time fixed for such meeting, there shall not be a quorum
present, the directors present may adjourn the meeting from time to time, until
a quorum is obtained.
Section 2.4 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place and time as may be designated by resolution of the
Board of Directors. Upon adoption of such resolution, no further notice of such
meeting dates or the places or times thereof shall be required. Upon the failure
of the Board of Directors to adopt such a resolution, regular meetings of the
Board of Directors shall be held, without notice, on the third Tuesday in
February, April, June, August, October and December, commencing with the year
1997, at the main office or at such other place and time as may be designated by
the Board of Directors. When any regular meeting of the Board would otherwise
fall on a holiday, the meeting shall be held on the next business day unless the
Board shall designate some other day.
Section 2.5 Special Meetings. Special meetings of the Board of Directors
may be called by the President of the Association, or at the request of three
(3) or more directors. Each member of the Board of Directors shall be given
notice stating the time and place, by telegram, letter, or in person, of each
such special meeting.
Section 2.6 Quorum. A majority of the directors shall constitute a quorum
at any meeting, except when otherwise provided by law; but a less
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<PAGE> 23
number may adjourn any meeting, from time to time, and the meeting may be held,
as adjourned, without further notice.
Section 2.7 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose.
Section 2.8 Advisory Boards. The Board of Directors may appoint Advisory
Boards for each of the states in which the Association conducts operations. Each
such Advisory Board shall consist of as many persons as the Board of Directors
may determine. The duties of each Advisory Board shall be to consult and advise
with the Board of Directors and senior officers of the Association in such state
with regard to the best interests of the Association and to perform such other
duties as the Board of Directors may lawfully delegate. The senior officer in
such state, or such officers as directed by such senior officer, may appoint
advisory boards for geographic regions within such state and may consult with
the State Advisory Boards prior to such appointments.
ARTICLE III
Committees of the Board
-----------------------
Section 3.1 The Board of Directors, by resolution adopted by a majority of
the number of directors fixed by these By-Laws, may designate two or more
directors to constitute an Executive Committee and other committees, each of
which, to the extent authorized by law and provided in such resolution, shall
have and may exercise all of the authority of the Board of Directors and the
management of the Association. The designation of any 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 any member of the Board of Directors by law. The Board of Directors
reserves to itself alone the power to act on (1) dissolution, merger or
consolidation, or disposition of substantially all corporate property, (2)
designation of committees or filling vacancies on the Board of Directors or on a
committee of the Board (except as hereinafter provided), (3) adoption, amendment
or repeal of By-laws, (4) amendment or repeal of any resolution of the Board
which by its terms is not so amendable or repealable, and (5) declaration of
dividends, issuance of stock, or recommendations to stockholders of any action
requiring stockholder approval.
The Board of Directors or the Chairman of the Board of Directors of the
Association may change the membership of any committee at any time, fill
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<PAGE> 24
vacancies therein, discharge any committee or member thereof either with or
without cause at any time, and change at any time the authority and
responsibility of any such committee.
A majority of the members of any committee of the Board of Directors may
fix such committee's rules of procedure. All action by any committee shall be
reported to the Board of Directors at a meeting succeeding such action, except
such actions as the Board may not require to be reported to it in the resolution
creating any such committee. Any action by any committee shall be subject to
revision, alteration, and approval by the Board of Directors, except to the
extent otherwise provided in the resolution creating such committee; provided,
however, that no rights or acts of third parties shall be affected by any such
revision or alteration.
ARTICLE IV
Officers and Employees
----------------------
Section 4.1 Officers. The officers of the Association may be a Chairman of
the Board, a Vice Chairman of the Board, one or more Chairmen or Vice Chairmen
(who shall not be required to be directors of the Association), a President, one
or more Vice Presidents, a Secretary, a Cashier or Treasurer, and such other
officers, including officers holding similar or equivalent titles to the above
in regions, divisions or functional units of the Association, as may be
appointed by the Board of Directors. The Chairman of the Board and the President
shall be members of the Board of Directors. Any two or more offices may be held
by one person, but no officer shall sign or execute any document in more than
one capacity.
Section 4.2 Election, Term of Office, and Qualification. Each officer shall
be chosen by the Board of Directors and shall hold office until the annual
meeting of the Board of Directors held next after his election or until his
successor shall have been duly chosen and qualified, or until his death, or
until he shall resign, or shall have been disqualified, or shall have been
removed from office.
Section 4.2(a) Officers Acting as Assistant Secretary. Notwithstanding
Section 1 of these By-laws, any Senior Vice President, Vice President, or
Assistant Vice President shall have, by virtue of his office, and by authority
of the By-laws, the authority from time to time to act as an Assistant Secretary
of the Bank, and to such extent, said officers are appointed to the office of
Assistant Secretary.
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Section 4.3 Chief Executive Officer. The Board of Directors shall designate
one of its members to be the President of this Association, and the officer so
designated shall be an ex officio member of all committees of the Association
except the Examining Committee, and its Chief Executive Officer unless some
other officer is so designated by the Board of Directors.
Section 4.4 Duties of Officers. The duties of all officers shall be
prescribed by the Board of Directors. Nevertheless, the Board of Directors may
delegate to the Chief Executive Officer the authority to prescribe the duties of
other officers of the corporation not inconsistent with law, the charter, and
these By-laws, and to appoint other employees, prescribe their duties, and to
dismiss them. Notwithstanding such delegation of authority, any officer or
employee also may be dismissed at any time by the Board of Directors.
Section 4.5 Other Employees. The Board of Directors may appoint from time
to time such tellers, vault custodians, bookkeepers, and other clerks, agents,
and employees as it may deem advisable for the prompt and orderly transaction of
the business of the Association, define their duties, fix the salary to be paid
them, and dismiss them. Subject to the authority of the Board of Directors, the
Chief Executive Officer or any other officer of the Association authorized by
him, may appoint and dismiss all such tellers, vault custodians, bookkeepers and
other clerks, agents, and employees, prescribe their duties and the conditions
of their employment, and from time to time fix their compensation.
Section 4.6 Removal and Resignation. Any officer or employee of the
Association may be removed either with or without cause by the Board of
Directors. Any employee other than an officer elected by the Board of Directors
may be dismissed in accordance with the provisions of the preceding Section 4.5.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chief Executive Officer of the Association. Any such
resignation shall become effective upon its being accepted by the Board of
Directors, or the Chief Executive Officer.
ARTICLE V
Fiduciary Powers
----------------
Section 5.1 Capital Management Group. There shall be an area of this
Association known as the Capital Management Group which shall be responsible for
the exercise of the fiduciary powers of this Association. The Capital Management
Group shall consist of
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<PAGE> 26
four service areas: Fiduciary Services, Retail Services, Investments and
Marketing. The Fiduciary Services unit shall consist of personal trust, employee
benefits, corporate trust and operations. The General Office for the Fiduciary
Services unit shall be located in Charlotte, N.C., with City Trust Offices
located in such cities within the State of North Carolina as designated by the
Board of Directors.
Section 5.2 Trust Officers. There shall be a General Trust Officer of this
Association whose duties shall be to manage, supervise and direct all the
activities of the Capital Management Group. Further, there shall be one or more
Senior Trust Officers designated to assist the General Trust Officer in the
performance of his duties. They shall do or cause to be done all things
necessary or proper in carrying out the business of the Capital Management Group
in accordance with provisions of applicable law and regulation.
Section 5.3 Capital Management/General Trust Committee. There shall be a
Capital Management/General Trust Committee composed of not less than four (4)
members of the Board of Directors or officers of this Association who shall be
appointed annually or from time to time by the Board of Directors of the
Association. The General Trust Officer shall serve as an ex-officio member of
the Committee. Each member shall serve until his successor is appointed. The
Board of Directors or the Chairman of the Board may change the membership of the
Capital Management/General Trust Committee at any time, fill vacancies therein,
or discharge any member thereof with or without cause at any time. The Committee
shall counsel and advise on all matters relating to the business or affairs of
the Capital Management Group and shall adopt overall policies for the conduct of
the business of the Capital Management Group including but not limited to:
general administration, investment policies, new business development, and
review for approval of major assignments of functional responsibilities. The
Committee shall meet at least quarterly or as called for by its Chairman or any
three (3) members of the Committee. A quorum shall consist of three (3) members.
In carrying out its responsibilities, the Capital Management/General Trust
Committee shall review the actions of all officers, employees and committees
utilized by this Association in connection with the activities of the Capital
Management Group and may assign the administration and performance of any
fiduciary powers or duties to any of such officers or employees or to the
Investment Policy Committee, Personal Trust Administration Committee, Account
Review Committee, Corporate and Institutional Accounts Committee, or any other
committees it shall designate. One of the methods to be used in the review
process will be the thorough scrutiny of the Report of Examination by the Office
of the Comptroller of the Currency and the reports of the Audit Division of
First Union Corporation, as they relate to the activities of the Capital
Management Group. These reviews shall be in addition to reviews of such reports
by the Audit Committee of the Board of Directors. The Chairman of the Capital
Management/General Trust
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<PAGE> 27
Committee shall be appointed by the Chairman of the Board of Directors. He shall
cause to be recorded in appropriate minutes all actions taken by the Committee.
The minutes shall be signed by its Secretary and approved by its Chairman.
Further, the Committee shall summarize all actions taken by it and shall submit
a report of its proceedings to the Board of Directors at its next regularly
scheduled meeting following a meeting of the Capital Management/General Trust
Committee. As required by Section 9.7 of Regulation 9 of the Comptroller of the
Currency, the Board of Directors retains responsibility for the proper exercise
of the fiduciary powers of this Association.
The Fiduciary Services unit of the Capital Management Group will maintain a
list of securities approved for investment in fiduciary accounts and will from
time to time provide the Capital Management/General Trust Committee with current
information relative to such list and also with respect to transactions in other
securities not on such list. It is the policy of this Association that members
of the Capital Management/General Trust Committee should not buy, sell or trade
in securities which are on such approved list or in any other securities in
which the Fiduciary Services unit has taken, or intends to take, a position in
fiduciary accounts in any circumstances in which any such transaction could be
viewed as a possible conflict of interest or could constitute a violation of
applicable law or regulation. Accordingly, if any such securities are owned by
any member of the Capital Management/General Trust Committee at the time of
appointment to such Committee, the Capital Management Group shall be promptly so
informed in writing. If any member of the Capital Management/General Trust
Committee intends to buy, sell, or trade in any such securities while serving as
a member of the Committee, he should first notify the Capital Management Group
in order to make certain that any proposed transaction will not constitute a
violation of this policy or of applicable law or regulation.
Section 5.4 Investment Policy Committee. There shall be an Investment
Policy Committee composed of not less than seven (7) officers and/or employees
of this Association who shall be appointed annually or from time to time by the
Board of Directors. Each member shall serve until his successor is appointed.
Meetings shall be called by the Chairman or any two (2) members of the
Committee. A quorum shall consist of five (5) members. The Investment Policy
Committee shall exercise such fiduciary powers and perform such duties as may be
assigned to it by the Capital Management/General Trust Committee. All actions
taken by the Investment Policy Committee shall be recorded in appropriate
minutes, signed by the Secretary thereof, approved by its Chairman and submitted
to the Capital Management/General Trust Committee at its next ensuing regular
meeting for its review and approval.
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Section 5.5 Personal Trust Administration Committee. There shall be a
Personal Trust Administration Committee composed of not less than five (5)
officers, who shall be appointed annually or from time to time by the Board of
Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any three (3) members of the Committee. A
quorum shall consist of three (3) members. The Personal Trust Administration
Committee shall exercise such fiduciary powers and perform such duties as may be
assigned to it by the Capital Management/General Trust Committee. All action
taken by the Personal Trust Administration Committee shall be recorded in
appropriate minutes signed by the Secretary thereof, approved by its Chairman,
and submitted to the Capital Management/General Trust Committee at its next
ensuing regular meeting for its review and approval.
Section 5.6 Account Review Committee. There shall be an Account Review
Committee composed of not less than four (4) officers and/or employees of this
Association, who shall be appointed annually or from time to time by the Board
of Directors. Each member shall serve until his successor is appointed. Meetings
shall be called by the Chairman or any two (2) members of the Committee. A
quorum shall consist of three (3) members. The Account Review Committee shall
exercise such fiduciary powers and perform such duties as may be assigned to it
by the Capital Management/General Trust Committee. All actions taken by the
Account Review Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and submitted to the Capital
Management/General Trust Committee at its next ensuing regular meeting for its
review and approval.
Section 5.7 Corporate and Institutional Accounts Committee. There shall be
a Corporate and Institutional Accounts Committee composed of not less than five
(5) officers and/or employees of this Association, who shall be appointed
annually, or from time to time, by the Capital Management/General Trust
Committee and approved by the Board of Directors. Meetings may be called by the
Chairman or any two (2) members of the Committee. A quorum shall consist of
three (3) members. The Corporate and Institutional Accounts Committee shall
exercise such fiduciary powers and duties as may be assigned to it by the
General Trust Committee. All actions taken by the Corporate and Institutional
Accounts Committee shall be recorded in appropriate minutes, signed by the
Secretary thereof, approved by its Chairman and made available to the General
Trust Committee at its next ensuing regular meeting for its review and approval.
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ARTICLE VI
Stock and Stock Certificates
----------------------------
Section 6.1 Transfers. Shares of stock shall be transferable on the books
of the Association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights and liabilities of the
prior holder of such shares.
Section 6.2 Stock Certificates. Certificates of stock shall bear the
signature of the Chairman, the Vice Chairman, the President, or a Vice President
(which may be engraved, printed, or impressed), and shall be signed manually or
by facsimile process by the Secretary, Assistant Secretary, Cashier, Assistant
Cashier, or any other officer appointed by the Board of Directors for that
purpose, to be known as an Authorized Officer, and the seal of the Association
shall be engraved thereon. Each certificate shall recite on its face that the
stock represented thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VII
Corporate Seal
--------------
Section 7.1 The President, the Cashier, the Secretary, or any Assistant
Cashier, or Assistant Secretary, or other officer thereunto designated by the
Board of Directors shall have authority to affix the corporate seal to any
document requiring such seal, and to attest the same. Such seal shall be
substantially in the following form.
ARTICLE VIII
Miscellaneous Provisions
------------------------
Section 8.1 Fiscal Year. The fiscal year of the Association shall be the
calendar year.
Section 8.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, notices,
applications, schedules, accounts, affidavits, bonds, undertakings, proxies, and
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<PAGE> 30
other instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted in behalf of the Association by the Chairman of the Board,
the Vice Chairman of the Board, any Chairman or Vice Chairman, the President,
any Vice President or Assistant Vice President, the Secretary or any Assistant
Secretary, the Cashier or Treasurer or any Assistant Cashier or Assistant
Treasurer, or any officer holding similar or equivalent titles to the above in
any regions, divisions or functional units of the Association, or, if in
connection with the exercise of fiduciary powers of the Association, by any of
said officers or by any Trust Officer or Assistant Trust Officer (or equivalent
titles); provided, however, that where required, any such instrument shall be
attested by one of said officers other than the officer executing such
instrument. Any such instruments may also be executed, acknowledged, verified,
delivered or accepted in behalf of the Association in such other manner and by
such other officers as the Board of Directors may from time to time direct. The
provisions of this Section 8.2 are supplementary to any other provision of these
By-laws.
Section 8.3 Records. The Articles of Association, the By-laws, and the
proceedings of all meetings of the shareholders, the Board of Directors,
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary, Cashier, or other officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-laws
-------
Section 9.1 Inspection. A copy of the By-laws, with all amendments thereto,
shall at all times be kept in a convenient place at the Head Office of the
Association, and shall be open for inspection to all shareholders, during
banking hours.
Section 9.2 Amendments. The By-laws may be amended, altered or repealed, at
any regular or special meeting of the Board of Directors, by a vote of a
majority of the whole number of Directors.
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<PAGE> 31
Exhibit A
---------
First Union National Bank
Article X
Emergency By-laws
In the event of an emergency declared by the President of the United States
or the person performing his functions, the officers and employees of this
Association will continue to conduct the affairs of the Association under such
guidance from the directors or the Executive Committee as may be available
except as to matters which by statute require specific approval of the Board of
Directors and subject to conformance with any applicable governmental directives
during the emergency.
OFFICERS PRO TEMPORE AND DISASTER
Section 1. The surviving members of the Board of Directors or the Executive
Committee shall have the power, in the absence or disability of any officer, or
upon the refusal of any officer to act, to delegate and prescribe such officer's
powers and duties to any other officer, or to any director, for the time being.
Section 2. In the event of a state of disaster of sufficient severity to
prevent the conduct and management of the affairs and business of this
Association by its directors and officers as contemplated by these By-laws, any
two or more available members of the then incumbent Executive Committee shall
constitute a quorum of that Committee for the full conduct and management of the
affairs and business of the Association in accordance with the provisions of
Article II of these By-laws; and in addition, such Committee shall be empowered
to exercise all of the powers reserved to the General Trust Committee under
Section 5.3 of Article V hereof. In the event of the unavail- ability, at such
time, of a minimum of two members of the then incumbent Executive Committee, any
three available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Association in
accordance with the foregoing provisions of this section. This By-law shall be
subject to implementation by resolutions of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-laws (other than
this section) and any resolutions which are contrary to the provisions of this
section or to the provisions of any such implementary
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<PAGE> 32
resolutions shall be suspended until it shall be determined by an interim
Executive Committee acting under this section that it shall be to the advantage
of this Association to resume the conduct and management of its affairs and
business under all of the other provisions of these By-laws.
Officer Succession
BE IT RESOLVED, that if consequent upon war or warlike damage or disaster,
the Chief Executive Officer of this Association cannot be located by the then
acting Head Officer or is unable to assume or to continue normal executive
duties, then the authority and duties of the Chief Executive Officer shall,
without further action of the Board of Directors, be automatically assumed by
one of the following persons in the order designated:
Chairman
President
Division Head/Area Administrator - Within this officer class, officers
shall take seniority on the basis of length of service in such office
or, in the event of equality, length of service as an officer of the
Association.
Any one of the above persons who in accordance with this resolution assumes
the authority and duties of the Chief Executive Officer shall continue to serve
until he resigns or until five-sixths of the other officers who are attached to
the then acting Head Office decide in writing he is unable to perform said
duties or until the elected Chief Executive Officer of this Association, or a
person higher on the above list, shall become available to perform the duties of
Chief Executive Officer of the Association.
BE IT FURTHER RESOLVED, that anyone dealing with this Association may
accept a certification by any three officers that a specified individual is
acting as Chief Executive Officer in accordance with this resolution; and that
anyone accepting such certification may continue to consider it in force until
notified in writing of a change, said notice of change to carry the signatures
of three officers of the Association.
Alternate Locations
The offices of the Association at which its business shall be conducted
shall be the main office thereof in each city which is designated as a City
Office (and branches, if any), and any other legally authorized location which
may be leased or acquired by this Association to carry on its business. During
an emergency resulting in any authorized place of business of this Association
being unable to function, the business ordinarily conducted at such location
shall be relocated
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<PAGE> 33
elsewhere in suitable quarters, in addition to or in lieu of the locations
heretofore mentioned, as may be designated by the Board of Directors or by the
Executive Committee or by such persons as are then, in accordance with
resolutions adopted from time to time by the Board of Directors dealing with the
exercise of authority in the time of such emergency, conducting the affairs of
this Association. Any temporarily relocated place of business of this
Association shall be returned to its legally authorized location as soon as
practicable and such temporary place of business shall then be discontinued.
Acting Head Offices
BE IT RESOLVED, that in case of and provided because of war or warlike
damage or disaster, the General Office of this Association, located in
Charlotte, North Carolina, is unable temporarily to continue its functions, the
Raleigh office, located in Raleigh, North Carolina, shall automatically and
without further action of this Board of Directors, become the "Acting Head
Office of this Association";
BE IT FURTHER RESOLVED, that if by reason of said war or warlike damage or
disaster, both the General Office of this Association and the said Raleigh
Office of this Association are unable to carry on their functions, then and in
such case, the Asheville Office of this Association, located in Asheville, North
Carolina, shall, without further action of this Board of Directors, become the
"Acting Head Office of this Association"; and if neither the Raleigh Office nor
the Asheville Office can carry on their functions, then the Greensboro Office of
this Association, located in Greensboro, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association"; and if neither the Raleigh Office, the Asheville Office, nor the
Greensboro Office can carry on their functions, then the Lumberton Office of
this Association, located in Lumberton, North Carolina, shall, without further
action of this Board of Directors, become the "Acting Head Office of this
Association". The Head Office shall resume its functions at its legally
authorized location as soon as practicable.
15
<PAGE> 1
LETTER OF TRANSMITTAL
FOR
8.75% SENIOR NOTES DUE 2008
OF
COGENTRIX ENERGY, INC.
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OF ITS OUTSTANDING 8.75% SENIOR NOTES DUE 2008
FOR
8.75% SENIOR NOTES DUE 2008
----------------------------------
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: (704) 590-7628 By Hand:
Laura Richardson (For Eligible Institutions only) Laura Richardson
First Union National Bank Confirming by Telephone: (704) 590-7414 First Union National Bank
Corporate Trust Department Corporate Trust Department
1525 West W.T. Harris Blvd, 3C3 1525 West W.T. Harris Blvd, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28288-1153
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. THE
INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. CAPITALIZED TERMS USED BUT NOT
DEFINED HEREIN SHALL HAVE THE SAME MEANING GIVEN THEM IN THE PROSPECTUS (AS
DEFINED BELOW).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD SENIOR NOTES TENDERED*
- ------------------------------------------------------------------------------------------------------------------------------------
Name Exactly as it Appears on Your Old Senior Note(s) Old Senior Note(s) Enclosed
and Address of Registered Holder (Please list below -- attach
(Please fill in, if blank) additional list if necessary)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Certificate Principal Amount of Old
Number(s)* Senior Notes Tendered**
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Total Amount Tendered:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Senior Notes may be tendered in whole or in part in denominations
of $1,000 and integral multiples thereof. All Old Senior Notes held
shall be deemed tendered unless a lesser number is specified in this
column.
<PAGE> 2
This Letter of Transmittal is to be completed by holders of Old Senior
Notes (as defined below) either if Old Senior Notes are to be forwarded herewith
or if tenders of Old Senior Notes are to be made by book-entry transfer to an
account maintained by First Union National Bank (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
Holders of Old Senior Notes whose certificates (the "Certificates") for
such Old Senior Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Senior Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
[ ] CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------------------------------
DTC Account No.:
-----------------------------------------------------------------------
Transaction Code No.:
-----------------------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------------------------------------------------
IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:
Name of Tendering Institution:
-----------------------------------------------------------------------
DTC Account No.:
-----------------------------------------------------------------------
Transaction Code No.:
-----------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SENIOR NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET
FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SENIOR NOTES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
-----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
2
<PAGE> 3
NOTE: SIGNATURE MUST BE PROVIDED ON PAGE 6
AND ON THE SUBSTITUTE FORM W-9 ON PAGE 11
Please Read the Accompanying Instructions Carefully
To First Union National Bank:
The undersigned hereby tenders to Cogentrix Energy, Inc., a North
Carolina corporation (the "Company"), the above described aggregate principal
amount of the Company's 8.75% Senior Notes due 2008 (the "Old Senior Notes") in
exchange for a like aggregate principal amount of the Company's 8.75% Senior
Notes due 2008 (the "Exchange Senior Notes") which have been registered under
Securities Act of 1933, as amended (the "Securities Act"), upon the terms and
subject to the conditions set forth in the Prospectus dated ______________, 1998
(as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Senior Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Old Senior
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered Old
Senior Notes, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), subject only to the
right of withdrawal described in the Prospectus, to (i) deliver Certificates for
Old Senior Notes to the Company together with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company, upon receipt by
the Exchange Agent, as the undersigned's agent, of the Exchange Senior Notes to
be issued in exchange for such Old Senior Notes, (ii) present Certificates for
such Old Senior Notes for transfer, and to transfer the Old Senior Notes on the
books of the Company, and (iii) receive for the account of the Company all
benefits and otherwise exercise all rights of beneficial ownership of such Old
Senior Notes, all in accordance with the terms and conditions of the Exchange
Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
SENIOR NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE,
THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE
AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
SENIOR NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD SENIOR NOTES TENDERED
HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION AGREEMENT DATED AS OF OCTOBER 20, 1998 BY AND AMONG THE COMPANY,
SALOMON SMITH BARNEY INC., GOLDMAN, SACHS & CO. AND CIBC OPPENHEIMER CORP. (THE
"REGISTRATION AGREEMENT") AND AGREES THAT ACCEPTANCE OF TENDERED OLD SENIOR
NOTES BY THE COMPANY AND THE ISSUANCE OF THE EXCHANGE SENIOR NOTES THEREFOR
SHALL INSTITUTE FULL PERFORMANCE BY THE COMPANY OF CERTAIN OF ITS OBLIGATIONS
UNDER THE REGISTRATION AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old
Senior Notes tendered hereby should be printed above, if they are not already
set forth above, as they appear on the Certificates representing such Old Senior
Notes. The Certificate number(s) and the Old Senior Notes that the undersigned
wishes to tender should be indicated in the appropriate boxes above.
If any tendered Old Senior Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more Old
Senior Notes than are tendered or accepted for exchange, Certificates for such
nonexchanged or nontendered Old Senior Notes will be returned (or, in the case
of Old Senior Notes tendered by book-entry transfer, such Old Senior Notes will
be credited to an account maintained at DTC), without expense to the tendering
holder, promptly following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Senior Notes pursuant
to any one of the procedures described in "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Senior Notes, constitute
a binding agreement between the undersigned and the Company upon the
3
<PAGE> 4
terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Old Senior Notes
tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Senior
Notes be issued in the name(s) of the undersigned or, in the case of book-entry
transfer of Old Senior Notes, that such Exchange Senior Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Old Senior Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Old Senior Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," the undersigned hereby directs the Exchange Agent to deliver
Exchange Senior Notes to the undersigned at the address shown below the
undersigned's signature.
By tendering Old Senior Notes and executing this Letter of Transmittal,
the undersigned hereby represents and agrees that (i) the undersigned is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company or
any of its subsidiaries, or if it is an affiliate, it will comply with the
registration and prospectus requirements of the Securities Act to the extent
applicable, (ii) any Exchange Senior Notes to be received by the undersigned are
being acquired in the ordinary course of its business, (iii) the undersigned has
no arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of Exchange Senior Notes to be
received in the Exchange Offer, and (iv) if the undersigned is not a
broker-dealer, the undersigned is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such Exchange
Senior Notes. By tendering Old Senior Notes pursuant to the Exchange Offer and
executing this Letter of Transmittal, a holder of Old Senior Notes which is a
broker-dealer represents and agrees, consistent with certain interpretive
letters issued by the staff of the Division of Corporation Finance of the
Securities and Exchange Commission to third parties, that (a) such Old Senior
Notes held by the broker-dealer are held only as a nominee or (b) such Old
Senior Notes were acquired by such broker-dealer for its own account as a result
of market-making activities or other trading activities and it will deliver the
Prospectus (as amended or supplemented from time to time) meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Senior Notes (provided that, by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act).
The Company has agreed that, subject to the provisions of the
Registration Agreement, the Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer (as defined
below) in connection with resales of Exchange Senior Notes received in exchange
for Old Senior Notes, where such Old Senior Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
activities or other trading activities, for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described in the Prospectus) or, if earlier, when all such Exchange Senior Notes
have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use the Prospectus in connection with
the resale of Exchange Senior Notes received in exchange for Old Senior Notes
pursuant to the Exchange Offer must notify the Company, or cause the Company to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided herein for that
purpose or may be delivered to the Exchange Agent at one of the addresses set
forth in the Prospectus under "The Exchange Offer -- Exchange Agent." In that
regard, each broker-dealer who acquired Old Senior Notes for its own account as
a result of market-making or other trading activities (a "Participating
Broker-Dealer"), by tendering such Old Senior Notes and executing this Letter of
Transmittal, agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in the Prospectus untrue in any material
respect or which causes the Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
therein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Agreement, such Participating Broker-Dealer will suspend the sale
of Exchange Senior Notes pursuant to the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to the
Participating Broker-Dealer or the Company has given notice that the sale of the
Exchange Senior Notes may be resumed, as the case may be. If the Company gives
such notice to suspend the sale of the Exchange Senior Notes, it shall extend
the 180-day period referred to above during which Participating Broker-Dealers
are entitled to use the Prospectus in connection with the resale of Exchange
Senior Notes by the number of days in the period from and including the date of
the giving of such notice to and including the date when the Company shall have
made available to Participating Broker-Dealers copies of the supplemented or
amended Prospectus necessary to resume resales of the Exchange Senior Notes or
to and including the date on which the Company has given notice that the use of
the applicable Prospectus may be resumed, as the case may be.
Holders of Old Senior Notes whose Old Senior Notes are accepted for
exchange will not receive accrued interest on such Old Senior Notes for any
period from and after the last Interest Payment Date to which interest has been
paid or duly provided for on such Old Senior Notes prior to the original issue
date of the Exchange Senior Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Old Senior Notes,
and the undersigned waives the right to receive any interest on
4
<PAGE> 5
such Old Senior Notes accrued from and after such Interest Payment Date or, if
no such interest has been paid or duly provided for, from and after October 20,
1998.
All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
5
<PAGE> 6
- --------------------------------------------------------------------------------
IMPORTANT
SIGN IMMEDIATELY BELOW
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Owner(s))
(This Letter of Transmittal must be signed immediately above by the registered
holder(s) as name(s) appear(s) on the certificate(s) for the Old Senior Notes
hereby tendered or on a security position listing, or by any person(s)
authorized to become the registered holder(s) by endorsements and documents
transmitted herewith (including such opinions of counsel, certifications and
other information as may be required by the Company or the Trustee for the Old
Senior Notes to comply with the restrictions on transfer applicable to the Old
Senior Notes)). If signed by an attorney, trustee, executor, administrator,
guardian, officer, custodian or other person acting in a representative capacity
and the shares submitted herewith are registered in the name of such signatory
expressly in such capacity (e.g., John Doe, as Trustee), such capacity should be
indicated. (Please read Instruction 5 on page 8 before you sign.)
Dated: , 1998
----------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity, if applicable:
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(Required only if either "Special Issuance Instructions" or "Special
Delivery Instructions" are provided below. See Instruction 1)
Medallion
Signature(s)
Guaranteed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Name of Firm Providing Signature
Guarantee - Please Print)
- --------------------------------------------------------------------------------
(Authorized Signature)
Dated: , 1998
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE
INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if the Exchange Senior Notes are to be issued in the name
of someone other than the undersigned.
Issue the Exchange Senior Notes to:
Name
- --------------------------------------------------------------------------------
(Please Print)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY
INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if the Exchange Senior Notes are to be sent to someone
other than the undersigned or to the undersigned at an address other than that
shown above.
Mail the Exchange Senior Notes to:
Name:
- --------------------------------------------------------------------------------
(Please Print)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of Letter of Transmittal And Certificates; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering" in the Prospectus. Certificates, or timely
confirmation of a book-entry transfer of such Old Senior Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to the Expiration Date. Old Senior Notes may be tendered in whole or in
part in the principal amount of $l,000 and integral multiples thereof.
Holders who wish to tender their Old Senior Notes and (i) whose Old
Senior Notes are not immediately available or (ii) who cannot deliver their Old
Senior Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, may tender
their Old Senior Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for Tendering" in the Prospectus. Pursuant to
such procedures: (i) such tender must be made by or through an Eligible
Institution (as defined below); (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Company, must be received by the Exchange Agent on or prior to the Expiration
Date; and (iii) the Certificates (or a book-entry confirmation (as defined in
the Prospectus)) representing all tendered Old Senior Notes, in proper form for
transfer, together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three (3) New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery. For Old Senior Notes to be properly tendered pursuant to
the guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule l7Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on a security position
listing as the owner of the Old Senior Notes) of Old Senior
Notes tendered herewith, unless such holder(s) has completed
either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
(ii) such Old Senior Notes are tendered for the account of a firm
that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. Inadequate Space. If the space provided in the box captioned
"Description of Old Senior Notes Tendered" is inadequate, the Certificate
number(s) and/or the principal amount of Old Senior Notes and any other required
information should be listed on a separate signed schedule which is attached to
this Letter of Transmittal.
7
<PAGE> 8
4. Partial Tenders and Withdrawal Rights. Tenders of Old Senior Notes
will be accepted only in the principal amount of $1,000 and integral multiples
thereof. If less than all the Old Senior Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Old Senior Notes
which are to be tendered in the box entitled "Principal Amount of Old Senior
Notes Tendered." In such case, new Certificate(s) for the remainder of the Old
Senior Notes that were evidenced by your old Certificate(s) will only be sent to
the holder of the Old Senior Notes, promptly after the Expiration Date. All Old
Senior Notes represented by Certificates delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Senior Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Senior Notes to be
withdrawn, the aggregate principal amount of Old Senior Notes to be withdrawn,
and (if Certificates for Old Senior Notes have been tendered) the name of the
registered holder of the Old Senior Notes as set forth on the Certificate for
the Old Senior Notes, if different from that of the person who tendered such Old
Senior Notes. If Certificates for the Old Senior Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Certificates for the Old Senior Notes, the tendering holder must submit
the serial numbers shown on the particular Certificates for the Old Senior Notes
to be withdrawn and the signature on the notice of withdrawal must be guaranteed
by an Eligible Institution, except in the case of Old Senior Notes tendered for
the account of an Eligible Institution. If Old Senior Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of Old
Senior Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Senior Notes may not be rescinded.
Old Senior Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer -- Procedures for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Senior Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder promptly after withdrawal.
5. Signatures on Letter of Transmittal, Assignments and Endorsements.
If this Letter of Transmittal is signed by the registered holder(s) of the Old
Senior Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Senior Notes tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Senior Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of
the Old Senior Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Senior
Notes are to be issued in the name of a person other than the registered
holder(s). Signature(s) on such Certificate(s) or bond power(s) must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Senior Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Senior Notes may require in accordance
with the restrictions on transfer applicable to the Old Senior Notes. Signatures
on such Certificates or bond powers must be guaranteed by an Eligible
Institution.
8
<PAGE> 9
6. Special Issuance and Delivery Instructions. If Exchange Senior Notes
are to be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Senior Notes are to be sent to someone other than
the signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Senior Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. Irregularities. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Senior Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Conditions" or
any conditions or irregularity in any tender of Old Senior Notes of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders. The Company's interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) will be final and binding. No tender of Old Senior Notes
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. Neither the Company, any affiliates or
assigns of the Company, the Exchange Agent, nor any other person shall be under
any duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
8. Questions, Requests for Assistance and Additional Copies. Questions
and requests for assistance may be directed to the Exchange Agent at one of its
addresses and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. 31% Backup Withholding; Substitute Form W-9. Under U.S. income tax
law, a holder whose tendered Old Senior Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Senior Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Senior Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Old Senior Notes. If the Old Senior Notes are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. income tax. Rather, the
U.S. income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
9
<PAGE> 10
10. Lost, Destroyed or Stolen Certificates. If any Certificate(s)
representing Old Senior Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed as
to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. Security Transfer Taxes. Holders who tender their Old Senior Notes
for exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Senior Notes are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the Old
Senior Notes tendered, or if a transfer tax is imposed for any reason other than
the exchange of Old Senior Notes in connection with the Exchange Offer, then the
amount of any such transfer tax (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL
OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
THE EXPIRATION DATE.
10
<PAGE> 11
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
EXCHANGE AGENT'S NAME: FIRST UNION NATIONAL BANK
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
--------------------------------
Form W-9 Social Security Number
(See Instruction 9)
OR
Please fill in your ---------------------------
name and address below Employer Identification Number
-------------------------------------------------------------------------------------------
Part 2 -- Certification -- Under Penalties of Perjury, Part 3 --
I certify that:
- ---------------------------------
Name
Awaiting TIN [ ]
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(if joint names, circle the
name of the person or
entity whose TIN is
entered in Part 1)
-------------------------------------------------------------------------------------------
(2) I am not subject to backup withholding Part 4 --
because (a) I am exempt from backup
withholding or (b) I have not been notified Exempt [ ]
by the Internal Revenue Service ("IRS") that
I am subject to backup withholding as a
result of failure to report all interest or
dividends, or (c) the IRS has notified me
- --------------------------------- that I am no longer subject to backup withholding.
Address (number and street)
- ---------------------------------
City, State and Zip Code
-------------------------------------------------------------------------------------------
Department of the Treasury
Internal Revenue Service
Certification instructions - You must cross out Item (2) in Part 2
above if you have been notified by the IRS that you are subject to
backup withholding because of under-reporting interest or dividends on
your tax return. However, if you have been notified by the IRS that you
are no longer subject to backup withholding, do not cross out Item (2).
If you are exempt from backup withholding, check the box in Part 4
above.
Payer's Request for Taxpayer
Identification Number (TIN)
SIGNATURE DATE , 1998
--------------------------- --------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
, 1998
- ------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
11
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8.75% SENIOR NOTES DUE 2008
OF
COGENTRIX ENERGY, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 8.75% Senior Notes due 2008
(the "Old Senior Notes") are not immediately available, (ii) Old Senior Notes,
the Letter of Transmittal and all other required documents cannot be delivered
to First Union National Bank (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail or transmitted by facsimile transmission, to the Exchange Agent.
See "The Exchange Offer -- Procedures for Tendering" in the Prospectus.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ______________, 1998, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION
DATE"). TENDERS OF OLD SENIOR NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00
P.M. NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: (704) 590-7628 By Hand:
Laura Richardson (For Eligible Institutions only) Laura Richardson
First Union National Bank Confirming by Telephone: (704) 590-7414 First Union National Bank
Corporate Trust Department Corporate Trust Department
1525 West W.T. Harris Blvd, 3C3 1525 West W.T. Harris Blvd, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28288-1153
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID
DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON PAGE 3 MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Cogentrix Energy, Inc., a North
Carolina corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated ___________, 1998 (as the same may
be amended or supplemented from time to time, the "Prospectus"), and the related
Letter of Transmittal (which together constitute the "Exchange Offer"), receipt
of which is hereby acknowledged, the aggregate principal amount of the Old
Senior Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Procedures for
Tendering."
- --------------------------------------------------------------------------------
Aggregate Principal Amount Tendered:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Certificate No(s). (if available):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If Old Senior Notes will be tendered by book-entry transfer, provide the
following information:
DTC Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities dealer, government securities broker,
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association (each, an "Eligible Institution"), hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, either the Old
Senior Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Old Senior Notes to the Exchange Agent's account at
the Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof) and any other required documents within three (3) New York Stock
Exchange trading days after the date of execution of this Notice of Guaranteed
Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Senior Notes tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result in
a financial loss to the undersigned.
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and
Telephone Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Authorized Signature)
Title:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(Please type or print)
Date:
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND OLD SENIOR NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF OLD SENIOR NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be
received by the Exchange Agent at its address set forth herein prior to
the Expiration Date. The method of delivery of this Notice of
Guaranteed Delivery and any other required documents to the Exchange
Agent is at the election and sole risk of the holder, and the delivery
will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by
mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction-1 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old
Senior Notes, the signature must correspond with the name(s) written on
the face of the Old Senior Notes without alteration, enlargement, or
any change whatsoever. If this Notice of Guaranteed Delivery is signed
by a participant of the book-entry transfer facility whose name appears
on a security position listing as the owner of the Old Senior Notes,
the signature must correspond with the name shown on the security
position listing as the owner of the Old Senior Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Senior Notes listed or a
participant of the book-entry transfer facility, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers,
signed as the name of the registered holder(s) appears on the Old Notes
or signed as the name of the participant shown on the book-entry
transfer facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or
other person acting in a fiduciary or representative capacity, such
person should so indicate when signing and submit with the Letter of
Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust
company, or other nominee for assistance concerning the Exchange Offer.
4
