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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 56-1853081
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zipcode)
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(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 August 16, 1999, there were 282,000 shares of common stock, no par value,
issued and outstanding.
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COGENTRIX ENERGY, INC.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at June 30, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the Three-Months and Six-Months
Ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six-Months
Ended June 30, 1999 and 1998 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
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2
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(dollars in thousands)
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June 30, December 31,
1999 1998
---------- ----------
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,342 $ 48,207
Restricted cash 42,995 40,604
Accounts receivable 69,435 66,586
Inventories 17,795 18,697
Other current assets 5,318 4,061
---------- ----------
Total current assets 179,885 178,155
NET INVESTMENT IN LEASES 499,387 498,614
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation: June 30, 1999, $244,676; December 31, 1998, $225,928 454,559 473,065
LAND AND IMPROVEMENTS 3,991 3,981
DEFERRED FINANCING AND ORGANIZATION
COSTS, net of accumulated amortization: June 30, 1999, $17,884
December 31, 1998, $15,557 35,458 37,007
NATURAL GAS RESERVES 1,138 1,557
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 288,364 251,312
OTHER ASSETS 62,911 56,160
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$1,525,693 $1,499,851
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 88,262 $ 86,255
Accounts payable 20,483 25,511
Accrued compensation 2,794 8,096
Accrued interest payable 8,095 7,729
Accrued dividends payable -- 7,398
Other accrued liabilities 13,795 13,492
---------- ----------
Total current liabilities 133,429 148,481
LONG-TERM DEBT 1,136,726 1,127,184
DEFERRED INCOME TAXES 58,540 52,306
MINORITY INTERESTS 64,326 61,167
OTHER LONG-TERM LIABILITIES 25,073 22,850
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1,418,094 1,411,988
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated earnings 107,469 87,733
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107,599 87,863
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$1,525,693 $1,499,851
========== ==========
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The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
3
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three-Months and Six-Months Ended June 30, 1999 and 1998 (Unaudited)
(dollars in thousands, except for earnings per common share)
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Three-Months Ended Six-Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
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OPERATING REVENUE:
Electric $ 70,958 $ 72,433 $ 145,366 $ 146,368
Steam 6,199 6,364 12,911 13,705
Lease 11,170 11,119 22,331 12,433
Service revenue under sales-type capital leases 11,024 11,956 22,894 13,252
Income from unconsolidated investments in power projects 5,322 874 10,732 1,797
Other 4,225 4,891 8,103 7,301
--------- --------- --------- ---------
108,898 107,637 222,337 194,856
--------- --------- --------- ---------
OPERATING EXPENSES:
Fuel 18,957 18,979 35,463 38,014
Operations and maintenance 17,243 17,009 34,219 33,182
Cost of services under sales-type capital leases 12,509 13,941 26,180 15,339
General, administrative and development 8,181 9,797 20,830 19,152
Depreciation and amortization 10,905 10,441 21,776 20,615
--------- --------- --------- ---------
67,795 70,167 138,468 126,302
--------- --------- --------- ---------
OPERATING INCOME 41,103 37,470 83,869 68,554
OTHER INCOME (EXPENSE):
Interest expense (23,575) (19,842) (47,307) (33,085)
Investment and other income, net 929 1,489 3,020 3,865
Equity in net loss of affiliates (67) (529) (106) (85)
INCOME BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS 18,390 18,588 39,476 39,249
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS (2,656) (3,658) (6,482) (5,613)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 15,734 14,930 32,994 33,636
PROVISION FOR INCOME TAXES (6,393) (6,082) (13,259) (13,405)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 9,341 8,848 19,735 20,231
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and income tax benefit of $473 -- -- -- (743)
--------- --------- --------- ---------
NET INCOME $ 9,341 $ 8,848 $ 19,735 $ 19,488
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss $ 33.12 $ 31.38 $ 69.98 $ 71.74
Extraordinary loss -- -- -- (2.63)
--------- --------- --------- ---------
$ 33.12 $ 31.38 $ 69.98 $ 69.11
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000 282,000 282,000
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
4
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six-Months Ended June 30, 1999 and 1998 (Unaudited)
(dollars in thousands)
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Six-Months Ended
June 30,
---------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,735 $ 19,488
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 21,776 20,615
Deferred income taxes 6,234 6,192
Extraordinary loss on early extinguishment of debt, non-cash portion -- 2,145
Minority interests in income, net of dividends 3,028 (18,909)
Equity in net income of unconsolidated affiliates, net of dividends 2,800 1,716
Minimum lease payments received 21,558 11,742
Amortization of unearned lease income (22,331) (12,433)
Increase in accounts receivable (2,849) (2,939)
(Increase) decrease in inventories 1,321 (787)
Decrease in accounts payable (5,028) (1,989)
Decrease in accrued liabilities (4,633) (4,208)
Increase in other (5,522) (2,827)
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Net cash flows provided by operating activities 36,089 17,806
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (592) (1,994)
Decrease in marketable securities -- 42,118
Investments in unconsolidated affiliates (39,852) (146)
Acquisition of Facilities, net of cash acquired -- (155,324)
Decrease (increase) in restricted cash (2,391) 12,716
--------- ---------
Net cash flows used in investing activities (42,835) (102,630)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (7,398) (2,140)
Proceeds from issuance of debt 54,280 150,400
Repayments of debt (43,223) (102,640)
Increase in deferred financing costs (778) (1,018)
--------- ---------
Net cash flows provided by financing activities 2,881 44,602
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,865) (40,222)
CASH AND CASH EQUIVALENTS, beginning of period 48,207 71,833
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 44,342 $ 31,611
========= =========
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The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
5
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Cogentrix Energy, Inc. ("Cogentrix Energy") and its subsidiary
companies (collectively, the "Company"). Wholly-owned and majority-owned
subsidiaries, including 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, are consolidated. Less-than-majority-owned
subsidiaries, and subsidiaries for which control is deemed to be temporary are
accounted for using the equity method. Investments in unconsolidated affiliates
in which the Company has less than a 20% interest and does not exercise
significant influence over operating and financial policies are accounted for
under the cost method. All material intercompany transactions and balances among
Cogentrix Energy, its subsidiary companies and its consolidated joint ventures
have been eliminated in the accompanying consolidated condensed financial
statements.
Information presented as of June 30, 1999 and for the three-months and
six-months ended June 30, 1999 and 1998 is unaudited. In the opinion of
management, however, such information reflects all adjustments, which consist of
normal recurring adjustments necessary to present fairly the financial position
of the Company as of June 30, 1999, and the results of operations for the
three-month and six-month periods ended June 30, 1999 and 1998 and cash flows
for the six-months ended June 30, 1999 and 1998. 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 (the "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. These unaudited consolidated condensed financial statements should
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 year ended December 31, 1998, which the Company filed with the Commission on
March 31, 1999.
Certain reclassifications have been made to the prior year's financial
statements to conform with the classification used in the financial statements
as of June 30, 1999, and for the three-months and six-months ended June 30,
1999.
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
independent power producer projects in Penelec's territory in April, 1997. The
termination agreement with Penelec provides for a payment to the Company of
approximately $22.0 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.
6
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3. ACQUISITIONS
Whitewater and Cottage Grove Acquisition
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
and Cottage Grove, Minnesota. 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 Company accounted for the LS Acquisition using the purchase method
of accounting. The accompanying consolidated condensed balance sheets as of June
30, 1999 and December 31, 1998 reflect 100% of the assets and liabilities of the
partnerships acquired. The minority owner's share of the partnerships' net
assets is included in "minority interests" on the accompanying consolidated
condensed balance sheets as of June 30, 1999 and December 31, 1998. The
accompanying consolidated statements of income for the three-months and
six-months ended June 30, 1998 includes the results of operations of the
acquired facilities since the closing date of the LS Acquisition on March 20,
1998. The accompanying consolidated statements of income for the three-months
and six-months ended June 30, 1999 includes the results of operations of the
acquired facilities for six months.
Batesville Acquisition
In August, 1998, the Company acquired an approximate 53% interest in an
800-megawatt, gas-fired electric generating facility under construction in
Batesville, Mississippi (the "Batesville Acquisition"). The Company has
committed to provide an equity contribution to the project subsidiary of
approximately $54 million upon the earliest to occur of (i) the incurrence of
construction costs after all project financing has been expended, (ii) an event
of default under the project subsidiary's financing arrangements or (iii) June
30, 2001. This equity commitment is supported by a $54 million letter of credit
provided under the Company's corporate credit facility. The Company expects the
Batesville facility, which will be operated by the Company, to commence
commercial operation in June, 2000. Electricity generated by the Batesville
facility will be sold under long-term power purchase agreements with two
investment-grade utilities. The Company accounts for its interest in the
Batesville facility using the equity method, as its 53% ownership is deemed to
be temporary.
Bechtel Asset Acquisition
In October, 1998, the Company acquired from Bechtel Generating Company,
Inc. ("BGCI") ownership interests in twelve electric generating facilities,
comprising a net equity interest of approximately 365 megawatts, and one
interstate natural gas pipeline in the United States (the "Bechtel
Acquisition").
The Bechtel Acquisition was accounted for using the purchase method of
accounting, which resulted in the recognition of a net purchase premium of
approximately $66.5 million. The purchase premiums or discounts related to the
Bechtel Acquisition are being amortized over the remaining lives of the
facilities or over the remaining terms of the power purchase agreements. The
Company is using the equity method of accounting to account for its ownership
interests in eight of these twelve facilities and will use the cost method of
accounting for its ownership interests in the other four.
On June 4, 1999, the Company entered into an agreement to purchase an
additional 40% interest in one of these twelve electric generating facilities.
The agreement calls for the purchase to be made during 1999 in three phases, the
first of which, the purchase of a 19.9% interest, occurred on June 4, 1999. The
first phase of the acquisition was accounted for as a purchase, and resulted in
a premium of approximately $19.6 million, that will be amortized over the
remaining life of the facility. The two remaining phases will be completed
during September and
7
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October, 1999. The Company will account for the acquisition of these additional
interests as a purchase, and will use the equity method of accounting to account
for its entire ownership in the facility.
4. PENDING CLAIMS AND LITIGATION
Three of our indirect, wholly-owned subsidiaries are parties to certain
product liability claims related to the sale of coal combustion by-products for
use in various construction projects. We cannot currently estimate the range of
possible loss, if any, we will ultimately bear as a result of these claims.
However, our management believes - based on its knowledge of the facts and legal
theories applicable to these claims and after consultations with various
counsels retained to represent these subsidiaries in defense of such claims -
that the ultimate resolution of these claims should not have a material adverse
effect on our consolidated financial position or results of operations or
Cogentrix Energy's ability to generate sufficient cash flow to service its
outstanding debt.
In addition, we experience other routine litigation in the normal
course of our business. Our management is of the opinion that none of this
routine litigation should have a material adverse effect on our consolidated
financial position, results of operations, or cash flows.
5. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheets as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in current earnings unless specified
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" delaying the effectiveness of SFAS No. 133 to fiscal
quarters of all fiscal years beginning after June 15, 2000.
The Company has not yet quantified the impacts of adopting SFAS No.
133 on the consolidated financial statements and has not determined the timing
or method of adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings.
8
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 8 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to discussing and analyzing our 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 us
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 our actual results to differ
materially from the forward-looking statements.
GENERAL
Cogentrix Energy, Inc. is an independent power producer that, through
its direct and indirect subsidiaries, acquires, develops, owns and operates
electric generating plants, principally in the United States. We derive most of
our revenue from the sale of electricity, but we also produce and sell steam. We
sell the electricity we generate, principally under long-term power purchase
agreements, to regulated electric utilities. We sell the steam we produce to
industrial customers with manufacturing or other facilities located near our
electric generating plants. We were one of the early participants in the market
for electric power generated by independent power producers that developed as a
result of energy legislation the United States Congress enacted in 1978. We
believe we are one of the largest independent power producers in the United
States based on our total project megawatts in operation.
We currently own - entirely or in part - a total of 25 electric
generating plants in the United States. Our 25 plants are designed to operate at
a total production capability of approximately 4,000 megawatts. After taking
into account our part interests in the 16 plants that are not wholly-owned by
us, which range from 3.3% to approximately 74.0%, our net equity interest in the
total production capability of our 25 electric generating plants is
approximately 1,766 megawatts. We currently operate 12 of our plants, 10 of
which we developed and constructed.
When our plant under construction in Batesville, Mississippi begins
operation, we will have ownership interests in a total of 26 domestic electric
generating plants that are designed with a total production capability of 4,800
megawatts. Our net equity interest in the total production capability of those
26 facilities will be approximately 2,186 megawatts.
Unless the context requires otherwise, references in this report to
"we", "us", "our", or "Cogentrix", refer to Cogentrix Energy, Inc. and its
subsidiaries, including subsidiaries that hold investments in other corporations
or partnerships whose financial results are not consolidated with us. The term
"Cogentrix Energy" refers only to Cogentrix Energy, Inc., which is a development
and management company that conducts its business primarily through
subsidiaries. Cogentrix Energy's subsidiaries that are engaged in the
development, ownership or operation of cogeneration facilities are sometimes
referred to individually as a "project subsidiary" and collectively as "project
subsidiaries".
9
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RESULTS OF OPERATIONS - THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
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THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
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1999 1998 1999 1998
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Total operating revenues $108,898 100% $107,637 100% $222,337 100% $194,856 100%
Operating costs 48,709 45 49,929 46 95,862 43 86,535 44
General, administrative
and development 8,181 7 9,797 9 20,830 9 19,152 10
Depreciation and amortization 10,905 10 10,441 10 21,776 10 20,615 11
-------- ----- -------- ----- -------- ----- -------- -----
Operating income $ 41,103 38% $ 37,470 35% $ 83,869 38% $ 68,554 35%
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Total operating revenues increased 1.2% to $108.9 million for the
second quarter of 1999 as compared to the second quarter of 1998. This increase
was primarily attributable to $4.5 million in earnings in the second quarter of
1999 from the power projects acquired in the Bechtel Acquisition in October,
1998. To a lesser extent, operating revenues were impacted by an increase in
electric revenue from the Richmond and Rocky Mount facilities related to an
increase in megawatt hours sold to the purchasing utility. These increases in
operating revenue were partially offset by decreases in electric revenue at the
other facilities resulting from reduced megawatt hours sold to the purchasing
utilities.
Our operating revenues for the six-month period ended June 30, 1999,
which increased 14.1% to $222.3 million as compared to $194.9 million for the
six-month period ended June 30, 1998, were largely influenced by the same
factors discussed above: the Bechtel Acquisition, the increase in electric
revenue at the Richmond and Rocky Mount facilities, and the decrease in megawatt
hours sold to the purchasing utilities at the other facilities. The increase in
operating revenues for the six-month period ended June 30, 1999 was also
attributable to the lease and service revenue earned under the power sales
agreements for the Cottage Grove and Whitewater facilities in which we acquired
our interests on March 20, 1998. Lease and service revenues include a full
six-months of activity for the Cottage Grove and Whitewater facilities in the
six-month period ended June 30, 1999 as compared to less than four months in the
six-month period ended June 30, 1998.
Our operating costs decreased 2.4% to $48.7 million for the second
quarter of 1999 as compared to the second quarter of 1998. This decrease
resulted primarily from the decrease in cost of services at the Cottage Grove
and Whitewater facilities, and a decrease in fuel expense as a result of a
decrease in megawatt hours sold to the purchasing utilities at the Lumberton,
Kenansville, Southport and Roxboro facilities. The decrease in operating costs
was partially offset by routine maintenance expenses incurred at the Hopewell
facility in the three-months ended June 30, 1999 and an increase in fuel expense
as a result of an increase in megawatt hours sold to the purchasing utility at
the Richmond and Rocky Mount facilities. The decrease in operating expenses were
further offset by expenses incurred at the Elizabethtown, Lumberton, Kenansville
and Portsmouth facilities related to the settlement in March, 1999 of claims
brought by the fuel suppliers of these facilities.
The Company's operating costs for the six-month period ended June 30,
1999, increased 10.8% to $95.9 million as compared to $86.5 million for the
six-month period ended June 30, 1998. This increase was primarily the result of
a significant increase in the year to date costs of services incurred at the
Cottage Grove and Whitewater facilities, in which we acquired out interests on
March 20, 1998. Costs of services included a full six months of activity in the
six-month period ended June 30, 1999 as compared to less than four months in the
six-month period ended June 30, 1998. The increase in operating costs were also
attributable to the factors discussed above: the settlement of the fuel
litigation at the Portsmouth, Elizabethtown, Lumberton and Kenansville
facilities, routine maintenance expenses incurred at the Hopewell facility and
an increase in fuel expense as a result of an increase in megawatt hours sold to
the purchasing utility at the Richmond and Rocky Mount facilities. The increase
in operating expenses were partially offset by the factor discussed above: a
decrease in fuel expense as a result of a decrease in the megawatt hours sold to
the purchasing utility at the Lumberton, Kenansville, Southport and Roxboro
facilities.
General, administrative and development expense decreased 16.5% to $8.2
million for the second quarter of 1999 as compared to the second quarter of
1998. This decrease related primarily to a decrease in incentive
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compensation expense related to the restructuring of a retirement plan agreement
with a former executive officer expensed in the second quarter of 1998 and a
decrease in travel expenses related to international development activity.
General, administrative and development expenses increased 8.8% to $20.8 million
for the six-month period ended June 30, 1999 as compared to the corresponding
period of 1998. The increase is primarily attributable to increased costs
related to payroll and employee benefits. The increase in general,
administrative and development costs for the six-months ended June 30, 1999 was
partially offset by the factors discussed above: the expense recorded in the
six-months ended June 1998 related to the restructuring of a retirement plan
agreement with a former executive officer, and a decrease in travel expenses
related to a reduction in international development activity.
Interest expense increased 18.8% to $23.6 million for the quarter ended
June 30, 1999 and 43.0% to $47.3 million for the six-months ended June 30, 1999
as compared to the corresponding periods of 1998. Our weighted average long-term
debt increased to $1.2 billion, with a weighted average interest rate of 7.76%
through the second quarter of 1999, as compared to weighted average long-term
debt of $860 million, with a weighted average interest rate of 7.70% through the
second quarter of 1998. The increases in interest expense and weighted average
debt outstanding were related to the inclusion of the project finance debt of
the Cottage Grove and Whitewater facilities acquired in March, 1998. The
increases also relate to our issuance of $255 million of 8.75% senior notes in
October and November, 1998, and $53.8 million of borrowings incurred during the
first six months of 1999 under revolving credit facilities at some subsidiaries.
The increase in interest expense discussed above was partially offset by a
decrease in interest expense at several of our project subsidiaries due to the
scheduled repayment of outstanding project finance debt.
The decrease in minority interest in income for the second quarter of
1999 as compared to the second quarter of 1998 related primarily to a decrease
in earnings at the Hopewell facility related to routine maintenance expenses
incurred during the three-months ended June 30, 1999. The increase in minority
interest in income for the six-month period ended June 30, 1999 as compared to
the corresponding period of 1998 related to an increase in earnings associated
with the Cottage Grove and Whitewater facilities, interests in which we acquired
on March 20, 1998. The results of operations for the six-month period ended June
30, 1999 include a full six months of earnings for the Cottage Grove and
Whitewater facilities, as compared to less than four months for the six-month
period ended June 30, 1998.
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 February, 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 six-month
period ended June 30, 1999 were net income of $19.7 million, increases due to
adjustments for depreciation and amortization of $21.8 million, deferred income
taxes of $6.2 million, minority interest in income, net of dividends, of $3.0
million, and equity in net income of unconsolidated affiliates, net of dividends
of $2.8 million, which were partially offset by amortization of unearned lease
income, net of minimum lease payments received, of $0.8 million and a net $16.6
million use of cash reflecting changes in other working capital assets and
liabilities. Cash flow provided by operating activities of $36.1 million,
proceeds from borrowings of $54.3 million and cash on hand at the beginning of
the period of $3.9 million were primarily used to purchase property, plant and
equipment of $0.6 million, repay project finance borrowings of $43.2 million,
pay deferred financing costs of $0.8 million, pay a common stock dividend of
$7.4 million, fund $2.4 million of escrow, and purchase additional interest in
unconsolidated affiliates of $39.9 million.
Historically, we have 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 some cases, the capital
stock of or the partnership interest in that project subsidiary. This type of
financing is generally referred to as "project financing". The project financing
debt of our subsidiaries and joint ventures, aggregating $813.7 million as of
June 30, 1999, is non-recourse to Cogentrix Energy and our other project
subsidiaries, except in connection with transactions in which Cogentrix Energy
has agreed to certain limited
11
<PAGE> 12
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 that the
projects may experience as a result of incurring some types of costs, subject to
an aggregate cap of $51.9 million.
In addition, Cogentrix, Inc., which is an indirect subsidiary of
Cogentrix Energy, has guaranteed two project subsidiaries' obligations to the
purchasing utility under five power sales agreements. Three of these power sales
agreements provide that in the event of early termination that is not for cause,
the project subsidiary must pay the utility a termination charge equal to the
excess paid for capacity and energy over what would have been paid to the
utility under the utility's published five-year capacity credit and variable
energy rates plus interest. The remaining two power sales agreements provide
that in the event of early termination, the project subsidiary must pay the
utility the cost of replacing the electricity from a third party for the
remainder of the agreement's term. Because these project subsidiaries'
obligations do not by their terms stipulate a maximum dollar amount of
liability, the aggregate amount of potential exposure under these guarantees
cannot be quantified. If we or our subsidiary were required to satisfy all of
these guarantees and other obligations or even one or more of the significant
ones, it could have a material adverse effect on our results of operations,
financial position or cash flows.
Any projects we develop in the future, and those independent power
projects we may seek to acquire, are likely to require substantial capital
investment. Our ability to arrange financing on a substantially non-recourse
basis and the cost of such capital are dependent on numerous factors. In order
to access capital on a substantially non-recourse basis in the future, we may
have to make larger equity investments in, or provide more financial support
for, the project entity.
The ability of our project subsidiaries and the project entities in
which we have an investment to pay dividends and management fees periodically to
Cogentrix Energy, Inc. is subject to limitations in their project credit
documents. These limitations generally require that: (a) project debt service
payments be current, (b) project debt service coverage ratios be met, (c) all
project debt service and other reserve accounts be funded at required levels and
(d) 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 and project entities in
which we have an investment.
As of June 30, 1999, we had long-term debt, including the current
portion thereof, of approximately $1.2 billion. With the exception of the $355
million of senior notes currently outstanding, substantially all of such
indebtedness is project financing debt, a large portion of which is non-recourse
to Cogentrix Energy. Future annual maturities of long-term debt range from $54.7
to $86.3 in the five-year period ending December 31, 2003. We believe that our
project subsidiaries and the project entities in which we have an investment
will generate sufficient cash flow to pay all required debt service on the
project financing debt and to allow us to pay management fees and dividends to
Cogentrix Energy periodically in sufficient amounts to allow Cogentrix Energy to
pay all required debt service on outstanding balances under the corporate credit
facility and the senior notes, to fund a significant portion of its development
activities and to meet its other obligations. If, as a result of unanticipated
events, our ability to generate cash from operating activities is significantly
impaired, we could be required to curtail our development activities to meet our
debt service obligations.
We have a corporate credit facility that provides direct advances to
us, or the issuance of letters of credit for our benefit, in an amount up to
$125 million. The corporate credit facility is unsecured and imposes covenants
on us substantially the same as the covenants contained in the indentures, under
which we issued our outstanding senior notes due 2004 and 2008, as well as
financial condition covenants. We have used approximately $60 million of the
credit availability under the corporate credit facility for letters of credit
issued in connection with the Bechtel Acquisition and the Batesville
Acquisition. The balance of the commitment under the corporate credit facility
is available, subject to any limitations imposed by the covenants contained
therein and in the indentures, under which we issued our outstanding senior
notes due 2004 and 2008, to be drawn upon by us to repay other outstanding
indebtedness or for general corporate purposes, including equity investments in
new projects or acquisitions of existing electric generating facilities or those
under development.
Several of our subsidiaries maintain revolving credit facilities.
These facilities, which are non-recourse to Cogentrix Energy, aggregate $68.5
million. As of June 30, 1999, we had no remaining funds available under these
facilities.
12
<PAGE> 13
As a result of a March, 1999 arbitration award related to a contract
dispute with a coal supplier, we were obligated to pay the coal supplier
approximately $8 million in 1999. This payment was made from cash on hand in the
second quarter of 1999. Approximately $3 million of this award related to the
reduction in purchase quantities for prior periods and approximately $5 million
relates to the reduction in purchase quantities from the date of the award
through the balance of the term of the coal contract, which ends in September,
2001. The future reduction in purchase quantities provides a future economic
benefit to our project subsidiary.
In June, 1999, we entered into an agreement to purchase an additional
40% ownership interest in the Indiantown Cogeneration facility in a three phase
transaction. We paid $39.8 million to acquire a 19.9% interest in the facility
in June, 1999. We funded the purchase of this interest with proceeds from
revolving credit facilities at certain of our subsidiaries. The acquisition of
an additional 20.1% interest in the facility for a purchase price of $40.2
million is scheduled to be completed in September and October, 1999.
For the fiscal year ended December 31, 1998, our board of directors
declared a dividend on our outstanding common stock of $7.4 million which was
paid in March, 1999. 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 our net
income for the immediately preceding fiscal year. In addition, under the terms
of the indentures for our outstanding senior notes due 2004 and 2008 and the
corporate credit facility, our ability to pay dividends and make other
distributions to our shareholders is restricted.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as general economic conditions, and therefore tend to fluctuate significantly.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The basic hedging
mechanism against increased fuel and transportation costs is to provide
contractually for matching increases in the energy payments our project
subsidiaries receive from the utility purchasing the electricity generated by
the facility.
Under the power sales agreements for certain of our facilities, energy
payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity or 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 us.
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, we attempt 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 our
indebtedness.
Although hedged to a significant extent, our 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
us is dependent, in part, on each counterparty's ability to perform in
accordance with the provisions of the relevant contracts. We have sought to
reduce the risk by entering into contracts with creditworthy organizations.
Interest Rate Sensitivity
We routinely enter into derivative financial instruments and other
financial instruments to hedge our risk against interest rate fluctuations. As
of June 30, 1999, there have been no significant changes in the portfolio of
instruments as disclosed in our report on Form 10-K for the year ended December
31, 1998 filed with the Commission on March 31, 1999.
13
<PAGE> 14
OTHER FINANCIAL RATIO DATA
Set forth below are certain other financial data and ratios for the
periods indicated (in thousands, except ratio data):
<TABLE>
<CAPTION>
LAST TWELVE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------------ ----------------
<S> <C> <C>
Parent EBITDA $64,143 $35,941
Parent Fixed Charges 25,322 16,150
Parent EBITDA/Parent Fixed Charges 2.53 2.23
</TABLE>
Parent EBITDA represents cash flow to Cogentrix Energy prior to debt
service and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of some of its subsidiaries' indebtedness. Parent EBITDA is not
presented here as a measure of operating results. Our management believes Parent
EBITDA is a useful measure of Cogentrix Energy's ability to service debt. Parent
EBITDA should not be construed as an alternative either (a) to operating income
(determined in accordance with generally accepted accounting principles) or (b)
to cash flows from operating activities (determined in accordance with generally
accepted accounting principles).
YEAR 2000 COMPLIANCE
We continue to assess our readiness with the Year 2000 issue. Our
corporate business critical systems were year 2000 compliant at June 30, 1999.
We expect that our other business critical systems, such as embedded technology
systems, business partners and vendor systems will be Year 2000 compliant by the
fourth quarter of 1999. Non-compliance with the embedded technology systems, or
business partner and vendor systems could result in temporary shutdown of the
facilities and equipment damage. The investigation, analysis, remediation and
contingency planning for embedded technology at the facilities was completed
before January 1, 1999. The investigation and analysis identified no significant
Year 2000 issues. Our facilities, as currently configured, require no action to
be Year 2000 operational, but remediation is underway and scheduled for
completion by October, 1999 to address non-operational Year 2000 functions. We
will continue to communicate with critical suppliers, vendors, joint venture
partners and major customers to assess their compliance efforts and our exposure
to their efforts. We have not incurred any significant additional expenses
related to the Year 2000 issue in the quarter ended June 30, 1999. At this time,
we do not expect a major impact from non-compliant Year 2000 suppliers, vendors,
joint venture partners or major customers. We have developed contingency plans
for all of the critical systems. These plans were developed to address our most
likely worse case scenario which is the inability of our facilities to produce
and distribute power. These plans have been tested, and appear to be adequate.
Despite our current expectations, we cannot guarantee that no interruptions or
other limitations of financial and operating system functionality will occur or
that we will not ultimately incur significant, unplanned costs to avoid such
interruptions or limitations.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Three of our indirect, wholly-owned subsidiaries are parties to
certain product liability claims related to the sale of coal combustion
by-products for use in various construction projects. We cannot currently
estimate the range of possible loss, if any, we will ultimately bear as a result
of these claims. However, our management believes - based on its knowledge of
the facts and legal theories applicable to these claims and after consultations
with various counsels retained to represent these subsidiaries in defense of
such claims - that the ultimate resolution of these claims should not have a
material adverse effect on our consolidated financial position or results of
operations, or on Cogentrix Energy's ability to generate cash flow to service
its outstanding debt.
In addition, we experience other routine litigation in the normal
course of our business. Our management is of the opinion that none of this
routine litigation should have a material adverse effect on our consolidated
financial position, results of operation, or cash flows.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Articles of Incorporation of Cogentrix
Energy, Inc. (3.1) (1)
3.2 Amended and Restated Bylaws of Cogentrix
Energy, Inc., as amended. (3.2)(5)
4.1 Indenture, dated as of March 15, 1994,
between Cogentrix Energy, Inc. and First
Union National Bank of North Carolina, as
Trustee, including form of 8.10% 2004 Senior
Note. (4.1)(2)
4.2 Indenture, dated as of October 20, 1998
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee, including
form of 8.75% Senior Note. (4.2) (3)
4.3 First Supplemental Indenture, dated as of
October 20, 1998, between Cogentrix Energy,
Inc. and First Union National Bank, as
Trustee. (4.3) (3)
4.4 Registration Agreement, dated as of October
20, 1998, by and among Cogentrix Energy,
Inc., Salomon Smith Barney Inc., Goldman,
Sachs & Co. and CIBC Oppenheimer Corp. (4.4)
(3)
4.5 Registration Agreement, dated as of November
25, 1998, between Cogentrix Energy, Inc. and
Salomon Smith Barney, Inc. (4.5) (3)
4.6 Amendment No. 1 to the First Supplemental
Indenture, dated as of November 25, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee. (4.6) (4)
10.1 Second Amendment, dated as of April 20,
1999, to Coal Sales Agreement, dated as of
December 15, 1986, by and between Cogentrix
Virginia Leasing Corporation and Arch Coal
Sales Company. (*)
10.2 Amendment No. 1 to the Third Amended and
Restated Loan Agreement dated December 22,
1997 between Cogentrix Virginia Leasing
Company and several banks and other
financial institutions.
10.3 Steam Purchase Contract, effective as of
January 1, 1999, by and between Celanese
Chemical Inc. and Cogentrix Virginia
Leasing Corporation. (*)
10.4 Steam Purchase Contract, effective as of
January 1, 1999, by and between BASF
Corporation and Cogentrix Virginia Leasing
Corporation. (*)
27 Financial Data Schedule, which is submitted
electronically to the U.S. Securities and
Exchange Commission for information only and
is not filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered
by this report.
(*) Certain portions of this exhibit have been deleted
pursuant to a request for confidential treatment
filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.
(1) Incorporated by reference to Registration Statement
on Form S-1 (File No. 33-74254) filed January 19,
1994. The number designating the exhibit on the
exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description
of the exhibit above.
16
<PAGE> 17
(2) Incorporated by reference to the Form 10-K (File No.
33-74254) filed September 28, 1994. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(3) Incorporated by reference to the Registration
Statement on Form S-4 (File No. 33-67171) filed
November 12, 1998. The number designating the exhibit
on the exhibit index to such previously-filed report
is enclosed in parentheses at the end of the
description of the exhibit above.
(4) Incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-4 (File No.
33-67171) filed January 27, 1999. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(5) Incorporated by reference to the Form 10-Q (File No.
33-74254) filed May 17, 1999. The number designating
the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
17
<PAGE> 18
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)
August 16, 1999 /s/Thomas F. Schwartz
--------------------------------------------
Thomas F. Schwartz
Senior Vice President - Finance
Treasurer
(Principal Financial and Accounting Officer)
18
<PAGE> 1
EXHIBIT 10.1
COGENTRIX VIRGINIA LEASING CORPORATION
PORTSMOUTH, VIRGINIA
SECOND AMENDMENT TO
COAL SALES AGREEMENT
SECOND AMENDMENT, dated as of April 20, 1999 (this "Second Amendment"),
to COAL SALES AGREEMENT, dated as of December 15, 1986 (as amended, the
"Agreement") between COGENTRIX VIRGINIA LEASING CORPORATION, a Virginia
corporation ("Buyer") and ARCH COAL SALES COMPANY, a Delaware corporation
("Seller").
RECITALS:
A. Buyer, Enoxy Coal Sales, Inc. and Enoxy Coal, Inc. entered into the
Agreement as of December 15, 1986, pursuant to which Buyer agreed to purchase
from such entities coal for Buyer's power generating station located in
Portsmouth, Virginia.
B. Concurrently with the execution of the First Amendment to Coal Sales
Agreement, dated as of September 29, 1995, ACS Coal Sales Company (as successor
to Enoxy Coal Sales, Inc.) and Cumberland River Coal Company (as successor to
Enoxy Coal, Inc.) each assigned their rights under the Agreement to Seller
effective as of such date.
C. Buyer and Seller have entered into a Settlement Agreement, dated as
of March 11, 1999 (the "Settlement Agreement"), pursuant to which Buyer and
Seller have reached certain agreements regarding a proposed settlement of
pending litigation and arbitration disputes between them arising out of the
Agreement.
D. In consideration for agreeing to enter into the Settlement
Agreement, and as a condition precedent to the dismissal of the litigation and
arbitration pending between the parties and the execution of a mutual settlement
and release by the parties, the parties have agreed to execute this Second
Amendment and amend the terms of the Agreement so that it accurately reflects
the agreements of the parties as set forth in the Settlement Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby agree
as follows:
SECTION 1. Amendment of Section 1.01 of Agreement. Section 1.01 of the
Agreement is hereby amended, effective as of the Effective Date (as hereinafter
defined), by adding the following paragraph as the second paragraph of such
section:
<PAGE> 2
Notwithstanding the foregoing, nor anything else to the contrary
contained in this Agreement, Buyer is not and shall not be obligated to
burn coal as the only fuel source for the Station and may, at its
option and in its sole discretion, burn alternative fuels at the
Station in any and all such forms as it chooses and in such amounts as
it deems appropriate at any time during the term of this Agreement;
provided that Buyer's use of alternative fuels at the Station shall in
no way affect its liability for shortfalls as described in Section
1.03(b) hereof.
SECTION 2. Amendment of Section 1.03 of Agreement. Section 1.03 of the
Agreement is hereby amended, effective as of the Effective Date, by deleting
such section in its entirety and replacing it with the following:
Section 1.03. Quantities; Shortfall Amounts; Steam Interruption.
(a) Buyer shall purchase and Seller shall sell 100% of the requirements
of coal for the Station during the Operation Period. Buyer shall not,
however, be obligated to order or purchase any minimum amount of coal
during any calendar year. Notwithstanding the foregoing or any
provision to the contrary contained in this Agreement, the parties
hereto agree that the Seller shall not be obligated hereunder to sell
Buyer more than 400,000 tons of coal during any calendar year, and
Buyer shall not be required to purchase more than its requirements.
While Buyer's requirements are not expected to exceed the annual
minimum quantities set out in subsection (b) below, all such
requirements shall be purchased from Seller hereunder, regardless of
the actual quantity.
(b) Notwithstanding the fact that the Buyer shall in no way be
obligated to purchase any minimum amount of coal in any given calendar
year, in the event that the Buyer orders less than the following
amounts of coal in each given calendar year (each such amount, the
"Annual Minimum"), the Buyer shall pay the Seller the amount per ton
set forth below for the corresponding calendar year (each such amount,
the "Shortfall Rate") for each ton by which the amount of coal ordered
by Buyer during such calendar year falls below the Annual Minimum for
such calendar year.
YEAR ANNUAL MINIMUM SHORTFALL RATE
---- -------------- --------------
1999 [***] tons $[***] per ton
2000 [***] tons $[***] per ton
2001 [***] tons $[***] per ton
2002 [***] tons $[***] per ton
2003 [***] tons $[***] per ton
For the purposes of this Agreement and the determination of whether the
Buyer has met the Annual Minimum for 2003, calendar year 2003 shall
begin on January 1, 2003 and end on April 30, 2003. In addition,
whether the
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
2
<PAGE> 3
Buyer has met the Annual Minimum in any calendar year shall be based on
the amount of coal ordered by the Buyer during such calendar year and
not the calendar year in which the coal is actually delivered by Seller
to Buyer.
Following the end of each calendar year, Seller shall provide notice
(the "Seller Shortfall Notice") to Buyer of Seller's claim of
entitlement to payment hereunder for such calendar year. Such notice
shall include the Seller's calculation (the "Seller Calculation") of
the amount due for such calendar year (the "Shortfall Payment"), and a
list of orders placed by the Buyer and received by Seller during such
calendar year. Seller will provide Buyer such other documentation as
Buyer reasonably requests to support the Seller Calculation. If the
Buyer agrees with the Seller Calculation, it shall pay such amount to
the Seller no later than thirty (30) days after its receipt of the
Seller Shortfall Notice. If Buyer disputes the Seller Calculation, the
Buyer shall pay the undisputed portion of the Seller Calculation to the
Seller within thirty (30) days after its receipt of the Seller
Shortfall Notice, and thereafter the parties shall work together to
resolve such dispute to the mutual satisfaction of the parties. If
Buyer and Seller are unable to resolve such dispute, such dispute shall
be submitted to arbitration in accordance with the provisions of
Article VII of this Agreement. Upon a resolution or a final
determination as to the correct Shortfall Payment, Buyer shall pay to
Seller the remaining unpaid Shortfall Payment for such calendar year,
with interest thereon, as provided in Section 4.06 of this Agreement.
Notwithstanding the foregoing or any other provision to the contrary
contained in this Agreement, in the event that Buyer's orders for coal
are reduced in any calendar year due to the occurrence of (i) a "force
majeure" (as defined in Section 8.01 of this Agreement) or (ii) a
suspension of shipments pursuant to Section 2.05 of this Agreement, the
Annual Minimum for such calendar year shall be adjusted equitably based
on the amount of coal the Buyer would have ordered in such calendar
year had such events not occurred.
(c) Notwithstanding the provisions of subsection (b) of this Section
1.03 or any other provision to the contrary contained in this
Agreement, if there occurs during any given calendar year an
interruption or reduction in steam delivery occasioned by a Force
Majeure (as that term is defined in Section 6(A) of each of those two
certain Steam Purchase Contracts between Buyer and BASF Corporation
("BASF"), and between Buyer and Celanese Chemical, Inc. ("Celanese"),
effective as of January 1, 1999, hereinafter referred to as the "Steam
Contracts") declared by either BASF or Celanese, the Annual Minimum for
such calendar year shall be reduced in accordance with the formula set
forth on Schedule 1 hereto.
SECTION 3. Amendment to Section 10.07. Section 10.07 of the Agreement
is hereby amended, effective as of the Effective Date, by adding the following
to the end of such section:
3
<PAGE> 4
Buyer and Seller each agree that neither party will unreasonably
withhold its consent to an assignment by the other party of its
benefits or burdens under this Agreement. Seller acknowledges and
agrees, however, that the consent of Buyer's lender will be required
prior to any assignment by the Seller of this Agreement or its benefits
or burdens hereunder. In addition, Seller acknowledges and agrees that
it shall be a condition to any such assignment by Seller that either
(i) such assignment be consented to by Arch Coal, Inc., a Delaware
corporation ("ACI") and sole shareholder of the Seller, in its capacity
as Guarantor under the Guarantee Agreement dated as of September 29,
1995 given for the benefit of the Buyer (the "ACI Guarantee"), and that
the ACI Guarantee shall be reaffirmed by ACI, or (ii) that the Buyer
receive a guarantee of the assignee's obligations under this Agreement
or other security, in each case adequate to protect the Buyer's
interest to the same extent as is done by the ACI Guarantee, and in a
form and issued by an entity which is in all material respects
reasonably comparable to ACI and otherwise reasonably satisfactory to
the Buyer.
SECTION 4. New Schedule 1. The Agreement is hereby amended, effective
as of the Effective Date, by adding as Schedule 1 thereto the attached Schedule
1 to this Second Amendment.
SECTION 5. Effectiveness. This Second Amendment shall become effective
(the "Effective Date") on the date that the parties execute a Mutual Release and
Settlement Agreement effecting the settlement and dismissal of all litigation
and arbitration pending between them, and not before such date. Should the
parties not reach such settlement and execute a mutual release of all claims
asserted in such litigation and arbitration by June 30, 1999, this Second
Amendment shall be void and of no effect.
SECTION 6. No Other Amendments; Confirmation. Except as expressly
amended hereby, the provisions of the Agreement are, and shall remain, in full
force and effect and are hereby ratified and confirmed.
SECTION 7. Governing Law; Counterparts. This Second Amendment and the
rights and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of North Carolina.
This Second Amendment may be executed in any number of counterparts, all of
which counterparts, taken together, shall constitute one and the same
instrument.
SECTION 8. Integration. The Agreement, as modified by this Second
Amendment, and the Mutual Release and Settlement Agreement referred to herein
represent the entire agreement of the parties hereto with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by either party relative to the subject matter hereof not expressly
set forth therein.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
BUYER:
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ Bruno R. Dunn
-----------------------------------
Title: Group Senior Vice President
--------------------------------
SELLER:
ARCH COAL SALES COMPANY, INC.
By: /s/ John Eaves
-----------------------------------
Title: President
--------------------------------
ACKNOWLEDGED AND CONSENTED TO:
ARCH COAL, INC., as guarantor under that
certain Guarantee Agreement dated as of
September 29, 1995 which by its signature
below hereby reaffirms and confirms its
obligations thereunder
By: /s/ Henry Besten
-----------------------------------
Title: Vice President
--------------------------------
5
<PAGE> 6
SCHEDULE 1
FORMULA FOR DETERMINATION OF COAL REQUIRED FOR STEAM
PRODUCTION IN CONNECTION WITH ANNUAL MINIMUM
STEAM ADJUSTMENT FOR FORCE MAJEURE
Assumptions:
1. Station's historic operation generates 7.6 lbs. of steam for each pound
of coal consumed.
2. One ton of coal equals 2000 lbs.
To determine adjustments to Annual Minimum due to reduction in steam generated
as a result of an event of Force Majeure under either the BASF or Celanese Steam
Contracts, apply the following formula:
Number of pounds of steam
not taken as a result of
Force Majeure /2,000 = Annual Minimum Steam
------------------------- Adjustment
7.6
For example, if during calendar year 1999 BASF suffers an event of
Force Majeure under the Steam Contract which prevents the Station from
delivering 50,000,000 pounds of steam, the Annual Minimum for such calendar year
would be reduced by 3,289.5 tons [50,000,000, divided by 7.6, divided by 2000].
Accordingly, if Buyer only orders [***] tons of coal during calendar year 1999,
Seller would be entitled to a Shortfall Payment equal to $[***];
e.g. [***] Annual Minimum
-[***] Annual Actual
----------------------------------------------
[***] Annual Shortfall
-[***] Annual Minimum Steam Adjustment
----------------------------------------------
[***] Adjusted Shortfall
[***] Adjusted Shortfall
x$[***] Shortfall Rate
----------------------------------------------
$ [***] Shortfall Payment
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
6
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
AMENDMENT NO. 1 (this "Amendment") dated as of April 29, 1999
to the Third Amended and Restated Loan Agreement dated as of December 22, 1997
(as the same may be amended, supplemented, waived or otherwise modified from
time to time, the "Loan Agreement"), among Cogentrix Virginia Leasing
Corporation, a North Carolina corporation (the "Borrower"), the several banks
and other financial institutions from time to time parties thereto (the
"Lenders"), the issuing bank named thereunder (the "Issuing Bank"), and Credit
Lyonnais, its successors and assigns, as agent thereunder (in such capacity, the
"Agent").
W I T N E S S E T H :
WHEREAS, the Borrower desires to terminate the Steam Purchase
Contract and in replacement thereof enter into (i) with BASF Corporation
("BASF") a Steam Purchase Contract, dated as of January 1, 1999, in the form
attached hereto as Exhibit A (the "BASF Steam Purchase Contract") and (ii) with
Celanese Chemical Inc. a Steam Purchase Contract dated as of January 1, 1999 in
the form attached hereto as Exhibit B (the "Celanese Steam Purchase Contract";
collectively with the BASF Steam Purchase Agreement, the "Replacement Steam
Purchase Contracts");
WHEREAS, in connection with such termination and such entering
into the Replacement Steam Purchase Contracts, the Borrower has been requested
to consent to the assignment and transfer by Clariant to BASF of all of
Clariant's rights and obligations under the Water Purchase Contract;
WHEREAS, pursuant to subsection 7.10 of the Loan Agreement,
the Borrower has requested the Lenders to consent to such termination of the
Steam Purchase Contract and to its entering into the Replacement Steam Purchase
Contracts and to its consenting to such assignment and transfer by Clariant, and
the Lenders are willing to provide such consent on the terms and conditions
contained in this Amendment, including the condition that the Loan Agreement be
amended as set forth herein;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Capitalized terms used but not defined herein (including such terms
appearing in the recitals hereto) shall have the respective meanings
assigned to such terms in the Loan Agreement.
2. Each of the undersigned Lenders hereby consents to the Borrower's (i)
termination of the Steam Purchase Contract, (ii) entering into the
Replacement Steam Purchase Contracts, and (iii) consenting to the
assignment and transfer by Clariant to BASF of all of Clariant's rights
and obligations under the Water Purchase Contract.
<PAGE> 2
2
3. Annex A to the Loan Agreement is amended by adding the following new
definitions in alphabetical order thereto:
"BASF": BASF Corporation, a Delaware corporation.
"BASF Steam Purchase Contract": the Steam Purchase
Contract, dated as of January 1, 1999, between the Borrower
and BASF as the same may be amended, supplemented or otherwise
modified from time to time, in accordance with subsection 7.10
of the Loan Agreement.
"Celanese Chemical": Celanese Chemical Inc., a
Delaware corporation.
"Celanese Steam Purchase Contract": the Steam
Purchase Contract, dated as of January 1, 1999, between the
Borrower and Celanese Chemical as the same may be amended,
supplemented or otherwise modified from time to time, in
accordance with subsection 7.10 of the Loan Agreement.
4. (a) The definition of "Steam Purchaser" in Annex A of the Loan
Agreement is hereby deleted and replaced in its entirety with the
following new definition thereof:
"Steam Purchasers": the collective reference to BASF,
Celanese Chemical and any other party obligated to purchase
steam under either of the Steam Purchase Contracts.
(b) The definition of "Steam Purchase Contract" in Annex A of the Loan
Agreement is hereby deleted and replaced in its entirety with the
following:
"Steam Purchase Contracts": the collective reference
to the BASF Steam Purchase Contract and the Celanese Steam
Purchase Contract.
(c) The definition of "Water Purchase Contract" in Annex A of the Loan
Agreement is hereby deleted and replaced in its entirety with the
following:
"Water Purchase Contract": the Water Purchase
Contract, dated as of February 1, 1995, between BASF
Corporation (as the assignee thereunder of Clariant, the
successor thereunder of Hoechst) and the Borrower, as the same
may be amended, supplemented or otherwise modified in
accordance with subsection 7.10 of the Loan Agreement.
5. All references to the defined term "Steam Purchase Contract" in the
Loan Agreement (including, without limitation, in Annex A thereto) are
hereby deleted and replaced
<PAGE> 3
3
with the defined term "Steam Purchase Contracts", and all references to
the defined term "Steam Purchaser" in the Loan Agreement (including,
without limitation, in Annex A thereto) are hereby deleted and replaced
with the defined term "Steam Purchasers."
6. This Amendment (including, without limitation, the consent provided in
paragraph 2 above) shall not become effective until the date as of
which (a) this Amendment shall have been duly executed and delivered by
the Borrower, the Agent and the Required Lenders and (b) pursuant to
subsection 6.10 of the Loan Agreement the Agent shall have received,
with a copy for each Lender, an Assignment and a Consent to Assignment
with respect to each Replacement Steam Purchase Contract and the Water
Purchase Contract, each in form and substance satisfactory to the Agent
and duly executed and delivered by the appropriate parties thereto.
5. This Amendment may be signed in any number of counterparts by the
parties hereto, each of which counterparts when so executed shall be an
original, but all counterparts together shall constitute one and the
same instrument.
6. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
7. The Borrower agrees to pay and reimburse the Agent for all reasonable
expenses incurred by the Agent in connection with the preparation of
this Amendment, including, but not limited to, the reasonable fees and
disbursements of Simpson Thacher & Bartlett, counsel for the Agent.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ Elizabeth L. Rippetoe
----------------------------------
Title: Vice President and
Assistant General Counsel
CREDIT LYONNAIS,
as Agent and a Lender
By: /s/ Robert G. Colvin
----------------------------------
Title: Vice President
<PAGE> 5
5
THE BANK OF NOVA SCOTIA
By: /s/ Pamela McDougall
----------------------------------
Title: Relationship Manager
LANDESBANK HESSEN-THURINGEN GIROZENTRALE
By: /s/ Willie N. Freeman
----------------------------------
Title: VP-Structured Finance
By: /s/ Michael Novack
----------------------------------
Title: AVP
TORONTO DOMINION (TEXAS), INC.
By:
----------------------------------
Title:
DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH
By: /s/ William G. Roos
----------------------------------
Title: Senior Vice President
By: /s/ Robert Sullivan
----------------------------------
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.3
STEAM PURCHASE CONTRACT
This STEAM PURCHASE CONTRACT (the "Agreement"), effective as of January 1, 1999,
by and between CELANESE CHEMICAL INC., a corporation organized and existing
under the laws of the State of Delaware ("Buyer"), and COGENTRIX VIRGINIA
LEASING CORPORATION, a corporation organized and existing under the laws of the
State of North Carolina ("Cogentrix").
Recitals
A. Buyer is a manufacturer of chemicals and owns and operates a
facility for the production of chemicals located in Portsmouth, Virginia as
delineated on the attached Exhibit C ("Buyer's Plant").
B. Cogentrix is engaged in the business of building and operating
cogeneration facilities which produce steam for sale to industrial companies and
electricity for sale to regional electric utilities.
C. Cogentrix wishes to provide Buyer with steam for use in the
operation of Buyer's Plant and has entered into certain agreements for the
construction, financing and management of a cogeneration plant (the
"Cogeneration Facility") located near Buyer's Plant.
Undertakings
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, Buyer and Cogentrix hereby agree as follows:
1. Construction of Cogeneration Facility.
A. Cogentrix has constructed the Cogeneration Facility, consisting of
six (6) coal-fired
1
<PAGE> 2
boilers rated at 157,000 pounds per hour each and two (2) steam turbine
generators rated at approximately fifty-five thousand (55,000) kilowatts. The
Cogeneration Facility is located within one (1) mile of Buyer's Plant.
B. All costs associated with the Cogeneration Facility, including
without limitation costs associated with engineering, licensing, construction,
and operation of the Cogeneration Facility, will be the responsibility of
Cogentrix. Buyer's sole responsibilities shall be to provide any easements
across its property necessary for the delivery of steam from the Cogeneration
Facility to the interconnection point described in Exhibit B hereto, to purchase
and accept delivery of steam as hereinafter provided and to comply with its
obligations set forth herein.
C. Buyer will cooperate with Cogentrix and take any actions reasonably
requested by Cogentrix, at Cogentrix's expense, to obtain all necessary licenses
and permits to construct and operate the Cogeneration Facility and to permit the
sale of steam under this Agreement.
2. Sale of Steam.
A. Cogentrix shall sell steam to Buyer for use in Buyer's Plant up to a
maximum of twenty-one thousand (21,000) pounds of steam per hour at four hundred
twenty-five (425) to four hundred thirty-five (435) pounds per square inch gauge
("psig"). Concurrently with this Agreement, Cogentrix is entering into a similar
steam purchase agreement ("BASF Steam Contract") with BASF Corporation ("BASF").
The foregoing maximum notwithstanding, Buyer may take such steam in excess of
21,000 pounds per hour at any time that BASF takes such steam in an amount less
than 9,000 pounds per hour such that the combined take of the two companies does
not exceed at any time 30,000 pounds per hour in the aggregate. So long as Buyer
materially complies with the terms and conditions of this Agreement and, subject
to the terms hereof, continues to purchase during each Term Year (as defined in
Paragraph 7 below) a minimum of 1% of the "total energy output" of the
Cogeneration Facility as defined in 18 C.F.R. ss.292.202(i) (the "Total Energy
Output") for that Term Year, Cogentrix will deliver the steam at such pressures,
at such temperatures and according to such other specifications as set forth in
Exhibit A hereto or as are mutually agreed to in writing by Cogentrix and Buyer.
It is
2
<PAGE> 3
understood that the Total Energy Output may vary from one Term Year to another,
but Cogentrix will not, without Buyer's written consent, expand or modify the
Cogeneration Facility from the description set forth in Paragraph 1.A. above so
as to increase the Total Energy Output in a way that would materially increase
Buyer's obligation to purchase steam hereunder. In no event whatsoever shall
Cogentrix fail to so deliver steam to Buyer's Plant so long as the Cogeneration
Facility is capable of producing such steam and delivering it to Buyer, and
Cogentrix shall make no commitment to any customer or other third party that
would prevent Cogentrix from complying with such obligation.
B. Cogentrix has installed and owns such meter as shall be necessary to
measure and record the steam delivered and received in accordance with the terms
and condition of this Agreement. Meters utilized for this purpose shall meet the
specifications and shall be subject to calibration and testing as set forth in
Exhibit B hereto.
C. Except as set forth in Paragraph 2.E below, beginning as of the
effective date of this Agreement until December 31, 2008 ("Initial Term") and
during any Extension as defined below, subject to the terms hereof Buyer will
purchase and accept from Cogentrix the Steam Needs of Buyer's Plant up to the
maximum set forth in Paragraph 2.A. above. The "Steam Needs" means all of
Buyer's requirements for steam at Buyer's Plant. Buyer may also include in such
Steam Needs steam requirements at or in the vicinity of what is as of the
effective date for this Agreement Buyer's Plant of any company affiliated with
Buyer or of any partnership or other joint venture of which Buyer is a direct or
indirect significant participant unless, in Cogentrix's reasonable opinion, such
sale could subject Cogentrix to regulation as a public utility. Nothing in this
Agreement, however, is to be construed to require Buyer to curtail or alter its
operations in any way to purchase steam from Cogentrix.
D. For the Initial Term and during any Extension, to the extent that
Cogentrix is willing and able to sell and deliver steam to Buyer, Buyer will
purchase during each Term Year (as defined in Paragraph 7 below) and accept
delivery of 1% of the Total Energy Output; provided however that if Buyer's
Steam Needs are less than such 1% of the Total Energy Output, at Buyer's request
the parties shall cooperate in all reasonable respects to locate an alternative
3
<PAGE> 4
purchaser of part or all of such steam on the terms hereof or on other terms
satisfactory to Cogentrix and that Buyer's obligation to purchase steam
hereunder shall be reduced by such amounts as such alternative purchaser commits
to purchase from Cogentrix. Buyer's obligation to purchase and accept delivery
of a minimum of 1% of the Total Energy Output of steam delivered in accordance
with Exhibit A is otherwise unconditional, except that it shall be relieved to
the extent that (i) Force Majeure reduces Buyer's Steam Needs below such 1% of
the Total Energy Output or (ii) Cogentrix fails (for any reason including
without limitation Force Majeure) to deliver steam to Buyer.
E. Buyer may on one (1) occasion elect, on at least sixty (60) days'
notice to Cogentrix, to reduce Buyer's obligation to purchase, and Cogentrix's
obligation to supply, Steam under this Agreement to no more than 1% of the Total
Energy Output effective for any of the Term years beginning June 1, 2004 through
the end of the Term Year of the Initial Term . Upon such a notice, such
obligations shall remain reduced until but no longer than the end of the last
Term Year of the Initial Term.
[3. THIS PARAGRAPH IS INTENTIONALLY OMITTED]
4. Term.
This Agreement shall become effective as of the date first set forth above and,
except as otherwise provided herein, shall continue to and through December 31,
2008 and thereafter for successive two (2) year extension periods ("Extensions")
unless and until Cogentrix or Buyer terminates this Agreement effective as of
the end of December 31, 2008 or the end of any Extension by giving the other
party notice thereof at least two (2) years before the effective termination
date.
5. Breach
A. Except as set forth in Paragraph 5.B. below, if either party commits
a material breach of this Agreement and fails within one hundred eighty (180)
days of receipt of a written
4
<PAGE> 5
notice thereof from the other party to correct such breach, the non-breaching
party may, in addition to all other remedies available to it, terminate all of
its obligations under this Agreement accruing thereafter. Such one hundred and
eighty (180) day period shall be extended for such time as Force Majeure delays
the breaching party's correction of the breach. During such one hundred and
eighty (180) day period, however, the obligations of the parties under this
Agreement shall not be suspended.
B. If during any consecutive six (6) months individual interruptions of
more than thirty (30) minutes (i) occur more than nine (9) times or (ii)
continue for more than one hundred (100) hours in the aggregate (a "Major Steam
Interruption"), Buyer shall give Cogentrix written notice thereof. In no event
shall an interruption of the type described in Section 26 hereof constitute or
count toward a "Major Steam Interruption" under and as defined in this
Agreement. Cogentrix shall use its best efforts to reestablish steam supply as
promptly as practicable. If within thirty (30) days of the date of such notice
Cogentrix has not established to Buyer's reasonable satisfaction that Cogentrix
has corrected the cause of the Major Steam Interruption and that no further
Major Steam Interruption will occur, Buyer may elect by notice to Cogentrix
immediately to permanently reduce its steam purchases hereunder to 1% of the
Total Energy Output and generate or obtain the balance of its Steam Needs from
other sources, in which case the purchase price for steam delivered hereunder
shall thereafter be the lesser of the price that would otherwise be payable in
accordance with Paragraph 7.A. hereof or [***] dollars ($[***]) per Term Year.
Following such latter notice and during the remainder of the term of this
Agreement, Cogentrix shall not provide steam to any party other than Buyer,
except to BASF for its superabsorbents plant located in Portsmouth, VA.
Notwithstanding the foregoing, in no event shall Cogentrix willfully cause a
Major Steam Interruption or fail to attempt in good faith to correct the cause
of a Major Steam Interruption.
In order to assure Buyer that Cogentrix is taking all reasonable steps to
prevent a Major Steam Interruption or any other breach hereof, Cogentrix shall
obtain Buyer's advance written approval (which shall not be unreasonably
withheld) of any and all proposed operators of the Cogeneration Facility.
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
5
<PAGE> 6
C. If either party creates a condition which would, or which in the
reasonable belief of the other party may, make such other party's continued
performance of any of its obligations under this Agreement dangerous to life or
property, such other party may upon notice to the party that created the
condition temporarily suspend the performance of such obligations until it is
reasonably assured that the danger has been eliminated.
6. Force Majeure; Failure to Supply Steam.
A. As used in this Agreement, "Force Majeure" shall be an event by
which either party shall be prevented from delivering, receiving or using steam
or otherwise performing its obligations hereunder by reason of or through
strike, stoppage of labor (neither party, however, being obligated to settle a
labor dispute except on terms acceptable to it), riot, fire, flood, ice,
invasion, civil war, commotion, insurrection, military or usurped power,
accident, order of any court or authority granted in any bona fide adverse legal
proceedings or action, order of any civil authority, explosion, act of God or
public enemies, or any other cause reasonably beyond the control of the parties
(including Cogentrix's failure to obtain all necessary licenses and permits to
construct and operate the Cogeneration Facility after diligent effort by
Cogentrix) and not attributable to negligence.
B. If for any reason (including without limitation Force Majeure, but
excluding any Maximum Quantity Exceedance) Cogentrix fails for a continuous
period of eight (8) hours to deliver to Buyer steam which meets the quality
standards set forth in Exhibit A, Buyer may at its option provide any or all of
its Steam Needs, but only during such periods, from alternative sources.
C. If during the term of this Agreement Force Majeure prevents
Cogentrix from producing or delivering steam to Buyer, at Buyer's request upon
reasonable notice Cogentrix shall make its best efforts including the
contribution of all resources of any kind (including without limitation coal
supplies it may have or could purchase) available to it to provide to Buyer the
lowest cost energy substitute for the steam Cogentrix cannot deliver to Buyer,
provided that
6
<PAGE> 7
Buyer shall pay all of Cogentrix's out-of-pocket costs in complying with this
paragraph.
D. Failure of a party to suspend the purchase or sale of steam at any
time after the occurrence of grounds therefor, or to resort to any other remedy
or to exercise any one or more of such alternative remedies, shall not waive or
in any manner affect that party's right later to resort to any one or more of
such rights or remedies on account of any such ground then existing or which may
subsequently occur. Any suspension of the purchases or sales of steam by the
parties shall in no way operate to relieve the parties of liability for services
and facilities previously supplied.
7. Purchase Price.
A. Until December 31, 2003 and throughout any Extension (as defined in
Paragraph 4 above), the price Buyer shall pay Cogentrix for the purchase of
steam shall (subject to Paragraph 2.D. above) be determined as follows:
(1) As used in this Agreement, the term "Term Year" shall mean the
period beginning with the effective date set forth at the beginning of this
Agreement and ending on December 31 of that calendar year and shall mean any
calendar year thereafter during the term hereof.
(2) The Base Rate of the price per thousand (1,000) pounds of steam
delivered per hour shall be the 1988 price of [***] Dollars ($[***]).
(3) Commencing on the first day of each Term Year until December 31,
2003, new purchase rates for steam shall be computed based on the percentage
increase, if any, or decrease, if any, in the Delivered Cost of Coal (as
hereinafter defined) from June 1, 1988.
The new purchase rate for steam shall be computed by multiplying the Base Rate
times a fraction, the denominator of which shall be the Delivered Cost of Coal
for 1988 and the numerator of which shall be the Delivered Cost of coal in
effect on the first day of the Term Year for which such calculation is being
made. As used herein, the "Delivered Cost of Coal" shall
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
7
<PAGE> 8
refer to the weighted average total price per ton paid by Cogentrix to purchase
coal including the weighted average transportation cost per ton for delivery to
the Cogeneration Facility, and Cogentrix shall provide to Buyer at Buyer's
expense such documentation as Buyer reasonably requests to verify such costs.
Notwithstanding the foregoing, no increase in the purchase rate for steam
purchased hereunder shall permit the purchase rate to exceed what it would have
been had all Term Years' purchase rate adjustments under Paragraph 7.A.(3) been
increases of five percent (5%) annually of the rate in effect for each preceding
Term Year.
(4) If Buyer curtails or has no substantial operations at Buyer's Plant
for a continuous period of thirty (30) days such that for that Term Year Buyer's
Steam Needs are less than 1% of the Total Energy Output, Buyer shall not be
relieved of its obligations hereunder except that, notwithstanding Paragraph
7.A. above, the maximum payment to Cogentrix for all steam purchased hereunder
during that Term Year shall be (i) the price set forth above for such quantities
of steam equal to Buyer's Steam Needs for that Term Year plus (ii) [***] Dollars
($[***]).
B. From January 1, 2004 through December 31, 2008:
(1) The purchase rate for all steam supplied in each Term Year up to 1%
of the Total Energy Output shall be the lesser of (i) the purchase rate
determined in the manner described in Paragraph 7.A.(3) above or (ii) the lowest
cost available to Buyer for itself generating steam or purchasing steam from
third parties; provided, however, that the purchase rate for all steam (if any)
in excess of Buyer's Steam Needs up to 1% of the Total Energy Output shall not
exceed [***] Dollars ($[***]). (2) The purchase rate for all steam supplied in
each Term Year in excess of 1% of the Total Energy Output for that Term Year,
shall be determined in the manner described in Paragraph 7.A.(3) above.
8. Resale of Steam.
Buyer shall not resell any steam provided by Cogentrix pursuant to this
Agreement, except that Buyer may, upon one (1) month's notice to Cogentrix,
resell (i) steam to supply the
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
8
<PAGE> 9
steam requirements referred to in the-next to last sentence of Paragraph 2.C.
hereof and (ii) any quantities of steam that Buyer is required to purchase under
Paragraph 2.D. hereof that are in excess of its Steam Needs; provided, however,
that Buyer may not resell steam if Cogentrix reasonably determines, and notifies
Buyer, that such resale could subject Cogentrix to regulation as a public
utility.
9. Interconnection with Buyer's Plant.
A. Cogentrix shall be responsible for all required auxiliary equipment
and systems required to supply steam to the point of interconnection with
Buyer's Plant as indicated in Exhibit B, which shall be the point at which
delivery of, and risk of loss with respect to, the steam shall pass from
Cogentrix to Buyer. The meter or meters shall be located at this point of
interconnection. Cogentrix will supply and maintain, at its cost, all piping
systems between the Cogeneration Facility and the interconnection point with
Buyer's Plant specified on Exhibit B hereto.
B. Buyer will be responsible for the construction, operation and
maintenance, at its cost, of the piping and other equipment and apparatus to be
located in Buyer's Plant and required to receive the delivery of steam from the
Cogeneration Facility to Buyer's Plant at the point of interconnection.
C. Both Buyer's and Cogentrix's interconnection facilities shall be
designed to accepted engineering standards. Buyer and Cogentrix shall cooperate
in determining appropriate and compatible equipment specifications for
interconnection facilities; provided, however, notwithstanding anything to the
contrary herein, Buyer shall not be responsible for any damage to Cogentrix's
boiler system due to demand from Buyer's systems.
10. Service Interruptions.
Cogentrix shall exercise all reasonable effort to provide a continuous supply of
steam to Buyer. In this connection Cogentrix shall consult with Buyer on a
regular basis and to schedule to the
9
<PAGE> 10
extent reasonably possible all routine boiler maintenance to coincide with
periods of time when Buyer's Plant is closed or Buyer's steam needs are reduced.
Cogentrix further shall endeavor, to the best of its ability, to keep at least
one boiler in operation at all times when Buyer's Plant is requiring steam.
Notwithstanding the foregoing, the terms of this paragraph shall be subject to
Paragraph 5.A., but Cogentrix shall not be liable for any loss or damage
resulting from such failure, interruption, reduction or suspension of service
which is due to Force Majeure or where in Cogentrix' s reasonable opinion the
continuance of delivery of steam from the Cogeneration Facility would endanger
persons or property.
11. Billings.
Cogentrix will bill Buyer on a monthly basis for the steam purchased by Buyer
during the previous month. Payment for such invoices shall be made by Buyer
within thirty (30) days after receipt of invoices. Payments made thereafter
shall be subject to a late payment charge on the unpaid amount of such invoice
of 1 1/2% per month.
12. Assignment of Agreement.
A. This Agreement shall be transferred and assigned by Buyer to any
person or entity purchasing or leasing Buyer's Plant, and, as a condition to any
such purchase or lease of Buyer's Plant, Buyer will cause such purchaser or
lessee to agree to be bound in accordance with the terms hereof; in such event
and unless otherwise agreed, Buyer shall remain responsible to Cogentrix with
respect to any successor's compliance with Paragraph 2.D. hereof, but only to
the extent Buyer itself is obligated pursuant to said paragraph.
B. Cogentrix shall have the right to assign its rights and duties under
this Agreement, either as collateral security or to another entity created in
connection with the financing arrangements entered into by Cogentrix, by
notifying Buyer of such assignment. In the event of any such assignment,
Cogentrix shall remain liable for performance hereunder. Buyer has executed a
Consent and Agreement concurrently with the execution of this Agreement for the
purpose of consenting to such assignment by Cogentrix and agrees to execute such
additional
10
<PAGE> 11
documents as may be necessary to further evidence such consent.
C. Subject to the foregoing, this Agreement shall not otherwise be
assignable by either party without the other party's written consent (which
shall not be unreasonably withheld) but it shall be binding upon and shall inure
to the benefit of the parties and their permitted successors and assigns.
13. Access to Premises.
The duly authorized agents of Cogentrix shall have the right of ingress and
egress to Buyer's Plant, upon reasonable notice and at all reasonable hours,
accompanied by Buyer's designated employee or agent, for the sole purpose of
reading steam delivery meters, inspecting Cogentrix's apparatus and equipment,
changing, exchanging, or repairing Cogentrix's property in Buyer's Plant, or
removing such apparatus and equipment at the time of, or any time after,
suspension of purchases under, or termination of, this Agreement. Cogentrix
shall cause its employees and representatives while on Buyer's premises to be
subject to and comply with all of Buyer's rules and regulations, including
without limitation rules pertaining to employee solicitation, distribution of
pamphlets, booklets, or literature, sale or products, collection of money, and
employee safety. Buyer shall protect Cogentrix's apparatus and equipment in
Buyer 's Plant, and except in the case of an emergency, shall permit no one but
Cogentrix's agents to handle such apparatus and equipment. In the event of any
loss of or damage to such apparatus or equipment of Cogentrix caused by or
arising out of carelessness, neglect or misuse by Buyer or its employees or
agents, any loss or damage resulting to Cogentrix shall be paid by Buyer.
Likewise, in the case of any damage to Buyer's Plant or equipment caused by
Cogentrix's employees or agents while on Buyer's premises such loss or damage
shall be paid by Cogentrix. Cogentrix shall, and shall cause its employees,
subcontractors and agents to, keep confidential and not disclose to third
parties Buyer's confidential information, which includes but is not limited to
manufacturing facilities, operation, processes and equipment observed or
discussed while on Buyer's premises or otherwise disclosed in connection with
this Agreement.
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<PAGE> 12
14. Cogentrix Compliance with Rules and Regulations.
Cogentrix warrants and represents that throughout the term of this Agreement and
any renewals thereof the Cogeneration Facility shall operate in compliance with
all federal, state and local statutes, ordinances, rules and regulations
including but not limited to statutes, ordinances, rules and regulations
pertaining to human safety, protection of property, and protection of the
environment.
15. Indemnification.
A. Cogentrix shall defend, indemnify and hold harmless Buyer, its
officers, directors, employees and agents from and against any liability, claim,
injury (including death resulting therefrom) , property damage, cost or expense,
fine, penalty or assessment by any public agency, including reasonable
attorneys' fees, directly or indirectly related to, associated with, arising
from, or caused by (i) the operation of the Cogeneration Facility, or (ii)
carelessness, neglect or misuse by an employee, agent or contractor of Cogentrix
while on Buyer's Plant. In no event shall Cogentrix be liable for damages to
Buyer's product in excess of one million dollars ($l,000,000) or such greater
amount as the parties may hereafter agree upon.
B. Buyer shall defend, indemnify and hold harmless Cogentrix, its
officers, directors, employees and agents from and against any liability, claim,
injury (including death resulting therefrom), property damage, cost or expense,
fine, penalty or assessment by any public agency, including reasonable
attorneys' fees, directly or indirectly related to, associated with, or arising
from defective construction by Buyer or its contractors, Buyer's defective steam
transportation equipment or utilization equipment or Buyer's improper or
careless use of steam on Buyer's side of the point of interconnection between
the Cogeneration Facility and Buyer's Plant.
C. Neither party shall be liable to the other party for lost profits
howsoever caused.
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<PAGE> 13
16. Shutdowns.
In the event that any pollution control equipment in the Cogeneration Facility
malfunctions, subject to Paragraph 5.A., Cogentrix will shut down the operation
of the boiler related to such pollution control equipment if such malfunction
results in higher than government permitted levels of air pollutants. Cogentrix
will undertake the repairs of such malfunctioning equipment as expeditiously as
possible and will not begin operations of such boiler until there has been full
compliance with all governmental clean air regulations.
17. Insurance.
Cogentrix shall, at no expense to Buyer provide and keep in force (or cause to
be provided and kept in force), during the term of this Agreement, comprehensive
general liability insurance in an insurance company or companies selected by
Cogentrix, and reasonably satisfactory to Buyer (provided that Buyer's approval
shall not be unreasonably withheld) in the amount of at least ten million
dollars ($10,000,000) combined single limit with respect to injury or death to
one or more than one person in any one accident or other occurrence and with
respect to damages to property. Such policy or policies shall include Buyer as a
named insured. Cogentrix shall deliver certificates of such insurance to Buyer
at the beginning of the term of this Agreement and thereafter not less than
thirty (30) days prior to the expiration of any such policy. Such insurance
shall be non-cancelable without thirty (30) days' written notice to Buyer.
18. Taxes.
In the event that any severance or similar tax, or any federal, state or local
tax or fee assessed on sales of steam by Cogentrix to Buyer, other than taxes
levied on or measured by the income of Cogentrix, shall be levied upon the sale
and delivery of steam to Buyer pursuant to this Agreement, the amount of such
tax or fee shall be added to the next billing statement rendered to Buyer and
Buyer shall pay such amount in full.
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<PAGE> 14
19. Governmental Restrictions.
In all matters pertaining to the subject matter of this Agreement, both parties
shall exert their best efforts to comply with all of the applicable rules and
regulations of all governmental agencies having control over either of them.
20. Counterparts, Amendments.
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when executed and delivered shall be an original but all such
counterparts shall constitute but one and the same instrument. This Agreement
may not be terminated, amended, supplemented, waived or modified except by an
instrument in writing signed by each of the parties hereto. Any failure by
either party to enforce any provisions hereof shall not constitute a waiver by
that party of its right to subsequently enforce the same or any other provision
hereof.
21. Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22. Governing Law.
This Agreement is executed and delivered in the State of Virginia and shall in
all respects be governed and construed in accordance with the laws of the State
of Virginia including all matters of construction, validity and performance.
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<PAGE> 15
23. Further Assurances.
Each party hereby agrees to execute and deliver all such instruments and
documents and to take all such actions as the other party may from time to time
reasonably request in order to effectuate fully the purposes of this Agreement.
24. Notices.
All notices and other communications hereunder shall be in writing and shall
become effective, if sent by first class certified or registered mail with
postage prepaid and return receipt requested, three days after deposit in the
mails, or when received (whichever is earlier), and shall be directed (a) if to
Buyer, at Celanese Chemical Inc., 1601 West LBJ Freeway, P.O. Box 819005,
Dallas, Texas 75381-9005 , Attention: General Counsel; with a copy to Celanese
Chemical Inc., 3230 W. Norfolk Rd., Portsmouth, Virginia 23703, Attention: Joe
Saibaitis, (b) if to Cogentrix, to Cogentrix Virginia Leasing Corporation, 9405
Arrowpoint Boulevard, Charlotte, North Carolina 28273; with a copy to Cogentrix
Virginia Leasing Corporation, One Wild Duck Lane, Portsmouth, Virginia 23703,
Attention: Frank Harrison, or (c) to such other address as any such person may
designate by notice given to the other party hereto.
25. Paragraph Headings.
Paragraph headings in this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
26. Exceedance of Maximum Hourly Steam Quantity.
Notwithstanding anything to the contrary in this Agreement, so long as Cogentrix
is in compliance with its obligation to provide an aggregate of 30,000 pounds of
four hundred twenty-five (425) to four hundred thirty-five (435) psig steam per
hour to Buyer and BASF as more specifically set forth in Section 2.A. of this
Agreement, Cogentrix shall have no liability to the Buyer for any failure to
deliver steam or interruption in the delivery of steam to Buyer's Plant
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<PAGE> 16
pursuant to this Agreement to the extent that such failure or interruption is
cause by or arises from (a) the Buyer at any time taking steam in excess of the
maximum amount of steam (in pounds per hour) that the Buyer is then permitted to
take pursuant to Section 2.A. of this Agreement, or (b) BASF at any time taking
steam in excess of the maximum amount of steam (in pounds per hour) that BASF is
then permitted to take pursuant to Section 2.A. of the BASF Steam Contract (in
each case, a "Maximum Quantity Exceedance").
In witness whereof, this Agreement is executed by the duly authorized
officers of the parties, pursuant to the authority vested in them by the lawful
action of their boards of directors, to be effective the date and year first
above written.
CELANESE CHEMICAL INC.
By: /s/ Joe Sabaitis
----------------------------------
Title: Site Director
-------------------------------
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ C. A. Holcomb
----------------------------------
Title: Vice President Operations
-------------------------------
16
<PAGE> 17
PORTSMOUTH
EXHIBIT A
The term "steam" shall mean dry saturated steam at a pressure at the point of
interconnection as provided in Paragraph 9.A. of four hundred and twenty-five
(425) psig, plus ten (10) psig and minus zero (0) psig. Seller will provide
sufficient pressure to deliver this steam to Buyer's using locations at no less
than 400 psig. All steam shall have a total solids content not in excess of
three parts per million, as determined in accordance with Method A of the latest
published edition of "Methods of Testing for Suspended and Dissolved Solids in
Industrial Waters," by the American Society for Testing Materials, or a similar
method embodying the same essential principles of that specification. The
quality of the steam delivered shall not be less than 99.0% (no more than 1%
moisture), and shall have a maximum of 25(degree)F. superheat.
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<PAGE> 18
PORTSMOUTH
EXHIBIT B
Cogentrix agrees to provide and maintain a suitable steam flow,
pressure recording and totalizing meter at the point of interconnection referred
to in Paragraph 9.A. so as to record the steam delivered to Buyer's Plant. Buyer
shall have the right to approve the meter installed at the point of
interconnection. Buyer shall have the right, subject to its discretion, to
provide and maintain its own steam flow, pressure recording and totalizing meter
as close as practicable to the point of interconnection so as to provide its own
independent record of steam used by the Buyer.
Either party shall be entitled to inspect and approve any metering
device installed by the other party for measuring the flow and pressure of steam
as described above.
Either party shall be entitled to have a representative present to
observe the meter or meters each month at the time consumption is recorded for
billing and may, in addition, inspect the meter charts at other times with prior
notice to the owner of the meter.
If either party disputes a meter 's accuracy or condition, it shall
so advise the owner of the meter in writing. The owner of the meter shall,
within thirty (30) days after receiving such notice advise the disputing party
in writing as to its position concerning the meter's accuracy and reasons for
taking such position. If the parties are unable to resolve their disagreement
through reasonable negotiations, then either party may engage an unaffiliated
third party to test the meter. Should the meter be found in good order, the
disputing party shall bear the cost of inspection; otherwise the cost shall be
borne by the owner. Any repair or replacement shall be made at the owner's
expense as soon as practicable, based on the third party's report.
In the event a meter error is discovered, the following conditions
shall apply:
1. If the error in measurement does not exceed 2%, no adjustment in
previous billing shall be made.
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<PAGE> 19
2. If the meter error exceeds 2%, an adjustment in previous billings
will be made equivalent to one-half (1/2) of the percentage difference in meter
correction for the second half of the period since the previous meter check, but
in no case for a period greater than three months prior to the date the error
was discovered.
19
<PAGE> 1
EXHIBIT 10.4
STEAM PURCHASE CONTRACT
This STEAM PURCHASE CONTRACT (the "Agreement"), effective as of January 1, 1999,
by and between BASF CORPORATION, a corporation organized and existing under the
laws of the State of Delaware ("Buyer"), and COGENTRIX VIRGINIA LEASING
CORPORATION, a corporation organized and existing under the laws of the State of
North Carolina ("Cogentrix").
Recitals
A. Buyer is a manufacturer of chemicals and owns and operates a
facility for the production of chemicals located in Portsmouth, Virginia
described in the attached Exhibit C-1 and generally shown on the attached
Exhibit C-2 (with the exception of Celanese Chemical, Inc.'s property as shown
on the attached Exhibit C-3)("Buyer's Plant").
B. Cogentrix is engaged in the business of building and operating
cogeneration facilities which produce steam for sale to industrial companies and
electricity for sale to regional electric utilities.
C. Cogentrix wishes to provide Buyer with steam for use in the
operation of Buyer's Plant and has entered into certain agreements for the
construction, financing and management of a cogeneration plant (the
"Cogeneration Facility") located near Buyer's Plant.
Undertakings
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, Buyer and Cogentrix hereby agree as follows:
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<PAGE> 2
1. Construction of Cogeneration Facility.
A. Cogentrix has constructed the Cogeneration Facility, consisting of
six (6) coal-fired boilers rated at 157,000 pounds per hour each and two (2)
steam turbine generators rated at approximately fifty-five thousand (55,000)
kilowatts. The Cogeneration Facility is located within one (1) mile of Buyer's
Plant.
B. All costs associated with the Cogeneration Facility, including
without limitation costs associated with engineering, licensing, construction,
and operation of the Cogeneration Facility, will be the responsibility of
Cogentrix (except as provided in Section 2.B.). Buyer's sole responsibilities
shall be to provide any easements across its property necessary for the delivery
of steam from the Cogeneration Facility to the interconnection point described
in Exhibit B hereto, to purchase and accept delivery of steam as hereinafter
provided and to comply with its obligations set forth herein.
C. Buyer will cooperate with Cogentrix and take any actions reasonably
requested by Cogentrix, at Cogentrix's expense, to obtain all necessary licenses
and permits to construct and operate the Cogeneration Facility and to permit the
sale of steam under this Agreement.
2. Sale of Steam.
A. Cogentrix shall sell steam to Buyer for use in Buyer's Plant up to a
maximum of one hundred fifty-four thousand (154,000) pounds of steam per hour
(of which, no more than nine thousand (9,000) pounds of steam per hour shall be
at four hundred twenty-five (425) to four hundred thirty-five (435) pounds per
square inch gauge ("psig")). Concurrently with this Agreement, Cogentrix is
entering into a similar steam purchase agreement ("Celanese Steam Contract")
with Celanese Chemical, Inc. ("Celanese"). The foregoing maximum of 9,000 pounds
per hour of four hundred twenty-five (425) to four hundred thirty-five (435)
psig steam notwithstanding, Buyer may take such steam in excess of 9,000 pounds
per hour at any time that Celanese takes such steam in an amount less than
21,000 pounds per hour such that the combined take of the two companies does not
exceed at any time 30,000 pounds per hour in the
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<PAGE> 3
aggregate. So long as Buyer materially complies with the terms and conditions of
this Agreement and, subject to the terms hereof, continues to purchase during
each Term Year (as defined in Paragraph 7 below) a minimum of 4% of the "total
energy output" of the Cogeneration Facility as defined in 18 C.F.R.
ss.292.202(i) (the "Total Energy Output") for that Term Year, Cogentrix will
deliver the steam at such pressures, at such temperatures and according to such
other specifications as set forth in Exhibit A hereto or as are mutually agreed
to in writing by Cogentrix and Buyer. It is understood that the Total Energy
Output may vary from one Term Year to another, but Cogentrix will not, without
Buyer's written consent, expand or modify the Cogeneration Facility from the
description set forth in Paragraph 1.A. above so as to increase the Total Energy
Output in a way that would materially increase Buyer's obligation to purchase
steam hereunder. In no event whatsoever shall Cogentrix fail to so deliver steam
to Buyer's Plant so long as the Cogeneration Facility is capable of producing
such steam and delivering it to Buyer, and Cogentrix shall make no commitment to
any customer or other third party that would prevent Cogentrix from complying
with such obligation.
B. Cogentrix has installed and owns such meters as shall be necessary
to measure and record the two hundred (200) to two hundred twenty-five (225)
psig steam ("Low Pressure Steam") delivered and received in accordance with the
terms and conditions of this Agreement. At Buyer's expense, Cogentrix shall
install a meter (and necessary associated equipment) on Buyer's Plant to measure
the steam at four hundred twenty-five (425) to four hundred thirty-five (435)
pounds psig. This meter and equipment shall be of a design similar to the meter
and associated equipment currently installed to measure Low Pressure Steam.
Meters utilized for this purpose shall meet the specifications and shall be
subject to calibration and testing as set forth in Exhibit B hereto.
C. Except as set forth in Paragraph 2.E below, beginning as of the
effective date of this Agreement until December 31, 2008 ("Initial Term") and
during any Extension as defined below, subject to the terms hereof Buyer will
purchase and accept from Cogentrix the Steam Needs of Buyer's Plant up to the
maximum set forth in Paragraph 2.A. above. The "Steam Needs" means all of
Buyer's requirements for steam at Buyer's Plant. Buyer may also include in such
Steam Needs steam requirements at or in the vicinity of what is as of the
effective date for
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<PAGE> 4
this Agreement Buyer's Plant of any company affiliated with Buyer or of any
partnership or other joint venture of which Buyer is a direct or indirect
significant participant unless, in Cogentrix's reasonable opinion, such sale
could subject Cogentrix to regulation as a public utility. Nothing in this
Agreement, however, is to be construed to require Buyer to curtail or alter its
operations in any way to purchase steam from Cogentrix.
D. For the Initial Term and during any Extension, to the extent that
Cogentrix is willing and able to sell and deliver steam to Buyer, Buyer will
purchase during each Term Year (as defined in Paragraph 7 below) and accept
delivery of 4% of the Total Energy Output; provided however that if Buyer's
Steam Needs are less than such 4% of the Total Energy Output, at Buyer's request
the parties shall cooperate in all reasonable respects to locate an alternative
purchaser of part or all of such steam on the terms hereof or on other terms
satisfactory to Cogentrix and that Buyer's obligation to purchase steam
hereunder shall be reduced by such amounts as such alternative purchaser commits
to purchase from Cogentrix. Buyer's obligation to purchase and accept delivery
of a minimum of 4% of the Total Energy Output of steam delivered in accordance
with Exhibit A is otherwise unconditional, except that it shall be relieved to
the extent that (i) Force Majeure reduces Buyer's Steam Needs below such 4% of
the Total Energy Output or (ii) Cogentrix fails (for any reason including
without limitation Force Majeure) to deliver steam to Buyer.
E. Buyer may on one (1) occasion elect, on at least sixty (60) days'
notice to Cogentrix, to reduce Buyer's obligation to purchase, and Cogentrix's
obligation to supply, Steam under this Agreement to no more than 4% of the Total
Energy Output effective for any of the Term years beginning June 1, 2004 through
the end of the Term Year of the Initial Term . Upon such a notice, such
obligations shall remain reduced until but no longer than the end of the last
Term Year of the Initial Term.
[3. THIS PARAGRAPH IS INTENTIONALLY OMITTED]
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<PAGE> 5
4. Term.
This Agreement shall become effective as of the date first set forth
above and, except as otherwise provided herein, shall continue to and through
December 31, 2008 and thereafter for successive two (2) year extension periods
("Extensions") unless and until Cogentrix or Buyer terminates this Agreement
effective as of the end of December 31, 2008 or the end of any Extension by
giving the other party notice thereof at least two (2) years before the
effective termination date.
5. Breach
A. Except as set forth in Paragraph 5.B. below, if either party commits
a material breach of this Agreement and fails within one hundred eighty (180)
days of receipt of a written notice thereof from the other party to correct such
breach, the non-breaching party may, in addition to all other remedies available
to it, terminate all of its obligations under this Agreement accruing
thereafter. Such one hundred eighty (180) day period shall be extended for such
time as Force Majeure delays the breaching party's correction of the breach.
During such one hundred eighty (180) day period, however, the obligations of the
parties under this Agreement shall not be suspended.
B. If during any consecutive six (6) months individual interruptions of
more than thirty (30) minutes (i) occur more than nine (9) times or (ii)
continue for more than one hundred (100) hours in the aggregate (a "Major Steam
Interruption"), Buyer shall give Cogentrix written notice thereof. In no event
shall an interruption of the type described in Section 26 hereof constitute or
count toward a "Major Steam Interruption" under and as defined in this
Agreement. Cogentrix shall use its best efforts to reestablish steam supply as
promptly as practicable. If within thirty (30) days of the date of such notice
Cogentrix has not established to Buyer's reasonable satisfaction that Cogentrix
has corrected the cause of the Major Steam Interruption and that no further
Major Steam Interruption will occur, Buyer may elect by notice to Cogentrix
immediately to permanently reduce its steam purchases hereunder to 4% of the
Total Energy Output and generate or obtain the balance of its Steam Needs from
other sources, in which case
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<PAGE> 6
the purchase price for steam delivered hereunder shall thereafter be the lesser
of the price that would otherwise be payable in accordance with Paragraph 7.A.
hereof or [***] dollars ($[***]) per Term Year. Following such latter notice and
during the remainder of the term of this Agreement, Cogentrix shall not provide
steam to any party other than Buyer, except to Celanese for its amines plant
located in Portsmouth, VA.
Notwithstanding the foregoing, in no event shall Cogentrix willfully cause a
Major Steam Interruption or fail to attempt in good faith to correct the cause
of a Major Steam Interruption.
In order to assure Buyer that Cogentrix is taking all reasonable steps to
prevent a Major Steam Interruption or any other breach hereof, Cogentrix shall
obtain Buyer's advance written approval (which shall not be unreasonably
withheld) of any and all proposed operators of the Cogeneration Facility.
C. If either party creates a condition which would, or which in the
reasonable belief of the other party may, make such other party's continued
performance of any of its obligations under this Agreement dangerous to life or
property, such other party may upon notice to the party that created the
condition temporarily suspend the performance of such obligations until it is
reasonably assured that the danger has been eliminated.
6. Force Majeure; Failure to Supply Steam.
A. As used in this Agreement, "Force Majeure" shall be an event by
which either party shall be prevented from delivering, receiving or using steam
or otherwise performing its obligations hereunder by reason of or through
strike, stoppage of labor (neither party, however, being obligated to settle a
labor dispute except on terms acceptable to it), riot, fire, flood, ice,
invasion, civil war, commotion, insurrection, military or usurped power,
accident, order of any court or authority granted in any bona fide adverse legal
proceedings or action, order of any civil authority, explosion, act of God or
public enemies, or any other cause reasonably beyond the control of the parties
(including Cogentrix's failure to obtain all necessary licenses and permits to
construct and operate the Cogeneration Facility after diligent effort by
Cogentrix) and not
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
6
<PAGE> 7
attributable to negligence.
B. If for any reason (including without limitation Force Majeure, but
excluding any Maximum Quantity Exceedance) Cogentrix fails for a continuous
period of eight (8) hours to deliver to Buyer steam which meets the quality
standards set forth in Exhibit A, Buyer may at its option provide any or all of
its Steam Needs, but only during such periods, from alternative sources.
C. If during the term of this Agreement Force Majeure prevents
Cogentrix from producing or delivering steam to Buyer, at Buyer's request upon
reasonable notice Cogentrix shall make its best efforts including the
contribution of all resources of any kind (including without limitation coal
supplies it may have or could purchase) available to it to provide to Buyer the
lowest cost energy substitute for the steam Cogentrix cannot deliver to Buyer,
provided that Buyer shall pay all of Cogentrix's out-of-pocket costs in
complying with this paragraph.
D. Failure of a party to suspend the purchase or sale of steam at any
time after the occurrence of grounds therefor, or to resort to any other remedy
or to exercise any one or more of such alternative remedies, shall not waive or
in any manner affect that party's right later to resort to any one or more of
such rights or remedies on account of any such ground then existing or which may
subsequently occur. Any suspension of the purchases or sales of steam by the
parties shall in no way operate to relieve the parties of liability for services
and facilities previously supplied.
7. Purchase Price.
A. Until December 31, 2003 and throughout any Extension (as defined in
Paragraph 4 above), the price Buyer shall pay Cogentrix for the purchase of
steam shall (subject to Paragraph 2.D. above) be determined as follows:
(1) As used in this Agreement, the term "Term Year" shall mean the
period beginning with the effective date set forth at the beginning of this
Agreement and ending on December 31
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<PAGE> 8
of that calendar year and shall mean any calendar year thereafter during the
term hereof.
(2) The Base Rate of the price per thousand (1,000) pounds of steam
delivered per hour shall be the 1988 price of [***] Dollars ($[***]).
(3) Commencing on the first day of each Term Year until December 31,
2003, new purchase rates for steam shall be computed based on the percentage
increase, if any, or decrease, if any, in the Delivered Cost of Coal (as
hereinafter defined) from June 1, 1988.
The new purchase rate for steam shall be computed by multiplying the Base Rate
times a fraction, the denominator of which shall be the Delivered Cost of Coal
for 1988 and the numerator of which shall be the Delivered Cost of coal in
effect on the first day of the Term Year for which such calculation is being
made. As used herein, the "Delivered Cost of Coal" shall refer to the weighted
average total price per ton paid by Cogentrix to purchase coal including the
weighted average transportation cost per ton for delivery to the Cogeneration
Facility, and Cogentrix shall provide to Buyer at Buyer's expense such
documentation as Buyer reasonably requests to verify such costs. Notwithstanding
the foregoing, no increase in the purchase rate for steam purchased hereunder
shall permit the purchase rate to exceed what it would have been had all Term
Years' purchase rate adjustments under Paragraph 7.A.(3) been increases of five
percent (5%) annually of the rate in effect for each preceding Term Year.
(4) If Buyer curtails or has no substantial operations at Buyer's Plant
for a continuous period of thirty (30) days such that for that Term Year Buyer's
Steam Needs are less than 4% of the Total Energy Output, Buyer shall not be
relieved of its obligations hereunder except that, notwithstanding Paragraph
7.A. above, the maximum payment to Cogentrix for all steam purchased hereunder
during that Term Year shall be (i) the price set forth above for such quantities
of steam equal to Buyer's Steam Needs for that Term Year plus (ii) [***] Dollars
($[***]).
B. From January 1, 2004 through December 31, 2008:
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
8
<PAGE> 9
(1) The purchase rate for all steam supplied in each Term
Year up to 4% of the Total Energy Output shall be the lesser of (i) the purchase
rate determined in the manner described in Paragraph 7.A.(3) above or (ii) the
lowest cost available to Buyer for itself generating steam or purchasing steam
from third parties; provided, however, that the purchase rate for all steam (if
any) in excess of Buyer's Steam Needs up to 4% of the Total Energy Output shall
not exceed [***] Dollars ($[***]). (2) The purchase rate for all steam supplied
in each Term Year in excess of 4% of the Total Energy Output for that Term Year,
shall be determined in the manner described in Paragraph 7.A.(3) above.
8. Resale of Steam.
Buyer shall not resell any steam provided by Cogentrix pursuant to this
Agreement, except that Buyer may, upon one (1) month's notice to Cogentrix,
resell (i) steam to supply the steam requirements referred to in the-next to
last sentence of Paragraph 2.C. hereof and (ii) any quantities of steam that
Buyer is required to purchase under Paragraph 2.D. hereof that are in excess of
its Steam Needs; provided, however, that Buyer may not resell steam if Cogentrix
reasonably determines, and notifies Buyer, that such resale could subject
Cogentrix to regulation as a public utility.
9. Interconnection with Buyer's Plant.
A. Except as provided in Section 2.B., Cogentrix shall be responsible
for all required auxiliary equipment and systems required to supply steam to the
point of interconnection with Buyer's Plant as indicated in Exhibit B, which
shall be the point at which delivery of, and risk of loss with respect to, the
steam shall pass from Cogentrix to Buyer. The meter or meters shall be located
at this point of interconnection. Cogentrix will supply and maintain, at its
cost, all piping systems between the Cogeneration Facility and the
interconnection point with Buyer's Plant specified on Exhibit B hereto.
B. Buyer will be responsible for the construction, operation and
maintenance, at its cost, of the piping and other equipment and apparatus to be
located in Buyer's Plant and
- ------------
[***] These portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
9
<PAGE> 10
required to receive the delivery of steam from the Cogeneration Facility to
Buyer's Plant at the point of interconnection.
C. Both Buyer's and Cogentrix's interconnection facilities shall be
designed to accepted engineering standards. Buyer and Cogentrix shall cooperate
in determining appropriate and compatible equipment specifications for
interconnection facilities; provided, however, notwithstanding anything to the
contrary herein, Buyer shall not be responsible for any damage to Cogentrix's
boiler system due to demand from Buyer's systems.
10. Service Interruptions.
Cogentrix shall exercise all reasonable effort to provide a continuous supply of
steam to Buyer. In this connection Cogentrix shall consult with Buyer on a
regular basis and to schedule to the extent reasonably possible all routine
boiler maintenance to coincide with periods of time when Buyer's Plant is closed
or Buyer's steam needs are reduced. Cogentrix further shall (i) endeavor, to the
best of its ability, to keep at least one boiler in operation at all times when
Buyer's Plant is requiring steam, and (ii) use its reasonable efforts to keep at
least two boilers in operation at all times when Buyer's Plant is requiring
steam (but only to the extent demand for steam at Buyer's Plant allows for safe
and prudent boiler operation). Notwithstanding the foregoing, the terms of this
paragraph shall be subject to Paragraph 5.A., but Cogentrix shall not be liable
for any loss or damage resulting from such failure, interruption, reduction or
suspension of service which is due to Force Majeure or where in Cogentrix' s
reasonable opinion the continuance of delivery of steam from the Cogeneration
Facility would endanger persons or property.
11. Billings.
Cogentrix will bill Buyer on a monthly basis for the steam purchased by Buyer
during the previous month. Payment for such invoices shall be made by Buyer
within thirty (30) days after receipt of invoices. Payments made thereafter
shall be subject to a late payment charge on the unpaid amount of such invoice
of 1 1/2% per month.
10
<PAGE> 11
12. Assignment of Agreement.
A. This Agreement shall be transferred and assigned by Buyer to any
person or entity purchasing or leasing Buyer's Plant, and, as a condition to any
such purchase or lease of Buyer's Plant, Buyer will cause such purchaser or
lessee to agree to be bound in accordance with the terms hereof; in such event
and unless otherwise agreed, Buyer shall remain responsible to Cogentrix with
respect to any successor's compliance with Paragraph 2.D. hereof, but only to
the extent Buyer itself is obligated pursuant to said paragraph.
B. Cogentrix shall have the right to assign its rights and duties under
this Agreement, either as collateral security or to another entity created in
connection with the financing arrangements entered into by Cogentrix, by
notifying Buyer of such assignment. In the event of any such assignment,
Cogentrix shall remain liable for performance hereunder. Buyer has executed a
Consent and Agreement concurrently with the execution of this Agreement for the
purpose of consenting to such assignment by Cogentrix and agrees to execute such
additional documents as may be necessary to further evidence such consent.
C. Subject to the foregoing, this Agreement shall not otherwise be
assignable by either party without the other party's written consent (which
shall not be unreasonably withheld) but it shall be binding upon and shall inure
to the benefit of the parties and their permitted successors and assigns.
13. Access to Premises.
The duly authorized agents of Cogentrix shall have the right of ingress and
egress to Buyer's Plant, upon reasonable notice and at all reasonable hours,
accompanied by Buyer's designated employee or agent, for the sole purpose of
reading steam delivery meters, inspecting Cogentrix's apparatus and equipment,
changing, exchanging, or repairing Cogentrix's property in Buyer's Plant, or
removing such apparatus and equipment at the time of, or any time after,
suspension of purchases under, or termination of, this Agreement. Cogentrix
shall cause its employees and representatives while on Buyer's premises to be
subject to and comply with all of Buyer's rules
11
<PAGE> 12
and regulations, including without limitation rules pertaining to employee
solicitation, distribution of pamphlets, booklets, or literature, sale or
products, collection of money, and employee safety. Buyer shall protect
Cogentrix's apparatus and equipment in Buyer 's Plant, and except in the case of
an emergency, shall permit no one but Cogentrix's agents to handle such
apparatus and equipment. In the event of any loss of or damage to such apparatus
or equipment of Cogentrix caused by or arising out of carelessness, neglect or
misuse by Buyer or its employees or agents, any loss or damage resulting to
Cogentrix shall be paid by Buyer. Likewise, in the case of any damage to Buyer's
Plant or equipment caused by Cogentrix's employees or agents while on Buyer's
premises such loss or damage shall be paid by Cogentrix. Cogentrix shall, and
shall cause its employees, subcontractors and agents to, keep confidential and
not disclose to third parties Buyer's confidential information, which includes
but is not limited to manufacturing facilities, operation, processes and
equipment observed or discussed while on Buyer's premises or otherwise disclosed
in connection with this Agreement.
14. Cogentrix Compliance with Rules and Regulations.
Cogentrix warrants and represents that throughout the term of this Agreement and
any renewals thereof the Cogeneration Facility shall operate in compliance with
all federal, state and local statutes, ordinances, rules and regulations
including but not limited to statutes, ordinances, rules and regulations
pertaining to human safety, protection of property, and protection of the
environment.
15. Indemnification.
A. Cogentrix shall defend, indemnify and hold harmless Buyer, its
officers, directors, employees and agents from and against any liability, claim,
injury (including death resulting therefrom) , property damage, cost or expense,
fine, penalty or assessment by any public agency, including reasonable
attorneys' fees, directly or indirectly related to, associated with, arising
from, or caused by (i) the operation of the Cogeneration Facility, or (ii)
carelessness, neglect or misuse by an employee, agent or contractor of Cogentrix
while on Buyer's Plant. In no event shall Cogentrix be liable for damages to
Buyer's product in excess of
12
<PAGE> 13
one million dollars ($l,000,000) or such greater amount as the parties may
hereafter agree upon.
B. Buyer shall defend, indemnify and hold harmless Cogentrix, its
officers, directors, employees and agents from and against any liability, claim,
injury (including death resulting therefrom), property damage, cost or expense,
fine, penalty or assessment by any public agency, including reasonable
attorneys' fees, directly or indirectly related to, associated with, or arising
from defective construction by Buyer or its contractors, Buyer's defective steam
transportation equipment or utilization equipment or Buyer's improper or
careless use of steam on Buyer's side of the point of interconnection between
the Cogeneration Facility and Buyer's Plant.
C. Neither party shall be liable to the other party for lost profits
howsoever caused.
16. Shutdowns.
In the event that any pollution control equipment in the Cogeneration Facility
malfunctions, subject to Paragraph 5.A., Cogentrix will shut down the operation
of the boiler related to such pollution control equipment if such malfunction
results in higher than government permitted levels of air pollutants. Cogentrix
will undertake the repairs of such malfunctioning equipment as expeditiously as
possible and will not begin operations of such boiler until there has been full
compliance with all governmental clean air regulations.
17. Insurance.
Cogentrix shall, at no expense to Buyer provide and keep in force (or cause to
be provided and kept in force), during the term of this Agreement, comprehensive
general liability insurance in an insurance company or companies selected by
Cogentrix, and reasonably satisfactory to Buyer (provided that Buyer's approval
shall not be unreasonably withheld) in the amount of at least ten million
dollars ($10,000,000) combined single limit with respect to injury or death to
one or more than one person in any one accident or other occurrence and with
respect to damages to
13
<PAGE> 14
property. Such policy or policies shall include Buyer as a named insured.
Cogentrix shall deliver certificates of such insurance to Buyer at the beginning
of the term of this Agreement and thereafter not less than thirty (30) days
prior to the expiration of any such policy. Such insurance shall be
non-cancelable without thirty (30) days' written notice to Buyer.
18. Taxes.
In the event that any severance or similar tax, or any federal, state or local
tax or fee assessed on sales of steam by Cogentrix to Buyer, other than taxes
levied on or measured by the income of Cogentrix, shall be levied upon the sale
and delivery of steam to Buyer pursuant to this Agreement, the amount of such
tax or fee shall be added to the next billing statement rendered to Buyer and
Buyer shall pay such amount in full.
19. Governmental Restrictions.
In all matters pertaining to the subject matter of this Agreement, both parties
shall exert their best efforts to comply with all of the applicable rules and
regulations of all governmental agencies having control over either of them.
20. Counterparts, Amendments.
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when executed and delivered shall be an original but all such
counterparts shall constitute but one and the same instrument. This Agreement
may not be terminated, amended, supplemented, waived or modified except by an
instrument in writing signed by each of the parties hereto. Any failure by
either party to enforce any provisions hereof shall not constitute a waiver by
that party of its right to subsequently enforce the same or any other provision
hereof.
21. Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall,
14
<PAGE> 15
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.
22. Governing Law.
This Agreement is executed and delivered in the State of Virginia and shall in
all respects be governed and construed in accordance with the laws of the State
of Virginia including all matters of construction, validity and performance.
23. Further Assurances.
Each party hereby agrees to execute and deliver all such instruments and
documents and to take all such actions as the other party may from time to time
reasonably request in order to effectuate fully the purposes of this Agreement.
24. Notices.
All notices and other communications hereunder shall be in writing and shall
become effective, if sent by first class certified or registered mail with
postage prepaid and return receipt requested, three days after deposit in the
mails, or when received (whichever is earlier), and shall be directed (a) if to
Buyer, at BASF Corporation, 801 Water Street, Portsmouth, Virginia 23704,
Attention: Site Manager; with a copy to BASF Corporation, 3000 Continental Drive
- - North, Mount Olive, New Jersey 07828-1234, Attention: Manager Utility Supply,
(b) if to Cogentrix, to Cogentrix Virginia Leasing Corporation, 9405 Arrowpoint
Boulevard, Charlotte, North Carolina 28273; with a copy to Cogentrix Virginia
Leasing Corporation, One Wild Duck Lane, Portsmouth, Virginia 23703, Attention:
Frank Harrison, or (c) to such other address as any such person may designate by
notice given to the other party hereto.
15
<PAGE> 16
25. Paragraph Headings.
Paragraph headings in this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
26. Exceedance of Maximum Hourly Steam Quantity.
Notwithstanding anything to the contrary in this Agreement, so long as Cogentrix
is in compliance with its obligation to provide an aggregate of 30,000 pounds of
four hundred twenty-five (425) to four hundred thirty-five (435) psig steam per
hour to Buyer and Celanese as more specifically set forth in Section 2.A. of
this Agreement, Cogentrix shall have no liability to the Buyer for any failure
to deliver steam or interruption in the delivery of steam to Buyer's Plant
pursuant to this Agreement to the extent that such failure or interruption is
cause by or arises from (a) the Buyer at any time taking steam in excess of the
maximum amount of steam (in pounds per hour) that the Buyer is then permitted to
take pursuant to Section 2.A. of this Agreement, or (b) Celanese at any time
taking steam in excess of the maximum amount of steam (in pounds per hour) that
Celanese is then permitted to take pursuant to Section 2.A. of the Celanese
Steam Contract (in each case, a "Maximum Quantity Exceedance").
16
<PAGE> 17
In witness whereof, this Agreement is executed by the duly authorized
representatives of the parties to be effective the date and year first above
written.
BASF CORPORATION
By: /s/ Cenan Ozmeral
-----------------------------------
Title: Group Vice President
--------------------------------
COGENTRIX VIRGINIA LEASING CORPORATION
By: /s/ C. A. Holcomb
-----------------------------------
Title: Vice President - Operations
--------------------------------
17
<PAGE> 18
PORTSMOUTH
EXHIBIT A
The term "steam" shall mean dry saturated steam at a pressure at the point of
interconnection as provided in Paragraph 9.A. of both (1) two hundred and
twenty-five (225) pounds per square inch gauge ("psig"), plus ten (10) psig and
minus zero (0) psig, and (2) four hundred and twenty-five (425) psig, plus ten
(10) psig and minus zero (0) psig. Seller will provide sufficient pressure to
deliver this steam to Buyer's using locations at no less than 200 psig and 400
psig, respectively. All steam shall have a total solids content not in excess of
three parts per million, as determined in accordance with Method A of the latest
published edition of "Methods of Testing for Suspended and Dissolved Solids in
Industrial Waters," by the American Society for Testing Materials, or a similar
method embodying the same essential principles of that specification. The
quality of the steam delivered shall not be less than 99.0% (no more than 1%
moisture) , and shall have a maximum of 25(degree)F. superheat.
18
<PAGE> 19
PORTSMOUTH
EXHIBIT B
Cogentrix agrees to provide and maintain a suitable steam flow,
pressure recording and totalizing meters at the point of interconnection
referred to in Paragraph 9.A. so as to record the steam delivered to Buyer's
Plant. Buyer shall have the right to approve the meters installed at the point
of interconnection. Buyer shall have the right, subject to its discretion, to
provide and maintain its own steam flow, pressure recording and totalizing meter
as close as practicable to the point of interconnection so as to provide its own
independent record of steam used by the Buyer.
Either party shall be entitled to inspect and approve any metering
devices installed by the other party for measuring the flow and pressure of
steam as described above.
Either party shall be entitled to have a representative present to
observe the meter or meters each month at the time consumption is recorded for
billing and may, in addition, inspect the meter charts at other times with prior
notice to the owner of the meter.
If either party disputes a meter's accuracy or condition, it shall
so advise the owner of the meter in writing. The owner of the meter shall,
within thirty (30) days after receiving such notice advise the disputing party
in writing as to its position concerning the meter's accuracy and reasons for
taking such position. If the parties are unable to resolve their disagreement
through reasonable negotiations, then either party may engage an unaffiliated
third party to test the meter. Should the meter be found in good order, the
disputing party shall bear the cost of inspection; otherwise the cost shall be
borne by the owner. Any repair or replacement shall be made at the owner's
expense as soon as practicable, based on the third party's report.
In the event a meter error is discovered, the following conditions
shall apply:
1. If the error in measurement does not exceed 2%, no adjustment in
previous billing shall be made.
19
<PAGE> 20
2. If the meter error exceeds 2%, an adjustment in previous billings
will be made equivalent to one-half (1/2) of the percentage difference in meter
correction for the second half of the period since the previous meter check, but
in no case for a period greater than three months prior to the date the error
was discovered.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 87,337
<SECURITIES> 0
<RECEIVABLES> 69,435
<ALLOWANCES> 0
<INVENTORY> 17,795
<CURRENT-ASSETS> 179,885
<PP&E> 699,235
<DEPRECIATION> 244,676
<TOTAL-ASSETS> 1,525,693
<CURRENT-LIABILITIES> 133,429
<BONDS> 1,136,726
0
0
<COMMON> 130
<OTHER-SE> 107,469
<TOTAL-LIABILITY-AND-EQUITY> 1,525,693
<SALES> 158,277
<TOTAL-REVENUES> 222,337
<CGS> 138,468
<TOTAL-COSTS> 138,468
<OTHER-EXPENSES> 6,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,307
<INCOME-PRETAX> 32,994
<INCOME-TAX> 13,259
<INCOME-CONTINUING> 19,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,735
<EPS-BASIC> 69.98
<EPS-DILUTED> 69.98
</TABLE>
