<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zipcode)
(704) 525-3800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On May 15, 1998, there were 282,000 shares of common stock, no par value, issued
and outstanding.
<PAGE> 2
COGENTRIX ENERGY, INC.
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
2
<PAGE> 3
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
1998 31, 1997
----------- ---------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 51,707 $ 71,833
Restricted cash 56,684 27,742
Marketable securities -- 42,118
Accounts receivable 56,687 49,781
Inventories 16,940 15,210
Other current assets 3,464 2,465
---------- --------
Total current assets 185,482 209,149
NET INVESTMENT IN LEASES 496,713 --
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation: March 31, 1998, $197,507; December 31, 1997, $188,227 497,130 496,589
LAND AND IMPROVEMENTS 2,540 2,540
DEFERRED FINANCING, START-UP AND ORGANIZATION
COSTS, net of accumulated amortization: March 31, 1998, $12,814;
December 31, 1997, $16,592 32,213 21,085
NATURAL GAS RESERVES 2,164 2,384
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 79,159 79,072
OTHER ASSETS 19,307 12,155
---------- --------
$1,314,708 $822,974
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 83,932 $ 74,680
Accounts payable 26,090 13,755
Accrued compensation 2,801 4,923
Accrued interest payable 7,903 2,935
Accrued dividends payable -- 2,140
Other accrued liabilities 14,379 8,182
---------- --------
Total current liabilities 135,105 106,615
LONG-TERM DEBT 1,003,468 595,112
DEFERRED INCOME TAXES 28,602 25,872
MINORITY INTERESTS 56,890 15,131
OTHER LONG-TERM LIABILITIES 21,731 21,946
---------- --------
1,245,796 764,676
---------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Net unrealized gain on available for sale securities -- 26
Accumulated earnings 68,782 58,142
---------- --------
68,912 58,298
---------- --------
$1,314,708 $822,974
========== ========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
3
<PAGE> 4
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(dollars in thousands, except for earnings per common share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING REVENUE:
Electric $ 73,935 $ 76,897
Steam 7,341 7,177
Lease revenue 1,314 --
Service revenue under sales-type capital leases 1,296 --
Income (loss) from unconsolidated investments in power projects 923 (325)
Other 2,410 2,897
--------- ---------
87,219 86,646
--------- ---------
OPERATING EXPENSES:
Fuel expense 19,419 28,111
Operations and maintenance 15,789 16,465
Cost of services under sales-type capital leases 1,398 --
General, administrative and development expenses 9,355 7,283
Depreciation and amortization 10,174 10,568
--------- ---------
56,135 62,427
--------- ---------
OPERATING INCOME 31,084 24,219
OTHER INCOME (EXPENSE):
Interest expense (13,243) (13,383)
Investment and other income, net 2,376 2,684
Equity in net income of affiliates, net 444 499
--------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS 20,661 14,019
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS (1,955) (1,143)
--------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 18,706 12,876
PROVISION FOR INCOME TAXES (7,323) (4,491)
--------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 11,383 8,385
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and income tax benefit of $473 (743) --
--------- ---------
NET INCOME $ 10,640 $ 8,385
========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss $ 43.00 $ 29.73
Extraordinary loss (5.27) --
--------- ---------
$ 37.73 $ 29.73
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000
========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
4
<PAGE> 5
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,640 $ 8,385
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,174 10,568
Deferred income taxes 2,730 2,488
Extraordinary loss on early extinguishment of debt, non-cash portion 2,145 --
Gain on sale of investment in Bolivian Power -- 106
Minority interests in income, net of dividends (18,771) 525
Equity in net income of unconsolidated affiliates, net of dividends 19 6,677
Minimum lease payments received 1,242 --
Amortization of unearned lease income (1,314) --
Decrease (increase) in accounts receivable 2,621 (6,703)
Decrease in inventories 121 891
Increase (decrease) in accounts payable (3,633) 7,033
Increase (decrease) in accrued liabilities 1,024 (4,541)
Decrease (increase) in other (2,640) 788
--------- --------
Net cash flows provided by operating activities 4,358 26,217
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (574) (1,644)
Decrease in marketable securities 42,118 43,695
Investments in affiliates (106) (50,822)
Acquisition of Facilities, net of cash acquired (155,324) --
Proceeds from sale of investment in Bolivian Power, net -- (106)
Decrease in restricted cash 6,872 2,768
--------- --------
Net cash flows used in investing activities (107,014) (6,109)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (2,140) --
Proceeds from issuance of debt 150,250 2,911
Repayments of debt (64,530) (19,612)
Increase in deferred financing costs (1,050) (128)
--------- --------
Net cash flows provided by (used in) financing activities 82,530 (16,829)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,126) 3,279
CASH AND CASH EQUIVALENTS, beginning of period 71,833 89,188
--------- --------
CASH AND CASH EQUIVALENTS, end of period $ 51,707 $ 92,467
========= ========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
5
<PAGE> 6
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
include the accounts of Cogentrix Energy, Inc. and its subsidiary companies
(collectively, the "Company") and a 50% owned joint venture in which the Company
has effective control through majority representation on the board of directors
of the managing general partner. Investments in other affiliates in which the
Company has a 20% to 50% interest and/or the ability to exercise significant
influence over operating and financial policies are accounted for on the equity
method. All material intercompany transactions and balances among Cogentrix
Energy, Inc., its subsidiary companies and its consolidated joint venture have
been eliminated in the accompanying consolidated condensed financial statements.
Information presented as of March 31, 1998 and for the three months
ended March 31, 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 March 31, 1998, and the results of operations and cash flows for
the three months ended March 31, 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 fiscal year as a whole.
The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the United States
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations, although management believes that the
disclosures made are adequate to make the information presented not misleading.
It is suggested that these unaudited consolidated condensed financial statements
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's most recent Report on Form 10-K for
the Six-Month Transition Period ended December 31, 1997, which was filed with
the United States Securities and Exchange Commission on March 31, 1998.
2. 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 major operating
IPP projects in Penelec's territory in April 1997. The termination agreement
with Penelec provides for a payment to the Company of approximately $25 million
which will be sufficient to retire all of 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, cash flows or financial position.
3. JAMES RIVER COGENERATION COMPANY
Effective February 1998, James River Cogeneration Company ("JRCC"), 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 Electric and Power Company ("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.
6
<PAGE> 7
The amended terms of the JRCC project debt resulted in an extension of
the final maturity of the note payable by six months to December 31, 2002 and an
increase in the amount of outstanding borrowings of $34.6 million, the proceeds
of which (net of transaction costs) were distributed to the JRCC 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 1999 and 1.00% thereafter. The amended credit facility 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 credit
facility 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 was 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.
4. WHITEWATER AND COTTAGE GROVE TRANSACTION
In March 1998, the Company acquired from LS Power Corporation (the "LS
Acquisition") an approximate 74% ownership interest in two partnerships which
own and operate electric generating facilities located in Whitewater, Wisconsin
(the "Whitewater Facility") and Cottage Grove, Minnesota (the "Cottage Grove
Facility"). Each of the Cottage Grove and Whitewater Facilities is a 245
megawatt gas-fired, combined-cycle cogeneration facility. Commercial operations
of both of these 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. Each of the power sales
contracts has characteristics similar to a lease in that the agreement gives the
purchasing utility the right to use specific property, plant and equipment. As
such, each of the power sales contracts is accounted for as a "sales-type"
capital lease in accordance with Statement of Financial Accounting Standards
("SFAS") No. 13, "Accounting for Leases."
The aggregate acquisition price for the equity interests acquired in
the Cottage Grove and Whitewater Facilities acquired by the Company was $158.0
million. In addition, the Company pre-funded a $16.7 million distribution to the
previous owners, which 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. received $15.7 million of this
distribution in April 1998 and expects to receive a distribution of the
remaining $1 million in calendar 1998. The purchase price was funded with
proceeds of the Company's corporate credit facility and corporate cash balances.
The Company accounted for the LS Acquisition using the purchase method
of accounting. The accompanying consolidated balance sheet as of March 31, 1998
reflects 100% of the assets and liabilities of the partnerships acquired
consisting primarily of net investment in leases of $496.7 million and long-term
debt of $332 million, respectively. The minority owner's share of the
partnerships' net assets is included in "minority interests" on the accompanying
consolidated balance sheet as of March 31, 1998. The accompanying consolidated
statement of income for the three months ended March 31, 1998 includes the
results of operations of the acquired facilities since the closing date of the
LS Acquisition (March 20, 1998).
The following unaudited pro forma consolidated results for the Company
for the three months ended March 31, 1998 give effect to the LS Acquisition as
if such transaction had occurred on January 1, 1998 (in thousands, except per
share amount).
Pro Forma
Three Months Ended
March 31, 1998
------------------
Revenues $106,628
Net Income 10,533
Earnings per share 37.35
5. BECHTEL ASSET ACQUISITION
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire ownership interests in 12 electric generating
facilities, comprising a net equity interest of approximately 360 megawatts, and
one interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the
7
<PAGE> 8
Bechtel Asset Acquisition, which is subject to customary conditions including
the obtaining of certain consents and regulatory approvals, is currently
expected to occur in calendar 1998. Management anticipates accounting for each
of these investments under the equity method.
In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of senior notes in a Rule 144A offering with a covenant
to register exchange notes with the U.S. Securities and Exchange Commission.
These senior notes will be unsecured and will rank pari passu with the Company's
$100 million of outstanding Senior Notes due 2004. The Company intends to use
the net proceeds to finance the Bechtel Asset Acquisition, to repay the
outstanding borrowings under the Company's corporate credit facility, which were
incurred to finance a portion of the purchase price of the LS Acquisition, and
for general corporate purposes. In connection with this anticipated debt
offering, the Company executed an interest rate agreement in March 1998 covering
a notional amount of $237 million for a period of four months to hedge against
fluctuations in interest rates prior to the completion of the debt offering.
6. 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 on grounds of arbitration impartiality. On April 15, 1998, the
federal district court issued an order vacating the arbitration award and
directing a new arbitration be conducted. The Company is appealing this decision
to the Fourth Circuit United States Court of Appeals. The Company believes that
the claims of arbitration impartiality are without merit and that the
arbitration award is valid and will be upheld on appeal. 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 effect on
the consolidated financial position, results of operations or cash flows of the
Company.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 8 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In addition to discussing and analyzing the Company's recent historical
financial results and condition, the following "Management's Discussion and
Analysis of Financial Condition and Results of Operations" includes statements
concerning certain trends and other forward-looking information affecting or
relating to the Company which are intended to qualify for the protections
afforded "Forward-Looking Statements" under the Private Securities Litigation
Reform Act of 1995, Public Law 104-67. The forward-looking statements made
herein are inherently subject to risks and uncertainties which could cause the
Company's actual results to differ materially from the forward-looking
statements.
GENERAL
The Company is engaged in the acquisition, development, ownership, and
operation of power generation facilities and the sale of electricity and steam
in the United States and selected international markets. The Company owns
(entirely or in part) 13 power generation facilities having an aggregate
generating capacity of 1,610 megawatts. The Company has a pending acquisition,
subject to the fulfillment of all required conditions, of ownership interests in
12 domestic power generation facilities, comprising an aggregate generating
capacity of approximately 2,400 megawatts. Upon completion of the pending
acquisition, the Company's net interest in power generation facilities will be
1,675 megawatts, an increase from 840 megawatts in 1994.
Each of the Company's generating facilities relies on a power sales
agreement for the majority of its revenues. During the three months ended March
31, 1998, two regulated utilities, Carolina Power & Light Company ("CP&L") and
Virginia Power, accounted for approximately 82.3% of the Company's consolidated
revenues. As a result of the Company's recent growth, 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.
Each of the Company's power generation facilities produces electricity
for sale to a utility and thermal energy for sale to an industrial user. The
electricity and thermal energy generated by these facilities are typically sold
under long-term power or steam sales agreements, generally having original terms
of 20 to 30 years. Several of the Company's generating facilities originally
sold electricity under long-term "must-run" power sales agreements, which
obligated the utility to purchase all electricity generated by the power
generation facility. Over the last two years, the Company has amended the
majority of these "must-run" power sales agreements to provide the utility the
right to suspend or reduce purchases of energy from the facilities if the
utility determines it can operate its system for a designated period more
economically. These amended power sales agreements are structured such that the
Company continues to receive capacity payments during any period of economic
dispatch. Capacity payments cover project debt service, fixed operating costs,
and constitute a substantial portion of the profit component of the power sales
agreement. Energy payments, which are reduced (or possibly eliminated) as a
result of economic dispatch, primarily cover variable operating and maintenance
costs as well as fuel and fuel transportation costs. The restructuring of a
"must-run" power sales agreement to an economic dispatch power sales agreement
causes a significant reduction in electric revenues received under the contract,
which is offset by a corresponding reduction in fuel and fuel transportation
costs 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 "Part II - Item 1. Legal Proceedings" herein.
9
<PAGE> 10
Certain of the Company's power sales agreements either terminate in
years 2000 through 2002 or provide for a significant reduction in capacity
payments received under such agreements after 2002. Accordingly, revenues
recognized by the Company under these power sales agreements after 2002 will be
eliminated or significantly reduced.
In March 1998, the Company acquired ownership interests in two
gas-fired power generation facilities located in the Midwest United States
having an aggregate generating capacity of 490 megawatts. The power sales
agreements for these facilities meet the criteria of a "sales-type" capital
lease as described in Statement of Financial Accounting Standards ("SFAS") No.
13, "Accounting for Leases." The Company has recorded a net investment in lease
which reflects the present value of future minimum lease payments. Future
minimum lease payments represent the amount of capacity payments due from the
utilities under the power sales agreements in excess of fixed operating costs
(i.e., executory costs). The difference between the undiscounted future minimum
lease payments due from the utilities and the net investment in lease represents
unearned income. This unearned income will be recognized as lease revenue over
the term of the power sales agreements using the effective interest rate method.
The Company will also recognize service revenue related to the reimbursement of
costs incurred in operating the facilities and providing electricity and thermal
energy. The amount of service revenue recognized by the Company will be directly
related to the level of dispatch of the facilities by the utilities and to a
lesser extent the level of thermal energy required by the steam hosts.
The activities of the Company's power generation 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.
The domestic power generation industry is currently going through a
period of significant change as many states are implementing or considering
regulatory initiatives designed to increase competition. In addition to
restructuring activities in various states, there have also been several
industry restructuring bills introduced in Congress. The Company cannot predict
the final form or timing of the proposed restructurings and the impact, if any,
that such restructurings would have on the Company's existing business or
consolidated results of operations. The Company believes that any such
restructuring would not have a material adverse effect on its power sales
agreements and, accordingly, believes that its existing business and results of
consolidated operations would not be materially adversely affected, although
there can be no assurance in this regard.
In 1996, the Company began making investments in partnerships formed to
develop, construct and operate greenhouses to produce tomatoes. These
partnerships are currently operating greenhouses with a combined total of 107
acres of production capacity. The Company has a 50% interest in each partnership
and accounts for these investments under the equity method.
10
<PAGE> 11
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1998 1997
----------------- -----------------
(dollars in thousands, unaudited)
<S> <C> <C> <C> <C>
Total operating revenues $87,219 100% $86,646 100%
Operating costs 36,606 42 44,576 51
General, administrative and development 9,355 11 7,283 9
Depreciation and amortization 10,174 11 10,568 12
------- --- ------- ---
Operating income $31,084 36% $24,219 28%
======= === ======= ===
</TABLE>
Total operating revenues increased 1.0% to $87.2 million for the first
quarter of 1998 as compared to the first quarter of 1997. This increase was
primarily attributable to the $2.6 million aggregate amount of lease revenue and
service revenue earned under the power sales agreements for the Cottage Grove
and Whitewater Facilities in which the Company acquired its interests on March
20, 1998. The increase in revenues also relates to a $1.2 million increase
during the quarter (as compared to the previous year fiscal quarter) in equity
earnings from the Birchwood Facility. These increases in operating revenues were
partially offset, however, by a $4.6 million 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 the facilities.
The Company's operating costs decreased 17.9% to $36.6 million for the
first quarter of 1998 as compared to the first quarter of 1997. This decrease
resulted primarily from the significant decrease in operating costs at the
Portsmouth and Hopewell Facilities associated with the recent restructuring of
their power sales agreements. The decrease also related to decreases in
operating costs incurred by ReUse Technology, Inc., a wholly-owned subsidiary of
the Company ("ReUse"), related to third party agreements. These decreases in
operating costs were partially offset during the first quarter of 1998 by an
increase in maintenance costs at the Richmond Facility associated with routine
maintenance performed during the first quarter of fiscal 1998 and operating
expenses incurred at the Cottage Grove and Whitewater Facilities, interests in
which the Company acquired on March 20, 1998.
General, administrative and development expenses increased 28.5% to
$9.4 million for the first quarter of 1998 as compared to the first quarter of
1997. These increases related primarily to an increase in expense under the
profit sharing plan, an increase in performance bonuses and a general increase
in consulting expenses related to development activity.
The Company's long term debt averaged $729 million with a weighted
average interest rate of 7.27% for the first quarter of 1998 as compared with
average long-term debt of $713 million with a weighted average interest rate of
7.51% for the first quarter of 1997. The increase in weighted average debt
outstanding related to the increase in project debt outstanding at the
Portsmouth Facility, which was refinanced in December 1997, and the Hopewell
Facility, which was refinanced in February 1998. The increase also related to
outstanding borrowings under the Company's corporate credit facility at the end
of the first quarter of 1998, which were incurred to fund a portion of the
acquisition price of the Company's interests in the Whitewater and Cottage Grove
Facilities. The decrease in weighted average interest rate relates primarily to
the expiration of an interest rate swap agreement on the Richmond Facility's
project debt in September 1997.
The increase in minority interests in income for the first quarter of
1998 as compared to the first quarter of 1997 related to a reduction in
operating costs incurred at the Hopewell Facility in the first quarter of 1998
as compared to the first quarter of 1997. Minority interests in income on the
accompanying consolidated statement of income for the three months ended March
31, 1998 is based on income before the recognition of an extraordinary loss on
early extinguishment of debt related to the refinancing of the Hopewell
Facility's project debt in February 1998.
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<PAGE> 12
The extraordinary loss on early extinguishment of debt for the first
quarter of 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 project debt and a swap
termination fee on an interest rate swap agreement hedging the original project
debt.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the first quarter
of 1998 were generated by net income of $10.6 million, increases due to
adjustments for depreciation and amortization of $10.2 million, deferred income
taxes of $2.7 million and write-off of deferred financing costs of $2.1 million,
which were partially offset by minority interests in income, net of dividends,
of $18.8 million and a net $2.5 million use of cash reflecting changes in other
working capital assets and liabilities. Cash flow provided by operating
activities of $4.4 million, proceeds from borrowings of $150.3 million, proceeds
from the sale of marketable securities of $42.1 million, and $6.9 million of
cash escrows and restricted marketable securities released were primarily used
to acquire interests in facilities of $155.3 million, purchase property plant
and equipment of $0.6 million, make investments in affiliates of $0.1 million,
repay project finance borrowings of $64.5 million, pay deferred financing costs
of $1.0 million, and pay common stock dividends of $2.1 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 partnership interest in that project subsidiary. This type
of financing is generally referred to as "project financing." The project
financing debt of the Company's subsidiaries (aggregating $935.4 million as of
March 31, 1998) is substantially non-recourse to the Company and its other
project subsidiaries, except in connection with certain transactions where
Cogentrix Energy, Inc. or Cogentrix, Inc. has agreed to certain limited
guarantees and other obligations with respect to such projects. These limited
guarantees and other obligations include agreements for the benefit of the
project lenders to three project subsidiaries to fund cash deficits the projects
may experience as a result of incurring certain costs, subject to an aggregate
cap of $51.9 million. In addition, Cogentrix has guaranteed certain project
subsidiaries' obligations to the utility under power sales agreements and
obligations of up to $1.5 million of ReUse under an ash disposal agreement with
an unrelated third party. Because certain of these limited guarantees and other
obligations do not by their terms stipulate a maximum dollar amount of
liability, the aggregate amount of the Company's potential exposure under these
guarantees cannot be quantified. The aggregate contractual liability of the
Company to its subsidiaries' project lenders is, in each case, a small portion
of the aggregate project debt. If, however, the Company were required to satisfy
all these guarantees and other obligations, or even one or more of the
significant ones, such event could have a material adverse impact on the
Company's financial condition.
As of March 31, 1998, the Company had long-term debt (including the
current portion thereof) of approximately $1,085.4 million. With the exception
of the Company's $100 million of Senior Notes issued in March 1994 and the $50
million outstanding under the Company's corporate credit facility, substantially
all of such indebtedness is project financing debt that is substantially
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 allow them to pay management fees and dividends to Cogentrix
Energy, Inc. periodically in sufficient amounts to allow Cogentrix Energy, Inc.
to pay all required debt service on the Senior Notes, fund a significant portion
of its development activities and meet its other obligations. If, as a result of
unanticipated events, the Company's ability to generate cash from operating
activities is significantly impaired, the Company could be required to curtail
its development activities to meet its debt service obligations.
In May 1997, the Company entered into a credit agreement with Australia
and New Zealand Banking Group Limited, as Agent, which provides for a $50
million revolving credit facility (the "Corporate Credit Facility") with a term
of three years (the "Revolving Term"). The Corporate Credit Facility provides
for one-year extensions of the Revolving Term, subject to lender consent. The
Company can utilize the Corporate Credit Facility in the form of direct advances
or the issuance of unsecured letters of credit. The outstanding balance of the
Corporate
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<PAGE> 13
Credit Facility at the end of the Revolving Term is payable over two years in
four equal semiannual repayments of direct advances or collateralization of
letters of credit. As of March 31, 1998, the Company had $50 million of advances
outstanding and no available balance under the Corporate Credit Facility. The
$50 million borrowed under the Corporate Credit Facility was utilized to fund a
portion of the purchase price related to the LS Acquisition.
Any projects the Company develops in the future, and those independent
power projects it may seek to acquire, are likely to require substantial capital
investment. The Company's ability to arrange financing on a substantially
non-recourse basis and acquisition financing 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 and the project
entities in which it has an investment to pay dividends and management fees
periodically to Cogentrix Energy, Inc. is subject to certain limitations in
their respective project credit documents. Such limitations generally require
that: (i) project debt service payments be current, (ii) project debt service
coverage ratios be met, (iii) all project debt service and other reserve
accounts be funded at required levels and (iv) there be no default or event of
default under the relevant project credit documents. There are also additional
limitations that are adapted to the particular characteristics of each project
subsidiary.
In December 1997, the Company substantially completed construction of a
248 megawatt combined-cycle, gas-fired electric generation facility (the "Clark
Facility") for Public Utility District Number 1 of Clark County, Washington
("Clark") and earned a construction management fee of $4.5 million. Upon final
completion of the facility and acceptance by Clark, the Company will earn an
additional construction management fee of $500,000 and will also share in 50% of
the amount, if any, of the excess of the contract amount ($117 million) over the
actual costs and expenses incurred in constructing the Clark Facility. The
Company's share of the excess is currently expected to be approximately $4
million.
In December 1997, the Company renegotiated the project financing
arrangements for its Portsmouth Facility. The amended agreements resulted in an
extension of the final maturity date of the loan by three months and an increase
in the amount of commitment provided by the project lenders in the form of a
$40.5 million revolving credit facility. This revolving credit facility is
available to be drawn by Cogentrix Virginia Leasing Corporation, the project
subsidiary owning the Portsmouth Facility ("CVLC"), at any time for general
corporate purposes, including paying dividends to Cogentrix Energy, Inc. In
March 1998, CVLC borrowed $20 million under the revolving credit facility and
distributed the entire proceeds to Cogentrix Energy, Inc. for purposes of
funding a portion of the purchase price related to the LS Acquisition.
In February 1998, the Company renegotiated the project financing
arrangements for its Hopewell Facility, in which it owns a 50% interest. The
amended agreements resulted in a $34.6 million increase in outstanding
indebtedness of JRCC and extended the final maturity date of the loan by six
months. JRCC transferred substantially all of the additional funds borrowed (net
of transaction costs) to its partners. The distribution received by Cogentrix
Energy, Inc. related to the refinancing was approximately $16.6 million, which
was used by the Company to fund a portion of the acquisition price related to
the LS Acquisition.
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 cogeneration facility. Commercial operations
of both facilities commenced in the last half of calendar 1997. The aggregate
acquisition price for the equity interests in the Cottage Grove and Whitewater
Facilities acquired by the Company was $158.0 million. In addition, the Company
pre-funded a $16.7 million distribution to the previous owners, which
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. 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 proceeds of the Corporate Credit Facility and
corporate cash balances.
13
<PAGE> 14
In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire ownership interests in 12 electric generating
facilities, comprising a net equity interest of 360 megawatts, and one
interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the Bechtel Asset Acquisition, which is subject to
customary conditions including the obtaining of certain consents and regulatory
approvals, is currently expected to occur in calendar 1998.
In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of additional senior notes in a Rule 144A offering with
a covenant to register exchange notes under the Securities Act of 1933, as
amended. The additional senior notes will be unsecured and will rank pari passu
with the Company's $100 million of outstanding Senior Notes due 2004. The net
proceeds will be used by the Company to finance the Bechtel Asset Acquisition
and to repay the outstanding borrowings under the Corporate Credit Facility. In
connection with this anticipated debt offering, the Company executed an interest
rate agreement in March 1998 covering a notional amount of $237 million for a
period of four months to hedge against fluctuations in interest rates prior to
the completion of the debt offering.
For the fiscal year ended June 30, 1997, the Company's board of
directors declared a dividend on its outstanding common stock of $5.0 million,
which was paid in September 1997. The Company's board of directors declared a
dividend on its outstanding common stock of $2.1 million for the six-month
period ended December 31, 1997, which was paid in March 1998. The board of
directors' policy, which is subject to change at any time, provides for a
dividend payout ratio of no more than 20% of the Company's net income for the
immediately preceding fiscal year. In addition, under the terms of the
indentures for the Senior Notes and the Corporate Credit Facility, the Company's
ability to pay dividends and make other distributions to its shareholders is
restricted.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as general economic conditions, and tend to fluctuate significantly. Through
various hedging mechanisms, the Company has attempted to mitigate the impact of
changes on the results of operations of most of its projects. The basic hedging
mechanism against increased fuel and transportation costs is to provide
contractually for matching increases in the energy payments the Company's
project subsidiaries receive from the utility purchasing the electricity
generated by the facility.
Under the power sales agreements for certain of the Company's
facilities, energy payments are indexed, subject to certain caps, to reflect the
purchasing utility's solid fuel cost of producing electricity. The Company's
other power sales agreements provide periodic, scheduled increases in energy
prices that are designed to match periodic, scheduled increases in fuel and
transportation costs that are included in the fuel supply and transportation
contracts for the facilities.
Changes in interest rates could have a significant impact on the
Company. Interest rate changes affect the cost of capital needed to construct
projects as well as interest expense of existing project financing debt. As with
fuel price escalation risk, the Company attempts to hedge against the risk of
fluctuations in interest rates by arranging either fixed-rate financing or
variable-rate financing with interest rate swaps, collars or caps on a portion
of its indebtedness.
Although hedged to a significant extent, the Company's financial
results will likely be affected to some degree by fluctuations in energy prices,
interest rates and inflation. The effectiveness of the hedging techniques
implemented by the Company is dependent, in part, on each counterparty's ability
to perform in accordance with the provisions of the relevant contracts. The
Company has sought to reduce the risk by entering into contracts with
creditworthy organizations.
YEAR 2000 COMPLIANCE
The Company is currently evaluating its information technology
infrastructure for Year 2000 compliance. The majority of the Company's internal
financial information systems are being replaced with a fully compliant new
system. This new system is expected to be implemented by January 1, 1999. The
Company is also evaluating its plants' operating systems. Based on present
information, the Company believes that only minor modifications and upgrades
will be required for the operating systems to be Year 2000 compliant. As such,
the Company does not anticipate that the costs incurred to complete the
necessary transition to
14
<PAGE> 15
ensure Year 2000 compliance will have a material impact on the Company's
consolidated results of operations, cash flows or financial position. Any costs
necessary to modify existing systems to ensure Year 2000 compliance will be
expensed as incurred. The Company is also communicating with customers,
suppliers, financial institutions and others to coordinate Year 2000 conversion.
In the event that any of the Company's significant customers or suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected.
CHANGE OF CORPORATE FISCAL YEAR
Effective January 1, 1998, the Company changed its fiscal year to
commence on January 1 and conclude on December 31 of each year. The Company's
fiscal year previously commenced each July 1, concluding on June 30 of the
following calendar year.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Under the terms of the amended power sales agreements for the
Elizabethtown, Lumberton, Kenansville (the "ELK Facilities"), Roxboro and
Southport Facilities, the purchasing utility, CP&L, has exercised its right of
economic dispatch resulting in significantly reduced fuel requirements at each
of these facilities. Coal is supplied to the ELK Facilities by James River Coal
Sales, Inc. ("James River") and its affiliate, Bell County Coal Corporation.
Coal was supplied to the Southport Facility until November 1997 by Coastal Coal
Sales, Inc. ("Coastal"). The coal sales agreements for both the ELK Facilities
and the Southport Facility provide for the sale and purchase of the coal
requirements of those facilities through the respective contract term.
Under the amended power sales agreement for the Company's Portsmouth
Facility, Virginia Power has from time to time since December 1997 exercised its
right of economic dispatch resulting in significantly reduced fuel requirements
at the facility. Coal is supplied to the Portsmouth Facility by Arch Coal Sales
Company, Inc. ("Arch"). The coal sales agreement with Arch provides for the sale
and purchase of the coal requirements of the Portsmouth Facility during the
period extending 15 years from late 1987, the year of commencement of commercial
operations at the facility.
As a result of the economic dispatch of these facilities and their
consequently reduced fuel requirements, the Company's project subsidiaries
operating these facilities are purchasing significantly less coal. James River,
Coastal and Arch have each initiated either a civil action or an arbitration
proceeding seeking to recover damages and, in some cases, seeking injunctive
relief. A summary of each of these pending disputes is set forth below.
JAMES RIVER DISPUTE (ELK FACILITIES)
In November 1996, James River and its affiliate instituted an action in
the United States District Court for the Eastern District of Kentucky against
Cogentrix Eastern Carolina Corporation ("CECC") claiming breach of contract and
fraud in the inducement based on the reduction in fuel requirements at the ELK
Facilities. In this complaint, James River and its affiliate sought specific
performance and, in the alternative, an unspecified amount of damages.
CECC filed a motion to dismiss the complaint for (i) lack of
jurisdiction and (ii) failure to state a claim upon which relief can be granted.
Prior to the court ruling on the motion, the case was transferred in September
1997 to the United States District Court, Western District of North Carolina.
The CECC motion to dismiss was taken up by the North Carolina court, which by
order dated January 8, 1998 denied the motion to dismiss count I (breach of
contract) and granted the motion to dismiss count II (fraud in the inducement).
James River filed an amended complaint on January 29, 1998, and CECC refiled its
motion to dismiss count II of the amended complaint on February 24, 1998. On
April 20, 1998, the court issued an order dismissing with prejudice count II of
the amended complaint.
The coal sales agreement for the ELK Facilities contains an arbitration
provision requiring contract disputes to be submitted to arbitration in
Charlotte, North Carolina. CECC has filed with the court seeking to compel
enforcement of that arbitration provision.
COASTAL DISPUTE (SOUTHPORT FACILITY)
In October 1996, Coastal initiated an arbitration proceeding against
Cogentrix of North Carolina, Inc. ("CNC") through the American Arbitration
Association in Charlotte, North Carolina. The notice of arbitration alleged
breach of contract based on the reduction in fuel requirements at the Southport
Facility. The arbitration was conducted by a three-member panel during the
period September 30 through October 3, 1997, and an arbitration award was
rendered on October 22, 1997 in favor of CNC denying any recovery to Coastal
("Arbitration Award").
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<PAGE> 17
On January 20, 1998, ANR Coal Company, L.L.C. ("ANR"), as successor to
Coastal, filed a complaint in United States District Court for the Western
District of North Carolina (the "Court") seeking an order vacating the
Arbitration Award. The principal basis of the complaint is an allegation that
the impartial third arbitrator of the panel of arbitrators was improperly biased
and failed to make complete disclosure of pertinent information during the
selection process. CNC filed its motion to dismiss, motion to confirm and answer
on February 17, 1998. CNC does not believe the allegations of ANR in the
complaint are meritorious or provide a basis upon which the Court could properly
vacate the Arbitration Award. On April 15, 1998, the district court issued an
order vacating the Arbitration Award and directing a new arbitration be
conducted. CNC is appealing this decision to the United States Court of Appeals,
Fourth Circuit, where the issue will be reviewed de novo. The Company continues
to be optimistic that the Arbitration Award is valid and will be upheld on
appeal.
ARCH DISPUTE (PORTSMOUTH FACILITY)
In March 1998, Arch filed a complaint in the United States District
Court, Southern District of West Virginia against CVLC, the Company's project
subsidiary that owns and operates the Portsmouth Facility, alleging a breach of
contract. In the complaint, Arch claims that CVLC (i) is obligated to purchase
approximately 360,000 tons of coal per year, (ii) breached the Coal Agreement by
wrongfully reducing its requirements of coal, and (iii) violated a duty of good
faith and fair dealing owed to Arch. Arch also seeks damages for CVLC's failure
to purchase such quantities of coal.
The claims made by Arch directly contradict the clear, overriding
provisions of the coal sales agreement, which specifically provide that
notwithstanding any provision in the agreement to the contrary, CVLC shall not
be obligated to purchase more than the Portsmouth Facility's requirements of
coal. Furthermore, the coal agreement contains an arbitration clause, which the
Company believes is enforceable, that requires any disputes between the parties
to be resolved by arbitration in Charlotte, North Carolina. CVLC has filed
preliminary motions contesting the action proceeding in West Virginia and
seeking transfer to Federal District Court in Charlotte, North Carolina and to
compel arbitration in Charlotte.
The Company is confident that the claims made by Arch against CVLC will
ultimately be resolved in favor of CVLC. CVLC will vigorously defend the matter,
seek to enforce the terms of the agreement against Arch, including the
arbitration clause, and otherwise continue to perform under the agreement as
required.
SUMMARY OF COAL PURCHASE AGREEMENT DISPUTES
Management believes that, as to the James River and Arch suits, there
is no basis for certain claims and there are meritorious defenses as to the
remainder. Management believes the Coastal Arbitration Award was the product of
an arbitration process that was entirely proper and in accordance with American
Arbitration Association guidelines and procedures. The Company intends to
vigorously contest the actions of James River, Arch and ANR (Coastal) and is
confident that they will be resolved in favor of the Company. The Company has
established reserves which management believes to be adequate to cover any costs
which may result from these matters. The ultimate disposition of the James
River, Arch and ANR (Coastal) actions, in the judgement of management, will not
have a material adverse impact on the Company's consolidated results of
operations, cash flows 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.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Operating Agreement, dated as of November
14, 1997, between Greenhost, Inc., as Owner,
and Village Farms of Virginia, Inc., as
Operator (Birchwood Facility). (*)
10.2 Purchase Agreement, dated as of March 6,
1998, between Cogentrix Energy, Inc. and
Bechtel Generating Company, Inc. (*)
10.3 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.
10.4 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.
(1)
10.4(a) Amendment #1 to the Cottage Grove
Partnership Agreement. (2)
10.4(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. (4)
10.5 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. (1)
10.5(a) Consent, Waiver and Amendment No. 1, dated
March 20, 1998, to the Amended and Restated
Limited Partnership Agreement of
LSP-Whitewater Limited Partnership. (4)
10.6 Power Purchase Agreement, dated as of May 9,
1994, between Northern States Power Company
and LSP-Cottage Grove, L.P. (1)
10.7 Power Purchase Agreement, dated as of
December 21, 1993, between Wisconsin
Electric Power Company and LSP-Whitewater
Limited Partnership. (1)
10.7(a) Amendment to Power Purchase Agreement, dated
as of February 10, 1994, between Wisconsin
Electric Power Company and LSP-Whitewater
Limited Partnership. (1)
10.7(b) Second Amendment to Power Purchase
Agreement, dated as of October 5, 1994,
between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (1)
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<PAGE> 19
10.7(c) Third Amendment to Power Purchase Agreement,
dated as of May 5, 1995, between Wisconsin
Electric Power Company and LSP-Whitewater
Limited Partnership. (1)
10.7(d) Fourth Amendment to Power Purchase
Agreement, dated March 18, 1997, between
Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (3)
10.7(e) Fifth Amendment to Power Purchase Agreement,
dated February 26, 1998, between Wisconsin
Electric Power Company and LSP-Whitewater
Limited Partnership. (4)
27 Financial Data Schedule, which is submitted
electronically to the U.S. Securities and
Exchange Commission for information only and
is not filed.
-----------------------------
(*) Portions of these agreements have been deleted pursuant to a request
for confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
(1) Incorporated 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.
(2) 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.
(3) 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.
(4) 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.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated January 12, 1998,
with respect to the determination of the Company's board of directors to change
the Company's fiscal year to commence on January 1 and conclude on December 31
of each year.
The Company filed a Current Report on Form 8-K, dated March 10, 1998,
with respect to the March 6, 1998 signing of a Securities Purchase Agreement
between the Company and certain of its subsidiaries (the "Purchasers") and LS
Power Corporation and Granite Power Partners, L.P. (the "Sellers") pursuant to
which the Purchasers agreed to acquire the Sellers' ownership interests in
certain of its assets.
The Company filed a Current Report on Form 8-K, dated March 23, 1998,
with respect to the signing of an agreement with Bechtel Generating Company,
Inc. ("Bechtel") to acquire Bechtel's ownership interests in certain of its
assets and to announce the Company's plans to issue up to $250 million in senior
notes pursuant to the Securities and Exchange Commission's Rule 144A in
connection with the acquisition.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGENTRIX ENERGY, INC.
(Registrant)
May 15, 1998 /s/ JAMES R. PAGANO
-------------------------
James R. Pagano
Group Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
May 15, 1998 /s/ THOMAS F. SCHWARTZ
--------------------------
Thomas F. Schwartz
Senior Vice President - Finance
Treasurer
(Principal Accounting Officer)
20
<PAGE> 1
OPERATING AGREEMENT
DATED AS OF NOVEMBER 14, 1997
BETWEEN
GREENHOST, INC.,
AS OWNER,
AND
VILLAGE FARMS OF VIRGINIA, INC.
AS OPERATOR
GREENHOUSE FACILITY
LOCATED IN BIRCHWOOD, VIRGINIA
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; CONSTRUCTION OF REFERENCES.........................1
Section 1.01 Definitions.....................................................1
Section 1.02 Construction of References.....................................10
ARTICLE II OPERATION OF FACILITY..........................................10
ARTICLE III RENT AND SERVICES..............................................10
Section 3.01 Basic Rent.....................................................10
Section 3.02 Supplemental Rent..............................................11
Section 3.03 Late Payment...................................................11
Section 3.04 Net Lease; No Setoff; Etc......................................11
Section 3.05 Hot Water Charges..............................................11
Section 3.06 Services Provided by Owner.....................................12
ARTICLE IV DISCLAIMER OF WARRANTIES.......................................12
ARTICLE V RESTRICTION ON LIENS...........................................12
ARTICLE VI OPERATION AND MAINTENANCE; ALTERATIONS,
MODIFICATIONS AND ADDITIONS....................................13
Section 6.01 Operation and Maintenance......................................13
Section 6.02 Repair and Replacement.........................................13
Section 6.03 Alterations Required by Law....................................14
Section 6.04 Plans and Specifications; Operating Manual.....................14
Section 6.05 Operational Alterations........................................14
Section 6.06 Owner's Option to Pay Costs of Alterations.....................14
Section 6.07 Reports of Alterations.........................................14
Section 6.08 Title to Parts.................................................15
Section 6.09 Removal of Parts...............................................16
Section 6.10 Parts Free and Clear of Liens..................................16
Section 6.11 Permitted Contests.............................................16
Section 6.12 Operating Logs.................................................16
Section 6.13 Return of Facility.............................................16
ARTICLE VII IDENTIFICATION.................................................17
<PAGE> 3
ARTICLE VIII INSURANCE......................................................17
Section 8.01 Coverage.......................................................17
Section 8.02 Policy Provisions..............................................19
Section 8.03 Evidence of Insurance..........................................20
Section 8.04 No Duty of Owner to Verify.....................................20
ARTICLE IX LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE......................21
Section 9.01 Occurrence of Event of Loss....................................21
Section 9.02 Repair of Loss or Destruction..................................21
ARTICLE X INTEREST CONVEYED TO OPERATOR .................................22
ARTICLE XI ASSIGNMENT AND SUBLEASE; LOCATION..............................22
Section 11.01 Assignment and Sublease........................................22
Section 11.02 Location.......................................................22
Section 11.03 Mortgaging the Estate of Lessor................................22
ARTICLE XII INSPECTION AND REPORTS.........................................24
Section 12.01 Condition and Operation........................................24
Section 12.02 Annual Insurance Report........................................24
Section 12.03 Financial Reports..............................................24
Section 12.04 Budget Approval................................................25
Section 12.05 Liability......................................................25
Section 12.06 Liens..........................................................26
ARTICLE XIII EVENTS OF DEFAULT..............................................26
ARTICLE XIV ENFORCEMENT....................................................27
Section 14.01 Remedies.......................................................27
Section 14.02 Survival of Operator's Obligations.............................28
Section 14.03 Remedies Cumulative............................................29
ARTICLE XV RIGHT TO PERFORM FOR OPERATOR..................................29
ARTICLE XVI INDEMNITIES....................................................29
Section 16.01 General Indemnity..............................................29
Section 16.02 Fees, Taxes and Other Charges..................................31
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Section 16.03 Survival......................................................33
Section 16.04 Waiver........................................................34
ARTICLE XVII COVENANTS AND REPRESENTATIONS OF OPERATOR.....................34
Section 17.01 Operation of Facility.........................................34
Section 17.02 Affiliated Transactions.......................................34
Section 17.03 Waiver of Operating or Efficiency Standards...................34
Section 17.04 Representations and Warranties of Operator....................35
ARTICLE XVIII MISCELLANEOUS.................................................35
Section 18.01 Further Assurances............................................35
Section 18.02 Quiet Enjoyment...............................................36
Section 18.03 Notices.......................................................36
Section 18.04 Severability..................................................36
Section 18.05 Amendment.....................................................36
Section 18.06 Headings......................................................36
Section 18.07 Counterparts..................................................36
Section 18.08 Governing Law.................................................36
Section 18.09 Binding Effect; Successors and Assigns, Survival..............36
Section 18.10 Divisible Operating Agreement.................................36
Section 18.11 Effectiveness.................................................37
ARTICLE XIX STEAM SALES AGREEMENT, FEE MORTGAGE AND
MASTER LEASE..................................................37
Section 19.01 Subject to Fee Mortgage and Master Lease......................37
Section 19.02 Cooperation with Lenders......................................38
Section 19.03 Steam Sales Agreement.........................................38
Section 19.04 Storm Water Piping, Power Station Piping, Steam Equipment,
Steam Interconnection Facilities and Metering Devices.........40
SCHEDULES
SCHEDULE 1.01(a) Description of Facility
SCHEDULE 1.01(b) Internal Rate of Return
SCHEDULE 3.01 Basic Rent
SCHEDULE 3.02 Supplemental Rent
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OPERATING AGREEMENT dated as of November 14, 1997 between GREENHOST,
INC., a Delaware corporation (the "Owner"), and VILLAGE FARMS OF VIRGINIA, INC.,
a Delaware corporation (the "Operator").
W I T N E S S E T H:
WHEREAS, the Owner owns a greenhouse plant in Birchwood, Virginia and
leases the Site (as defined below) from the Master Landlord (as defined below)
under the Master Lease (as defined below); and
WHEREAS, the Owner desires to lease the Plant (as defined below) and
sublease the Site (as defined below) to the Operator and the Operator desires to
lease the Plant and sublease the Site from the Owner and operate the Facility
(as defined below), all on the terms and conditions herein contained.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION OF REFERENCES
Section 1.01. Definitions. As used in this Agreement, the following
terms shall have the following meanings (such definitions to be equally
applicable to both the singular and plural forms of the terms defined):
"Address" shall mean:
(a) with respect to the Owner, P. O. Box 67, Sealston,
Virginia 22547, Attn: Chief Executive Officer; and
(b) with respect to the Operator, 10 Alvin Court, East
Brunswick, New Jersey 08816, ATTN: President;
or such other address as such party shall give by notice to the other
party hereto.
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by or under common control with, such Person.
"Alterations" shall mean, with respect to the Facility, alterations,
improvements, modifications and additions to the Facility (but excluding any
replacement of Parts incorporated in the Facility).
<PAGE> 6
"APD" shall mean Agro Power Development, Inc., a New York corporation.
"Basic Rent" shall mean the rent payable pursuant to Section 3.01 of
this Agreement.
"Basic Rent Payment Date" shall mean the last day of each March, June,
September and December during the term of this Agreement and the Termination
Date, commencing March 31, 1998.
"Birchwood" means, as the context may permit or require, Birchwood
Power Partners, L.P., its successors and assigns, individually, and in its
capacity as all or any one or more of Master Landlord, or Lender.
"Board of Directors", with respect to the Operator or the Owner, means
either the Board of Directors or any duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Operator or Owner, as the case may
be, to have been duly adopted by its Board of Directors and to be in full force
and effect on the date of such certification.
"Borrower" means Greenhost, Inc., a Delaware corporation, in its
capacity as Borrower under the Loan Agreement.
"Budget" shall have the meaning specified in Section 12.04.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in New York, New York or
Charlotte, North Carolina.
"Capital Improvements Costs" shall mean the costs incurred by the Owner
pursuant to the General Contractors Agreement.
"Cash Flow" shall mean for any Operating Year (a) the sum of (i) gross
revenues from the sale of Product, plus (ii) all amounts received by the
Operator pursuant to the Line of Credit Facility Agreement, plus, (iii)
insurance proceeds received by the Operator from policies of the type described
in subsection 8.01(a)(iii) or any other insurance proceeds paid with respect to
the loss or damage to Product, plus, (iv) revenues received pursuant to Article
XVII plus (v) all other revenues and income of the Facility, minus (b) all
Greenhouse Expenses paid in the ordinary course of business (but excluding any
Greenhouse Expenses that are prepaid by the Operator).
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), as presently in
effect and as the same may hereafter be amended, together with any regulations
pursuant thereto.
"Closing Date" shall mean the date this Agreement is executed and
delivered by the parties.
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<PAGE> 7
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
comparable successor law.
"Collateral Pledge" means the Collateral Assignment of Note, Loan
Agreement, and the Deed of Trust, dated as of May 18, 1994, from Birchwood to
the Security Agent, as amended by that certain Amended and Restated Collateral
Assignment of Greenhouse Note, Loan Agreement and Mortgage, dated November 19,
1996 and as the same may be further amended, modified or supplemented from time
to time.
"Deed of Trust" means the Deed of Trust, Security Agreement and
Assignment of Leases and Rents, dated as of May 18, 1994, by and between
Borrower, as Grantor thereunder, Lawyers Title Insurance Corporation, as Trustee
thereunder, and Lender, as Beneficiary thereunder, pursuant to which Borrower
has granted a security interest in the Trust Property to secure the repayment of
the Indebtedness and performance of the Obligations, as amended by the Amendment
to Deed of Trust, Security Agreement and Assignment of Leases and Rents, dated
March 27, 1997, and as the same may be further amended, modified or supplemented
from time to time, and, unless the context otherwise requires, shall include the
Collateral Pledge.
"Default" means any event or condition which, with notice or lapse of
time or both, would become an Event of Default.
"Equipment" shall mean the equipment and other property described in
Part 1 of Schedule 1.01(a) of this Agreement, together with any Parts which may
from time to time be incorporated in such equipment or other property and title
to which shall have vested in the Owner.
"Effective Date" shall have the meaning specified in Section 18.11.
"Environmental Regulations" means any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees or requirements of any
Governmental Authority exercising jurisdiction over the Site, the Greenhouse
Facility (including ownership, construction or operation thereof), the Operator,
or the Borrower relating to the environment or natural resources, or to
emissions, discharges, or releases or threatened releases of Hazardous
Substances, or to protection of the environment or natural resources, or to
emissions, discharges, Releases or threatened Releases of Hazardous Substances,
including but not limited to the CERCLA, the Hazardous Materials Transportation
Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), and the Safe Drinking Water
Act (42 U.S.C. ss. 300f et seq.), all as presently in effect and as the same may
hereafter be amended, any regulation pursuant thereto, and also including, but
not limited to, any obligations, duties, or requirements arising from or related
to Hazardous Substances under common law.
"Event of Default" shall have the meaning specified in Article XIII of
this Agreement.
3
<PAGE> 8
"Event of Loss" shall mean (a) the actual or constructive total loss of
all or substantially all the Facility, or the condemnation, confiscation or
seizure of, or requisition of title to, or requisition by any Governmental
Authority of the use of, all or substantially all the Facility, or (b) the loss,
destruction or damage of or condemnation, confiscation or seizure of, or
requisition by any Governmental Authority of the use of, such portion of the
Facility as to render the Facility unable to operate at substantially the same
level of operation as prior to the occurrence of such event, unless (x) it is
feasible to restore, rebuild or replace the affected portion of the Facility and
(y) in the opinion of the Owner, sufficient funds are or will be available to
the Owner (i) to restore, rebuild or replace the affected portion of the
Facility so that the Facility will be able to operate at substantially the same
level of operation as prior to the occurrence of such event within twelve (12)
months after the occurrence of such event and (ii) to pay all Rent until such
restoration, rebuilding or replacement is completed.
"Expense" shall have the meaning specified in Section 16.01 of the
Operating Agreement.
"Facility" shall mean the Owner's rights in and to the Plant, the Site
and the Equipment.
"Fee Mortgagee" shall have the meaning set forth in Section 11.03(c)
hereof.
"Fees, Taxes and Other Charges" shall have the meaning specified in
Section 16.02 of this Operating Agreement.
"Financing Parties Representative" means Credit Suisse, in its capacity
as administrative agent under the Power Station Loan Agreement (and its
successors thereto).
"GDP/IPD" shall have the meaning specified in Section 3.05 of this
Operating Agreement.
"General Contractors' Agreement" shall mean the agreement between APD,
as general contractor, and the Owner dated as of __________, as the same may be
amended, modified or supplemented from time to time in accordance with the
provisions thereof, to provide certain capital improvements to the Facility.
"Greenhouse Expenses" shall mean the sum (without duplication) of (a)
direct labor costs paid, (b) seed expense paid, (c) packaging supplies expense
paid, (d) fertilizer and chemical expenses paid, (e) biological control,
including bees, expense paid, (f) freight expense paid, (g) growing medium and
supplies expense paid, (h) carbon dioxide expense paid, (i) utility (including
hot water, electricity and natural gas) expense paid, (j) Management Fee paid,
(k) Basic Rent paid, (l) insurance premiums and property taxes paid, (m)
principal and interest paid with respect to the Line of Credit Facility
Agreement and (n) all other cash expenses paid relating to the operation of the
Facility, to the extent contained in the Budget; provided, however, that there
shall be excluded from Greenhouse Expenses (a) all expenses to be paid from the
Management Fee, (b) all payments with respect to federal, state and local income
taxes, (c) payment of principal, interest and fees with respect all indebtedness
of the Operator for non capital expenditures other than the Line of Credit
Facility Agreement, (d) payment of principal, interest, lease payments and fees
with respect to the acquisition by the Operator of capital
4
<PAGE> 9
equipment, except to the extent consented to in advance by the Owner in writing,
and (e) expenses paid by the Operator pursuant to Section 16.01.
"Greenhouse Facility" shall mean the approximately 38-acre greenhouse
located on the Site.
"Governmental Authority" shall mean 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.
"Hazardous Substances" shall mean and include those elements or
compounds which are contained in the lists of hazardous substances or wastes now
or hereafter adopted by the United States Environmental Protection Agency (the
"EPA") or the lists of toxic pollutants designated now or hereafter by Congress
or the EPA or which are defined as hazardous, toxic, pollutant, contaminant,
infectious or radioactive by CERCLA, by any Environmental Requirement, or by any
so called federal, state or local "Superfund" or "Superlien" laws, or by any
other Federal, state or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect, including, without
limitation, the Air Pollution Control Act, Va. Code Ann. ss. 10.1-1300 et seq.,
the Solid Waste Management Act, Va. Code Ann. ss. 10.1-1400 et seq., the State
Water Control Law, Va. Code Ann. ss. 2.1-44.2 et seq., or any and all rules and
regulations now or hereafter promulgated under any or all of the foregoing,
together with any other substance the use, handling, generation, treatment,
storage, disposal, treatment, presence or Release of which could result in the
imposition of liability under any of the aforementioned laws, statutes,
ordinances, codes, rules, regulations, orders or decrees.
"Incorporated in" shall have the meaning specified in Section 6.02 of
the Operating Agreement.
"Indemnitee" shall mean the Owner and the respective successors,
assigns, officers, directors, employees and agents of any thereof.
"Inspecting Parties" shall have the meaning specified in Section 12.01
of this Operating Agreement.
"Internal Rate of Return" shall mean the return to capital calculated
at the end of each calendar quarter end in accordance with Schedule 1.01(b)
hereto.
"Lender" means Birchwood, in its capacity as Lender under the Loan
Agreement.
"Lien" shall mean any lien, mortgage, encumbrance, pledge, charge,
lease, easement, servitude, right of others or security interest of any kind,
including any thereof arising under any conditional sale or other title
retention agreement.
5
<PAGE> 10
"Line of Credit Facility Agreement" shall mean the Line of Credit
Facility Agreement between Village Farms International Finance Association and
the Operator, as the same may be amended, modified or supplemented from time to
time in accordance with the provisions thereof.
"Loan Agreement" means the Loan and Contribution Agreement, dated as of
May 18, 1994, between the Owner, as Borrower, and Birchwood, as Lender, as
amended by the Greenhouse Restructure Amendment, dated March 27, 1997 and
Lender, and as the same may be further amended, modified or supplemented from
time to time.
"Management Agreement" shall mean the Management, Operation,
Maintenance, Marketing and Sales Agreement to be entered into between the
Operator and VF, as it may be amended, supplemented or otherwise modified with
the prior written consent of the Owner and in effect from time to time, pursuant
to which VF will provide certain management, operation, maintenance, marketing
and sales services to the Operator, which Management Agreement shall be approved
in advance by the Owner in writing.
"Management Fee" shall mean the management fee paid to VF pursuant to
the Management Agreement for (a) all internal accounting services of the
Operator, (b) salary and other benefits paid to the Operator's grower and sales
representatives, (c) all internal management services performed by principals of
the Operator or VF and (d) all direct out-of-pocket expenses (including travel
and living expenses) paid in connection with the performance of the services
described in clauses (a), (b) and (c).
"Master Landlord" means Birchwood (or its successors and assigns), in
its capacity as Master Landlord under the Master Lease.
"Master Landlord's Facilities" shall mean, collectively, the Steam
Interconnection Facilities, the Metering Devices and the Power Station Piping.
"Master Lease" means that certain Deed of Master Lease, dated as of May
18, 1994, between the Master Landlord, and the Master Tenant, as amended by the
Amendment to Master Lease dated March 27, 1997 and as the same may be further
amended, modified or supplemented from time to time.
"Master Tenant" means the Owner (or its successors and permitted
assigns), in its capacity as Master Tenant under the Master Lease.
"Metering Devices" shall mean all necessary meters and associated
equipment to be utilized in measuring the steam output of the Power Station and
for measuring the condensate return to the Power Station.
"Nonseverable" shall describe (i) with respect to any Alteration, an
Alteration which is a "nonseverable improvement" within the meaning of Revenue
Procedure 79-48 and (ii) with respect to any part not constituting an Alteration
or part of an Alteration, a part which cannot be readily removed from the
equipment without causing material damage to the Facility.
6
<PAGE> 11
"Notes" means (i) the promissory note executed by Owner in the form of
Exhibit A to the Loan Agreement, payable to the order of Birchwood, in the
amount of twenty million seventy nine thousand dollars ($20,079,000), (ii) the
term note executed by Owner in the form of Exhibit A to the Term Loan and
Working Capital Agreement payable to the order of Birchwood, in the amount of
Two Million Five Hundred Thousand Dollars ($2,500,000) and (iii) the working
capital note executed by Owner in the form of Exhibit B to the Term Loan and
Working Capital Agreement, payable to the order of Birchwood, in the amount of
Three Million Dollars ($3,000,000), and any and all renewals, reinstatements,
rearrangements, enlargements or extensions of such notes or of any promissory
note or notes given therefor.
"Officer's Certificate" means a certificate signed by a Responsible
Officer of the party required to give such certificate.
"Operating Manual" shall mean such operating manuals as are ordinarily
maintained by the Operator with respect to the Facility and any such manuals
provided by any manufacturer of any component of the Facility.
"Operating Year" shall mean each period commencing on January 1 and
ending on December 31 during the term of this Operating Agreement.
"Operative Documents" shall mean this Operating Agreement and the Line
of Credit Facility Agreement.
"Operator" shall mean Village Farms of Virginia, Inc., a Delaware
corporation, and its permitted successors and permitted assigns.
"Overdue Rate" shall mean an interest rate equal to the rate announced
from time to time by First Union National Bank of North Carolina as its prime or
reference rate plus two percent (2%) per annum.
"Owner" shall mean Greenhost, Inc., a Delaware corporation, and its
successors and permitted assigns.
"Parts" shall have the meaning specified in Section 6.02.
"Permitted Liens" shall mean (a) the respective rights and interests of
the Owner and the Operator as provided in the Operative Documents, (b) liens for
taxes either not yet due or being contested in good faith and by appropriate
proceedings, so long as such proceedings shall not involve any danger of the
sale, forfeiture or loss of any part of the Facility, title thereto or any
interest therein and shall not interfere with the use or disposition of the
Facility or the payment of Rent, (c) materialmen's, mechanics', workers,
repairmen's, employees' or other similar Liens arising in the ordinary course of
business for amounts either not yet due or being contested in good faith and by
appropriate proceedings so long as such proceedings shall not involve any danger
of the sale, forfeiture or loss of any part of the Facility, title thereto or
any interest therein and shall not interfere with the use or disposition of the
Facility or the payment of Rent, and (d) Liens arising out of judgments or
awards with respect to which at the time an appeal or
7
<PAGE> 12
proceeding for review is being prosecuted in good faith and either which have
been bonded or for the payment of which adequate reserves shall have been
provided.
"Person" shall mean individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Plans and Specifications" shall mean the plans and specifications for
the Plant and the Equipment identified as such, as the same may be revised from
time to time in accordance with the terms of this Agreement.
"Plant" shall mean those buildings and other properties specifically
described in Part 2 of Schedule 1.01(a) to the Operating Agreement, together at
all times with any and all Parts which may from time to time be incorporated in
the Plant.
"Power Purchase Agreement" means the Power Purchase and Operating
Agreement, dated as of July 13, 1990, between SEI Birchwood, Inc., a general
partner of Lender, and Virginia Power, as assigned by SEI Birchwood, Inc.
to Lender, as amended, modified or supplemented from time to time.
"Power Station" means the electric power generation facility located in
King George County, Virginia, which Birchwood constructed and currently owns,
operates and maintains.
"Power Station Loan Agreement" means the Loan and Reimbursement
Agreement dated as of May 18, 1994, among Lender, as the borrower thereunder,
the "Banks" and "Institutions" from time to time party thereto, and Credit
Suisse, as administrative agent for the Banks, providing for loans and other
extensions of credit to finance the construction and other costs of the Power
Station, as amended by that certain Greenhouse Restructure Amendment, dated
March 27, 1997, and as the same may be further amended, supplemented or
otherwise modified from time to time.
"Power Station Piping" shall mean the pump and piping system necessary
for the return of water from the detention pond on the Site to the Power
Station.
"Product" shall mean tomatoes or any other agricultural product
approved in writing by the Owner.
"QF Application" means that certain Application of Birchwood Power
Partners, L.P. Certification of Qualifying Status as a Cogeneration Facility
filed with the Federal Energy Regulatory Commission on June 29, 1993, and all
amendments thereto.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including without limitation the abandonment or discarding of
barrels, containers or other closed or open receptacles containing any Hazardous
Substances or pollutant or contaminant).
8
<PAGE> 13
"Rent" shall mean Basic Rent and Supplemental Rent, collectively.
"Responsible Officer" shall mean the Chairman or Vice Chairman of the
Board of Directors, the Chairman or Vice Chairman of the Executive Committee of
the Board of Directors, the President, any Vice President (whether or not
designated by a number or a word or words added before or after the title "Vice
President", including any Assistant Vice President), the Secretary, any
Assistant Secretary, the Treasurer, any Assistant Treasurer or any other officer
of any of them customarily performing functions similar to those performed by
any of the above designated officers.
"Site" shall mean the land described in Part 3 of Schedule 1.01(a) of
the Operating Agreement.
"Steam Equipment" shall mean the absorption chiller and heat exchange
systems, cooling tower, thermal storage tank, steam and condensate lines and the
other equipment required for the conversion of steam into a form usable in the
heating and cooling of the Greenhouse Facility and the lines required to deliver
the hot and chilled water from such equipment to the Greenhouse Facility.
"Steam Interconnection Facilities" shall mean the lines and other
devices necessary to interconnect the steam and condensate lines of the Power
Station with the Steam Equipment.
"Steam Sales Agreement" means the agreement, dated as of May 18, 1994,
between Birchwood, as seller, and the Owner, as purchaser, as amended by that
certain Greenhouse Restructure Amendment, dated March 27, 1997, and as the same
may be further amended,, modified or supplemented from time to time.
"Storm Water Piping" shall mean the pump and piping system and other
equipment necessary for the return of storm water runoff from the Greenhouse
Facility to the detention pond on the Site.
"Supplemental Rent" shall mean the rent payable pursuant to Section
3.02 of this Agreement.
"Supplemental Basic Rent Payment Date" shall mean the last date of each
January, April, July and October during the term of this Agreement and the
Termination Date commencing April 30, 1998.
"Term" shall mean (a) the period commencing on January 1, 1998 and
ending on December 31, 2007 or (b) such shorter period as may result from
earlier termination of this Operating Agreement as provided herein.
"Term Loan and Working Capital Agreement" shall mean the Term Loan and
Working Capital Agreement dated as of November 19, 1996 between Birchwood, as
Lender, and Owner, as Borrower.
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<PAGE> 14
"Termination Date" shall mean the last day of the Term.
"Trust Property" has the meaning given in Section 1.1 of the Deed of
Trust.
"VF" shall mean Village Farms, L.L.C., a Delaware limited liability
company.
"Virginia Power" means Virginia Electric and Power Company, a Virginia
corporation, as purchaser of energy and capacity (or its successor and permitted
assigns) under the Power Purchase Agreement.
"Water Charge" shall have the meaning specified in Section 3.05 of this
Operating Agreement.
Section 1.02. Construction of References. All references in this
instrument to designated sections and other subdivisions are to designated
sections and other subdivisions of this instrument, and the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Operating Agreement as a whole and not to any particular section or other
subdivision.
Except as otherwise indicated, all the agreements or instruments herein
defined shall mean such agreements or instruments as the same may from time to
time be supplemented or amended or the terms thereof waived or modified to the
extent permitted by, and in accordance with, the terms thereof.
ARTICLE II
OPERATION OF FACILITY
As of the later to occur of (i) January 1, 1998 and (ii) Notice of
Substantial Completion (as defined in the General Contractor's Agreement) of the
Plant, subject to all the terms and conditions of this Agreement, the Owner
shall provide and lease the Facility to the Operator, and the Operator shall
operate and lease, and hereby as of the Effective Date does operate and lease,
the Facility from the Owner for the Term.
ARTICLE III
RENT AND SERVICES
Section 3.01. Basic Rent. Subject to adjustment as provided below,
during the Term, the Operator shall pay Basic Rent to the Owner in arrears on
each Basic Rent Payment Date for the Facility in an amount equal to the amount
set forth on Schedule 3.01 for such Basic Rent Payment Date (in the case of the
last Basic Rent Payment Date if such date is other than a Basic Rent Payment
Date, such Basic Rent shall be prorated based on the number of days during which
the Operator leased the Facility). Basic Rent shall be increased in accordance
with any agreement reached in connection with the payment by the Owner of the
costs of any Alterations in accordance with Section 6.06 hereof.
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<PAGE> 15
Section 3.02. Supplemental Rent. In addition to Basic Rent, the
Operator shall pay to the Owner Supplemental Rent in an amount equal to the
percentage of Cash Flow set forth on Schedule 3.02 during the Term. Supplemental
Rent shall be payable for each calendar quarter on the Supplemental Rent Payment
Date immediately following the end of such calendar quarter.
Section 3.03. Late Payment. If any Rent or any other amount required to
be paid hereunder shall not be paid when due, the Operator shall pay to the
Owner interest (to the extent permitted by law) on such overdue amount from and
including the due date thereof to but excluding the date of payment thereof
(unless such payment shall be made after 11:00 A.M., local time, in which case
such date of payment shall be included) at the Overdue Rate. If any Rent shall
be paid on the date when due, but after 11:00 A.M., local time, at the place of
payment, interest shall be payable as aforesaid for one day.
Section 3.04. Net Lease; No Setoff; Etc. This Operating Agreement is a
net lease and, notwithstanding any other provision of this Operating Agreement,
it is intended that Rent and all other amounts payable by Operator hereunder to
Owner shall be paid without notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution or reduction.
Section 3.05. Hot Water Charges. The Owner agrees to provide to the
Operator during the Term hot water for the operation of the Facility at a cost
to the Operator of $200,000.00 per annum, subject to increase as set forth below
(the "Water Charge"). The Water Charge shall be due and payable in equal monthly
installments in arrears on the last day of each month during the Term (prorated
for any partial years or months). Commencing January 1, 1999, and annually on
each January 1 thereafter during the Term, the Water Charge shall be increased
in accordance with increases, if any, in the Gross Domestic Product/Implicit
Price Deflator ("GDP/IPD"), as published by the U.S. Department of Labor, Bureau
of Labor Statistics. The new Water Charge for each such period shall be
calculated by the Owner by multiplying the Water Charge in effect on the
immediately preceding December 31 by a fraction, the numerator of which shall be
the GDP/IPD as first published for the preceding year and the denominator of
which shall be the GDP/IPD as first published for the second preceding year
(i.e., the new Water Charge for January 1, 1999 shall equal the Water Charge in
effect on December 31, 1998 multiplied by a fraction, the numerator of which
shall be the GDP/IPD for 1998 (first published in March of 1999) and the
denominator of which shall be the GDP/IPD for 1997 (first published in March of
1998)). Due to the timing of the publication of the GDP/IPD, the new Water
Charge for each such period shall be calculated in April of each such period and
applied retroactively to be effective as of the prior January 1. Upon
calculation of the new Water Charge, the Operator agrees to promptly pay the
Owner the difference between the amounts due for Water Charges for the months of
January, February and March of each such period based on the adjusted Water
Charge, and the amounts actually paid for water based on the pre-adjusted Water
Charge.
The Owner shall be responsible for contracting for any fuel necessary
for providing hot water.
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<PAGE> 16
The Owner shall invoice the Operator for hot water on a monthly basis,
and such invoices shall be payable within thirty (30) days of invoice.
Section 3.06. Services Provided by Owner. At the request of the
Operator, the Owner may, at its option, provide, at the Operator's expense,
general maintenance services. The Owner shall charge the Operator an amount
equal to its actual cost in providing such services and shall invoice the
Operator for such services monthly as incurred. Such invoices shall be payable
within thirty (30) days of invoice.
ARTICLE IV
DISCLAIMER OF WARRANTIES
THE FACILITY IS BEING PROVIDED AND LEASED PURSUANT TO THIS AGREEMENT ON
AN "AS-IS, WHERE-IS" BASIS. THE OWNER HAS NOT MADE NOR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE,
MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION,
ABSENCE OF LATENT DEFECTS OR FITNESS FOR USE OF THE FACILITY (OR ANY PART
THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE FACILITY (OR ANY PART THEREOF). It is agreed that
except as expressly provided herein all risks incident to the matters discussed
in the preceding sentence, as between the Owner, on the one hand, and the
Operator, on the other, are to be borne by the Operator. The provisions of this
Article IV have been negotiated, and, except to the extent otherwise expressly
stated in this Agreement, the foregoing provisions are intended to be a complete
exclusion and negation of any representations or warranties by the Owner,
express or implied, with respect to the Facility, that may arise pursuant to any
law now or hereafter in effect, or otherwise.
ARTICLE V
RESTRICTION ON LIENS
The Operator shall not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Facility, title thereto or
any interest therein, except Permitted Liens. The Operator shall promptly, at
its own expense, take such action as may be necessary duly to discharge or
eliminate or bond in a manner satisfactory to the Owner any such Lien if the
same shall arise at any time. The Operator further agrees that it shall pay or
cause to be paid on or before the time or times prescribed by law (after giving
effect to any applicable grace period) any taxes, assessments, fees or charges
imposed on the Operator (or any affiliated or related group of which the
Operator is a member) under the laws of any jurisdiction that, if unpaid, might
result in any Lien prohibited by this Operating Agreement.
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ARTICLE VI
OPERATION AND MAINTENANCE; ALTERATIONS,
MODIFICATIONS AND ADDITIONS
Section 6.01. Operation and Maintenance. The Operator, at its own
expense, shall at all times operate, maintain, service and repair the Facility
in accordance with (a) prudent commercial operating maintenance practices,
including all manufacturers' warranty requirements to the extent such
requirements are made known to the Operator, (b) the then current Operating
Manual, (c) except to the extent Section 6.11 hereof shall apply, all applicable
requirements of law and of any court and of any Governmental Authority
(including without limitation all zoning, environmental protection, pollution,
sanitary and safety laws, and all Environmental Requirements) noncompliance with
which would have a material adverse effect on the Operator's right to operate
the Facility, the Operator's business or financial condition or the rights of
the Owner in the Facility or would, in the opinion of the Owner, involve a
material risk of any of the items enumerated in Section 6.11(i) through (iv),
and (d) all requirements contained in permits and licenses relating to the
Facility in effect from time to time during the Term. In connection therewith,
the Operator shall (i) maintain the Facility in good operating condition,
ordinary wear and tear excepted, (ii) cause the Facility to continue to have the
capacity and functional ability to produce Product on a continuing basis, in
normal commercial operation, in a commercially efficient manner, (iii) comply
with the standards imposed by any insurance policies in effect at any time with
respect to the Facility or any part thereof, and (iv) bear the expense
associated with changes in permitting requirements relating to the Facility
during the Term.
Section 6.02. Repair and Replacement. Except after the occurrence of an
Event of Loss, and except as provided below, the Operator, at its own expense,
shall keep the Facility in good operating condition (reasonable wear and tear
excepted), and shall make all repairs, replacements and renewals of all
necessary or useful appliances, parts, instruments, accessories and
miscellaneous property of whatever nature (collectively, the "Parts") necessary
to maintain the Facility in good operating condition. The Operator shall be
responsible for making (a) all structural and nonstructural repairs and
replacements to the Facility up to thirty thousand dollars ($30,000) in the
aggregate in each Operating Year and (b) all repairs and replacements, with the
exception of (i) the greenhouse structure, including the ventilation system;
(ii) the heating system, including pumps, boilers, expansion vessels and piping;
(iii) the curtain system; (iv) the CO2 system; (v) the irrigation system; and
(vi) the cold storage facility; provided that notwithstanding anything contained
herein to the contrary, the Operator shall be responsible for all repair and
replacements relating to normal wear and tear. The Owner shall be responsible
for making all necessary structural and nonstructural repairs in excess of
thirty thousand dollars ($30,000) in the aggregate in any Operating Year other
than repairs and replacements of items referred to in clause (b) above;
provided, however, that if such repairs or replacements are necessitated by the
negligent or willful acts of the Operator, its employees, agents or invitees,
then the cost of such repairs or replacements shall be borne by the Operator. In
the ordinary course of maintenance, service, repair or testing, the Operator may
remove any Parts, but the Operator shall cause such Parts to be replaced as
promptly as practicable. All replacement Parts shall be free and clear of all
Liens except Permitted Liens and shall be in at least as good operating
condition as, and shall have a value and utility at least equal to, the Parts
replaced,
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assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof.
Section 6.03. Alterations Required by Law. The Owner shall make such
Alterations to the Facility as may be required from time to time to meet the
requirements of and be in conformity with all applicable requirements of law, of
any court and of any Governmental Authority and the Operator will maintain the
same in proper operating condition under such laws and requirements, except to
the extent Section 6.11 hereof shall apply. Upon completion of such Alterations,
the Basic Rent shall be automatically increased on an annual basis by an amount
sufficient to enable the Owner to recover (over ten (10) years) the cost paid in
connection with the Alterations.
Section 6.04. Plans and Specifications; Operating Manual. As soon as
practicable following the Effective Date, the Owner shall provide to the
Operator the Operating Manual and a set of Plans and Specifications (which shall
in the aggregate reflect the Facility as of the Effective Date). The Operator
shall maintain throughout the Term, and keep on file at the Facility, a current
Operating Manual and a set of Plans and Specifications (which shall in the
aggregate reflect all Parts incorporated in the Facility and all Alterations
made pursuant to this Article VI) with respect to the Facility. Upon any
expiration of the Term or the exercise of remedies pursuant to Article XIII
hereof, the Operator shall deliver to the Owner a complete set, current as of
the date of such return or exercise of remedies, of such Plans and
Specifications and all work drawings and similar documents with respect to the
operation of the Facility. The Plans and Specifications shall not be revised,
amended or modified in any manner which would adversely affect the operating
capacity, cost efficiency, utility, reliability or value of the Facility.
Section 6.05. Operational Alterations. In addition to the foregoing,
the Operator, at its own expense (subject to Section 6.06 hereof), may from time
to time make such Alterations to the Facility as the Operator may deem desirable
in the proper conduct of its business, which shall be approved by the Owner in
advance, provided that such Alterations shall not adversely affect the operating
capacity, cost efficiency, utility, reliability or value of the Facility.
Section 6.06. Owner's Option to Pay Costs of Alterations. If requested
to do so by the Operator, the Owner may at its option pay for any Alteration
title to which will vest or has vested in the Owner pursuant to Section 6.08
hereof, subject to agreement as to adjustments in Basic Rent in accordance with
Section 3.01 hereof.
Section 6.07. Reports of Alterations. On or before March 15 of each
calendar year commencing in 1999 and on the date on which the Term shall expire,
the Operator shall furnish the Owner with a report stating the total cost (as
determined in accordance with the Operator's normal accounting practices) of all
Alterations which are Nonseverable and which were not financed pursuant to
Section 6.06 hereof and which are not described in clause (i) or (ii) of Section
4(4).03(c) of Revenue Procedure 75-21 as modified by Revenue Procedure 79-48 and
which were made during the period from the date of this Operating Agreement to
the end of the preceding calendar year in the case of the first such report or
during the period from the end of the period covered by the last previous report
to one month prior to such report in the case of subsequent reports and briefly
describing all such Alterations. Each such report shall be
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accompanied by an Officer's Certificate stating that no Alteration has been made
that would adversely affect the operating capacity, cost efficiency, utility,
reliability or value of the Facility or the ability of the Operator to perform
its obligations hereunder.
Section 6.08. Title to Parts. Title to each Part (including any
Alteration) incorporated in the Facility pursuant to this Article VI shall
without further act vest in the Owner and shall be deemed to constitute a part
of the Facility and be subject to this Operating Agreement in the following
cases:
(a) such Part shall be in replacement of or in substitution
for, and not in addition to, any Part originally incorporated in the
Equipment or any Part title to which shall have vested in the Owner
pursuant to this Section 6.08;
(b) such Part shall be required to be incorporated in the
Facility pursuant to the terms of Sections 6.02 and 6.03 hereof;
(c) such Part shall be Nonseverable; or
(d) such Part shall be paid for by the Owner.
If such Part or Parts are incorporated in the Facility pursuant to this
Article VI and are not within any of the categories set forth in clauses (a)
through (d) above, then title to such Part or Parts shall vest in the Operator,
subject to the rights of the Owner provided in Section 6.09 hereof.
All Parts (other than Parts the title to which is vested in the
Operator in accordance with the preceding sentence) at any time removed from the
Facility shall remain the property of the Owner, no matter where located, until
such time as such Parts shall be replaced by Parts that have been incorporated
in the Facility and that meet the requirements for replacement Parts specified
in Section 6.02 hereof. On or before March 15 of each calendar year commencing
in 1999 and on the date on which the Term shall expire, the Operator shall
furnish the Owner with a report which provides a breakout of the total cost (as
determined in accordance with the Operator's normal accounting practices) of all
Parts the title to which is vested in the Operator and all parts the title which
is vested in the Owner as provided in this Section 6.08 (other than those Parts
that were paid for by the Owner) and which were incorporated in the Facility
during the period from the date of this Operating Agreement to the end of the
preceding calendar year in the case of the first such report or during the
period from the end of the period covered by the last previous report to one
month prior to such report in the case of subsequent reports and briefly
describing all such Parts. Each such report shall be accompanied by an Officer's
Certificate stating that no Part has been incorporated in the Facility that
would adversely affect the operating capacity, cost efficiency, utility,
reliability or value of the Facility or the ability of the Operator to perform
its obligations hereunder. Immediately upon any replacement Part becoming
incorporated in the Facility as provided in Section 6.02 hereof, without further
act, (a) title to the removed Part shall thereupon vest in such Person as shall
be designated by the Operator, free and clear of all rights of the Owner, (b)
title to such replacement Part shall thereupon vest in the Owner and (c) such
replacement Part shall become subject to this Operating Agreement and be
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deemed part of the Facility for all purposes hereof to the same extent as the
parts originally incorporated in the Facility.
Section 6.09. Removal of Parts. All Parts incorporated in the Facility
to which the Operator (or any other Person other than the Owner) shall have
title pursuant to the provisions of Section 6.08 hereof may, (a) subject to any
right of the Owner to use such Part as provided herein and (b) so long as such
removal shall be permitted by this Agreement and shall not result in any
violation of any law or governmental regulation and (c) so long as no Default or
Event of Default shall have occurred and be continuing, be removed at any time
by the Operator (or such other Person) and shall be removed by the Operator (or
the Operator shall cause such other Person so to remove such Parts) prior to the
delivery of the Facility to the Owner in accordance with the provisions of the
Operating Agreement, other than upon the termination of this Operating Agreement
pursuant to Article XIV hereof, and title to such Parts shall at all times
remain in the Operator (or such other Person).
Section 6.10. Parts Free and Clear of Liens. Any Part title to which
shall vest in the Owner pursuant to Section 6.08 hereof shall be free and clear
of all Liens except Permitted Liens.
Section 6.11. Permitted Contests. If, to the extent and for so long as
(a) a test, challenge, appeal or proceeding for review of any applicable
requirement of law or of a Governmental Authority relating to the operation or
maintenance of the Facility shall be prosecuted in good faith by the Operator or
(b) compliance with such requirement shall have been excused or exempted by a
nonconforming use permit, waiver, extension or forbearance, the Operator shall
not be required to comply with such requirement but only if such test,
challenge, appeal, proceeding or noncompliance shall not, in the opinion of the
Owner, involve a material risk of (i) foreclosure, sale, forfeiture or loss of,
or imposition of any Lien other than a Permitted Lien on, any part of the
Facility or of impairment of the operation of the Facility, (ii) extending the
ultimate imposition of such requirement beyond the termination of the Term
(unless there shall have been furnished indemnification satisfactory to the
Owner), (iii) any material claim against the Owner (unless there shall have been
furnished indemnification satisfactory to the Owner) or (iv) the nonpayment of
Rent.
Section 6.12. Operating Logs. The Operator shall keep maintenance and
repair reports in sufficient detail to indicate the nature and date of major
work done. Such reports shall be kept on file by the Operator at its offices or
at the Facility for as long as they would be kept by a prudent owner or operator
of the Facility (but in no event less than three (3) years following the end of
the Term), and shall be made available to the Owner upon reasonable request.
Section 6.13. Return of Facility. Upon termination of this Agreement,
the Operator, at its own expense, shall return the Facility to the Owner by
surrendering the same into the possession of the Owner free and clear of all
Liens and in the condition required by Section 6.01 hereof.
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ARTICLE VII
IDENTIFICATION
The Operator shall maintain throughout the Term in a prominent location
at each entrance to each of the buildings comprising the Facility at least one
(1) plate or other clear and durable marking stating "THE EQUIPMENT AND ALL
RELATED EQUIPMENT IN THIS FACILITY IS OWNED BY GREENHOST, INC.," in letters not
less than one-half inch in height. On the Closing Date the Operator shall
certify that it has complied with the preceding sentence. Except as provided
herein or as otherwise directed by the Owner, the Operator shall not allow the
name of any Person other than that of the Operator to be placed on any Part of
the Facility as a designation that might reasonably be interpreted as a claim of
ownership or right to possession or use thereof.
ARTICLE VIII
INSURANCE
Section 8.01. Coverage.
(a) Subject to subsection 8.01(b), the Operator shall
maintain:
(i) property damage insurance with respect to the
Facility insuring against loss or damage in an amount equal to
the "full insurable value" (which as used herein shall mean
the full replacement value, including the costs of debris
removal, which amount shall be determined annually) from (x)
fire and normal extended coverage perils customarily included
in policies available with respect to property comparable to
the Facility and (y) flood, earthquake and other perils
customarily included under Difference in Conditions policies
so available;
(ii) "boiler and machinery" insurance in an amount
equal to the full insurable value with respect to damage (not
insured against pursuant to subsection 8.01(a)(i) above) to
the machinery, plant, equipment, storage facilities or similar
apparatus included in the Facility from risks normally insured
against under boiler and machinery policies;
(iii) comprehensive commercial general liability and
property damage insurance (including, but not limited to,
coverage for any construction on or about the Premises)
covering the legal liability of Operator against all claims
for any bodily injury or death of persons and for damage to or
destruction of property occurring on, in or about the Premises
and the adjoining streets, sidewalks and passageways and
arising out of the use or occupation of the Premises by
Operator. Coverages provided by the foregoing insurance policy
shall include (but not be limited to) all of the coverages
commonly referred to by the insurance industry as:
Premises/Operations Liability; Products/Completed
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Operations Liability; Owners and Contractors Protective
Liability; Blanket Contractual Liability; Broad Form Property
Damage Liability; Personal Injury, Stop-Gap or Employers'
Contingent Liability; Explosion, Collapse and Underground
Liability; Automobile Liability, including coverage for Owned,
Non-Owned, Hired, or Borrowed Vehicles and "Mobile Equipment".
The foregoing insurance shall apply as primary insurance,
irrespective of any insurance which Owner or Master Landlord
may carry and shall include a "Cross Liability" clause
(Severability of Interests). The foregoing insurance shall
have a combined single limit of not less than $5,000,000, with
separate aggregate for product and general liability, which
policy shall be written on an occurrence basis;
(iv) (x) workers' compensation insurance or
occupational disability benefits insurance (in at least the
statutory amounts) and such other forms of insurance which the
Operator is required by law to maintain or cause to be
maintained, covering loss resulting from injury, sickness,
disability or death of the employees of the Operator and (y)
employers' liability insurance in an amount not less than
$500,000 single limit;
(v) comprehensive automobile liability insurance
against claims of personal injury (including bodily injury and
death) and property damage covering all owned, leased,
non-owned and hired vehicles with a $1,000,000.00 minimum
limit per occurrence for combined bodily injury and property
damage liability; and
(vi) such other insurance with respect to the
Facility in such amounts and against such insurable hazards as
is usually carried by Persons operating similar properties in
the same general region, but any loss of the type customarily
covered by the policies described in subsections 8.01(a)(i),
(ii) and (iii), whether actually covered in whole or in part
by such policies, shall be the responsibility of the Operator
and the absence of such coverage shall not relieve the
Operator from any of its obligations under any of the
Operative Documents;
provided, however, that the amount of insurance coverage
specified in subsections 8.01(a)(i) and (a)(ii) above with respect to
the Facility shall not in any event be less than the replacement cost
of the Facility, as determined by the Owner, including agreed amount
waiving coinsurance.
All insurance policies carried in accordance with Section 8.01
shall be maintained with Florists Mutual Insurance Company or any other
insurers with a Best rating of A minus or better and a Best size rating
of IX or better (except for policies underwritten by Lloyds of London
and approved English companies acceptable to the Owner) approved by the
Owner and not disqualified from insuring risks in Virginia.
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Any insurance policies carried in accordance with this Section
8.01 shall be subject to (i) exclusions of the sort existing in the
insurance policies in effect on the Closing Date and (ii) such
deductible amounts and retentions as shall not exceed the following
amounts specified with respect to such policies:
(1) Property Damage............................$25,000;
(2) Boiler and Machinery.......................$25,000;
and
(3) Public Liability...........................$25,000.
Notwithstanding anything to the contrary in this Article VIII,
the Operator shall at all times ensure that the insurance it maintains
with respect to the Facility is not less extensive or inclusive in type
or amount of coverage than that maintained by it in accordance with its
standard corporate minimum practice with respect to other similar
facilities.
(b) During the Term and unless the Owner gives the Operator
sixty (60) days prior written notice, the Owner shall provide the
insurance coverage specified in subsection 8.01(a)(i) and 8.01(a)(ii)
at the Owner's cost.
Section 8.02. Policy Provisions. Any insurance policy maintained by the
Operator pursuant to Section 8.01 hereof shall:
(a) specify Birchwood, Master Landlord, Owner, Lender, Fee
Mortgagee, Master Landlord's affiliates, the Owner and Owner's
affiliates (and such others as Master Landlord or Owner shall from time
to time designate) as additional insured (the "Additional Insured"), as
their respective interests may appear;
(b) specify Fee Mortgagee as mortgagee and loss payee;
(c) provide, except in the case of public liability insurance
and workers' compensation insurance, that all loss or occurrence shall
be adjusted with the Operator and Owner, unless an Event of Default
shall have occurred and be continuing, in which case such loss or
occurrence shall be adjusted with the Owner, and payable (x) in respect
of payments not exceeding $25,000, provided no Default or Event of
Default shall have occurred or be continuing, to the Operator, and (y)
in all other circumstances, to the Owner;
(d) include effective waivers by the insurer of all claims for
insurance premiums or commissions or (if such policies provide for the
payment thereof) additional premiums or assessments against any
Additional Insured;
(e) provide that in respect of the interests of the Additional
Insured, such policies shall not be invalidated by any action or
inaction of the Operator or
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any other Person and shall insure the Additional Insured regardless of,
and any claims for the losses shall be payable notwithstanding:
(i) the occupation or use of the Facility for
purposes more hazardous than permitted by the terms of the
policy;
(ii) any foreclosure or other proceeding or notice
of sale relating to all or any portion of the Facility; or
(iii) any change in the title to or ownership of all
or any portion of the Facility.
(f) provide that such insurance shall be primary insurance and
that the insurers under such insurance policies shall be liable under
such policies without right of contribution from any other insurance
coverage effected by or on behalf of any Additional Insured under any
other insurance policies covering a loss that is also covered under the
insurance policies maintained by the Operator pursuant to this Article
VIII and shall expressly provide that all provisions thereof, except
the limits of liability (which shall be applicable to all insureds as a
group) and liability for premiums (which shall be solely a liability of
the Operator), shall operate in the same manner as if there were a
separate policy covering each insured;
(g) provide that any cancellation thereof or material adverse
change therein shall not be effective as to each of the Additional
Insured until at least sixty (60) days after receipt by such Additional
Insured of written notice thereof;
(h) waive any right of subrogation of the insurers against the
Additional Insured, and waive any right of the insurers to any setoff
or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of the Additional Insured; and
(i) subject to Section 8.01 hereof, be reasonably satisfactory
to the Owner, Master Landlord and Fee Mortgagee in all other material
respects.
Section 8.03. Evidence of Insurance. The Operator shall deliver to each
of the Additional Insured at least two (2) days before the Effective Date copies
of all policies of insurance required hereby and, on the date this Operating
Agreement is executed and on each December 31 thereafter during the Term,
certificates of insurance, copies of all policies of insurance evidencing the
provisions described in Section 8.02(a) hereof executed by the insurer by its
duly authorized agent, and a certification from the Operator's insurance agent
or broker to the effect that all premiums required to have been paid have been
paid in full.
Section 8.04. No Duty of Owner to Verify. No provision of this Article
VIII or any provision of any other Operative Document shall impose on the Owner
any duty or obligation to verify the existence or adequacy of the insurance
coverage maintained by the Operator nor shall
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the Owner be responsible for any representation or warranty made by or on behalf
of the Operator to any insurance company or underwriter.
ARTICLE IX
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
Section 9.01. Occurrence of Event of Loss. If an Event of Loss shall
occur, the Operator shall give the Owner prompt written notice of such
occurrence and the date thereof. Unless the Owner agrees in writing within
thirty (30) days after such occurrence to restore, rebuild or replace the
Facility in accordance with the provisions contained in the definition of "Event
of Loss," then this Agreement shall terminate effective on the thirtieth day
following the occurrence of the Event of Loss. Any payments (except for payments
under insurance policies maintained by the Operator other than pursuant to
Article VIII hereof) received at any time by the Owner or by the Operator from
any Governmental Authority or other Person as a result of the occurrence of an
Event of Loss shall be retained by the Owner or promptly paid to the Owner by
the Operator; provided, however, that so long as no Default or Event of Default
shall have occurred and be continuing, the Operator may retain any proceeds of
requisition of use payments made by any Governmental Authority and attributable
to the Facility for a period equal to the then current Term.
Section 9.02. Repair of Loss or Destruction.
(a) In the event of loss or destruction of all or a portion of
the Facility which (x) does not constitute an Event of Loss or (y)
constitutes an Event of Loss but the Owner agrees to restore, rebuild
or replace the Facility, then the Owner shall give prompt notice
thereof to the Operator, and the Owner, at its own cost and expense,
shall promptly repair, replace and rebuild the Facility, at least to
the extent of the value and as nearly as practicable to the character
of the Facility existing immediately prior to such occurrence;
provided, however, that the Operator shall pay the difference, if any,
between the insurance proceeds received by the Owner as a result of
such loss or destruction and the costs and expenses incurred by the
Owner in restoring, rebuilding or replacing the Facility if the loss or
destruction thereof resulted from the negligent, willful, reckless or
wanton act or failure to act of the Operator, its employees, agents,
invitees or independent contractors.
(b) Except as provided in Section 9.01, this Agreement shall
not terminate or be affected in any manner by reason of the destruction
or damage in whole or in part of the Facility, or by reason of the
untenantability of the Facility, and the Rent reserved in this
Agreement and all other charges payable hereunder shall be paid by the
Operator in accordance with the terms, covenants and conditions of this
Agreement, without abatement, diminution or reduction.
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ARTICLE X
INTEREST CONVEYED TO OPERATOR
This Operating Agreement is an agreement of lease and does not convey
to the Operator any right, title or interest in or to the Facility except as an
Operator.
ARTICLE XI
ASSIGNMENT AND SUBLEASE; LOCATION
Section 11.01. Assignment and Sublease. The Owner shall be permitted to
assign this Agreement and any and all of its right, title or interest in, to or
under this Agreement, voluntarily or by operation of law, without the consent of
the Operator. The Operator may not sublease the Facility or any part thereof or
assign any of its rights or interest hereunder without the prior written consent
of the Owner; provided, however, that any such sublease or assignment by the
Operator to which the Owner may, in its discretion, grant its consent (a) shall
not release the Operator from any of its obligations or liabilities of any
nature whatsoever arising under this Agreement; (b) shall be expressly subject
to and subordinate to this Agreement; (c) shall be accompanied by an
unconditional guarantee of the Operator's obligations under the Operating
Agreement issued by a party having financial strength satisfactory to the Owner;
and (d) shall not be permitted if a Default or Event of Default has occurred and
is continuing.
Section 11.02. Location. The Operator shall not remove, or permit to be
removed, the Plant or Equipment or any part thereof from the Site without the
prior written consent of the Owner, except that the Operator or any other Person
may remove any Part in accordance with the provisions of Sections 6.02 and 6.09
hereof.
Section 11.03. Mortgaging the Estate of Lessor.
(a) Without limiting the generality of Section 11.01(a)
hereof, Operator acknowledges receipt of a copy of the Deed of Trust
and agrees that, to the extent provided therein, any notice, demand or
action which Owner may give or take hereunder may be given or taken by
Lender or any other Fee Mortgagee with the same force and effect as if
given or taken by Owner, and that this Operating Agreement is and shall
be subordinate to the Deed of Trust and to any other such pledge,
conveyance, deed of trust, assignment, mortgage or ground lease now
existing or hereafter executed (herein, a "Fee Mortgage"), with no
further instrument of subordination being necessary, provided Fee
Mortgagee may subordinate the same to this Operating Agreement by
executing and recording a written instrument including language to that
effect.
(b) Operator hereby agrees that within ten (10) days after
request from Owner, or from any Fee Mortgagee, Operator shall execute a
subordination, non-disturbance and attornment agreement in a
commercially reasonable form subordinating this Operating Agreement to
the interest of Fee Mortgagee.
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(c) The holder or beneficiary of any Fee Mortgage is herein
referred to as a "Fee Mortgagee". The term "Fee Mortgagee" as used in
this Operating Agreement shall also include the "Fee Mortgagee" as that
term is defined in the Master Lease.
(d) Without limiting the effect of the preceding provisions of
this Article XI, Operator, in the event of any foreclosure or deed in
lieu of foreclosure or other final conveyance and transfer of Owner's
interest as aforesaid, shall, upon request of the grantee thereof,
recognize and attorn to the grantee thereof as "landlord" under this
Operating Agreement.
(e) Operator acknowledges and agrees that no consent or
approval of Owner shall be effective unless and until each and every
Fee Mortgagee has likewise consented or approved the matter which was
the subject of such request for consent or approval. No consent by
Master Landlord or Fee Mortgagee to any assignment of this Operating
Agreement or of Operator's interest under this Operating Agreement or
in the Facility, or any part thereof, or to any sublease shall be
effective unless and until there have been delivered to Master Landlord
and Fee Mortgagee an agreement in recordable form, executed by Operator
and the proposed assignee or subtenant, as the case may be, wherein and
whereby any assignee assumes due performance of this Operating
Agreement to be done and performed for the balance then remaining in
the Term, and any subtenant acknowledges the right of Master Landlord
and Fee Mortgagee to continue or terminate any sublease, in Master
Landlord's sole discretion, upon termination of the Master Lease or
this Operating Agreement, and such subtenant agrees to recognize and
attorn to Master Landlord in the event that Master Landlord elects to
continue such sublease. Until such time as Fee Mortgagee shall notify
Operator in writing to the contrary, Financing Parties Representative
shall have the right to exercise all rights and give all consents and
approvals of Fee Mortgagee under this Operating Agreement, and Operator
shall be entitled to rely on any action taken by Financing Parties
Representative. If Operator shall have received from Master Landlord,
Owner or a Fee Mortgagee written notice specifying the name and address
of such Fee Mortgagee, then Operator shall give to such Fee Mortgagee
at the address last furnished to Operator a copy of each request for
Owner's consent or approval as well as a copy of each notice of Owner's
default at the same time as and whenever any such request for Owner's
consent or approval or notice of Owner's default shall thereafter be
given by Operator to Owner. Operator shall give to Financing Parties
Representative (on behalf of Fee Mortgagee) and to Lender a copy of
each request for Owner's consent or approval as well as a copy of each
notice of Owner's default at the same time as and whenever any such
request for Owner's consent or approval or notice of Owner's default
shall thereafter be given by Operator to Owner. Operator shall accept
performance by any Fee Mortgagee of any covenant, condition or
agreement on Owner's part to be performed hereunder with the same force
and effect as though performed by Owner.
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ARTICLE XII
INSPECTION AND REPORTS
Section 12.01. Condition and Operation. The Owner and its authorized
representatives (the "Inspecting Parties") may inspect, at its own expense, the
Facility. After an Event of Default has occurred and is continuing, the
Inspecting Parties may also inspect, at their expense, the books and records of
the Operator relating to the Facility and make copies and abstracts therefrom.
The Operator shall furnish to the Inspecting Parties statements accurate in all
material respects regarding the condition and state of repair of the Facility,
all at such times and as often as may be reasonably requested. None of the
Inspecting Parties shall have any duty to make any such inspection or inquiry.
To the extent permissible, the Operator shall prepare and file in timely
fashion, or, where the Owner shall be required to file, the Operator shall
prepare and deliver to the Owner within a reasonable time prior to the date for
filing, any reports with respect to the condition or operation of the Facility
that shall be required to be filed with any Governmental Authority.
Section 12.02. Annual Insurance Report. On or before March 15 of each
year during the Term, and within ten (10) days after any material adverse change
in the information set forth in the certificates provided pursuant to Section
8.03 hereof, the Operator shall deliver to the Owner a report of a Responsible
Officer of the Operator setting forth (a) a complete list of all insurance
policies obtained and maintained by the Operator pursuant to Article VIII, (b)
stating whether such insurance policies comply with the requirements of Article
VIII and (c) stating whether all premiums then due thereon have been paid.
Section 12.03. Financial Reports. During the Term, the Operator shall
provide to the Owner the following:
(a) As soon as available, and in any event within thirty (30)
days after the end of each month, unaudited financial statements for
the Facility, including a balance sheet as at the end of such month and
statements of income and retained earnings and of cash flow for such
month and for the period from the beginning of the Operating Year.
There shall be included with such financial statements (i) a
certificate of a Responsible Officer stating in effect that, to the
best of his knowledge and belief, such financial statements are true
and correct and have been prepared in accordance with generally
accepted accounting principles, consistently applied, subject to
changes resulting from year-end adjustments and (ii) a certificate of a
Responsible Officer setting forth in detail reasonably satisfactory to
the Owner a calculation of Cash Flow of the Facility for such month and
for the Operating Year through the end of such month.
(b) In addition, as soon as available and in any event within
one hundred twenty (120) days after the end of each Operating Year,
financial statements for the Facility, including a balance sheet as of
the end of such Operating Year, and statements of income and retained
earnings and of cash flow for such Operating Year, prepared in
accordance with generally accepted accounting principles consistently
applied and accompanied by the audit opinion of a recognized firm of
independent certified public
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accountants acceptable to the Owner. There shall be included with such
financial statements a certificate of a Responsible Officer setting
forth in detail reasonably satisfactory to the Owner a calculation of
Cash Flow of the Facility for such Operating Year. The Owner shall have
the right at any time to audit the certificate of Cash Flow required to
be provided hereunder. Such audit shall be performed by an independent
certified public accounting firm selected by the Owner and shall be at
the Owner's expense, unless such audit results in the upward adjustment
of Cash Flow for any Operating Year in an amount equal to two percent
(2%) or more of the Cash Flow reflected on the certificate provided to
the Owner by the Operator, in which case the cost of such audit shall
be paid by the Operator and shall not be considered Greenhouse
Expenses. Any payments required to be made as a result of any
adjustment to the Cash Flow shall be made within ten (10) Business Days
following receipt of the results of the audit.
(c) The Owner shall have the right to review the books and
records of the Operator relating to the Facility for the purpose of
verifying the accuracy of the financial statements and calculations of
Cash Flow provided pursuant to Sections 12.03(a) and (b). and
(d) On or before January 31 of each year during the Term
(commencing on January 31, 1999), a certificate of a Responsible
Officer of the Operator stating that such Responsible Officer has made
or caused to be made a review of all transactions relating to the
Facility and the financial and operating condition of the Operator for
the immediately preceding Operating Year and that, based on such
review, no Default or Event of Default has occurred during such year
(or, if a Default or Event of Default shall have occurred, specifying
the nature thereof and the action the Operator has taken or prepares to
take with respect thereto).
Section 12.04. Budget Approval. No later than the forty-five (45) days
prior to the commencement of any Operating Year, the Operator shall present to
the Owner for its approval, which shall not be unreasonably withheld, its budget
for the Facility for the following Operating Year, prepared in detail
satisfactory to the Owner (the budget prepared pursuant to this Section 12.04
shall be referred to herein as the "Budget"). In the event the Owner withholds
its approval of any Budget, it shall provide to the Operator a written statement
of specific objections to the Budget. The Budget presented shall be deemed to be
approved with respect to all items except those to which the Owner has objected.
In the event the Operator disputes the Owner's objections, the Owner and the
Operator shall appoint a mutually agreeable independent advisor with experience
in the operation of greenhouse facilities, which advisor shall review the
disputed amounts and decide the appropriate level of expenditures for such
items. The decision of such advisor shall be binding upon the Owner and the
Operator and shall become part of the Budget for such Operating Year.
Section 12.05. Liability. The Operator shall, promptly after obtaining
knowledge thereof, give prompt written notice to the Owner of each accident
likely to result in material damages or claims for material damages against the
Operator or any other Person with respect to
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the Facility in excess of $100,000 (if such claims and damages are insured) or
$25,000 (if not insured), and occurring in whole or in part (whenever asserted)
during the Term, and on request shall furnish to the Owner information as to the
time, place and nature thereof, the names and addresses of the parties involved,
any Persons injured, witnesses and owners of any property damaged and such other
information as may be known to it, and shall promptly upon request furnish the
Owner with copies of all correspondence, papers, notices and documents
whatsoever received by the Operator in connection therewith.
Section 12.06. Liens. The Operator shall promptly, and in no event
later than five (5) Business Days after it shall have obtained knowledge of the
attachment of any Lien that it shall be obligated to discharge or eliminate
pursuant to Article V hereof, notify the Owner of the attachment of such Lien
and the full particulars thereof unless the same shall have been removed or
discharged by the Operator.
ARTICLE XIII
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority):
(a) the Operator shall fail to make any payment of Rent within
five (5) days after the same shall have become due; or
(b) the Operator shall fail to make any payment of any other
amount payable hereunder within ten (10) days after notice of such
failure from the Owner; or
(c) the Operator shall fail to perform or observe any
covenant, condition or agreement to be performed or observed by it
under Article VIII or Article XI hereof within five (5) days after
notice of such failure from the Owner; or
(d) the Operator shall fail to perform or observe any
covenant, condition of agreement (not included in clause (a), (b) or
(c) of this Article XIII) to be performed or observed by it hereunder
or under any other Operative Document and such failure shall continue
unremedied for a period of thirty (30) days after written notice
thereof from the Owner; or
(e) the filing by the Operator or APD of any petition for
dissolution or liquidation of the Operator or APD or the commencement
by the Operator or APD of a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or the Operator or APD shall have consented to the entry of an order
for relief in an involuntary case under any such law, or the
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failure of the Operator or APD generally to pay its debts as such debts
become due (within the meaning of the Bankruptcy Reform Act of 1978, as
amended), or the failure by the Operator or APD promptly to satisfy or
discharge any execution, garnishment or attachment of such consequence
as will impair its ability to carry out its obligations under this
Agreement, or the appointment of or taking possession by a receiver,
custodian or trustee (or other similar official) for the Operator or
APD or any substantial part of its property, or a general assignment by
the Operator or APD for the benefit of its creditors, or the entry by
the Operator or APD into an agreement of composition with its
creditors, or the Operator or APD shall have taken any corporate action
in furtherance of any of the foregoing; or the filing against the
Operator or APD of an involuntary petition in bankruptcy which results
in an order for relief being entered or, notwithstanding that an order
for relief has not been entered, the petition is not dismissed within
forty-five (45) days of the date of the filing of the petition, or the
filing under any law relating to bankruptcy, insolvency or relief of
debtors of any petition against the Operator or APD for reorganization,
composition, extension or arrangement with creditors which either (i)
results in a finding or adjudication of insolvency of the Operator or
APD or (ii) is not dismissed within forty-five (45) days of the date of
the filing of such petition; or
(f) any representation or warranty by the Operator in any
Operative Document or in any certificate or document delivered pursuant
thereto shall have been materially false when made; or
(g) the occurrence of an Event of Default under the Line of
Credit Facility Agreement.
ARTICLE XIV
ENFORCEMENT
Section 14.01. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, the Owner
may, at its option, by notice to the Operator, declare this Operating Agreement
to be in default, and at any time thereafter the Owner may do one or more of the
following as the Owner in its sole discretion shall determine:
(a) the Owner may, by notice to the Operator, rescind or
terminate this Operating Agreement;
(b) the Owner may (i) demand that the Operator, and the
Operator shall upon the written demand of the Owner, return the
Facility promptly to the Owner in the manner and condition required by,
and otherwise in accordance with all of the provisions of, Article VI
hereof as if the Facility were being returned at the end of the Term,
and the Owner shall not be liable for the reimbursement of the Operator
for any costs and expenses incurred by the Operator in connection
therewith, (ii) enter upon the Site and take immediate possession of
(to the
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exclusion of the Operator) the Facility or remove the Plant or
Equipment or both, by summary proceedings or otherwise, all without
liability to the Operator for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by
such taking or otherwise and (iii) offer employment to the Operator's
employees;
(c) the Owner may sell all or any part of the Equipment and
its rights to the Plant and the Site at public or private sale, as the
Owner may determine, free and clear of any rights of the Operator and
without any duty to account to the Operator with respect to such action
or inaction or any proceeds with respect thereto;
(d) the Owner may lease to others all or any part of the
Facility as the Owner in its sole discretion may determine, free and
clear of any rights of the Operator and without any duty to account to
the Operator with respect to such action or for any proceeds with
respect to such action or inaction, except that the Operator's
obligation to pay Rent with respect to the Facility for periods
commencing after the Operator shall have been deprived of use of the
Facility pursuant to this paragraph (d) shall be reduced by the net
proceeds, if any, actually received by the Owner from leasing the
Facility to any Person other than the Operator for the same periods or
any portion thereof;
(e) the Owner may demand that the Operator assign to the Owner
(or to a third party designated by the Owner to operate the Facility)
all of the Operator's rights under any agreement or contract entered
into by the Operator in connection with the operation of the Facility,
including, without limitation, the Management Agreement, and the
Operator shall execute and deliver to the Owner (or such third party)
such assignments or other instruments as the Owner may reasonably
request in connection therewith; and
(f) the Owner may exercise any other right or remedy that may
be available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach
hereof.
Section 14.02. Survival of Operator's Obligations. Except as provided
in subsection 14.01(d) above, no termination of this Operating Agreement, in
whole or in part, or repossession of all or any portion of the Facility or
exercise of any remedy under Section 14.01 hereof shall, except as specifically
provided therein, relieve the Operator of any of its liabilities and obligations
hereunder. In addition, the Operator shall be liable, except as otherwise
provided above, for any and all unpaid Rent due hereunder before, during or
after the exercise of any of the foregoing remedies, including all reasonable
legal fees and expenses and other costs and expenses incurred by the Owner by
reason of the occurrence of any Event of Default or the exercise of the Owner's
remedies with respect thereto, and including all costs and expenses incurred in
connection with the return of the Facility in the manner and condition required
by, and otherwise in accordance with the provisions of, Article VI hereof as if
such Facility were being returned at the end of the Term.
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Section 14.03. Remedies Cumulative. To the extent permitted by, and
subject to the mandatory requirements of, applicable law, each and every right,
power and remedy herein specifically given to the Owner or otherwise in this
Operating Agreement shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by the
Owner, and the exercise or the beginning of the exercise of any power or remedy
shall not be construed to be a waiver of the right to exercise at the same time
or thereafter any right, power or remedy. No delay or omission by the Owner in
the exercise of any right, power or remedy or in the pursuit of any remedy shall
impair any such right, power or remedy or be construed to be a waiver of any
default on the part of the Operator or to be an acquiescence therein. No express
or implied waiver by the Owner of any Event of Default shall in any way be, or
be construed to be, a waiver of any future or subsequent Event of Default.
ARTICLE XV
RIGHT TO PERFORM FOR OPERATOR
If the Operator shall fail to perform or comply with any of its
agreements contained herein, the Owner may perform or comply with such
agreement, and the amount of such payment and the amount of the expenses of the
Owner incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the Overdue Rate, shall be payable by the Operator upon demand.
ARTICLE XVI
INDEMNITIES
Section 16.01. General Indemnity.
(a) Payment of Expenses by Operator. The Operator shall pay,
and shall indemnify and hold harmless each Indemnitee from and against,
any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements, including
legal fees and expenses, of whatsoever kind and nature (collectively,
"Expenses" and individually, an "Expense"), imposed on, incurred by or
asserted against any Indemnitee (whether because of an action or
omission by such Indemnitee or otherwise), in any way relating to or
arising out of the occupation and operation of the Facility by the
Operator and the production and sale of the Product.
(b) Exceptions. The indemnities contained in Section 16.01(a)
hereof with regard to any particular Indemnitee shall not extend to any
Expense (i) resulting from the willful misconduct or gross negligence
of such Indemnitee (other than willful misconduct or gross negligence
imputed to such Indemnitee
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solely by reason of its interest in the Facility), (ii) resulting
solely from the breach by such Indemnitee of any of its
representations, warranties or covenants in any of the Operative
Documents, (iii) unless an Event of Default shall have occurred and be
continuing and Owner shall be exercising remedies with respect thereto,
to the extent such Expense shall relate to acts or events not
attributable to the Operator that occur after the Term, (iv) so long as
no Event of Default shall have occurred and be continuing, to the
extent attributable solely to the disposition or attempted disposition
of the Facility or any interest in any thereof, by or on behalf of any
Indemnitee, other than a transfer of the Facility pursuant to Article
XIV hereof or as required by any Operative Documents, (v) constituting
Fees, Taxes or Other Charges or (vi) which constitutes internal,
overhead expenses of the Indemnitee.
(c) Notice. If any party entitled to indemnity under this
Section 16.01 or the Operator shall have received written notice of any
liability indemnified against under this Section 16.01, it shall give
prompt notice thereof to the Operator, or the party entitled to be
indemnified, as the case may be, but the failure to give such notice
shall not affect any obligation under this Section 16.01. In case any
action, including any investigatory proceeding, shall be brought
against, or commenced with respect to, any Indemnitee in respect of
which the Operator is required to indemnify such Indemnitee pursuant to
the provisions of this Section 16.01, the Operator shall have the right
to assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnitee and the payment of all
expenses. In the event the Operator assumes the defense of any such
action, any Indemnitee shall have the right to employ separate counsel
in such action and participate therein, but the fees and expenses of
such counsel shall be at the expense of such Indemnitee, unless (i) the
employment of such counsel has been specifically authorized by the
Operator, or (ii) the named parties to such action (including any
impleaded parties) include both such Indemnitee and the Operator and
representation of such Indemnitee and the Operator by the same counsel
would be inappropriate under applicable standards of professional
conduct due to actual or potential conflicting interests between them
or (iii) the counsel employed by the Operator and satisfactory to such
Indemnitee has advised such Indemnitee, in writing, that such counsel's
representation of such Indemnitee would be likely to involve such
counsel in representing differing interests which could adversely
affect either the judgment or loyalty of such counsel to such
Indemnitee, whether it be a conflicting, inconsistent, diverse or other
interest (in which case the Operator shall not have the right to assume
the defense of such action on behalf of such Indemnitee; it being
understood, however, that the Operator shall not, in connection with
any one such action, or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys, and of any local
counsel retained by such firm, at any one time for each such
Indemnitee, which firm shall be designated in writing by such
Indemnitee). The Operator shall not be liable for any settlement of any
such action effected without its consent, but if settled with the
consent of the Operator or if there be a final judgment, beyond
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further review or appeal, in any such action, the Operator agrees to
indemnify and hold harmless any Indemnitee from and against any loss or
liability by reason of such settlement or judgment.
(d) Payment. The Operator covenants and agrees to pay all
amounts required to be paid under this Section 16.01 on demand by the
relevant Indemnitee.
Section 16.02. Fees, Taxes and Other Charges.
(a) Payment by Operator.
(i) The Operator hereby agrees to pay and assume
liability for, and on written demand to indemnify, protect,
defend, save and hold harmless each Indemnitee from and
against, any and all governmental or quasi-governmental fees
(including without limitation license and registration fees),
taxes (including without limitation gross receipts, franchise,
sales, use, property, real or personal, tangible or
intangible), interest equalization and stamp taxes,
assessments, levies, imposts, duties, charges or withholdings
of any nature whatsoever, together with any and all penalties,
fines or interest thereon ("Fees, Taxes and Other Charges")
imposed against any Indemnitee, the Operator or the Facility
or any portion thereof by any Federal, state or local
governmental or taxing authority in the United States of
America or by any foreign government or any subdivision or
taxing authority thereof, upon or with respect to the
occupation and operation of the Facility by the Operator and
the production and sale of the Product.
(ii) Notwithstanding anything to the contrary set
forth above, the provisions of this Section 16.02 shall not
apply to:
(A) Fees, Taxes and Other Charges on, or
measured in whole or in part by (y) the net income or
gross income of an Indemnitee or (z) the franchise,
capital, conduct of business, net worth or tax
preference of an Indemnitee;
(B) Fees, Taxes and Other Charges to the
extent on, levied on, or measured by, any fees or
compensation received by an Indemnitee for services
rendered in connection with this Agreement;
(C) Fees, Taxes or Other Charges which
result from any Indemnitee engaged in activities not
related to this Agreement;
(D) so long as no Event of Default has
occurred and is continuing, Fees, Taxes or other
Charges imposed as a result of the
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voluntary sale, transfer, assignment or other
disposition of any interest in the Facility by an
Indemnitee, if such disposition shall not be pursuant
to or in connection with Article XIV hereof;
(E) Fees, Taxes or Other Charges imposed
solely with respect to any period after the end of
the Term unless an Event of Default has occurred and
is continuing and the Owner shall be exercising
remedies with respect thereto;
(F) Fees, Taxes or Other Charges imposed as
the result of any transfer or disposition of any
interest in the Facility by any Indemnitee resulting
from bankruptcy or other proceedings for the relief
of debtors (voluntary or involuntary) in which the
transferor is the debtor; or
(G) Fees, Taxes and Other Charges imposed
solely as a result of the willful misconduct or gross
negligence of the Indemnitee.
(iii) In case any report or return is required to be
made with respect to any obligations of the Operator under
this Section 16.02 or arising out of this Section 16.02, the
Operator shall, to the extent permitted by law, either make
such report or return in such manner (including the making
thereof in the Owner's name) as will show the ownership of the
Equipment in the Owner and send a copy of such report or
return to the Owner, or shall notify the Owner of such
requirement and make such report or return in such manner as
shall be reasonably satisfactory to the Owner. Each Indemnitee
agrees that it will promptly forward to the Operator any
notice, bill or any advice received by it concerning any such
Fees, Taxes and Other Charges and will, at Operator's expense,
use its best efforts and take such lawful and reasonable steps
as may be proposed by the Operator in writing to minimize any
of the same for which the Operator is responsible under this
Section 16.02.
(iv) The amount which the Operator shall be required
to pay to or for the account of any Indemnitee with respect to
any Fees, Taxes and Other Charges which are subject to
indemnification under this Section 16.02 shall be an amount
sufficient to restore the Indemnitee to the same position the
Indemnitee would have been in had such Fees, Taxes and Other
Charges not been incurred or imposed. If the payment by the
Operator under this Section 16.02 of an amount equal to such
Fees, Taxes and Other Charges would be more or less than the
amount which would be required to make such Indemnitee whole
as a result of any tax effect to an Indemnitee in connection
with such payment of such Fees, Taxes or Other Charges,
including, without limitation (A) the inclusion of any payment
to be made by the Operator under this Section 16.02 in the
taxable income of
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any Indemnitee in one year and the deduction of the Fees,
Taxes and Other Charges with respect to which such payment is
made from the taxable income of such Indemnitee in a different
year, (B) the nondeductibility of such Fees, Taxes and Other
Charges from the taxable income of such Indemnitee or (C) the
anticipated realization by such Indemnitee in a different year
of tax benefits resulting from the transaction giving rise to
such Fees, Taxes and Other Charges, the amount of the
indemnity to be paid by the Operator shall be adjusted to an
amount which (after taking into account all tax effects on
such Indemnitee, any loss of use of money resulting from
differences in timing between the inclusion of such indemnity
in the taxable income of such Indemnitee and the anticipated
realization by such Indemnitee of tax benefits resulting from
the transaction to which such indemnity is related and the
present value of any anticipated future tax benefits to be
realized by such Indemnitee as a result of deducting such
Fees, Taxes and Other Charges or as a result of the
transaction giving rise thereto) will be sufficient to place
the Indemnitee in the same position such Indemnitee would have
been in had such Fees, Taxes and Other Charges not been
imposed. All computations for purposes hereof shall be based
on tax rates in effect on the date payment pursuant to this
Section 16.02 is made. Computations involving the loss of use
of money or calculations of present value shall be based on
the Overdue Rate as adjusted for applicable income tax effects
and compounded monthly on the Basic Rent Payment Dates. Each
Indemnitee shall in good faith use reasonable efforts in
filing its tax returns and in dealing with taxing authorities
to seek and claim all tax benefits available with respect to
items referred to herein.
(b) Refunds. If any Indemnitee shall obtain a refund or credit
of all or any part of any Fees, Taxes and Other Charges, payment of or
indemnity for which shall have been made by the Operator pursuant to
this Section 16.02, such Indemnitee shall, unless a Default or an Event
of Default shall have occurred and be continuing, promptly pay to the
Operator (i) the amount of such refund or credit (together with any
interest paid to such Indemnitee with respect to such refund or credit)
plus (ii) an amount equal to all tax benefits realized by such
Indemnitee as the result of the payment of the amounts referred to in
clause (i) above and this clause (ii).
Section 16.03. Survival. The obligations of the Operator under this
Article XVI shall survive the termination of this Agreement and are expressly
made for the benefit of and shall be enforceable by any Indemnitee, separately
or together, without declaring this Agreement to be in default and
notwithstanding any assignment by the Owner of this Operating Agreement or any
of its rights hereunder. The extension of applicable statutes of limitations by
an Indemnitee or the Operator shall not affect the survival of the Operator's or
any Indemnitee's obligations, as the case may be, under this Article XVI. The
obligations of the Indemnitees shall survive the termination of this Operating
Agreement. All payments required to be paid pursuant to Article XVI shall be
made directly to, or as otherwise requested by, the Indemnitee entitled thereof,
upon
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written demand by such Indemnitee. All such written demands shall specify the
amounts payable and the facts upon which the right to indemnification is based.
Section 16.04. Waiver. The Operator hereby waives all tort claims and
causes of action in tort it may have at any time against any Indemnitee in any
way relating to or arising from or alleged to relate to or arise from any
Operative Document, except with regard to circumstances constituting an
exception to the Operator's obligation to indemnify pursuant to Section 16.01(b)
hereof.
ARTICLE XVII
COVENANTS AND REPRESENTATIONS OF OPERATOR
Section 17.01. Operation of Facility. During the Term, the Operator
shall use its best efforts to operate the Facility (including the sowing,
growing, harvesting and packaging of the Product) at its fullest productive
capacity as would a prudent commercial greenhouse operator under the same or
similar circumstances and to market the Product with substantially the same
effort and on the same terms as used for product produced at other facilities
operated by the Operator or its Affiliates. The Operator hereby agrees to give
prompt written notice to the Owner if at any time the Operator becomes aware
that the Facility is not being operated at its fullest productive capacity. The
Operator further agrees that it will not use the Facility for any purpose other
than the production of tomatoes or, with the Owner's consent, any other
agricultural product.
Section 17.02. Affiliated Transactions.
(a) In the event the Operator uses the Facility to pack,
store, grade, separate or distribute Product grown in greenhouses other
than the Facility owned, leased, operated or managed by the Operator,
then the Operator agrees to charge such greenhouses a fee per pound
that is satisfactory to, and approved in advanced by, the Owner plus an
amount equal to at least the Operator's cost for boxes and packing
materials. Without the prior written consent of the Owner, the Operator
shall not use the Facility for any product other than the Product.
(b) In the event the Operator purchases any equipment,
supplies or other items from any Affiliate, such purchases shall be on
terms no less favorable than those available from unaffiliated parties.
(c) The Operator shall provide to the Owner on a monthly basis
in detail satisfactory to the Owner a list of all Product handled by
the Facility for greenhouses pursuant to subsection 17.02(a) and all
items purchased from Affiliates and the purchase price thereof pursuant
to subsection 17.02(b).
Section 17.03. Waiver of Operating or Efficiency Standards. Operator
shall use its reasonable best efforts to assist Owner in obtaining and
maintaining all necessary permits and approvals for the operation of the
greenhouse and shall fully cooperate with Birchwood in the event Birchwood seeks
a waiver of the operating or efficiency standards for a "Qualifying
34
<PAGE> 39
Facility" under the Federal Power Act or the Federal Energy Regulatory
Commission's regulations, as any of the foregoing may be now or hereafter
amended.
Section 17.04. Representations and Warranties of Operator. Operator
hereby warrants and represents to Owner, Master Landlord, and each Fee Mortgagee
that:
(a) Operator has not entered into any contract or agreement
with other Persons regarding the provision of thermal supply relating
to the Greenhouse Facility, and Operator will not, without the consent
of Owner and Master Landlord, enter into any successor or additional
contracts for thermal energy or steam supply to the Greenhouse
Facility.
(b) There is not pending or threatened against Operator or any
of its Affiliates, and Operator knows of no facts or circumstances that
might give rise to, any civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
environmental lien, investigation, or proceeding relating in any way to
Environmental Requirements.
(c) Neither this Operating Agreement nor any other instrument,
document, agreement, financial statement, financial projections or
certificate furnished to Owner or Master Landlord by or on behalf of
Operator or any affiliate of Operator in connection herewith contains
an untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or omits to
state any fact which may in the future have a material adverse effect
on the financial condition or business prospects of Operator.
ARTICLE XVIII
MISCELLANEOUS
Section 18.01. Further Assurances. The Operator shall cause the
Operative Documents and any amendments and supplements to any of them (together
with any other instruments, financing statements, continuation statements,
records or papers necessary in connection therewith) to be recorded and/or filed
and rerecorded and/or refiled in each jurisdiction as and to the extent required
by law in order to, and shall take such other actions as may from time to time
be necessary to, establish, perfect and maintain the Owner's right, title and
interest in and to the Facility, not subject to any Liens except Permitted
Liens. The Operator will promptly and duly execute and deliver to the Owner such
documents and assurances and take such further action as the Owner may from time
to time reasonably request in order to carry out more effectively the intent and
purpose of the Operative Documents and to establish and protect the rights and
remedies created or intended to be created in favor of the Owner, to establish,
perfect and maintain the Owner's right, title and interest in and to the
Facility, including without limitation if requested by the Owner at the expense
of the Operator, the recording or filing of counterparts or appropriate
memoranda of the Operative Documents, or of such financing statements or other
documents with respect thereto as the Owner may from time to time reasonably
request, and the Owner agrees promptly to execute and deliver such of the
foregoing financing statements or other documents as may require execution by
the Owner.
35
<PAGE> 40
Section 18.02. Quiet Enjoyment. The Owner covenants that it will not
interfere in the Operator's quiet enjoyment of the Facility hereunder during the
Term, so long as (a) the Operator is in compliance with each term and condition
hereof and (b) no Event of Default has occurred or is continuing.
Section 18.03. Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be in writing and any such notice shall become effective three (3)
Business Days after being deposited in the mails, certified or registered with
appropriate postage prepaid for first-class mail or, if delivered by hand or in
the form of a telex or telegram, when received, and shall be directed to the
Address of such Person.
Section 18.04. Severability. Any provision of this Agreement that shall
be 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. To the extent
permitted by applicable law, the Operator hereby waives any provision of law
that renders any provision hereof prohibited or unenforceable in any respect.
Section 18.05. Amendment. Neither this Agreement nor any of the terms
hereof may be terminated, amended, supplemented, waived or modified orally, but
only by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver or modification
shall be sought.
Section 18.06. Headings. The Table of Contents and headings of the
various Articles and Sections of this Agreement are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions
hereof.
Section 18.07. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 18.08. Governing Law. This Agreement has been delivered in, and
shall in all respects be governed by, and construed in accordance with, the laws
of the Commonwealth of Virginia applicable to agreements made and to be
performed entirely within such State, including all matters of construction,
validity and performance.
Section 18.9. Binding Effect; Successors and Assigns; Survival. The
terms and provisions of this Agreement, and the respective rights and
obligations hereunder of the Owner and the Operator, shall be binding upon their
respective successors and assigns (including, in the case of the Owner, any
Person to whom the Owner may transfer all or any portions of the Facility), and
inure to the benefit of their respective permitted successors and assigns. The
obligations of the Operator under this Agreement shall survive the termination
of this Agreement.
Section 18.10. Divisible Operating Agreement. It is the intention of
the parties hereto that this Agreement shall constitute the lease of both
personal property and real property and, to such extent, shall be deemed
divisible. It is the intention and understanding of the parties hereto
36
<PAGE> 41
that all the Equipment constitutes personal property and all the Site and Plant
constitute real property for all purposes of this Operating Agreement and the
other documents referred to herein and for all purposes of bankruptcy laws of
the United States; provided, however, that nothing herein shall affect the
rights and obligations of Owner or Operator under Section 18.01 hereof, it being
understood that no filing, refiling, recording, re-recording, registration or
re-registration in any office for the filing, recording or registration of
interests in real property shall constitute or be deemed to constitute evidence
or an admission by Owner or Operator that the Equipment is real property.
Section 18.11. Effectiveness. This Agreement shall become effective
upon the date (the "Effective Date") the last of the following events occurs:
(a) the Closing Date;
(b) the receipt of any necessary consent of the Owner's
lenders under the Owner's financing documents; and
(c) upon Notice of Substantial Completion (as defined in the
General Contractor's Agreement) of the Plant
ARTICLE XIX
STEAM SALES AGREEMENT, FEE MORTGAGE
AND MASTER LEASE
Section 19.01. Subject to Fee Mortgage and Master Lease. This Operating
Agreement is subject and subordinate to the Fee Mortgage and Master Lease. As
used in this Section 19.01, "Applicable Documents" shall mean, collectively, the
Master Lease, Fee Mortgage and Steam Sales Agreement. Operator shall not do or
permit to be done anything which would constitute a default under all or any one
or more of the Applicable Documents or cause all or any one or more of the
Applicable Documents to be terminated or forfeited; in the event Operator causes
or permits what Owner reasonably deems to be a default under all or any one or
more of the Applicable Documents, in addition to all other remedies available to
Owner, Owner shall be entitled to enter the Site, without Operator's consent,
and cure said default whereupon all expenses incurred by Owner thereby shall be
additional rent due and payable upon demand. Operator shall duly comply with all
obligations and undertakings of Master Tenant under the Master Lease with regard
to those obligations and undertakings related to the Site, except for the
payment of "Annual Rent" due Master Landlord under the Master Lease.
Notwithstanding anything herein contained to the contrary, the services,
reimbursements, indemnities, repairs, restoration and maintenance to which
Operator is entitled hereunder shall in no event exceed those to which Owner is
entitled under the Master Lease and the Steam Sales Agreement and for all such
services, reimbursements, indemnities, repairs, restoration and maintenance
Operator will look to the appropriate party under the Master Lease and the Steam
Sales Agreement, whichever is applicable, and no default of Owner shall occur
under this Operating Agreement on account of any failure to provide such
services, reimbursements, indemnities, repairs, restoration and maintenance.
Owner shall cooperate with Operator in enforcing such obligations. Operator and
Owner shall execute and deliver to Master Landlord and Fee Mortgagee,
contemporaneously with this Operating Agreement, an agreement in recordable
form, wherein and whereby Operator acknowledges the right of Master Landlord and
Fee Mortgagee to continue or terminate this
37
<PAGE> 42
Operating Agreement, in Master Landlord's sole discretion, upon termination of
the Master Lease, and Operator agrees to recognize and attorn to Master Landlord
in the event that Master Landlord elects to continue this Operating Agreement.
Section 19.02. Cooperation with Lenders. Operator shall reasonably
cooperate with Owner and Master Landlord and their respective financiers and
equity investors (including but not limited to Fee Mortgagee) from time to time
in connection with Master Landlord's financing, development and/or refinancing
of the Power Station and the Greenhouse Facility, including, without limitation,
the furnishings of such information, the giving of such certificates and the
furnishing of such opinions of counsel and other matters as Master Landlord,
Owner, and their respective financiers and equity investors may reasonably
request. Operator shall provide such reasonable corporate information and
approvals to the entity(s) providing the funding for the Power Station as may be
required to have the Power Station financed or refinanced on a "project finance"
or nonrecourse financing basis where the lending equity's principal source of
payment is the revenues from the Power Station and will execute amendments to
this Operating Agreement which do not materially affect the Operator's rights
and obligations hereunder.
Section 19.03. Steam Sales Agreement.
(a) Operator agrees to accept and use the thermal energy
produced by the Power Station which is delivered to the Steam
Interconnection Points. Owner will make available to Operator such
steam, if any, as is provided by Birchwood to Owner under the Steam
Sales Agreement. Operator shall accept and use steam necessary to meet
the requirements set forth in the QF Application, a copy of which has
been provided to Operator. Owner shall notify Birchwood to give
Operator notice prior to delivery of any steam to the Steam
Interconnection Points. Title to and full responsibility for all steam
generated by the Power Station will pass to Operator upon its delivery
at the Steam Interconnection Points to Owner, and neither Owner nor
Birchwood shall have any responsibility for such steam thereafter.
(b) Without limiting the generality of the foregoing, Operator
unconditionally agrees that Operator will accept delivery of and use
sufficient steam based on per hour basis from Owner for heating and
cooling purposes to allow Birchwood to maintain the status of the Power
Station as a "Qualifying Facility" within the meaning of the Public
Utility Regulatory Policies Act of 1978, as now or hereafter amended,
on an annual basis, as described in the QF Application. If Operator
fails to accept such minimum requirements, then, in addition to Owner's
rights hereunder and as may be allowed by law, Birchwood shall have the
right, without Operator's approval, to sell steam from the Power
Station to any other person or entity to the extent required to
maintain such status, and such failure shall be deemed an Event of
Default by Operator hereunder. Operator shall not use alternative means
of providing such heating or cooling unless, and then only to the
extent that, either (i) steam is not delivered as contemplated in
Section 19.03(a) hereof, or (ii) Operator is accepting and using all
the steam provided by Birchwood. Operator shall not resell any thermal
energy which it receives pursuant to this Operating Agreement without
the express written consent of Master Landlord.
(c) Operator agrees to provide Master Landlord at the Power
Station all storm water runoff from the Greenhouse Facility for use
with the Power Station, without additional cost to Owner or Master
Landlord, by means of the Storm Water Piping in a
38
<PAGE> 43
manner to be specified by Master Landlord. Operator shall not use or
divert any storm water runoff without the consent of Master Landlord.
(d) Without limiting any right or remedy which Owner or
Birchwood might have at law or in equity as a result of such breach,
Operator agrees that breach by Operator of any covenant contained in
Sections 19.03(a), (b) or (c) hereof will cause irreparable injury to
Birchwood and to Owner and that Birchwood and Owner have no adequate
remedy at law in respect of such breach and, as a consequence, Operator
agrees that the covenants contained in Sections 19.03(a), (b) or (c)
hereof shall be specifically enforceable by Birchwood and by Owner, and
by either of them, against Operator and Operator waives and agrees not
to assert any defense against an action for specific performance of
such covenants except for a defense that such covenants have not been
breached.
(e) Owner shall direct Birchwood to give Operator notice
simultaneously with notice to Owner under the Steam Sales Agreement of
any scheduled outages or scheduled shutdown periods significantly
affecting the steam delivery components of the Power Station.
Notification of such shutdowns may be made by telephone and confirmed
by written notice.
(f) Operator shall give Owner and Birchwood two (2) weeks
notice of any scheduled activities that will cause Operator's steam
requirements from the Power Station to cease for a period of more than
twenty-four (24) hours, but such notice shall not reduce or affect
Operator's obligations hereunder to accept steam. Notification of such
activities shall be made by telephone and confirmed by written notice.
(g) Condensate shall be returned by Operator to the Steam
Interconnection Points, and shall be of a quality suitable for use with
the Power Station. Condensate return may be monitored by Birchwood.
(h) As used in this Section 19.03, "Force Majeure" means
causes beyond the reasonable control of and without the fault or
negligence of the party claiming Force Majeure, including without
limitation sabotage, strikes, acts of God, accidents, appropriation or
diversion of steam, steam equipment or materials or commodities by rule
or order of any governmental authority having jurisdiction thereof, and
necessity of temporary interruption on account of system operating
conditions, including disruptions in the transportation, receipt or
delivery of necessary materials and equipment or in Virginia Power's
ability to take electrical output from the Power Station. Economic
hardship shall not be an event of Force Majeure.
(i) If Operator or Owner is rendered wholly or partly unable
to perform its obligations under this Section 19.03 because of Force
Majeure, that party shall be excused from whatever performance is
affected by the Force Majeure to the extent so affected, and only to
the extent such performance is excused pursuant to the provisions of
Section 22.2 of the Steam Sales Agreement.
(j) Neither Operator nor Owner nor Birchwood shall be liable
or responsible for any loss, damage, injury or expense (including
consequential damages and costs of replacement of steam) resulting from
or arising out of any delay in the performance of, or
39
<PAGE> 44
the inability to perform, any duty or obligation under or pursuant to
or identified in this Section 19.03 in an event of Force Majeure
applicable to it, in accordance with and subject to the limitation set
forth in Section 19.03(i). The party suffering an event of Force
Majeure shall use its best efforts to remedy as soon as possible the
cause(s) preventing the performance of this Operating Agreement.
Section 19.04. Storm Water Piping, Power Station Piping, Steam
Equipment, Steam Interconnection Facilities and Metering Devices. Master
Landlord owns and, pursuant to the Steam Sales Agreement, shall maintain Master
Landlord's Facilities. An authorized representative of Birchwood will read the
Metering Devices at the end of each calendar month. Owner will designate
Operator as the recipient of a notice from Birchwood of the amounts of steam
delivered to the Steam Interconnection Points during such calendar month. Owner
owns the Steam Equipment together with all equipment for the distribution within
the Greenhouse Facility of the heating and cooling provided by the Steam
Equipment. Operator, at Operator's sole cost, shall operate and maintain (except
for Master Landlord's maintenance obligations with respect to the Steam
Equipment under the Steam Sales Agreement) the Steam Equipment, shall operate
and maintain all equipment required for the distribution within the Greenhouse
Facility of the heating and cooling provided by the Steam Equipment, and shall
purchase and install all equipment required for the distribution within the
Greenhouse Facility of the heating and cooling provided by the Steam Equipment
after the date hereof. The Improvements are designed to facilitate the
collection in the Storm Water Piping of storm water runoff from the Improvements
for use by Master Landlord at the Power Station. Owner and Master Landlord shall
be entitled to use all storm water runoff without compensation to Operator, and
Operator shall not use or divert any storm water runoff without the consent of
Owner, which consent may be granted or withheld in the sole discretion of Owner.
40
<PAGE> 45
IN WITNESS WHEREOF, the undersigned have each caused this Operating
Agreement to be duly executed and delivered and their corporate seals to be
hereunto affixed and attested by their respective officers thereunto duly
authorized as of the day and year first above written.
Attest: GREENHOST, INC.
/s/ R J Pushing
- ------------------------------ By: /s/ Steve Gillis
------------------------------------
Secretary Name: Steve Gillis
- -------------------- Title: CFO
[Corporate Seal]
Attest: VILLAGE FARMS OF VIRGINIA, INC.
/s/ Michael Minerva
- ------------------------------ By: /s/ J. Kevin Cobb
------------------------------------
Assistant Secretary Name: J. Kevin Cobb
- -------------------- Title: Vice President
[Corporate Seal]
Unconditional Guarantee of Payment and Performance
APD is an Affiliate of the Operator and is under common ownership with
the Operator. To induce the Owner to enter into this Operating Agreement and in
consideration for the benefits to be derived by APD from the transactions
contemplated hereby, APD unconditionally guarantees the payment when due and
timely performance of any and all obligations of Operator under this Operating
Agreement; provided, however, that APD's liability under this provision shall be
limited to a maximum aggregate amount of $2,000,000.00 during the Term. Upon
default by the Operator in making payment hereunder or any other failure to
perform its obligations hereunder, APD shall make such payment or cause such
obligation to be performed (subject to the limitation of liability set forth in
the preceding sentence), promptly upon the demand of the Owner. Notwithstanding
the foregoing, in the event the Operator, for whatever reason, ceases to occupy
and/or operate the Greenhouse Facility, Owner agrees to use its commercially
reasonable efforts, but shall not be obligated, to find a replacement
tenant/operator for the Greenhouse Facility. Any replacement rent received by
the Owner shall mitigate APD's liability under this Guarantee. APD agrees that
the Owner and/or the Operator may from time to time extend or renew provisions
of this Operating Agreement for any period and may grant any releases,
compromises or indulgences with respect thereto (including, but not limited to,
the failure or refusal to exercise one or more of the right or remedies provided
herein), without notice to or consent of APD, and without affecting the
liability of APD hereunder.
AGRO POWER DEVELOPMENT, INC.
By: /s/ Michael A. Degiglio
--------------------------------
Name: Michael A. Degiglio
Title: President
41
<PAGE> 46
SCHEDULE 1.01(a)
TO OPERATING AGREEMENT
Description of Facility
PART 1: Description of Equipment
The Equipment described on Annex A hereto.
PART 2: Description of Plant
The greenhouse plant including fixtures containing approximately
38 acres and the headhouse building located on the Site described in Part 3.
PART 3: Description of Site
The property described on Annex B hereto.
42
<PAGE> 47
ANNEX A to
Schedule 1.01(a)
Description of Equipment
- All existing Greenhost office equipment, furniture, fixtures and computers
(including radios and phone systems).
- 3 Caterpillar GP 18 forklifts
- 13 Electric Golf Carts
- EZ Go PC956 Personnel Carrier
- Security System and hardware
- John Deere 5300 4WD 50 HP Tractor with blade, mower and tiller
- 7 Trash Dumpsters
- Motorized sweeper
- All existing Greenhouse safety and maintenance equipment (excluding
scissor lifts), tools and spare parts.
43
<PAGE> 48
SCHEDULE 1.01(b)
TO OPERATING AGREEMENT
Calculation of Internal Rate of Return
Internal Rate of Return Calculation
The calculation of the Internal Rate of Return in connection with determining
the Owner's Supplemental Rent will be based upon the cash outflows (Capital
Improvements Costs and Base Rent Discount) and cash inflows (Supplemental Rent)
of the Owner. The Internal Rate of Return shall be computed utilizing Microsoft
Excel software version 5.0. The Internal Rate of Return shall be computed
utilizing the @XIRR function in Excel. For purposes of calculating the Internal
Rate of Return, the cash inflows and cash outflows to the Owner shall consist
solely of the following:
Capital Improvement Costs
All Capital Improvement Costs made by the Owner will be reflected as a cash
outflow as of the date such costs were paid under the General Contractor's
Agreement.
In addition, for purposes of calculating the Internal Rate of Return, the Owner
will be credited with a cash outflow of $100,000 to reflect the base rent
discount on each March 31, June 30, September 30 and December 31 through the
term of the lease commencing March 31, 1998.
Supplemental Rent
The amount to be reflected as a cash inflow to the Owner for purposes of
calculating the Internal Rate of Return will be equal to the Supplemental Rent
received by the Owner as of the date such payment was received by the Owner
subject to an adjustment to reduce such cash received by 38.9%. As an example,
if the Owner receives $1 million on January 1, 1999, such amount will be
reflected as a cash inflow of $611,000 as of January 1, 1999 for purposes of
calculating the Internal Rate of Return.
44
<PAGE> 49
SCHEDULE 3.01
TO OPERATING AGREEMENT
SCHEDULE OF BASIC RENT
March 31, 1998 $500,000.00 March 31, 2003 $500,000.00
June 30, 1998 $500,000.00 June 30, 2003 $500,000.00
September 30, 1998 $500,000.00 September 30, 2003 $500,000.00
December 31, 1998 $500,000.00 December 31, 2003 $500,000.00
March 31, 1999 $500,000.00 March 31, 2004 $500,000.00
June 30, 1999 $500,000.00 June 30, 2004 $500,000.00
September 30, 1999 $500,000.00 September 30, 2004 $500,000.00
December 31, 1999 $500,000.00 December 31, 2004 $500,000.00
March 31, 2000 $500,000.00 March 31, 2005 $500,000.00
June 30, 2000 $500,000.00 June 30, 2005 $500,000.00
September 30, 2000 $500,000.00 September 30, 2005 $500,000.00
December 31, 2000 $500,000.00 December 31, 2005 $500,000.00
March 31, 2001 $500,000.00 March 31, 2006 $500,000.00
June 30, 2001 $500,000.00 June 30, 2006 $500,000.00
September 30, 2001 $500,000.00 September 30, 2006 $500,000.00
December 31, 2001 $500,000.00 December 31, 2006 $500,000.00
March 31, 2002 $500,000.00 March 31, 2007 $500,000.00
June 30, 2002 $500,000.00 June 30, 2007 $500,000.00
September 30, 2002 $500,000.00 September 30, 2007 $500,000.00
December 31, 2002 $500,000.00 December 31, 2007 $500,000.00
45
<PAGE> 50
SCHEDULE 3.02
TO OPERATING AGREEMENT
SCHEDULE OF SUPPLEMENTAL RENT
Supplemental Rent shall be payable to the Owner on each Supplemental Basic Rent
Payment Date in an amount equal to the percentage (Supplemental Rent Percentage)
of cash flow for the calendar quarter preceding the Supplemental Basic Rent
Payment Date. The Supplemental Rent Percentage is defined as follows:
- -- Supplemental Rent Percentage shall equal [xxx]% as long as the Owner's
Internal Rate of Return shall be less than or equal to [xxx]%.
- -- Subsequent to the date that the Owner's Internal Rate of Return exceeds
[xxx]%, the Supplemental Rent Percentage shall equal [xxx]% through
the end of the Term of the Operating Agreement.
[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment
46
<PAGE> 1
EXHIBIT 10.2
PURCHASE AGREEMENT
dated as of March 6, 1998
Between
COGENTRIX ENERGY, INC.
and
BECHTEL GENERATING COMPANY, INC.
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I. PURCHASE AND SALE OF ACQUIRED INTERESTS 2
1.1. Transfer of Acquired Interests. 2
1.2. Purchase Price. 2
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER 6
2.1. Organization, Qualification and Corporate Power. 6
2.2. Authorization; No Conflict. 7
2.3. Validity. 8
2.4. Capital Stock and Partnership Interests. 8
2.5. Financial Statements. 10
2.6. Litigation; Compliance with Law. 12
2.7. Tax Matters 13
2.8. Material Agreements. 15
2.9. Consents and Approvals. 15
2.10. Qualifying Facility; EWG. 16
2.11. Brokers. 16
2.12. Labor Matters and ERISA. 17
i
<PAGE> 3
2.13. Events Subsequent to December 31, 1997. 17
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BUYER 19
3.1. Organization and Corporate Power. 19
3.2. Authorization of Agreement. Etc. 19
3.3. Validity. 19
3.4. Public Utility Holding Company. 20
3.5. PURPA. 20
3.6. Consents and Approvals. 21
3.7. Brokers. 21
3.8. Tax Matters. 22
3.9. Availability of Funds. 22
ARTICLE IV. ACCESS; ADDITIONAL AGREEMENTS 22
4.1. Access to Information: Continuing Disclosure. 22
4.2. Antitrust Notification. 23
4.3. Further Assurances. 24
4.4. Certain Tax Matters. 24
4.5. Regular Course of Business. 26
ii
<PAGE> 4
ARTICLE V. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS 27
5.1. No Injunction. 27
5.2. Representations and Warranties. 27
5.3. Performance. 28
5.4. Approvals and Filings. 28
5.5. Opinion of Counsel. 28
5.6. Proceedings; Additional Agreements. 28
5.7. Closing Documents. 29
5.8. Nonforeign Affidavit. 29
5.9. Regular Course of Business. 29
5.10. Certain Dispositions. 29
ARTICLE VI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER 29
6.1. No Injunction. 30
6.2. Representations and Warranties. 30
6.3. Performance. 30
6.4. Approvals and Filings. 30
6.5. Opinion of Counsel. 31
iii
<PAGE> 5
6.6. Proceedings; Additional Agreements. 31
6.7. Closing Documents. 31
ARTICLE VII. CLOSING 31
7.1. Time and Place. 31
7.2. Payment. 32
7.3. First Closing; Additional Closings. 32
ARTICLE VIII. TERMINATION AND ABANDONMENT 34
8.1. Methods of Termination. 34
8.2. Procedure Upon Termination and Consequences. 35
ARTICLE IX. SURVIVAL, INDEMNIFICATION AND OTHER MATTERS 36
9.1. Survival. 36
9.2. Agreement to Indemnify. 37
9.3. Claims for Indemnification. 39
9.4. Defense of Claims. 39
9.5. Limitation on Indemnification. 40
9.6. Indemnification for Taxes. 41
9.7. Cedar Bay Indemnity. 42
iv
<PAGE> 6
ARTICLE X. MISCELLANEOUS 44
10.1. Amendment and Modification 44
10.2. Waiver of Compliance 44
10.3. Notices. 45
10.4. Binding Nature: Assignment. 46
10.5. Entire Agreement. 47
10.6. Expenses. 48
10.7. Press Releases and Announcements; Disclosure. 48
10.8. Acknowledgment. 48
10.9. Disclaimer Regarding Assets. 50
10.10. Governing Law. 51
10.11. Counterparts. 51
10.12. Interpretation. 51
10.13. ESI Amount Reimbursement. 51
ARTICLE XI. CERTAIN DEFINITIONS 52
v
<PAGE> 7
EXHIBITS AND SCHEDULES
----------------------
Exhibit 1 - Acquired Interests
Exhibit 2 - Holdback Partnerships
Exhibit 3 - Pending Transactions
Schedule 2.1(a) - Jurisdictions of Incorporation
Schedule 2.1(b) - Subsidiaries
Schedule 2.2 - Conflicts
Schedule 2.4 - Capital Stock and Partnership Interests
Schedule 2.5 - Financial Statements
Schedule 2.6 - Litigation; Compliance with Law
Schedule 2.7(b) - Tax Matters
Schedule 2.7(c) - Adjustments to Tax Liability
Schedule 2.8 - Material Agreements
Schedule 2.9 - Consents and Approvals
Schedule 2.12 - Labor Matters and ERISA
Schedule 2.13 - Events Subsequent to 1997
Schedule 4.4(b) - Beale Generating Company Tax Sharing Agreement
vi
<PAGE> 8
Schedule 5.4 - Approvals and Filings
Schedule 5.5 - Opinion of Seller's Counsel
Schedule 5.6 - Additional Agreements
Schedule 6.4 - Approvals and Filings
Schedule 6.5 - Opinion of Buyer's Counsel
Schedule 6.6 - Additional Agreements
Schedule 7.3 - Asset Value
Schedule 10.8 - Pending Power Marketing Transactions
vii
<PAGE> 9
Purchase Agreement
This Purchase Agreement, dated as of March 6, 1998 (this "Agreement")
between Cogentrix Energy, Inc., a North Carolina corporation ("Buyer"), and
Bechtel Generating Company, Inc., a Delaware corporation ("BGCI" or "Seller").
W I T N E S S E T H:
WHEREAS, the entities identified as Transferors on Exhibit I hereto (the
"Transferors") own certain interests in entities identified as Transferred
Entities on Exhibit I hereto (the "Transferred Entities");
WHEREAS, the Transferred Entities directly or indirectly own certain
interests in one or more of the electric power generation projects and the
natural gas pipeline (such projects and pipeline collectively, the "Projects")
identified on Exhibit I hereto;
WHEREAS, each of the Transferors is either BGCI or an indirect or direct
wholly-owned Subsidiary of BGCI;
WHEREAS, Buyer desires to purchase from the Transferors, and Seller
desires to, and to cause the other Transferors to, transfer to Buyer, subject
to the terms and conditions of this Agreement, all of the outstanding shares
of stock in the Transferred Entities that are corporations (the "Stock
Interests") and certain partnership interests in the Transferred Entities that
are partnerships (the "Partnership Interests" and, together with the Stock
Interests, the "Acquired Interests") that are owned by the Transferors and
identified on Exhibit I hereto.
<PAGE> 10
NOW THEREFORE, IT IS AGREED:
ARTICLE I.
PURCHASE AND SALE OF ACQUIRED INTERESTS
---------------------------------------
1.1. Transfer of Acquired Interests. Upon the terms and subject to
the conditions contained herein, on the Closing Date Seller shall, and shall
cause each other Transferor to, sell, convey, transfer, assign and deliver to
Buyer, and Buyer shall purchase from each Transferor, the Acquired Interests
owned by such Transferor free and clear of any liens, options, charges,
restrictions, claims or encumbrances of any nature, except for (x) encumbrances
set forth on Schedule 2.4 hereto, (y) in the case of partnership interests,
restrictions or encumbrances arising under the agreement creating such interest
and (z) restrictions or encumbrances created by or at the behest of Buyer.
1.2. Purchase Price.(a) The purchase price (the "Purchase Price")
for the Acquired Interests will be [xxx] Dollars ($[xxx]) plus or minus the
Net Unrestricted Cash Differential plus, if applicable, the amount payable by
Buyer pursuant to Section 1.2(d).
(b) Subject to Section 7.3, no later than 2 Business Days prior to
the Closing, Seller shall deliver to Buyer a certificate (the "Closing
Adjustment Certificate") setting forth (i) the amount of Unrestricted Cash
for each Project Partnership and Aggregate Unrestricted Cash, (ii) each 1998
Distribution and Aggregate 1998 Distributions, (iii) each 1998 Contribution
2
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 11
and Aggregate 1998 Contributions, (iv) Aggregate Net Distributions, and
(v) the Net Unrestricted Cash Differential. Concurrently with the delivery
of the Closing Adjustment Certificate, Seller shall deliver or make available
to Buyer the records used by Seller in preparing such certificate. The
Purchase Price payable at Closing will be as set forth in Section 1.2(a) based
on Seller's determination of the Net Unrestricted Cash Differential as set
forth in the Closing Adjustment Certificate. If any 1998 Distributions or
1998 Contributions are made subsequent to the date of the Closing Adjustment
Certificate, Seller shall promptly deliver to Buyer a certificate (the
"Subsequent Certificate") setting forth the revised calculations. The
information set forth in any Subsequent Certificate shall be taken into
account in the final determination of the Net Unrestricted Cash Differential
pursuant to Section 1.2(c), so that an appropriate adjustment may be made.
(c) If Buyer in good faith disagrees with Seller's determination of
the Net Unrestricted Cash Differential as set forth in the Closing Adjustment
Certificate (as modified by any Subsequent Certificate), Buyer shall deliver
to Seller within 10 Business Days of receipt of Seller's certificate a notice
setting forth the basis for such disagreement, and Buyer and Seller shall in
good faith attempt to resolve any such disagreement. If Buyer and Seller
cannot resolve their disagreement within 15 days of Seller's receipt of
Buyer's notice of disagreement, Buyer and Seller shall mutually retain Arthur
Andersen LLP to determine the Net Unrestricted Cash Differential. Buyer and
Seller shall cause Arthur Andersen LLP (whose fee shall be borne 50% by each
of Buyer and Seller) to deliver its determination within 20 Business Days of
its retention, and the determination by Arthur Andersen LLP of such Net
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<PAGE> 12
Unrestricted Cash Differential shall be final and binding on Buyer and Seller
absent manifest error (such as mathematical, computational or other mechanical
errors not involving judgment or discretion). If the Net Unrestricted Cash
Differential determined by Arthur Andersen LLP or as agreed upon by Buyer and
Seller (the "Final Net Unrestricted Cash Differential") is different from the
Net Unrestricted Cash Differential as set forth in the Closing Adjustment
Certificate, then (i) Seller shall refund to Buyer the difference if the
Purchase Price, determined by using the Final Net Unrestricted Cash
Differential, is less than the Purchase Price paid at Closing pursuant to
Section 1.2(b), or (ii) Buyer shall pay to Seller the difference if the
Purchase Price, determined by using the Final Net Unrestricted Cash
Differential, is greater than the Purchase Price paid at Closing pursuant to
Section 1.2(b), in each case within two (2) Business Days of such
determination or agreement, by wire transfer of immediately available funds
to an account designated by the recipient with interest on the final Net
Unrestricted Cash Differential from the Closing Date through the date of
payment at a rate per annum, which shall in no event be compounded, equal to
the offered rate as of each date the interest rate is set (rounded upwards,
if necessary, to the next higher 1/100th of 1%) which appears on the Telerate
Page 3750, British Bankers Association Interest Settlement Rates (or such
other system for the purpose of displaying rates of leading reference banks in
the London interbank market that replaces such system), plus forty (40) basis
points. The interest rate shall be set as of the Closing Date and as of each
six-month anniversary of the Closing Date (or the Business Day thereafter in
the case of any such anniversary that is not a Business Day).
(d) If a Logan Refinancing occurs prior to a Closing, then the
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<PAGE> 13
Purchase Price shall be increased by $[xxx]. If a Logan Refinancing
occurs after a Closing, then within five (5) Business Days after Buyer has
received written notice of the occurrence of the Logan Refinancing Date, Buyer
shall pay Seller the Logan Refinancing Amount. Except as otherwise provided
in this Section 1.2(d), no provision in this Agreement shall be construed to
limit or affect the ability of the parties to the Refinancing Agreement to
determine whether or not to pursue the Logan Refinancing. Neither the
occurrence nor failure to occur of the Logan Refinancing or of any notice or
election relating thereto pursuant to the Logan Refinancing Agreement shall
constitute a condition to Closing pursuant to this Agreement. The sole
consequence of the occurrence or non-occurrence of the Logan Refinancing shall
be Buyer's obligation to pay the Logan Refinancing Amount or the increased
Purchase Price pursuant to the first sentence of this Section 1.2(d), and
neither party shall have any liability or obligation to the other party as a
result of any failure of the Logan Refinancing to occur.
If Atlantic City Electric Company initiates the refinancing and power
purchase agreement restructuring process pursuant to the Logan Refinancing
Agreement prior to the Closing, Seller will cause Aspen Power Corporation to
consult with Buyer with respect to the decisions Aspen Power Corporation will
make, in connection with such process, as a partner in the Logan Project.
Buyer shall have the right to consent to any material decision which Aspen
Power Corporation makes in connection with such process as a partner in the
Logan Project; provided that Buyer's consent shall not be withheld for any
decision by Aspen Power Corporation which (i) is consistent with the
obligations of the Logan Project under the Logan Refinancing Agreement, and
(ii) if alternative courses of action are available, each of which provides
5
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 14
substantially similar benefits and costs to the Logan Project, results in the
selection of the alternative which favors the longest average life for the
taxable indebtedness proposed for such refinancing. Aspen Power Corporation
may proceed with its decision without Buyer's consent, and the sole effect of
such decision with respect to this Agreement will be that Buyer's obligation
to pay any amount pursuant to the first two sentences of this Section 1.2.(d)
shall be extinguished.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Except as otherwise disclosed in this Agreement, or in any Schedule
hereto (each such Schedule relating to the corresponding Section of this
Agreement, unless otherwise provided in this Agreement or in any Schedule),
Seller hereby represents and warrants to Buyer, as of the date hereof (except
where such representation or warranty is expressly made as of another specific
date), as follows:
2.1. Organization, Qualification and Corporate Power. (a) Each of
BGCI and each of the other Transferors is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, as set forth on Schedule 2.1(a), and is duly licensed or
qualified to transact business as a foreign corporation in each jurisdiction
in which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification,
except where the failure to be so licensed or qualified would not,
individually or in the aggregate, have a Material Adverse Effect. Except as
described in Schedule 2.9, each of BGCI and each of the other Transferors has
full corporate power and authority to own, lease or otherwise hold its
6
<PAGE> 15
properties and assets and to carry on its business as now conducted and to
execute, deliver and perform this Agreement to the extent it is a party hereto
or to perform the actions which BGCI is required to cause such Transferor to
perform hereunder.
(b) Schedule 2.1(b) hereto contains a list of all Subsidiaries of each
Transferred Entity. Each Transferred Entity and each Subsidiary of a
Transferred Entity, in each case which is a corporation, is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, and each Transferred Entity which is a partnership is duly
formed, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each Transferred Entity and each Subsidiary
thereof is duly licensed or qualified to transact business as a foreign
corporation or partnership and is in good standing in each jurisdiction in
which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification,
except where the failure to be so licensed or qualified and in good standing
would not, individually or in the aggregate, have a Material Adverse Effect.
Each Transferred Entity and Subsidiary thereof has the requisite corporate or
partnership power and authority to own, lease or otherwise hold its properties
and assets and to carry on its business as now conducted.
2.2. Authorization; No Conflict.(a) The execution, delivery and
performance by BGCI of this Agreement and the consummation by BGCI and each of
the other Transferors of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of BGCI, and at the
Closing will be duly authorized by all requisite corporate action on the part
of the Transferors.
7
<PAGE> 16
(b) Except as set forth in Schedule 2.2, the execution, delivery and
performance by BGCI of this Agreement and the consummation by BGCI and each of
the other Transferors of the transactions contemplated hereby will not
(i) violate any law or regulation applicable to BGCI, any other Transferor,
any Transferred Entity or any Subsidiary of any Transferred Entity, or any
order of any court or governmental agency or authority having jurisdiction
over BGCI, any other Transferor, any Transferred Entity or any Subsidiary of
any Transferred Entity which violation would have a Material Adverse Effect,
(ii) violate or conflict with, or constitute (with due notice or lapse of time
or both) a default under, any Material Agreement or (iii) result in the
creation or imposition of any Material Encumbrance.
2.3. Validity.(a) This Agreement has been duly executed and delivered
by BGCI and constitutes the valid and binding obligation of BGCI, enforceable
against BGCI in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereinafter in effect relating to creditors' rights generally, and
general equitable principles (whether considered in a proceeding in equity or
at law).
(b) At the Closing, each Additional Agreement will be duly executed and
delivered by BGCI or the Transferor who is a party thereto and will constitute
the valid and binding obligation of BGCI or the Transferor who is a party
thereto, enforceable against BGCI or such Transferor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally, and general equitable principles
(whether considered in a proceeding in equity or at law).
8
<PAGE> 17
2.4. Capital Stock and Partnership Interests.(a) The authorized,
issued and outstanding capital stock of each Transferred Entity that is a
corporation and each Subsidiary thereof are as set forth in Schedule 2.4
hereto. The existing partnership interests of each Transferred Entity that
is a partnership are as set forth in the applicable partnership agreement, as
amended, listed in Schedule 2.4, as the rights, obligations and interests of
the partners in any such partnership may be affected by any Material
Agreement which is indicated on Schedule 2.8 as relating to such Project
Partnership; and each such partnership agreement has not been further amended
and is in full force and effect, except for any amendments contemplated in
connection with the Closing. To Seller's knowledge, the stockholders of
record or partners of each Transferred Entity or Subsidiary thereof are as
set forth in Schedule 2.4. Except as set forth in Schedule 2.4, (i) there
is no authorized or outstanding subscription, warrant, option, convertible
security, or other right (contingent or other) to purchase or otherwise
acquire from a Transferred Entity which is wholly-owned, directly or
indirectly, by Seller or from any Subsidiary of any such Transferred Entity,
equity securities or partnership interests of any such Transferred Entity or
Subsidiary, (ii) there is no commitment on the part of any Transferred Entity
which is wholly-owned, directly or indirectly, by Seller or on the part of
any Subsidiary of any such Transferred Entity, to issue shares,
subscriptions, warrants, options, convertible securities, partnership
interests or other such rights, (iii) no equity securities or partnership
interests of any Transferred Entity which is wholly-owned, directly or
indirectly, by Seller or of any Subsidiary of any such Transferred Entity,
are reserved for issuance for any such purpose and (iv) with respect
9
<PAGE> 18
to Transferred Entities which are not wholly-owned, directly or indirectly,
by Seller and Subsidiaries of such Transferred Entities, neither Seller nor
any Subsidiary thereof has created or committed to create any subscription,
warrant, option, convertible security, commitment, other right or reservation
for issuance referred to in clauses (i) through (iii) above and, to Seller's
knowledge, none exists. Except as set forth in Schedule 2.4, no Transferred
Entity which is wholly-owned, directly or indirectly, by Seller and no
Subsidiary of any such Transferred Entity, has any obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity securities
and, with respect to Transferred Entities which are not wholly-owned, directly
or indirectly, by Seller and Subsidiaries of such Transferred Entities,
neither Seller nor any Subsidiary thereof has created any such obligation and,
to Seller's knowledge, none exists. Except for this Agreement and as set
forth in Schedule 2.4, there is no voting trust or agreement, stockholders'
agreement, pledge agreement, buy-sell agreement, right of first refusal,
preemptive right or proxy relating to any securities of any Transferred Entity
which is wholly-owned, directly or indirectly, by Seller or to any securities
of any Subsidiary of any such Transferred Entity, or to which any such
Transferred Entity or Subsidiary is a party and, with respect to Transferred
Entities which are not wholly-owned, directly or indirectly, by Seller,
neither Seller nor any Subsidiary thereof has created any such voting trust,
agreement, right or proxy and, to Seller's knowledge, none exists.
(b) Each of the Stock Interests has been duly authorized and validly
issued and is fully paid and nonassessable and, except as disclosed on
Schedule 2.4 hereto, each of the Stock Interests is owned beneficially and of
record, and each of the Partnership Interests is owned, by the applicable
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<PAGE> 19
Transferor thereof as indicated on Schedule 2.4. On the Closing Date, Buyer
will own the Acquired Interests free and clear of any liens, options, charges,
restrictions, claims or encumbrances of any nature, except for
(x) encumbrances set forth on Schedule 2.4 hereto, (y) in the case of
partnership interests, restrictions or encumbrances arising under the
agreement creating such interest and (z) restrictions or encumbrances created
by or at the behest of Buyer.
2.5. Financial Statements. Attached as Schedule 2.5 hereto are
(i) a consolidated audited balance sheet of each Project Partnership for each
of the years ended December 31, 1996 and 1995 in which such Project
Partnership existed and had a full year of operations, (ii) a consolidated
unaudited balance sheet of each Project Partnership and Transferred Entity for
the 12 months ended December 31, 1997 and (iii) if the Transferred Entity
with respect to any Project is not the Project Partnership, a consolidated
unaudited balance sheet of such Transferred Entity for each of the years
ended December 31, 1996 and 1995 in which such Transferred Entity existed
and had a full year of operations, and (iv) in each case specified in clauses
(i), (ii) and (iii) above, the related consolidated statements of income and
cashflows of such entities (audited in the case of each financial statement
of a Project Partnership for a period ending December 31 1996 or 1995) (such
statements specified in clauses (i), (ii), (iii) and (iv), together with the
related notes thereto, collectively, the "Financial Statements"). To
Seller's knowledge, the Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied, and
fairly present in all material respects the financial condition of such
entities and their consolidated Subsidiaries as of the dates thereof and the
results of their consolidated operations for the periods covered thereby
11
<PAGE> 20
subject, in the case of Financial Statements for the 12 months ended December
31, 1997, to any changes or additions contained in the audited financial
statements for such period or the notes thereto. To Seller's knowledge, no
Transferred Entity or Project Partnership has any liability or obligation
(whether accrued, absolute, contingent or otherwise) which, individually or
in the aggregate, is material to such entity and its consolidated
Subsidiaries, taken as a whole, other than (i) liabilities reflected (but
only to the extent so reflected) or reserved against in the Financial
Statements, (ii) liabilities or obligations that have arisen since December
31, 1997 in the ordinary course of business, none of which, individually or
in the aggregate, would have a Material Adverse Effect, (iii) liabilities or
obligations disclosed herein or in any Schedule hereto, or (iv) liabilities
or obligations incurred in accordance with the terms of this Agreement or
any Material Agreement.
2.6. Litigation; Compliance with Law. (a) Schedule 2.6 lists, to
BGCI's knowledge, each action, suit, claim, proceeding (including, but not
limited to, any arbitration proceeding) or investigation pending or
threatened against any Transferred Entity, Project Partnership or Subsidiary
of any such entity, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to
such Transferred Entity, Project Partnership or Subsidiary of any such entity
would reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. For purposes of the preceding sentence, no
representation is made with respect to (i) any proceeding before any
regulatory authority initiated by any such Transferred Entity, Project
Partnership or Subsidiary of any such entity in which such Transferred
Entity, Project Partnership or Subsidiary of any such entity is an applicant
12
<PAGE> 21
for any governmental permit, approval, certificate, authorization or license,
to the extent the matters considered in such proceeding are limited to the
approval or authority requested in such application, or (ii) proceedings
initiated by a third party in which such Transferred Entity, Project
Partnership or Subsidiary of any such entity is an intervener, and the
subject matter of such intervention is of general applicability to
similarly-situated parties. To Seller's knowledge, no Transferred Entity,
Project Partnership or Subsidiary of any such entity is in default with
respect to any order, writ, injunction or decree known to or served upon
such entity of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, except for defaults which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) To Seller's knowledge, each Transferred Entity, Project Partnership
and Subsidiary of any such entity is in compliance with all laws, rules,
regulations and orders applicable to its business, except (i) where the
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect, and (ii) as set forth in Schedule 2.6. To Seller's
knowledge, each Transferred Entity, Project Partnership and Subsidiary of any
such entity has all permits, licenses and other governmental authorizations
necessary to own, lease or otherwise hold its properties and assets and to
conduct its business as currently conducted, except (i) where the failure to
obtain the same would not, individually or in the aggregate, have a Material
Adverse Effect, or (ii) as set forth in Schedule 2.6.
2.7. Tax Matters (a) There have been properly completed and filed
on a timely basis and in correct form all Tax Returns required to be filed by
any Taxpayer on or prior to the date hereof. As of the time of filing, the
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<PAGE> 22
foregoing Returns were true and complete in all material respects.
(b) With respect to all amounts in respect of Taxes imposed on any
Taxpayer with respect to all taxable periods or portions of periods ending on
or before the Closing Date, all applicable Tax laws have been complied with in
all material respects, and all such amounts required to be paid to taxing
authorities or others on or before the date hereof have been paid, except such
Taxes, if any, as are set forth in Schedule 2.7(b) that are being contested in
good faith.
(c) Except as set forth on Schedule 2.7(c), no adjustments to the Tax
liability of any Taxpayer have been proposed in writing (and are currently
pending) by any taxing authority in connection with any Tax Return of any
Taxpayer. All deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in
the financial statements of the applicable Taxpayer, or are being contested
in good faith and are described in Schedule 2.7(c).
(d) There are no liens for Taxes (other than for current Taxes not yet
due and payable) on any of the assets of any Transferor or Transferred Entity.
(e) Except for (i) that certain Tax Sharing Agreement dated March 31,
1993 by and between Cedar Power Corporation, a Delaware corporation, and Cedar
I Power Corporation, a Delaware corporation (the "Cedar Power Tax Sharing
Agreement"), and that certain Beale Generating Company Federal Income Tax
Sharing Agreement dated September 19, 1997 by and between PG&E Generating
14
<PAGE> 23
Company, a California corporation, Beale Generating Company, a Delaware
corporation, and Bechtel Generating Company, Inc., a Delaware corporation (the
"Beale Tax Sharing Agreement"), none of the Taxpayers is currently a party to
any tax sharing or tax allocation agreement.
(f) BGCI is the common parent of the affiliated group within the
meaning of Section 1504(a) of the Code that includes each of the Acquired 338
Subsidiaries, and BGCI will not be a target corporation within the meaning of
Section 338 of the Code for the taxable year that includes the Closing Date.
BGCI is eligible to make an election under Section 338(h)(10) of the Code
(and any comparable election under state, local or foreign tax law) with
respect to each Acquired 338 Subsidiary.
(g) Each of the Holdback Partnerships and each of the partnerships in
which any Acquired 338 Subsidiary is a partner has in effect an election
pursuant to Section 754 of the Code or will make such an election on a timely
basis effective for the tax period that includes the Closing Date.
2.8. Material Agreements. To Seller's knowledge, all of the material
notes, bonds, mortgages, indentures, licenses, leases, contracts and other
instruments and obligations ("Material Agreements") to which any Transferred
Entity, Project Partnership or Subsidiary of any such entity is a party or
by which any of them or any of their respective property may be bound as of
the date hereof are set forth in Schedule 2.8. To Seller's knowledge, except
as otherwise set forth in Schedule 2.8: (i) each such Material Agreement is
valid, binding and in full force and effect, and is enforceable by such
Transferred Entity, Project Partnership or Subsidiary in accordance with its
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<PAGE> 24
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally, and general equitable principles
(whether considered in a proceeding in equity or at law), and (ii) each
Transferred Entity, Project Partnership and Subsidiary of any such entity and
each other party thereto, has performed all the obligations required to be
performed by it to date, has received no notice of default and is not in
default (with due notice or lapse of time or both) under any Material Agreement
to which it is a party, except for failures to perform and defaults which
would not, individually or in the aggregate, have a Material Adverse Effect.
2.9. Consents and Approvals. To Seller's knowledge, except as set
forth in Schedule 2.9, no registration or filing with, or consent or approval
of or other action by, any Federal, state or other governmental agency or
instrumentality or any other Person is or will be necessary for the valid
execution, delivery and performance by BGCI or any other Transferor of this
Agreement or the consummation of the transactions contemplated hereby, other
than filings required pursuant to the HSR Act and the rules and regulations
promulgated thereunder, filings or notices of change of ownership which may
be required under applicable federal, state or local law and filings or
approvals which may be required to be made or obtained with respect to
(i) the status of each of the Projects as a "qualifying facility" within the
meaning PURPA and the rules and regulations promulgated thereunder, (ii) the
status of each of the Logan Project, the Selkirk Project and the Pittsfied
Project as an "exempt wholesale generator" within the meaning of the Energy
Policy Act of 1992, as amended, and the rules and regulations promulgated
thereunder, (iii) transfer of Seller's interest in the Logan Project pursuant
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<PAGE> 25
to Section 203 of the Federal Power Act, (iv) notices of change in status with
respect to market based rate tariffs on file with the Federal Energy Regulatory
Commission, and (v) any application to hold an interlocking position required
under Section 305(b) of the Federal Power Act.
2.10. Qualifying Facility; EWG. Immediately prior to the Closing,
(i) each of the Projects which is an electric generating facility satisfies
the requirements to be a "qualifying facility" within the meaning of PURPA and
the rules and regulations promulgated thereunder, and (ii) each of the owners
and/or operators of the Logan Project, the Selkirk Project and the Pittsfied
Project satisfies the requirements to be an "exempt wholesale generator"
within the meaning of the Energy Policy Act of 1992, as amended, the rules and
regulations promulgated thereunder and the implementing precedents.
2.11. Brokers. Neither Seller nor any Transferor nor any Subsidiary
of either has a contract, arrangement or understanding with any investment
banking firm, broker, finder or similar agent with respect to the transactions
contemplated by this Agreement, except for Goldman, Sachs & Co., whose fees
shall be borne by Seller.
2.12. Labor Matters and ERISA. Each Transferred Entity and each of
their respective Subsidiaries is in compliance with the Employee Retirement
Income Security Act of 1974, as amended, except where the failure to so comply
would not, individually or in the aggregate, have a Material Adverse Effect.
None of the Transferred Entities or their respective Subsidiaries has any
material obligation with respect to any employee benefits plan, program or
practice other than pursuant to the employee plans and programs described on
Schedule 2.12, and the Transferred Entities and their respective Subsidiaries
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<PAGE> 26
have no liabilities in respect of the matters disclosed on Schedule 2.12 other
than (i) the obligation to pay benefits in the ordinary course, (ii) liabilities
reflected in the Financial Statements and (iii) additional liabilities which in
the aggregate would not have a Material Adverse Effect.
2.13. Events Subsequent to December 31, 1997. Except as set forth
on Schedule 2.13 or as specifically provided for by this Agreement or
consented to or approved by Buyer, since December 31, 1997, to Seller's
knowledge, none of the Transferred Entities or Project Partnerships, and none
of their respective Subsidiaries, has:
(a) incurred or guaranteed any indebtedness for borrowed money (not
including accounts payable and trade payables incurred in the ordinary course
of business), other than (i) indebtedness incurred in accordance with any
Material Agreement, and (ii) indebtedness which does not, individually or in
the aggregate, have a Material Adverse Effect;
(b) acquired or disposed of, in either case in any manner, any
material assets or properties, other than (i) acquisitions and dispositions in
the ordinary course of business, (ii) dispositions of obsolete or surplus
assets, (iii) dispositions and acquisitions in connection with the normal
repair and/or replacement of assets or properties, or property losses covered
by insurance, (iv) acquisitions or dispositions in accordance with any
Material Agreement or (v) acquisitions or dispositions which do not,
individually or in the aggregate, have a Material Adverse Effect;
(c) amended its Certificate of Incorporation, By-Laws, partnership
agreement or governing documents other than as described in Schedule 2.13 and
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<PAGE> 27
other than amendments which do not, individually or in the aggregate, have a
Material Adverse Effect;
(d) acquired or agreed to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof which acquisition, agreement,
merger, consolidation or purchase is material relative to the value of (i) any
of the Principal Projects, in the case of an acquisition, agreement, merger,
consolidation or purchase by the applicable Transferred Entity or Entities,
the applicable Principal Project or any of their respective Subsidiaries, or
(ii) the Projects, taken as a whole;
(e) failed to pay and discharge on a timely basis consistent with
past practices any liabilities which constitute current liabilities under
generally accepted accounting principles, except for (i) liabilities not yet
due, (ii) liabilities which are subject to good faith contest for which
appropriate reserves have been established or (iii) liabilities for which the
failure to pay would not, individually or in the aggregate, have a Material
Adverse Effect;
(f) cancelled any material indebtedness owed to a Transferred Entity
or Project Partnership or waived in an enforceable manner any rights of
substantial value to a Transferred Entity or Project Partnership, except for
any such cancellations or waivers which, individually or in the aggregate, do
not have a Material Adverse Effect; or
(g) entered into any agreement or commitment to take any of the
actions described in clauses (a) through (f) hereof.
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<PAGE> 28
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller that, as of the date hereof
(except where such representation or warranty is expressly made only as of a
specific date) as follows:
3.1. Organization and Corporate Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of North Carolina. Buyer has the corporate power and authority to execute,
deliver and perform this Agreement.
3.2. Authorization of Agreement. Etc. The execution and delivery
by Buyer of this Agreement, and the performance by Buyer of its obligations
hereunder, have been duly authorized by all requisite corporate action and
will not (i) violate any provision of law, any order of any court or other
agency of government, (ii) conflict with or result in a breach of any
provisions of Buyer's certificate or articles of incorporation or By-Laws,
or (iii) conflict with, result in a violation or breach of or constitute
(with due notice or lapse of time or both) a default under, any material
note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument or obligation by which Buyer or any of its assets is bound.
3.3. Validity. This Agreement has been duly executed and delivered
by Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors rights generally, and
general equitable principles (whether considered in a proceeding in equity or
at law).
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<PAGE> 29
3.4. Public Utility Holding Company. Neither Buyer nor any
Permitted Assignee is a "holding company", a "public-utility company" or an
"affiliate" or "subsidiary company" of any of the foregoing within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
3.5. PURPA. Neither Buyer nor any Permitted Assignee is (i) an
"electric utility" or an "electric utility holding company" within the meaning
of PURPA and the rules and regulations promulgated thereunder and the Federal
Energy Regulatory Commission's implementing precedent, or (ii) owned directly
or indirectly by either of the foregoing. Neither Buyer nor any Permitted
Assignee is "primarily engaged in the generation or sale of electric power
(other than electric power solely from cogeneration facilities or small power
production facilities)" within the meaning of PURPA and the rules and
regulations promulgated thereunder and the Federal Energy Regulatory
Commission's implementing precedent. Neither Buyer's nor any Permitted
Assignee's acquisition and ownership of the Acquired Interests on the Closing
Date and any interests in any Holdback Partnerships purchased on the Put
Purchase Date will cause any of the Projects to lose their status as
"qualifying facilities" under PURPA and the rules and regulations thereunder
and the Federal Energy Regulatory Commission's implementing precedent, solely
by virtue of such acquisition and ownership.
3.6. Consents and Approvals. No registration or filing with, or
consent or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by Buyer of this Agreement and the
transactions contemplated hereby, other than filings required pursuant to
the HSR Act, and the rules and regulations promulgated thereunder, filings
21
<PAGE> 30
and notices of change of ownership which may be required under applicable
federal, state or local law and filings or approvals which may be required to
be made or obtained with respect to (i) the status of each of the Projects
as a "qualifying facility" within the meaning PURPA and the rules and
regulations promulgated thereunder, (ii) the status of each of the Logan
Project, the Selkirk Project and the Pittsfied Project as an "exempt
wholesale generator" within the meaning of the Energy Policy Act of 1992, as
amended, and the rules and regulations promulgated thereunder, (iii) transfer
of Seller's interest in the Logan Project pursuant to Section 203 of the
Federal Power Act, (iv) notices of change in status with respect to market
based rate tariffs on file with the Federal Energy Regulatory Commission, and
(v) any application to hold an interlocking position required under Section
305(b) of the Federal Power Act.
3.7. Brokers. Neither Buyer nor any Subsidiary of Buyer has a
contract, arrangement or understanding with any investment banking firm,
broker, finder or similar agent with respect to the transactions contemplated
by this Agreement, except for Salomon Brothers Inc., whose fees shall be borne
by Buyer.
3.8. Tax Matters. Buyer is eligible to make an election under
Section 338(h)(10) of the Code (and any comparable election under state, local
or foreign tax law) with respect to the acquisition of each Acquired 338
Subsidiary.
3.9. Availability of Funds. At the Closing, Buyer will have
sufficient funds to consummate the transactions contemplated hereby.
22
<PAGE> 31
ARTICLE IV.
ACCESS; ADDITIONAL AGREEMENTS
-----------------------------
4.1. Access to Information: Continuing Disclosure. Seller agrees
that from the date hereof until the Closing Date, and subject to the terms
of the Confidentiality Agreement (i) upon reasonable notice, Seller shall,
and shall cause each Transferor to, use reasonable efforts to cause each
Transferred Entity and Project Partnership to, provide to the officers,
employees, accountants, counsel and other representatives of Buyer
reasonable access, at reasonable times during normal business hours, to the
employees, properties, books and records of the Transferred Entities and the
Project Partnerships in which they have an interest, as the case may be, and
shall promptly furnish to the same Persons such information as such Persons
may reasonably request; provided, that such access shall be afforded to
Buyer after no less than 24 hours prior notice, and only in such manner so
as not to unreasonably disturb or interfere with the normal operations of
Seller, such Transferor, Transferred Entity or Project Partnership; and
provided, further, that neither Seller nor any such entity shall be required
to take any action that would constitute a waiver of the attorney-client
privilege and Seller need not supply to Buyer any information that Seller is
under a legal obligation not to supply, and (ii) at regular intervals prior to
the Closing Date, or at such other times as Buyer or its representatives shall
reasonably request, Seller shall, and shall cause each Transferor to, use
reasonable efforts to cause each Transferred Entity and Project Partnership
to, consult with Buyer regarding the conduct of the business of the
Transferred Entities and the Projects. All information furnished by Seller,
any Transferor or any Wholly-Owned Transferred Entity hereunder shall be
subject to the terms of the Confidentiality Agreement dated October 24, 1997
23
<PAGE> 32
among U.S. Generating Company, Bechtel Enterprises, Inc. and Buyer (the
"Confidentiality Agreement").
4.2. Antitrust Notification. Buyer and Seller will as promptly as
practical, but in no event later than thirty (30) days following the
execution and delivery of this Agreement, file with the United States Federal
Trade Commission (the "FTC") and the United States Department of Justice
(the "DOJ") the Notification and Report Form under the HSR Act, if any,
required in connection with the transactions contemplated hereby and as
promptly as practicable supply any additional information requested in
connection herewith pursuant to the HSR Act. Any such Notification and
Report Form and additional information submitted to the FTC or the DOJ shall
be in substantial compliance with the requirements of the HSR Act. Each of
Buyer and Seller shall furnish to the other such information and assistance
as the other may reasonably request in connection with its preparation of
any filing or submission which is necessary under the HSR Act. Each of
Buyer and Seller shall keep the other apprised of the status of any
communications with, and inquiries or requests for additional information
from, the FTC and the DOJ and shall comply promptly with any such inquiry or
request. Each of Buyer and Seller will use its reasonable best efforts to
obtain the termination or expiration of any applicable waiting period required
under the HSR Act for the consummation of the transactions contemplated
hereby.
4.3. Further Assurances. From time to time, as and when requested
by either party hereto, the other party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take,
or cause to be taken, all such further or other actions as such other party
may reasonably deem necessary or desirable to consummate the transactions
24
<PAGE> 33
contemplated by this Agreement, including, without limitation, such actions as
are necessary or desirable in connection with obtaining any third party consent
or any regulatory filings (including filings with the Federal Energy Regulatory
Commission) as either party, any Transferor or any Transferred Entity may
undertake in connection herewith.
4.4. Certain Tax Matters. (a) Section 338(h)(10). BGCI, each
other Transferor, and Buyer agree to join in making an election under Section
338(h)(10) of the Code and any corresponding elections permitted under state,
local or foreign law with respect to the acquisition of each Acquired 338
Subsidiary and, if no election may be made pursuant to such state, local or
foreign law under an election corresponding to Code Section 338(h)(10),
elections corresponding to Section 338(a) and 338(g) of the Code. BGCI shall
be responsible for all taxes resulting from or arising out of such election
under Section 338 of the Code. Buyer and BGCI shall exchange completed
executed copies of Internal Revenue Service Form 8023-A, required schedules
thereto, and any similar state, local and foreign forms as soon as practical
after the Closing. Prior to Closing, Seller and Buyer shall use reasonable
efforts to agree to an allocation of the Purchase Price and all other
capitalized costs among the transferred assets (other than stock of the
Acquired 338 Subsidiaries and other than the interests in the Holdback
Partnerships) and the Acquired 338 Subsidiaries' assets (or the assets of
the partnerships in which such Subsidiaries' are partners, as applicable)
and the Holdback Partnerships' assets to be used by both Seller and Buyer
for federal and applicable state income tax reporting purposes; provided,
that such allocation shall be consistent with the allocation set forth on
Schedule 7.3 hereto.
(b) Beale Tax Sharing Agreement. The Beale Tax Sharing Agreement will
25
<PAGE> 34
be terminated or modified prior to the Closing Date such that no Transferred
Entity will have any liability under such Agreement after the Closing Date,
including but not limited to liability for amounts in respect of periods (or
portions thereof) ending on or prior to the Closing Date. Simultaneously with
the Closing, Buyer or a Permitted Assignee shall enter into a tax sharing
agreement relating to Beale Generating Company in the form set forth on
Exhibit 4.4(b).
(c) Cedar Bay Tax Sharing Agreement. At and as of Closing, the Cedar
Bay Tax Sharing Agreement shall be terminated, and Buyer or a Permitted
Assignee and Cedar I Power Corporation shall enter into a new tax sharing
agreement on the same terms as the Cedar Bay Tax Sharing Agreement.
(d) Tax Returns. BGCI shall prepare and file (or cause to be prepared
and filed) at its own expense all Tax Returns of the Transferred Entities
(other than the Holdback Partnerships, the returns for which will be prepared
by the tax matters partners thereof) for tax periods ending on or before the
Closing Date. Buyer shall prepare and file (or cause to be prepared and
filed) at its own expense all Tax Returns of the Transferred Entities (other
than the Holdback Partnerships, the returns for which will be prepared by the
tax matters partners thereof) for tax periods ending after the Closing Date,
provided however that with respect to any Tax Return for a period beginning
before the Closing Date and ending after the Closing Date, Buyer shall provide
BGCI with a copy of such Tax Return at least 30 days prior to the due date for
such return and shall obtain BGCI's written consent to the filing of such
returns (which shall not be unreasonably withheld or delayed) prior to the
filing thereof. Each of BGCI and Buyer shall provide the other with such
assistance as may reasonably be required by the other party in connection with
26
<PAGE> 35
the preparation of any Tax Return, any audit, or other examination by any
taxing authority, or any judicial or administrative proceedings relating to
liability, for Taxes, and each will retain until the expiration of the
applicable statute of limitations and provide the other party upon request
with any records or information which may be relevant to such return, audit or
examination. Any information obtained pursuant to this Section 4.4(d) shall
be kept confidential.
(e) Transfer Taxes. All stamp, documentary, transfer and sales taxes
incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by Buyer, and Buyer at its own expense shall file, to
the extent required by applicable law, all necessary Tax Returns and other
documentation with respect to all such transfer or sales taxes, and, if
required by applicable law, BGCI shall join the execution of any such Tax
Returns or other documentation.
4.5. Regular Course of Business. Prior to the Closing, except as
set forth on Schedule 2.13, Seller shall, and shall cause its Subsidiaries to,
vote their respective ownership interests in each Transferred Entity and
Project Partnership in a manner consistent with each such Transferred Entity
and Project Partnership conducting its respective business in the ordinary
course consistent with past practice and in accordance with the Material
Agreements to which such Transferred Entity or Project Partnership is a party
or by which it is bound.
ARTICLE V.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------
The obligations of Buyer under this Agreement shall be subject to the
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<PAGE> 36
satisfaction (or waiver by Buyer), at or before the Closing, of each of the
following conditions, and Seller shall use reasonable efforts to cause each of
such conditions to be satisfied:
5.1. No Injunction. No Federal or state governmental agency or
authority or political subdivision thereof or Federal or state court of
competent jurisdiction shall have issued any injunction or other order
(whether temporary, preliminary or permanent) which prohibits the
consummation of the transactions contemplated hereby; provided, that the
parties shall use their reasonable efforts to litigate against, and obtain
the lifting of, any such injunction or order.
5.2. Representations and Warranties. The representations and
warranties of Seller contained herein shall be true and correct in all
material respects (provided, however, that any representation or warranty
which refers to "Material Adverse Effect" or otherwise references a concept
of materiality shall be true and correct in all respects) as of the date
hereof and as of the Closing Date (in each case except where such
representation or warranty is expressly made only as of another specific
date) as though such representations and warranties were made at and as of
the Closing Date, except as otherwise contemplated by this Agreement or as
may be specified on amendments to Schedules 2.5 (to the extent that audited
financial statements as of December 31, 1997 and for the year then ended are
available prior to the Closing and such audited financial statements reflect
any modifications to the unaudited financial statements as of and for such
date and year included in Schedule 2.5), 2.6, 2.7, 2.8, 2.12 and 2.13
provided at the Closing; no Material Adverse Effect shall have occurred
since December 31, 1997 (except as disclosed in this Agreement or any
Schedule hereto, but without giving effect to any amendment, other than any
amendment to any Schedule with respect to the dispute underlying the Cedar Bay
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<PAGE> 37
Dispute, to any Schedule permitted by this Section 5.2) and Buyer shall have
received at the Closing a certificate, dated the Closing Date, signed on
behalf of Seller by an executive officer of Seller to such effect.
5.3. Performance. Seller and the Transferors shall have performed
and complied, in all material respects, with all agreements, obligations and
conditions required to be performed or complied with by them at or prior to
the Closing; and Buyer shall have received at the Closing a certificate, dated
the Closing Date, signed on behalf of Seller by an executive officer of Seller
to such effect.
5.4. Approvals and Filings. All consents, authorizations and
approvals from, and all declarations, filings and registrations with,
governmental agencies or third parties that are listed on Schedule 5.4 and
any other material consents, authorizations, approvals declarations, filings
and registrations that are required to consummate the transactions
contemplated hereby shall have been obtained or made, except where the
failure to obtain or make the same is a result of Buyer's breach of its
obligations hereunder. All HSR waiting periods shall have expired or been
properly terminated.
5.5. Opinion of Counsel. Buyer shall have received an opinion or
opinions dated the Closing Date of counsel to Seller, to the effect set forth
on Schedule 5.5 hereto.
5.6. Proceedings; Additional Agreements. (i) All corporate,
partnership and other proceedings or actions to be taken by BGCI and each
Transferor in connection with or prior to the transactions contemplated
herein and in the Additional Agreements and all documents incident hereto and
thereto shall be reasonably satisfactory in form and substance to Buyer, and
29
<PAGE> 38
Buyer shall have received certified or other copies of the documents listed
on Schedule 5.6 and such other documents as Buyer may reasonably request.
Seller shall have, or shall have caused each Transferor to, execute the
Additional Agreements to be signed by Seller or such Transferor.
5.7. Closing Documents. Buyer shall have received all Additional
Agreements and such other documents, certificates and instruments as are
reasonable and customary, in connection with the Closing.
5.8. Nonforeign Affidavit. Each Transferor shall furnish Buyer an
affidavit, stating, under penalty of perjury, that the indicated number is
such Transferor's United States taxpayer identification number and that such
Transferor is not a foreign Person, pursuant to Section 1445(b)(2) of the
Code.
5.9. Regular Course of Business. Except as set forth on Schedule
2.13, subsequent to the execution of this Agreement by the parties hereto,
(i) each of the Principal Projects, and (ii) the Projects, taken as a whole,
shall have conducted their respective businesses in the ordinary course
consistent with past practice.
5.10. Certain Dispositions. Prior to the Closing or, if there is a
First Closing, prior to the First Closing, the transactons described in
Item 3 of Exhibit 3 shall have been completed.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
-------------------------------------------------
The obligations of Seller under this Agreement shall be subject to the
satisfaction (or waiver by Seller) on or before the Closing, of each of the
following conditions, and Buyer shall use reasonable efforts to cause each of
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<PAGE> 39
such conditions (other than that set forth in Section 6.1) to be satisfied:
6.1. No Injunction. No Federal or state governmental agency or
authority or political subdivision thereof or Federal or state court of
competent jurisdiction shall have issued any injunction or other order
(whether temporary, preliminary or permanent) which prohibits the
consummation of the transactions contemplated hereby; provided, that the
parties shall use their reasonable efforts to litigate against, and obtain
the lifting of, any such injunction or order.
6.2. Representations and Warranties. The representations and
warranties of Buyer contained herein shall be true and correct in all
material respects as of the date hereof and as of the Closing Date (in each
case except where such representation or warranty is expressly made only as
of another specific date) as though such representations and warranties were
made at and as of the Closing Date, except as otherwise contemplated by this
Agreement; and Seller shall have received at the Closing a certificate, dated
the Closing Date, signed on behalf of Buyer by an executive officer of Buyer
to such effect.
6.3. Performance. Buyer shall have performed and complied, in all
material respects, with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing; and Seller shall have received at the Closing a certificate, dated
the Closing Date, signed on behalf of Buyer by an executive officer of Buyer
to such effect.
6.4. Approvals and Filings. All consents, authorizations and
approvals from, and all declarations, filings and registrations with,
government agencies or third parties that are listed on Schedule 6.4 and any
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<PAGE> 40
other material consents, authorizations, approvals, declarations and filings
that are required to consummate the transactions contemplated hereby shall
have been obtained or made. All HSR waiting periods shall have expired or
been properly terminated.
6.5. Opinion of Counsel. Seller shall have received an opinion or
opinions dated the Closing Date from counsel to Buyer, to the effect set
forth in Schedule 6.5 hereto.
6.6. Proceedings; Additional Agreements. All corporate and other
proceedings or actions to the effect set forth in Schedule 6.6 hereto to be
taken by Buyer in connection with or prior to the transactions contemplated
herein and in the Additional Agreements and all documents incident hereto or
thereto shall be reasonably satisfactory in form and substance to Seller and
Seller shall have received certified or other copies of the documents listed
on Schedule 6.6 and such other documents as Seller may reasonably request.
6.7. Closing Documents. Seller shall have received all Additional
Agreements and such other documents, certificates, and instruments as are
reasonable and customary, in connection with the Closing.
ARTICLE VII.
CLOSING
-------
7.1. Time and Place. Subject to the provisions of Articles V and
VI, the closing of the sale by the Transferors and the purchase by Buyer of
the Acquired Interests (the "Closing") shall take place at the offices of
Latham & Watkins, 885 Third Avenue, New York, New York 10022 on the
Permitted Date or at such other place, at such other time, or on such other
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<PAGE> 41
date as the parties hereto may mutually agree (the date on which the Closing
occurs being herein referred to as the "Closing Date").
7.2. Payment. At the Closing, upon the terms and subject to the
conditions set forth herein, Buyer shall pay to Seller, by wire transfer of
immediately available funds to an account designated by Seller, $[xxx]
plus or minus the Net Unrestricted Cash Differential as set forth in the
Closing Adjustment Certificate plus, if applicable, the amount payable by Buyer
pursuant to Section 1.2(d).
7.3. First Closing; Additional Closings.(a) Notwithstanding any
other provision of this Agreement, if the condition to Closing contained in
Section 5.4 is satisfied or waived with respect to Acquired Interests which
represent (i) at least 66 2/3% of the aggregate Asset Value as set forth on
Schedule 7.3 hereto and (ii) all of the Acquired Interests with respect to
the Principal Projects but are not satisfied or waived with respect to any
or all of the other Acquired Interests, at Seller's option (which may be
exercised in Seller's absolute discretion) a first closing shall occur as
follows (the "First Closing"): Seller shall deliver to Buyer five Business
Days' written notice of the First Closing (the "First Closing Notice") at
which the purchase and sale of the First Closing Assets shall occur. The
First Closing shall take place at the offices of Latham & Watkins, 885 Third
Avenue, New York, New York 10022 on the date specified in the First Closing
Notice; provided that such date shall not be earlier than the Permitted Date.
At the First Closing, all documents, certificates and agreements contemplated
to be delivered and conditions required to be satisfied at the Closing
pursuant to Articles V, VI and VII shall be delivered or satisfied to the
extent they relate to the First Closing Assets (including but not limited to
33
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 42
the Put Agreement with respect to the Holdback Partnerships included in the
First Closing Assets). The purchase price payable at the First Closing shall
be the aggregate Asset Value allocated to the First Closing Assets on Schedule
7.3, plus or minus the Net Unrestricted Cash Differential (but only with
respect to the First Closing Assets). The procedures set forth in Sections
1.2(b) and (c) shall be followed for establishing such Net Unrestricted Cash
Differential (but only with respect to the First Closing Assets) for the
purpose of determining the purchase price payable at the First Closing and
for determining any adjustment thereto.
(b) If the First Closing occurs, then, subject to Article VIII,
Seller and Buyer agree to use their reasonable efforts to satisfy all of the
remaining conditions to Closing set forth in Section 5.4 with respect to all
of the Acquired Interests that were not purchased and sold at the First
Closing (collectively, the "Remaining Interests"). If, subsequent to the
First Closing and prior to the termination of this Agreement pursuant to
Article VIII (but in no event later than December 31, 1998), the condition to
Closing contained in Section 5.4 is satisfied with respect to any Remaining
Interest or Remaining Interests, and the other conditions to Closing relating
to such Remaining Interest or Remaining Interests are satisfied, a subsequent
closing shall occur with respect to such Remaining Interest or Remaining
Interests on the date that is ten (10) Business Days after the satisfaction of
the condition set forth in Section 5.4 (the "Subsequent Closing"); provided
that Buyer shall not be obligated to participate in more than two Subsequent
Closings and Seller may delay any Subsequent Closing to a date (but in no
event later than December 31, 1998) on which the condition set forth in
Section 5.4 is satisfied as to one or more additional Remaining Interests.
Seller shall deliver to Buyer prompt written notice of any Subsequent Closing
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<PAGE> 43
at which the purchase and sale of any Remaining Interest or Remaining
Interests (each as applicable, a "Subsequent Closing Asset") shall occur. Any
Subsequent Closing shall take place at the offices of Latham & Watkins, 885
Third Avenue, New York, New York 10022. At each Subsequent Closing, all
documents, certificates and agreements contemplated to be delivered and
conditions required to be satisfied pursuant to Articles V, VI and VII shall
be delivered or satisfied to the extent they relate to the Subsequent Closing
Asset or Subsequent Closing Assets to be transferred at such Subsequent
Closing. The purchase price payable at each Subsequent Closing shall be the
Asset Value allocated to the applicable Subsequent Closing Asset or Subsequent
Closing Assets on Schedule 7.3, plus or minus the Net Unrestricted Cash
Differential (but only with respect to such Subsequent Closing Asset or
Subsequent Closing Assets ). The procedure set forth in Sections 1.2(b) and
(c) shall be followed for establishing such Net Unrestricted Cash Differential
(but only with respect to such Subsequent Closing Asset or Subsequent Closing
Assets) for the purpose of determining the purchase price payable at each
Subsequent Closing and for determining any adjustment thereto.
ARTICLE VIII.
TERMINATION AND ABANDONMENT
---------------------------
8.1. Methods of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time prior to
the Closing Date or prior to any Subsequent Closing; provided that no
termination of this Agreement shall affect the parties' respective rights and
obligations with respect to Acquired Interests purchased by Buyer pursuant
hereto prior to such termination.
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<PAGE> 44
(a) by mutual consent of Seller and Buyer; or
(b) by Buyer at any time after December 31, 1998 if any of the
conditions provided for in Article V of this Agreement shall not have been met
or waived in writing by Buyer prior to such date; provided, that if any
condition in Article V has not been satisfied because of the occurrence of a
Material Adverse Effect which can be cured, and diligent efforts are being
undertaken to cure such Material Adverse Effect, then the references to
December 31, 1998 in this Section 8.1(b) and in Section 7.3(b) shall be
extended for up to 90 days after the occurrence of such Material Adverse
Effect so long as diligent efforts to cure such Material Adverse Effect
continue; or
(c) by Seller at any time after December 31, 1998 if any of the
conditions provided for in Article VI of this Agreement shall not have been
met or waived in writing by Seller prior to such date; or
(d) by Buyer or Seller if there has been a material violation or breach
by the other of its agreements, representations or warranties contained in
this Agreement which is not susceptible to cure (or if so susceptible is not
the subject of diligent efforts on the part of the breaching party to cure)
and the party seeking termination is not in material violation or breach of
its agreements, representations or warranties contained in this Agreement.
8.2. Procedure Upon Termination and Consequences. Buyer or Seller,
as the case may be, may terminate this Agreement when permitted pursuant to
Section 8.1 by delivering written notice of such termination, and such
termination shall be effective upon delivery of such notice in accordance
with Section 10.3. If this Agreement is terminated as provided herein:
36
<PAGE> 45
(a) each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the parties
furnishing the same; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement (i) except with respect to the
Confidentiality Agreement, which shall survive the termination of this
Agreement, including with respect to information that is subject to the
Confidentiality Agreement pursuant to Section 4.1, and (ii) except for such
legal and equitable rights and remedies which any party may have by reason of
any breach or violation of this Agreement by any other party prior to such
termination. Notwithstanding the foregoing, if this Agreement is terminated
after the occurrence of the First Closing or any Subsequent Closing, the
obligations of the parties hereto shall continue in full force and effect,
except for the obligations pursuant to Section 7.3(b).
ARTICLE IX.
SURVIVAL, INDEMNIFICATION AND OTHER MATTERS
-------------------------------------------
9.1. Survival. The representations and warranties of Seller contained
in this Agreement shall survive Closing and terminate and expire eighteen (18)
months after each Closing with respect to the Acquired Interests as to which
such representations and warranties relate; provided, that the representations
and warranties contained in Sections 2.2(a) , 2.3 and 2.4 (other than the
second sentence of Section 2.4(a)) shall survive Closing indefinitely; and
provided, further, that the representations and warranties contained in
Section 2.7 shall survive Closing and terminate and expire 90 days after the
37
<PAGE> 46
expiration of the relevant statutes of limitation. The representations and
warranties of Buyer contained in this Agreement shall survive Closing and
terminate and expire eighteen (18) months after the Closing with respect to
the Acquired Interests as to which such representations and warranties relate;
provided, however, that the representations and warranties contained in
Sections 3.2, 3.3, 3.4 and 3.5 shall survive Closing indefinitely; and
provided, further that the representations and warranties contained in
Section 3.8 shall survive Closing and terminate and expire 90 days after the
expiration of the relevant statutes of limitation. The covenants and
agreements of the parties contained in this Agreement shall survive Closing
indefinitely; provided, that the covenants and agreements contained in
Section 4.1 (other than the last sentence) shall terminate and expire at
Closing; and provided, that the covenants and agreements contained in Section
4.4 shall survive Closing and terminate and expire 90 days after the expiration
of the relevant statutes of limitation; and provided, further, that the
covenants and agreements contained in Section 4.5 shall survive Closing and
terminate and expire eighteen (18) months after the Closing with respect to
the Acquired Interests as to which covenants and agreements relate.
9.2. Agreement to Indemnify. (a) Seller shall indemnify Buyer,
Buyer's Affiliates and Buyer's parent, Subsidiaries, Affiliate corporations,
past and present officers, directors, shareholders, partners, members,
attorneys, legal representatives, agents and employees (collectively, the
"Buyer Indemnitees") and hold the Buyer Indemnitees harmless to the extent set
forth in this Article IX in respect of any and all Losses arising out of or
resulting from any breach of any representation, warranty, covenant or
agreement made by Seller or any other Transferor in this Agreement or any
representation, warranty or certification contained in any certificate,
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<PAGE> 47
instrument or agreement delivered by or on behalf of Seller or any other
Transferor pursuant hereto or in connection herewith, other than the
representations and warranties contained in Section 2.7, for which
indemnification is provided in Section 9.6, and other than any Losses
relating to, arising out of or in connection with the Cedar Bay Dispute or
the controversy underlying such litigation, for which indemnification is
provided in Section 9.7.
(b) Buyer shall indemnify Seller, Seller's Affiliates and Seller's
parent, Subsidiaries, Affiliate corporations, past and present officers,
directors, shareholders, partners, members, attorneys, legal representatives,
agents and employees (collectively, the "Seller Indemnitees") and hold the
Seller Indemnitees harmless to the extent set forth in this Article IX by
Seller in respect of any and all Losses arising out of or resulting from any
breach of any representation, warranty, covenant or agreement made by Buyer in
this Agreement or any representation, warranty or certification contained in
any certificate, instrument or agreement delivered by or on behalf of Buyer or
any Subsidiary or Affiliate thereof.
(c) The sole recourse of any Buyer Indemnitee or Seller Indemnitee
(each, as applicable, an "Indemnitee") for any breach of any representation,
warranty, covenant or agreement made in this Agreement or any representation,
warranty or certification contained in any certificate, instrument or
agreement delivered by or on behalf of Buyer or any Subsidiary or Affiliate
thereof or Seller or any other Transferor pursuant hereto or in connection
herewith (except as expressly provided otherwise therein) shall be the
indemnification provided in this Article IX, subject to the limitations
provided in this Article IX; provided, that the foregoing shall not limit
(i) remedies for fraud if the Indemnitee proves actual fraud on the part of
39
<PAGE> 48
the Indemifying Party (as defined in Section 9.2(d)), or (ii) the availability
of injunctive and other equitable relief, including without limitation,
specific performance.
(d) No Indemnitee shall be entitled to indemnification hereunder
except to the extent the claim for indemnity with respect thereto has been
made in a writing received by the appropriate indemnifying party (each, as
applicable, an "Indemnifying Party") prior to the expiration of the applicable
survival period provided in Section 9.1.
9.3. Claims for Indemnification. If any Indemnitee shall believe
that such Indemnitee is entitled to indemnification pursuant to this Article
IX (other than pursuant to Section 9.6 or 9.7) in respect of any Losses, such
Indemnitee shall give the appropriate Indemnifying Party prompt written notice
thereof. Any such notice shall set forth in reasonable detail and to the
extent then known the basis for such claim for indemnification. The failure
of such Indemnitee to give notice of any claim for indemnification promptly
shall not adversely affect such Indemnitee's right to indemnity hereunder
except to the extent that such failure adversely affects the right of the
Indemnifying Party to assert any reasonable defense to such claim and except
as provided in Section 9.2(d).
9.4. Defense of Claims. In connection with any claim which may give
rise to indemnity under this Article IX (other than pursuant to Section 9.6
or 9.7) resulting from or arising out of any claim or proceeding against an
Indemnitee by a Person that is not a party hereto, the Indemnifying Party may
(unless such Indemnitee elects not to seek indemnity hereunder for such
claim), upon written notice to the relevant Indemnitee, assume the defense of
any such claim or proceeding. If the Indemnifying Party assumes the defense
40
<PAGE> 49
of any such claim or proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to such Indemnitee to conduct the defense of such
claim or proceeding, shall take all steps necessary in the defense or
settlement thereof and shall at all times diligently and promptly pursue the
resolution thereof. Without the prior written consent of the Indemnitee,
which consent shall not be unreasonably withheld, the Indemnifying Party will
not enter into any settlement of any claim or proceeding which would lead to
liability or create any financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder. Without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld, the Indemnitee will not
enter into any settlement of any claim or proceeding which would lead to
liability or create any financial or other obligation on the part of the
Indemnifying Party unless the Indemnifying Party has failed or refused to
acknowledge responsibility for or defend such claim or proceeding within a
reasonable period of time after notice is provided pursuant to Section 9.3.
9.5. Limitation on Indemnification. Except as expressly provided
otherwise in any written certificate, instrument or agreement delivered by
or on behalf of Seller or any Transferor and consented to by Buyer, the
indemnification obligations of Seller with respect to any Capped Losses
shall not be effective against Seller until the aggregate dollar amount of
all Capped Losses which would otherwise be indemnifiable by Seller exceeds
[xxx] Dollars ($[xxx]) and then such indemnification obligation
of Seller shall apply only to Capped Losses in excess of $[xxx];
provided, that solely for the purpose of calculating whether Capped Losses
exceed such $[xxx] threshold, once a representation, warranty, covenant
41
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 50
or agreement giving rise to a Capped Loss has been breached in accordance
with its terms (taking into account all limitations and qualifications in
such representation, warranty, covenant or agreement, including without
limitation references to "material" or "Material Adverse Effect"), all
Losses arising out of such breach, and not just Losses that are in excess of
amounts that are "material" or that result in a "Material Adverse Effect",
shall be counted toward determining whether Capped Losses exceed such
$[xxx] threshold. Except as expressly provided otherwise in any written
certificate, instrument or agreement delivered by or on behalf of Seller or
any other Transferor and consented to by Buyer, the indemnification
obligations of Seller with respect to any Capped Losses shall be limited to an
aggregate amount payable by Seller of [xxx] Dollars ($[xxx]).
9.6. Indemnification for Taxes. (a) BGCI shall indemnify Buyer
and hold harmless Buyer from and against all Taxes of any Transferred Entity
(other than Beale Generating Company, the responsibility for the Taxes of
which shall be governed by the Beale Tax Sharing Agreement) or the Taxes of
any other entity for which such a Transferred Entity is liable (including but
not limited to pursuant to Treasury Regulation Section 1.1502-6 or comparable
state tax provisions) (i) with respect to all periods ending on or prior to
the Closing Date, (ii) with respect to any period beginning before the Closing
Date and ending after the Closing Date, but only with respect to the portion
of such period up to and including the Closing Date (such portion, a
"Pre-Closing Partial Period"), and (iii) resulting from a breach of a
representation or warranty contained in Section 2.7. BGCI shall be entitled
to any net refunds of Taxes (including interest thereon) with respect to
periods described in clauses (i) and (ii) above, except to the extent such
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 51
refund arises as the result of a carryback of a loss or other tax benefit
from a period beginning after the Closing Date.
(b) Buyer shall indemnify BGCI and hold harmless BGCI from and
against all Taxes of any Transferred Entity (other than Beale Generating
Company, the responsibility for the Taxes of which shall be governed by the
Beale Tax Sharing Agreement) or the Taxes of any other entity for which such a
Transferred Entity is liable (i) with respect to all periods beginning after
the Closing Date, (ii) with respect to any period beginning before the Closing
Date and ending after the Closing Date, but only with respect to the portion
of such period beginning the day after the Closing Date (such portion, a
"Post-Closing Partial Period") and (iii) resulting from a breach of a
representation or warranty contained in Section 3.8. Buyer shall be entitled
to any refunds of Taxes of any Transferred Entity or the Tax of any other
entity for which such a Transferred Entity is liable, with respect to all
periods beginning after the Closing Date and all Post-Closing Partial Periods.
(c) Any Taxes for a period including a Pre-Closing Partial Period
and a Post-Closing Partial Period shall be apportioned between such Pre-
Closing Partial Period and such Post-Closing Partial Period based, in the case
of real and personal property Taxes, on a per diem basis and, in the case of
other Taxes, on the actual activities, taxable income or taxable loss of the
applicable entity during such Pre-Closing Partial Period and such Post-Closing
Partial Period.
(d) BGCI and Buyer agree to give prompt notice to each other of any
proposed adjustments to Taxes for periods ending on or prior to the Closing
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<PAGE> 52
Date, or any Pre-Closing Partial Period. BGCI and Buyer shall cooperate with
each other in the conduct of any audit or other proceedings involving any
Transferred Entity for such periods and each may participate at its own
expense, provided that BGCI shall have the right to control the conduct of any
audit or proceeding for which all or a portion of the resulting Tax is covered
by the indemnity provided in paragraph (a) of this Section 9.6.
Notwithstanding the foregoing, BGCI shall not settle or otherwise resolve any
such claim, suit, or proceeding without the written consent of Buyer, such
consent not to be unreasonably withheld.
9.7. Cedar Bay Indemnity. (a) Within thirty (30) Business Days
after Seller has received notice of the occurrence of the Cedar Bay Dispute
Resolution Date, Seller shall calculate the Cedar Bay Indemnity Amount, if
any, and shall provide to Buyer a certificate of a duly authorized officer of
Seller (the "Cedar Bay Indemnity Amount Calculation Certificate")
(i) including a disk which contains the Cedar Bay Modified Proforma,
(ii) setting forth, in reasonable detail, the bases for calculating the
Cedar Bay Indemnity Amount and (iii) setting forth, in reasonable detail,
the differences in factual or methodological assumptions between the Cedar
Bay Proforma and the Cedar Bay Modified Proforma.
(b) If Buyer agrees with Seller's calculation of the Cedar Bay
Indemnity Amount, it shall notify Seller, and Seller shall, within five (5)
Business Days of receipt of such notice, pay Buyer the Cedar Bay Indemnity
Amount, if any. If Buyer in good faith disagrees with Seller's calculation of
the Cedar Bay Indemnity Amount as set forth in the Cedar Bay Indemnity
Calculation Certificate or in good faith believes that the Cedar Bay Modified
Proforma included with the Cedar Bay Indemnity Calculation Certificate does
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<PAGE> 53
not accurately reflect the modifications to the Cedar Bay Proforma required by
this Agreement, then Buyer shall deliver to Seller within twenty (20) Business
Days of receipt of Seller's Cedar Bay Indemnity Calculation Certificate a
notice setting for the basis for such disagreement and Buyer and Seller shall
in good faith attempt to resolve any such disagreement. Buyer's failure to
deliver its notice of disagreement within such twenty (20) Business Day period
shall be deemed Buyer's waiver of any claims relating to the accuracy of the
Cedar Bay Indemnity Calculation Certificate or the Cedar Bay Modified Proforma
attached thereto. If Buyer and Seller shall not resolve their disagreement
within fifteen (15) Business Days after Seller's receipt of Buyer's notice of
disagreement, then Buyer and Seller shall mutually retain a consulting
engineer mutually agreeable to Buyer and Seller (the "Consulting Engineer") to
determine the Cedar Bay Indemnity Amount. Buyer and Seller shall cause the
Consulting Engineer (whose fee shall be borne 50% by each Buyer and Seller) to
deliver its determination within sixty (60) Business Days of its retention,
and the determination by the Consulting Engineer of such Cedar Bay Indemnity
Amount shall be final and binding on Buyer and Seller. Seller shall pay to
Buyer the amount of the Cedar Bay Indemnity Amount (i) as determined by the
Consulting Engineer or (ii) as agreed upon by Buyer and Seller (or as set
forth in the Cedar Bay Indemnity Amount Calculation Certificate if Buyer is
deemed, pursuant to this Section 9.7(b), to have waived its claims), in each
case within ten (10) Business Days of such determination or agreement (or
waiver).
(c) The sole recourse of any Buyer Indemnitee with respect to any
claims relating to, arising out of or in connection with the Cedar Bay Dispute
or the controversy underlying such litigation shall be the indemnity provided
in this Section 9.7.
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<PAGE> 54
ARTICLE X.
MISCELLANEOUS
-------------
10.1. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by written agreement of Buyer and Seller.
10.2. Waiver of Compliance. Any failure of any party to comply with
any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by the party to whom such obligation is owed,
but such waiver or failure to insist upon strict compliance shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure.
10.3. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall
be in writing and may be given by any of the following methods: (a) personal
delivery, (b) facsimile transmission, (c) registered or certified mail, postage
prepaid, return receipt requested, or (d) overnight delivery service.
Notices shall be sent to the appropriate party at its address or facsimile
number given below (or at such other address or facsimile number for such
party as shall be specified by notice given hereunder).
If to Seller, to:
Bechtel Generating Company, Inc.
50 California Street, Suite 2200
San Francisco, California 94105
Attn: President
Telecopy: (415) 768-4171
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with copies to:
Bechtel Enterprises, Inc.
50 California Street, Suite 2200
San Francisco, California 94105
Attn: Principal Counsel
Telecopy: (415) 951-0825
and:
U.S. Generating Company
7500 Old Georgetown Road
13th Floor
Bethesda, Maryland 20814
Attn: General Counsel
Telecopy: (301) 718-6900
and:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022-4802
Attn: Samuel A. Fishman, Esq.
Telecopy: (212) 751-4864
Or to such other Person or address as Seller shall designate in writing.
If to Buyer to: Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273-8110
Attn: General Counsel
Telecopy: (704) 529-1006
with a copy to: Moore & Van Allen, PLLC
100 N. Tryon Street, Floor 47
Charlotte, NC 28202-4003
Attn: Stephen D. Hope
Telecopy: (704) 331-1159
or to such other Person or address as Buyer shall designate in writing
All such notices, requests, demands, waivers and communications shall be
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<PAGE> 56
deemed received upon (i) actual receipt thereof by the addressee, (ii) actual
delivery thereof to the appropriate address or (iii) in the case of a
facsimile transmission, upon transmission thereof by the sender and issuance
by the transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously
mail a copy of the notice to the addressee at the address provided for above
by first class mail, postage prepaid. However, such mailing shall in no way
alter the time at which the facsimile notice is deemed received.
10.4. Binding Nature: Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto without prior written consent of the other party except as
otherwise provided in this Section; provided that Buyer may assign and
delegate its rights, interests and obligations hereunder to one or more
wholly-owned direct or indirect Subsidiaries of Buyer, which Subsidiary or
Subsidiaries have no business other than the ownership (and not the
operation) of the Acquired Interests and/or stock or partnership interests
or other passive investments (each, a "Permitted Assignee"), upon written
notice to all of the parties hereto at or before the Closing Date, in which
event Buyer shall remain liable for all of its obligations under this
Agreement and such Subsidiary or Subsidiaries shall, together with Buyer, be
jointly and severally liable for such obligations. Except as otherwise
provided in Section 9.2, nothing contained herein, express or implied, is
intended to confer on any Person other than the parties hereto or their
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<PAGE> 57
successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.5. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, the Additional Agreements and the Confidentiality
Agreement embody the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. This Agreement,
the Confidentiality Agreement and the Additional Agreements supersede all
prior agreements and understandings among the parties with respect to such
subject matter and supersede any letters, memoranda or other documents
submitted by (i) Buyer or its agents or representatives to Seller, Goldman,
Sachs & Co. or any of their respective agents or representatives, or
(ii) Seller or its agents or representatives to Buyer or any of its agents
or representatives, in connection with the bidding process which occurred
prior to the parties hereto entering into this Agreement or otherwise in
connection with the negotiation and execution of this Agreement.
10.6. Expenses. Each party to this Agreement will pay its own
expenses in connection with the negotiation of this Agreement, the
performance of its obligations hereunder, and the consummation of the
transactions contemplated herein.
10.7. Press Releases and Announcements; Disclosure. No press
release or other public announcement or disclosure related to this Agreement
or the transactions contemplated herein (including but not limited to the
terms and conditions of this Agreement) shall be issued or made without the
prior approval of the parties hereto. The foregoing shall not prohibit any
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<PAGE> 58
disclosure required by law, provided that the disclosing party shall use best
efforts to consult with the other party in advance of such disclosure.
10.8. Acknowledgment.(a) Buyer acknowledges that neither Seller nor
any other Person has made any representation or warranty, expressed or implied,
as to the accuracy or completeness of any information regarding Seller, any
Transferor, any Transferred Entity, any Project Partnership, any of their
respective Subsidiaries or any Project not included in this Agreement and the
Schedules and Exhibits hereto or in any Additional Agreement. Without
limiting the generality of the foregoing, no representation or warranty is made
with respect to any information in the Confidential Information Memorandum or
any supplement or amendment thereto provided in connection with the
solicitation of proposals to acquire the Acquired Interests or any interests
in the Holdback Partnerships which may be purchased on the Put Purchase Date,
such information having been provided for the convenience of Buyer in order to
assist Buyer in framing its due diligence efforts.
(b) Buyer further acknowledges that (i) Buyer, either alone or
together with any Persons Buyer has retained to advise it with respect to the
transactions contemplated hereby ("Advisors"), has knowledge and experience in
transactions of this type and in the business of the Acquired Entities, and is
therefore capable of evaluating the risks and merits of acquiring the Acquired
Interests, (ii) it has relied on its own independent investigation, and has
not relied on any information or representations furnished by Seller or any
representative or agent thereof or any other Person (except as specifically
set forth herein), in determining to enter into this Agreement, and
(iii) neither Seller nor any representative or agent thereof or any other
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<PAGE> 59
Person has given any investment, legal or other advice or rendered any opinion
as to whether the purchase of the Acquired Interests and any interests in the
Holdback Partnerships which may be purchased on the Put Purchase Date is
prudent, and Buyer is not relying on any representation or warranty by Seller
or any representative or agent thereof except as set forth in this Agreement.
Buyer also acknowledges that Buyer has conducted extensive due diligence,
including a review of the documents contained in a data room prepared by or on
behalf of Seller. In addition, Seller has made available to Buyer all
documents, records and books pertaining to the Transferred Entities, the
Project Partnerships and the Projects that Buyer's attorneys, accountants,
Advisors, if any, and Buyer have requested, and Buyer and its Advisors, if
any, have had the opportunity to visit the Projects and ask questions of, and
to receive answers from, Seller, the Project Partnerships and any Person
acting on their behalf concerning the Transferred Entities, the Project
Partnerships and the Projects and the terms and conditions of this Agreement.
All such questions have been answered to Buyer's full satisfaction.
(c) Buyer acknowledges that certain of the Material Agreements are
between the Project Partnerships or Affiliates thereof, on the one hand, and
investors in or Affiliates of such Project Partnerships, on the other hand,
including without limitation PG&E Generating Company and Affiliates thereof.
(d) Buyer acknowledges that the Project Partnerships identified on
Schedule 10.8 hereto will enter the enabling agreements and/or excess power
sales agreements identified on Schedule 10.8, which agreements will contain
the material terms identified thereon.
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<PAGE> 60
(e) Buyer acknowledges and agrees that the closing of the pending
transactions described on Exhibit 3 hereto may occur before or after Closing,
and agrees that (i) Beale Generating Company shall distribute, pay or transfer
the proceeds therefrom net of taxes and transaction costs to Persons who are
stockholders of Beale prior to the Closing, and (ii) neither the disposition
by Beale Generating Company of the interests and assets related to such
pending transactions nor the receipt, distribution, payment or transfer by
Beale Generating Company of the proceeds therefrom shall conflict with or
violate any provision of, or affect any calculation pursuant to, this
Agreement.
10.9. Disclaimer Regarding Assets. Except as otherwise expressly
provided herein, Seller expressly disclaims any representations or warranties
of any kind or nature, express or implied, as to the condition, value or
quality of the assets or operations of the Projects or the prospects (financial
and otherwise), risks and other incidents of the Projects and Seller
specifically disclaims any representation or warranty of merchantability,
usage, suitability or fitness for any particular purpose with respect to such
assets, or any part thereof, or as to the workmanship thereof, or the absence
of any defects therein, whether latent or patent, or compliance with
environmental requirements, or as to the condition of, or the rights of the
Project Partnerships in, or their title to, the assets, or any part thereof,
or whether the Project Partnerships possess sufficient real property or
personal property interests to own or operate such assets. Except as
expressly provided herein, no schedule or exhibit to this agreement, nor any
other material or information provided by or communications made by Seller or
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<PAGE> 61
any of its representatives will cause or create any warranty, express or
implied, as to the condition, value or quality of such assets.
10.10. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law principles thereof.
10.11. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. Delivery
of an executed counterpart of a signature page of this Agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart
of this Agreement.
10.12. Interpretation. The article and section headings contained
in this Agreement are inserted for convenience only and shall not constitute
a part hereof.
10.13. ESI Amount Reimbursement. If a Closing has occurred that
includes all of the Acquired Interests in Birch Power Corporation, BGCI shall
reimburse BPC within ten (10) Business Days of written demand, together with
reasonable documentation, for 50% of the ESI Amount that is paid subsequent
to such Closing; provided that BGCI's obligation pursuant to this Section
10.13 shall not exceed [xxx] Dollars ($[xxx]). Except as
provided in the preceding sentence, and notwithstanding any other provision
of this Agreement, BGCI shall have no liability or obligation arising out of
the matters described in Schedule 2.7(c) under the heading "Gilberton",
including, but not limited to, the ESI Amount.
53
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 62
ARTICLE XI.
CERTAIN DEFINITIONS
-------------------
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
"Acquired 338 Subsidiaries" means, collectively, each direct or indirect
wholly-owned Subsidiary of a Section 338 Corporation that is a corporation and
each Section 338 Corporation.
"Acquired Interests" has the meaning assigned in the Recitals.
"Advisors" has the meaning assigned in Section 10.9.
"Additional Agreements" mean the Agreements listed on Schedule 6.6.
"Affiliate" means any Person in control or under control of, or under
common control with, another Person. For purposes of the foregoing,
"control", 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 ownership of voting securities or
by contract or otherwise.
"Aggregate Net Distributions" means an amount equal to Aggregate 1998
Distributions minus Aggregate 1998 Contributions.
"Aggregate 1998 Contributions" means the aggregate amount of all 1998
Contributions.
"Aggregate 1998 Distributions" means the aggregate amount of all 1998
Distributions.
"Aggregate Unrestricted Cash" means the sum of (i) aggregate
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<PAGE> 63
Unrestricted Cash for all of the Project Partnerships, (ii) the aggregate
amount of cash held by Wholly-Owned Transferred Entities as of December 31,
1997, and (iii) 10.9% of the cash held as of December 31, 1997 by Beale
Generating Company or any of its wholly-owned subsidiaries.
"Asset Value" means the value of each Acquired Interest as set forth on
Schedule 7.3 hereto.
"Beale Tax Sharing Agreement" means the Beale Generating Company Federal
Income Tax Sharing Agreement dated September 19, 1997 among PG&E Generating
Company, Beale Generating Company and BGCI.
"BGCI" means Bechtel Generating Company, Inc.
"BPC" means Birch Power Corporation.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed.
"Buyer" means Cogentrix Energy, Inc.
"Buyer Indemnitees" has the meaning assigned in Section 9.2.
"Capped Losses" means Losses pursuant to Section 9.2(a) for breaches of
representations and warranties (other than the representations and warranties
in Section 2.4(b)) and for breach of the covenant set forth in Section 4.5.
"Carneys Point Project" means the approximately 262 megawatt pulverized-
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<PAGE> 64
coal fueled cogeneration facility located within the grounds of the DuPont
Chambers Works in Carneys Point, New Jersey.
"CBGC" means Cedar Bay Generating Company Limited Partnership, a
Delaware limited partnership.
"Cedar Bay Capped Amount" means $[xxx].
"Cedar Bay Dispute" means the dispute currently in litigation initiated
by the filing of a complaint entitled Cedar Bay Generating Company Limited
Partnership v. Florida Power and Light Company, in the Circuit Court, Fourth
District, in and for Duval County, Florida, as Case No. 97-87037 CA, and any
litigation or arbitration of the same controversy underlying such matter.
"Cedar Bay Dispute Resolution Date" means the first to occur of (i) a
binding and legally enforceable settlement of the Cedar Bay Dispute settling
all outstanding matters covered by such dispute, or (ii) (a) a non-appealable
judgment or non-appealable arbitration award of a court or arbitrator of
competent jurisdiction or (b) a final dismissal with prejudice of such
litigation or arbitration, in the case of clause (a) or (b) covering all
outstanding matters covered by such dispute.
"Cedar Bay Indemnity Amount" means (i) the positive difference, if any,
but in no event more than the Cedar Bay Capped Amount, resulting from the
subtraction of (X) the net present value as of January 1, 1998 of the cash
flows from CBGC to Cedar Power Corporation generated by the Cedar Bay Modified
Proforma, utilizing the Discount Rate, from (Y) the net present value as of
January 1, 1998 of the cash flows from CBGC to Cedar Power Corporation
56
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[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 65
generated by the Cedar Bay Proforma, utilizing the Discount Rate, plus (ii)
interest on the amount calculated pursuant to (i) above, calculated from the
Closing of the acquisition by Buyer of Cedar Power Corporation to the date of
payment of the amount calculated pursuant to (i) above, at a rate per annum,
which shall in no event be compounded, equal to the offered rate as of each
date the interest rate is set (rounded upwards, if necessary, to the next
higher 1/100th of 1%) which appears on the Telerate Page 3750, British Bankers
Association Interest Settlement Rates (or such other system for the purpose of
displaying rates of leading reference banks in the London interbank market
that replaces such system), plus forty (40) basis points. The interest rate
shall be set as of the Closing Date and as of each six-month anniversary of
the Closing Date (or the Business Day thereafter in the case of any such
anniversary that is not a Business Day).
"Cedar Bay Indemnity Amount Calculation Certificate" has the meaning
assigned in Section 9.7.
"Cedar Bay Modified Proforma" means the Cedar Bay Proforma, with factual
and methodological assumptions modified by Seller, in good faith, after the
Cedar Bay Dispute Resolution Date, only to the extent necessary to reflect any
differences in factual or methodological assumptions (whether such
differences, individually or collectively, result in a lessening or an
increase in the net present value of the cash flows from CBGC to Cedar Power
Corporation) directly attributable to the prosecution or resolution of the
Cedar Bay Dispute or as a result of foreclosure or other remedial action taken
by the lenders to the Cedar Bay Project directly attributable to the
controversy underlying the Cedar Bay Dispute that results in a reduction in
57
<PAGE> 66
the ownership interest of Buyer or its Permitted Assignee, including but not
limited to out-of-pocket costs (including attorneys' fees, court costs and
amounts due U.S. Generating Company, as manager, under its Management Services
Agreement with CBGC) directly attributable to the prosecution or resolution of
the Cedar Bay Dispute and excluding any other changes such as, but not limited
to, changes in plant operating performance, operating costs, fuel costs,
market conditions or regulations, in each case not directly attributable to
the resolution, including the long-term consequence of the resolution, of the
Cedar Bay Dispute. The Cedar Bay Modified Proforma shall utilize the Discount
Rate.
"Cedar Bay Proforma" means the financial proforma for the Cedar Bay
Project, in the form attached hereto as Exhibit 4, generated by a computer
disk, copies of which are marked "Cedar Bay Proforma" and which are held by
each of Buyer and Seller and in escrow by Latham & Watkins, counsel for
Seller, and Moore & Van Allen, PLLC, counsel for Buyer, including but not
limited to all the factual and methodological assumptions utilized to generate
that proforma, which proforma utilizes a discount rate equal to the Discount
Rate.
"Cedar Bay Project" means the approximately 260 megawatt coal-fired
cogeneration facility located in Jacksonville, Florida.
"Cedar Power Tax Sharing Agreement" means The Tax Sharing Agreement
dated March 31, 1993 between Cedar Power Corporation and Cedar I Power
Corporation.
"Closing" has the meaning assigned in Section 7.1.
"Closing Adjustment Certificate" has the meaning assigned in Section 1.2.
58
<PAGE> 67
"Closing Date" has the meaning assigned in Section 7.1.
"Code" means the Internal Revenue Code of 1986, as amended. All
citations to the Code or to the regulations promulgated thereunder shall
include any amendments or any substitute or successor provisions thereto.
"Confidentiality Agreement" has the meaning assigned in Section 4.1.
"Consulting Engineer" has the meaning assigned in Section 9.7.
"Discount Rate" means the discount rate which generates a net present
value of the cash flows from CBGC to Cedar Power Corporation, as of January 1,
1998, under the Cedar Bay Proforma, equal to the Cedar Bay Capped Amount.
"DOJ" means the United States Department of Justice.
"ESI" means FPL Energy Services, Inc.
"ESI Amount" means the amount, if any, that BPC actually pays, from time
to time, to ESI as a result of the potential liability of BPC to ESI described
in Schedule 2.7(c).
"Final Net Unrestricted Cash Differential" has the meaning assigned in
Section 1.2.
"Financial Statements" has the meaning assigned in Section 2.5.
"First Closing" has the meaning assigned in Section 7.3.
"First Closing Assets" means the Acquired Interests as to which the
conditions to Closing contained in Sections 5.4 and 6.4 and the other
conditions to Closing contained in Articles V and VI and related to such
Acquired Interests are satisfied as of the date of the First Closing.
59
<PAGE> 68
"First Closing Notice" has the meaning assigned in Section 7.3.
"FTC" means the United States Federal Trade Commission.
"Holdback Partnerships" means the partnerships listed on Exhibit 2.
"Holdback Transferors" means the Transferors listed on Exhibit 2.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnifying Party" has the meaning assigned in Section 9.3.
"Indemnitee" has the meaning assigned in Section 9.3.
"Indiantown Project" means the approximately 380 megawatt pulverized-
coal fueled cogeneration facility located in southwestern Martin County,
Florida.
"Logan Power Purchase Agreement" means the Agreement for Purchase of
Electric Power, regarding an electric generating facility located in Logan
Township, New Jersey, dated as of August 25, 1988, as amended.
"Logan Refinancing" means a refinancing of indebtedness and associated
restructuring of the Logan Power Purchase Agreement (i) which are initiated by
a timely request by Atlantic City Electric Company pursuant to the Logan
Refinancing Agreement as in existence on the date hereof, and (ii) which are
structured and closed pursuant to the Logan Refinancing Agreement or any
amendment, modification, renewal or replacement thereof.
60
<PAGE> 69
"Logan Refinancing Agreement" means the draft dated November 15, 1993 of
the Refinancing Agreement among Atlantic City Electric Company ("AE"),
Keystone Energy Service Company, L.P. ("KESC") and Keystone Urban Renewal
Limited Partnership ("KURLP"), which draft is attached to the letter agreement
dated November 17, 1993 among KESC, KURLP and AE, and, to the extent
applicable, as modified by Amendment 009 to the Logan Power Purchase Agreement.
"Logan Refinancing Amount" means [xxx] Dollars ($[xxx])
plus interest calculated from the Logan Refinancing Date to the date of
payment at a rate per annum, which shall in no event be compounded, equal to
the offered rate as of each date the interest rate is set (rounded upwards, if
necessary, to the next higher 1/100th of 1%) which appears on the Telerate
Page 3750, British Bankers Association Interest Settlement Rates (or such
other system for the purpose of displaying rates of leading reference banks in
the London interbank market that replaces such system), plus forty (40) basis
points. The interest rate shall be set as of the Closing Date and as of each
six-month anniversary of the Closing Date (or the Business Day thereafter in
the case of any such anniversary that is not a Business Day).
"Logan Refinancing Date" means the date on which the closing of a Logan
Refinancing occurs.
"Losses" means, in respect of any obligation to indemnify any Person
pursuant to Article IX of this Agreement, any and all claims, suits,
proceedings, charges, complaints, demands, decrees, penalties, losses, costs,
damages, liabilities, obligations, judgments, settlements, awards, and offsets
which the Indemnitee may suffer or incur (together, "Damages"), and reasonable
61
- ------------
[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 70
out-of-pocket attorneys' fees and expenses relating to Damages; provided, that
the term "Losses" shall not include Damages in the nature of consequential
damages, incidental damages, punitive damages, loss of use or loss of profits,
diminution in value, damage to a reputation or the like (collectively,
"Secondary Damages") except for Permitted Secondary Damages.
"Material Adverse Effect" means an effect that either individually or in
the aggregate is materially adverse (a) to the business, assets, operations,
properties, condition (financial or otherwise) or results of operations of
(i) any of the Principal Projects, or (ii) the Projects, taken as a whole, or,
(b) to the extent applicable, to the ability of BGCI or any other Transferor to
consummate the transactions contemplated by this Agreement.
"Material Agreements" has the meaning assigned in Section 2.8.
"Material Encumbrances" means any liens, charges, restrictions, claims
or encumbrances of any nature, material to the value of (i) any of the
Principal Projects, or (ii) the Projects taken as a whole.
"Net Unrestricted Cash Differential" means, as the case may be, (i) the
amount by which Aggregate Unrestricted Cash exceeds Aggregate Net
Distributions, in which case the amount of the Net Unrestricted Cash
Differential shall be added to $[xxx] plus, if applicable, the amount
payable by Buyer pursuant to Section 1.2(d), in determining the Purchase
Price pursuant to Section 1.2(a), or (ii) the amount by which Aggregate Net
Distributions exceeds Aggregate Unrestricted Cash, in which case the amount
of the Net Unrestricted Cash Differential shall be subtracted from $[xxx]
62
- ----------------
[xxx] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.
<PAGE> 71
plus, if applicable, the amount payable by Buyer pursuant to Section 1.2(d)
in determining the Purchase Price pursuant to Section 1.2(a).
"1998 Contribution" means a contribution of cash by or on behalf of a
Transferor to or for the benefit of a Transferred Entity, subsequent to
December 31, 1997 and prior to the Closing.
"1998 Distribution" means a distribution of cash by or on behalf of a
Transferred Entity to or for the benefit of a Transferor, subsequent to
December 31, 1997 and prior to the Closing, other than any distribution of the
net proceeds, after tax and related costs, of the pending transactions listed
on Exhibit 3.
"Northampton Project" means the approximately 110 megawatt anthracite
waste coal-fired electric generating facility located in Northampton County,
Pennsylvania.
"Partnership Interests" has the meaning assigned in the Recitals.
"Permitted Assignee" has the meaning assigned in Section 10.4.
"Permitted Date" means the later to occur of (i) the first Business Day
that is twenty-three (23) or more days after receipt by Buyer of notice from
Seller of the satisfaction or waiver of the condition set forth in Section
5.4; or, in the case of a First Closing pursuant to Section 7.3(a), the First
Business Day that is twenty-three (23) or more days after receipt by Buyer of
notice from Seller of the satisfaction or waiver of the condition contained in
Section 5.4 with respect to Acquired Interests which represent (x) at least 66
2/3% of the aggregate Asset Value set forth on Schedule 7.3 and (y) all of the
Acquired Interests with respect to the Principal Projects and (ii) the first
63
<PAGE> 72
Business Day that is seventy-five (75) or more days after the date of this
Agreement.
"Permitted Secondary Damages" means Secondary Damages asserted against
the Indemnitee by a third party that is not an Affiliate of the Indemnitee,
which Secondary Damages do not arise out of (i) any acts or omissions of the
Indemnitee or any Affiliate of the Indemnitee (other than a Transferred
Entity or any Subsidiary thereof), or (ii) any agreement to which the
Indemnitee or any Affiliate of the Indemnitee (other than a Transferred
Entity or any Subsidiary thereof) is a party or by which any of them or any
of their respective property is bound.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a
government or any department or agency thereof.
"Pittsfield Project" means the approximately 173 megawatt natural gas
fired cogeneration facility located in Pittsfield, Massachusetts.
"Post-Closing Partial Period" has the meaning assigned in Section 9.6.
"Pre-Closing Partial Period" has the meaning assigned in Section 9.6.
"Principal Projects" means each of the Logan Project, Northampton
Project, Indiantown Project and Carneys Point Project.
"Project Partnership" means, with respect to any Project, the
partnership that directly owns and operates the Project.
"Projects" has the meaning assigned in the Recitals.
64
<PAGE> 73
"Purchase Price" has the meaning assigned in Section 1.2.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended.
"Put Agreement" means the Put Agreement dated the Closing Date between
Buyer and Seller.
"Put Purchase Date" has the meaning assigned in the Put Agreement.
"reasonable efforts" means commercially reasonable efforts; provided,
that no party nor any Affiliate of such party shall be required to pay any
money to any third party or suffer any diminution in value of any Acquired
Interest or asset held by it or any of its Affiliates in exchange for the
granting by a third party of any release, consent or waiver to the
transactions contemplated hereby, other than reasonable and customary amounts
paid as amendment fees, filing or registration fees (including with respect to
the HSR Act) and attorneys' fees incurred by such third party.
"Remaining Interests" has the meaning assigned in Section 7.3.
"Section 338 Corporations" means, collectively, (i) Maple Power
Corporation, (ii) Pine Power Leasing, Inc. (iii) Palm Power Corporation, (iv)
Cedar Power Corporation, (v) and Panther Creek Leasing, Inc.
"Selkirk Project" means the approximately 396 megawatt natural gas
fired, combined-cycle cogeneration facility located near Albany, New York.
"Seller" means Bechtel Generating Company, Inc.
65
<PAGE> 74
"Seller Indemnitees" has the meaning assigned in Section 9.2.
"Seller's knowledge" or words to such effect means the actual knowledge
of Seller and the constructive knowledge that Seller would have had if a
reasonably prudent officer, or executive or supervisory employee, would have
known or should have known the fact after due inquiry.
"Stock Interests" has the meaning assigned in the Recitals.
"Subsequent Certificate" has the meaning assigned in Section 1.2.
"Subsequent Closing" has the meaning assigned in Section 7.3.
"Subsequent Closing Asset" has the meaning assigned in Section 7.3.
"Subsidiary" means, as to any specified entity, any corporation of which
a majority of the outstanding securities having ordinary voting power to elect
a majority of the board of directors are directly or indirectly owned by such
specified entity or any other Person of which a majority of the equity
interests therein are, directly or indirectly, owned by such specified entity.
"Taxes" mean all federal, state, local, foreign, and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments, or charges of any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereto, and the term "Tax" means any one
of the foregoing Taxes.
66
<PAGE> 75
"Taxpayer" means each of the Transferred Entities and its Subsidiaries.
"Tax Returns" means all returns, declarations, reports, statements, and
other documents required to be filed in respect of Taxes, and the term "Tax
Return" means any one of the foregoing Tax Returns.
"Transferors" has the meaning assigned in the Recitals.
"Transferred Entities" has the meaning assigned in the Recitals.
"Unrestricted Cash" means, for each Project Partnership,(a) the amount
of cash held by such Project Partnership as of December 31, 1997 which, in
accordance with the applicable financing agreements of such Project
Partnership, is available for distribution to equity partners as of such date,
or would be available for distribution if December 31, 1997 was a permitted
cash distribution date, such amounts determined consistent with existing
policies and practices as of December 31, 1997 for determining distributable
cash by such Project Partnership, multiplied by (b) the percentage interest in
Unrestricted Cash for such Project Partnership as listed on Exhibit I hereto.
"Wholly-Owned Transferred Entity" means a Transferred Entity which is
wholly-owned directly or indirectly by BGCI.
67
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
BECHTEL GENERATING COMPANY, INC.
By: /s/ V. Paul Unruh
--------------------------------
Name: V. Paul Unruh
Title: President
COGENTRIX ENERGY, INC.
By: /s/ Mark F. Miller
-------------------------------
Name: Mark F. Miller
Title: President and Chief Operating Officer
<PAGE> 77
EXHIBIT 1
ACQUIRED INTERESTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PROJECT ACQUIRED INTEREST(S) TRANSFEROR TRANSFERRED ENTITY PERCENTAGE
INTEREST IN
UNRESTRICTED
CASH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Logan (1) 49% general partnership (1) Aspen Power Corporation (1) Logan Generating Company, L.P.
interest in Logan
Generating Company, L.P.
(2) 49% general partnership (2) Aspen Power Corporation (2) Granite Generating Company, L.P. 49%
interest in Granite
Generating Company, L.P.
(3) 49% general partnership (3) Aspen Power Corporation (3) Keystone Cogeneration Company,
interest in Keystone
Cogeneration Company, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Northampton 49% general partnership Poplar Power Corporation Northampton Generating Company, L.P. 49%
interest in Northampton
Generating Company, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Indiantown 100% of the stock of Bechtel Generating Company, Inc. Palm Power Corporation 10%
Palm Power Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Carney's 100% of the stock of Bechtel Generating Company, Inc. Maple Power Corporation 10%
Point Maple Power Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Panther 100% of the stock of Bechtel Enterprises Leasing, Inc. Panther Creek Leasing, Inc. 0%
Creek Panther Creek Leasing, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Scrubgrass 100% of the stock of Bechtel Enterprises Leasing, Inc. Pine Power Leasing, Inc. 20%
Pine Power Leasing, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Cedar Bay 100% of the stock of Bechtel Generating Company, Inc. Cedar Power Corporation 0%
Cedar Power Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Morgantown 100% of the stock of Bechtel Generating Company, Inc. Hickory Power Corporation 15%
Hickory Power Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Gilberton 100% of the stock of Bechtel Generating Company, Inc. Birch Power Corporation 19.555%
Birch Power Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Selkirk 10.9% of the stock of Bechtel Generating Company, Inc. Beale Generating Company 0%
Beale Generating Company
- ------------------------------------------------------------------------------------------------------------------------------------
Masspower 10.9% of the stock of Bechtel Generating Company, Inc. Beale Generating Company 3.27%
Beale Generating Company
- ------------------------------------------------------------------------------------------------------------------------------------
Pittsfield 10.9% of the stock of Bechtel Generating Company, Inc. Beale Generating Company 5.45%
Beale Generating Company
- ------------------------------------------------------------------------------------------------------------------------------------
Iroquois 10.9% of the stock of Bechtel Generating Company, Inc. Beale Generating Company .54%
Beale Generating Company, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 78
EXHIBIT 2
HOLDBACK PARTNERSHIPS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PROJECT HOLDBACK PARTNERSHIP HOLDBACK TRANSFEROR
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Logan (1) Logan Generating Company, L.P. (1) Aspen Power Corporation
(2) Granite Generating Company, L.P. (2) Aspen Power Corporation
(3) Keystone Cogeneration Company, L.P. (3) Aspen Power Corporation
- -----------------------------------------------------------------------------------------------------
Northampton Northampton Generating Company, L.P. Poplar Power Corporation
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.3
VILLAGE FARMS OF BUFFALO, L.P.
AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
This Amendment to Agreement of Limited Partnership (this "Amendment") is
dated as of April 17, 1998 by and among Cogentrix of Buffalo, Inc., a Delaware
corporation, Cogentrix Greenhouse Investments, Inc., a Delaware corporation,
Village Farms of Delaware, L.L.C., a Delaware limited liability company, and
Village Farms, L.L.C., a Delaware limited liability company.
W I T N E S S E T H:
WHEREAS, the partners wish to amend the terms of the Amended and Restated
Agreement of Limited Partnership among them dated September 4, 1997 (the
"Partnership Agreement") as more particularly set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto do hereby
agree as follows:
1. Except as otherwise expressly defined herein, the capitalized
terms used herein shall have the meanings ascribed to them in the Partnership
Agreement.
2. Notwithstanding anything contained in the Partnership Agreement
to the contrary, the terms of this Amendment shall supersede and control.
3. Section 4.1(a)(i) is hereby amended by adding new clause (D) as
follows and renumbering existing clause (D) as new clause (E):
(D) Thereafter, Profits shall be allocated to VFD in an amount
equal to the cash distributions received by VFD pursuant to
the proviso set forth in Section 5.1(a).
4. Section 5.1 is hereby amended by adding the following provision
immediately following clause (a) thereof:
provided, however, that in the event the Partnership loans money
or advances credit to Agro Power Development, Inc., any principal
or other proceeds (excluding interest) received by the Partnership
in connection with the repayment of such loan or advance of credit,
net of costs incurred in connection with the making of such loan
or advance of credit, shall be allocated and distributed to VFD
and interest payments received by the Partnership shall be used to
pay Partnership expenses or allocated and distributed to VFD.
5. Except as otherwise expressly amended hereby, all terms and
conditions of the Partnership Agreement shall continue in full force and
effect.
6. This Amendment shall in all respects, including all matters of
construction, validity and performance, be governed by and construed in
accordance with the laws of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by the respective officers thereunto duly authorized as of the date
and year first above written.
COGENTRIX OF BUFFALO, INC.,
as General Partner
By: /s/ Thomas F. Schwartz
--------------------------------
Name: Thomas F. Schwartz
Title: Vice President-Finance
and Treasurer
VILLAGE FARMS OF DELAWARE, L.L.C.,
as General Partner
By: Agro Power Development, Inc.,
Managing Member
By: /s/ J. Kevin Cobb
-------------------------------
Name: J. Kevin Cobb
Title: Senior Vice President
COGENTRIX GREENHOUSE INVESTMENTS,
INC., as Limited Partner
By: /s/ Thomas F. Schwartz
------------------------------
Name: Thomas F. Schwartz
Title: Vice President - Finance
and Treasurer
VILLAGE FARMS, L.L.C.,
as Limited Partner
By: Agro Power Development, Inc.,
Managing Member
By: /s/ J. Kevin Cobb
----------------------------
Name: J. Kevin Cobb
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 108,391
<SECURITIES> 0
<RECEIVABLES> 56,687
<ALLOWANCES> 0
<INVENTORY> 16,940
<CURRENT-ASSETS> 185,482
<PP&E> 694,637
<DEPRECIATION> 197,507
<TOTAL-ASSETS> 1,314,708
<CURRENT-LIABILITIES> 135,105
<BONDS> 1,003,468
0
0
<COMMON> 130
<OTHER-SE> 68,782
<TOTAL-LIABILITY-AND-EQUITY> 1,314,708
<SALES> 81,276
<TOTAL-REVENUES> 90,039
<CGS> 56,135
<TOTAL-COSTS> 56,135
<OTHER-EXPENSES> 1,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,243
<INCOME-PRETAX> 18,706
<INCOME-TAX> 7,323
<INCOME-CONTINUING> 11,383
<DISCONTINUED> 0
<EXTRAORDINARY> (743)
<CHANGES> 0
<NET-INCOME> 10,640
<EPS-PRIMARY> 37.73
<EPS-DILUTED> 37.73
</TABLE>
