<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273-8110
(Address of principal executive offices) (Zip code)
(704) 525-3800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On May 17, 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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Page No.
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Part I: Financial Information
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 1999 (Unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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 14
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 48,793 $ 48,207
Restricted cash 56,035 40,604
Accounts receivable 67,827 66,586
Inventories 17,893 18,697
Other current assets 3,617 4,061
---------- ----------
Total current assets 194,165 178,155
NET INVESTMENT IN LEASES 498,996 498,614
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation: March 31, 1999, $235,333; December 31, 1998, $225,928 463,761 473,065
LAND AND IMPROVEMENTS 3,991 3,981
DEFERRED FINANCING, START-UP AND ORGANIZATION
COSTS, net of accumulated amortization: March 31, 1999, $16,699
December 31, 1998, $15,557 36,260 37,007
NATURAL GAS RESERVES 1,345 1,557
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 252,498 251,312
OTHER ASSETS 58,490 56,160
---------- ----------
$1,509,506 $1,499,851
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 103,403 $ 86,255
Accounts payable 19,551 25,511
Accrued compensation 6,025 8,096
Accrued interest payable 17,732 7,729
Accrued dividends payable -- 7,398
Other accrued liabilities 15,487 13,492
---------- ----------
Total current liabilities 162,198 148,481
LONG-TERM DEBT 1,101,247 1,127,184
DEFERRED INCOME TAXES 58,540 52,306
MINORITY INTERESTS 64,967 61,167
OTHER LONG-TERM LIABILITIES 24,297 22,850
---------- ----------
1,411,249 1,411,988
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated earnings 98,127 87,733
---------- ----------
98,257 87,863
---------- ----------
$1,509,506 $1,499,851
========== ==========
</TABLE>
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 Ended March 31, 1999 and 1998 (Unaudited)
(dollars in thousands, except for earnings per common share)
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<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
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OPERATING REVENUE:
Electric $ 74,408 $ 73,935
Steam 6,712 7,341
Lease 11,161 1,314
Service revenue under sales-type capital leases 11,870 1,296
Income from unconsolidated investments in power projects 5,410 923
Other 3,878 2,410
--------- ---------
113,439 87,219
--------- ---------
OPERATING EXPENSES:
Fuel 16,506 19,419
Operations and maintenance 16,976 15,789
Cost of services under sales-type capital leases 13,671 1,398
General, administrative and development 12,649 9,355
Depreciation and amortization 10,871 10,174
--------- ---------
70,673 56,135
--------- ---------
OPERATING INCOME 42,766 31,084
OTHER INCOME (EXPENSE):
Interest expense (23,732) (13,243)
Investment and other income, net 2,091 2,376
Equity in net (loss) income of affiliates, net (39) 444
--------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS 21,086 20,661
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS (3,826) (1,955)
--------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 17,260 18,706
PROVISION FOR INCOME TAXES (6,866) (7,323)
--------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 10,394 11,383
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and income tax benefit of $473 -- (743)
--------- ---------
NET INCOME $ 10,394 $ 10,640
========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss $ 36.86 $ 40.37
Extraordinary loss -- (2.64)
--------- ---------
$ 36.86 $ 37.73
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000
========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
4
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,394 $ 10,640
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,871 10,174
Deferred income taxes 6,234 2,730
Extraordinary loss on early extinguishment of debt, non-cash portion -- 2,145
Minority interests in income, net of dividends 3,767 (18,771)
Equity in net income of unconsolidated affiliates, net of dividends (1,186) 19
Minimum lease payments received 10,779 1,242
Amortization of unearned lease income (11,161) (1,314)
Decrease (increase) in accounts receivable (1,241) 2,621
Decrease in inventories 1,016 121
Decrease in accounts payable (5,960) (3,633)
Increase in accrued liabilities 9,927 1,024
Increase in other (238) (2,640)
--------- ---------
Net cash flows provided by operating activities 33,202 4,358
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions, net (208) (574)
Decrease in marketable securities -- 42,118
Investments in unconsolidated affiliates -- (106)
Acquisition of Facilities, net of cash acquired -- (155,324)
Decrease (increase) in restricted cash (15,431) 6,872
--------- ---------
Net cash flows used in investing activities (15,639) (107,014)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (7,398) (2,140)
Proceeds from issuance of debt 15,000 150,250
Repayments of debt (24,184) (64,530)
Increase in deferred financing costs (395) (1,050)
--------- ---------
Net cash flows provided by (used in) financing activities (16,977) 82,530
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 586 (20,126)
CASH AND CASH EQUIVALENTS, beginning of period 48,207 71,833
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 48,793 $ 51,707
========= =========
</TABLE>
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, ("Cogentrix Energy") 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 March 31, 1999 and for the three months
ended March 31, 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 March 31, 1999, and the results of operations and cash flows for
the three months ended March 31, 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. It is suggested that these unaudited consolidated condensed
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's most recent
report on Form 10-K for the year ended December 31, 1998, which the Company
filed with the Commission on March 31, 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 million which will be sufficient to retire all of Cogentrix of
Pennsylvania, Inc.'s ("CPA") outstanding project debt. The buy-back of the power
purchase agreement is subject to the issuance of an order by the Pennsylvania
Public Utility Commission granting Penelec the authority to fully recover from
its customers the consideration paid to CPA under the buyout agreement.
Management does not expect this event to have an adverse impact on the Company's
consolidated results of operations, cash flows or financial position.
3. 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.
6
<PAGE> 7
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 balance sheets as of March 31, 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 March 31, 1999 and December 31, 1998. The
accompanying consolidated statement of income for the three months ended March
31, 1998 includes the results of operations of the acquired facilities since the
closing date of the LS Acquisition on March 20, 1998. The accompanying
consolidated statement of income for the three months ended March 31, 1999
includes the results of operations of the acquired facilities for three months.
Batesville Acquisition
In August, 1998, the Company acquired an approximate 52% interest in an
800-megawatt, gas-fired electric generating facility (the "Batesville Facility")
under construction in Batesville, Mississippi (the "Batesville Acquisition").
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 52% ownership is deemed to
be temporary.
Bechtel Asset Acquisition
In October, 1998, the Company acquired from Bechtel Generating Company,
Inc. ("BGCI") ownership interests in 12 electric generating facilities,
comprising a net equity interest of approximately 365 megawatts, and one
interstate natural gas pipeline in the United States (the "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.
4. Pending Claims and Litigation
Effective September, 1996, the Company amended the power sales
agreements on its Elizabethtown, Lumberton, Kenansville, Roxboro and Southport
facilities. Under the amended terms of these power sales agreements, the
purchasing utility has exercised its right of economic dispatch resulting in
significant reductions in fuel requirements at each of these facilities. In
response to this reduction in fuel requirements, one of the coal suppliers
initiated an arbitration proceeding, and another filed a civil action against
certain subsidiaries of the Company. The Company has resolved a subsequent
contract dispute with the coal supplier for the Elizabethtown, Lumberton and
Kenansville Facilities. The dispute was arbitrated in March, 1999 resulting in
an award to the coal supplier in the amount of approximately $8.0 million
payable in 1999. Approximately $3.0 million of this $8.0 million award relates
to the reduction in purchase quantities at these facilities prior to the
arbitration, and approximately $5.0 million relates to the reduction in purchase
quantities from the date of the arbitration award through the balance of the
term of the coal contract, which ends in September, 2001. The future reduction
in coal purchase quantities provides a future economic benefit to the Company.
7
<PAGE> 8
The Company has resolved the contract dispute with the coal supplier at
the Southport Facility concerning the reduction in coal requirements. The
dispute was arbitrated in October, 1997 in favor of the Company and against the
coal supplier. The coal supplier challenged the arbitration award in federal
district court, which vacated the award and ordered a new arbitration be
conducted. On April 1, 1999, the district court's decision was reversed on
appeal, and the award was reinstated in favor of the Company.
Effective December, 1997, the Company amended the power sales agreement
at its Portsmouth facility. Under the amended terms, the purchasing utility has
exercised its right of economic dispatch which has led to significant reductions
in that facility's fuel requirements. In response to the reduced fuel
requirements, the coal supplier for the Portsmouth facility filed a civil action
in federal district court against a project subsidiary of the Company. In March,
1999, a project subsidiary of the Company entered into a comprehensive
settlement with the coal supplier which became final in May, 1999. Under the
terms of the settlement, the project subsidiary has agreed to take a stated
minimum quantity of coal in each of the five years remaining under the terms of
the coal contract. If the project subsidiary fails to make these purchases, the
project subsidiary will make a payment to the coal supplier based on the
shortfall quantity at an agreed upon price per ton.
Indirect, wholly-owned subsidiaries of Cogentrix Energy are also
parties to certain product liability claims related to the sale of coal
combustion by-products for use in various construction projects. Management
cannot currently estimate the range of possible loss, if any, the Company will
ultimately bear as a result of these claims. However, management believes -
based on its knowledge of the facts and legal theories applicable to these
claims and after consultations with various counsel retained to represent these
subsidiaries in their defense of such claims - that the ultimate resolution of
these claims should not have a material adverse effect on the Company's
consolidated financial position or results of operations or Cogentrix Energy's
ability to generate sufficient cash flow to service its outstanding debt.
In addition, the Company experiences other routine litigation in the
normal course of its business. Management is of the opinion that none of this
routine litigation should have a material adverse effect on its consolidated
financial position or results of operations.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 8 of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In addition to discussing and analyzing 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 1,690 megawatts. We developed, constructed and currently operate
10 of our plants, which, with one exception, are located in either North
Carolina or Virginia.
When our plant currently 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 2,110 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
<PAGE> 10
Results of Operations - Three Months Ended March 31, 1999 and 1998
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<CAPTION>
Three Months Ended March 31,
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1999 1998
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Total operating revenues $113,439 100.0% $ 87,219 100.0%
Operating costs 47,153 41.5 36,606 42.0
General, administrative and development 12,649 11.2 9,355 11.0
Depreciation and amortization 10,871 9.6 10,174 11.0
-------- ------ -------- ------
Operating income $ 42,766 37.7% $ 31,084 36.0%
======== ====== ======== ======
</TABLE>
Total operating revenues increased 30.0% to $113.4 million for the
first quarter of 1999 as compared to the first quarter of 1998. This increase
was primarily attributable to the $23.0 million aggregate amount of lease
revenue 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 three months of
activity for the Cottage Grove and Whitewater facilities in the quarter ended
March 31, 1999, as compared to less than one month in the quarter ended December
31, 1998. The increase in revenues also relates to a $2.2 million increase
during the quarter as compared to the previous year fiscal quarter in equity
earnings from interests in eight of the twelve power projects acquired in the
Bechtel Acquisition in October, 1998. The increase in equity in earnings was
partially offset by a decrease in earnings from the Birchwood facility. In
addition, the increase in operating revenues was related to an increase in sales
of excess gas supply to third parties at the Cottage Grove and Whitewater
facilities. To a lesser extent, operating revenues were impacted by an increase
in electric revenue from the Richmond facility related to an increase in
megawatt hours sold to the purchasing utility. These increases in electric
revenue were partially offset by a decrease in revenue at the Southport facility
related to a decrease in capacity payments received in the first quarter of 1999
as compared to the first quarter of 1998.
Our operating costs increased 28.8% to $47.2 million for the first
quarter of 1999 as compared to the first quarter of 1998. This increase resulted
primarily from the significant increase in cost of services at the Cottage Grove
and Whitewater facilities, interests in which we acquired our interests on March
20, 1998. Operating costs include a full three months of activity for the
Cottage Grove and Whitewater facilities in the quarter ended March 31, 1999, as
compared to less than one month in the quarter ended March 31, 1998. The
increase in operating costs is also related to increased operating expenses at
the Elizabethtown, Lumberton, Kenansville, Southport and Roxboro Facilities. The
increase at the Elizabethtown, Lumberton and Kenansville facilities primarily
relates to expenses incurred related to the settlement of litigation in March,
1999. See "Part II - Item 1. Legal Proceedings" for a further explanation. The
increase in operating expenses at the Southport and Roxboro facilities was due
to routine maintenance costs incurred in the first quarter of 1999. The increase
in operating expenses was partially offset by a significant reduction in the
fuel expense at the Hopewell facility associated with the restructuring of its
power sales agreement and a decrease in maintenance costs incurred at the
Richmond facility related to routine maintenance performed during the first
quarter of 1998. To a lesser extent, the increase in operating costs was offset
by a decrease in costs incurred by ReUse Technology, Inc., a wholly-owned
subsidiary of Cogentrix Energy, engaged in coal ash disposal.
General, administrative and development expense increased 35.2% to
$12.6 million for the first quarter of 1999 as compared to the first quarter of
1998. This increase related primarily to an increase in incentive compensation
expense and the buyout of a former executive's profit sharing agreement. To a
lesser extent, the increase is due to an increase in consulting expenses related
to development activity.
Interest expense increased 79.2% to $23.7 million for the quarter ended
March 31, 1999 as compared to the first quarter of 1998. Our average long-term
debt increased to $1.2 billion, with a weighted average interest rate of 8.12%
for the first quarter of 1999, as compared to weighted average long-term debt of
$729 million, with a weighted average interest rate of 7.27% for the first
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 $15.0 million of outstanding borrowings under a revolving
credit facility at a project subsidiary. The increase in interest expense
discussed above was partially offset by a decrease in
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<PAGE> 11
interest expense at several of our project subsidiaries due to the scheduled
repayment of outstanding project finance debt.
The decrease in equity in net (loss) income of affiliates related to
the decrease in earnings recognized from our interest in partnerships operating
greenhouses in the states of New York and Texas. We entered into an agreement in
December, 1998 to sell our interests in these partnerships.
The increase in minority interest in income for the first quarter of
1999 as compared to the first quarter of 1998 related primarily to an increase
in earnings at the Hopewell facility due to the restructuring of the power sales
agreement in February, 1998. In addition, the increase 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 operation for the quarter
ended March 31, 1999 include a full three months of earnings for the Cottage
Grove and Whitewater facilities, as compared to less than one month for the
three month period ended March 31, 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 January, 1998. The loss consisted of a write-off of the deferred
financing costs on the Hopewell facility's original project debt and a swap
termination fee on an interest rate swap agreement hedging the original project
debt.
Liquidity and Capital Resources
The principal components of operating cash flow for the first quarter
of 1999 were net income of $10.4 million, increases due to adjustments for
depreciation and amortization of $10.9 million, deferred income taxes of $6.2
million, minority interest in income, net of dividends, of $3.8 million, and a
net $3.5 million adjustment to cash reflecting changes in other working capital
assets and liabilities, which were partially offset by amortization of unearned
lease income, net of minimum lease payments received, of $0.4 and $1.2 million
equity in net income (loss) of unconsolidated affiliates, net of dividends. Cash
flow provided by operating activities of $33.2 million, and proceeds from
borrowings of $15.0 million were primarily used to purchase property, plant and
equipment of $0.2 million, repay project finance borrowings of $24.2 million,
pay deferred financing costs of $0.4 million, pay a common stock dividend of
$7.4 million and fund $15.4 million of escrow.
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 certain cases, the capital
stock of or the partnership interest in that project subsidiary. This type of
financing is generally referred to as "project financing". The project financing
debt of our subsidiaries and joint ventures (aggregating $832.3 million as of
March 31, 1999) is non-recourse to Cogentrix Energy and our other project
subsidiaries, except in connection with certain transactions where Cogentrix
Energy has agreed to certain limited guarantees and other obligations with
respect to such projects. These limited guarantees and other obligations include
agreements for the benefit of the project lenders to three project subsidiaries
to fund cash deficits that the projects may experience as a result of incurring
certain 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 impair Cogentrix Energy's ability to service its outstanding
debt.
11
<PAGE> 12
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 certain limitations in our respective
project credit documents. Such limitations generally require that: (i) project
debt service payments be current, (ii) project debt service coverage ratios be
met, (iii) all project debt service and other reserve accounts be funded at
required levels and (iv) there be no default or event of default under the
relevant project credit documents. There are also additional limitations that
are adapted to the particular characteristics of each project subsidiary and
project entities in which we have an investment.
As of March 31, 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
million to $86.3 million 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, the senior notes, to fund a significant portion
of development activities and meet 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 to provide for direct advances to,
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 as well as
certain 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, 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.
As a result of a March 1999 arbitration award related to a contract
dispute with a coal supplier, we are obligated to pay the coal supplier
approximately $8 million in 1999. Approximately $3 million of this award
relates 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. The amount of
damages awarded will not materially reduce the projected amount of cash flow to
Cogentrix Energy for the current fiscal year and should not, therefore, have a
material adverse impact on Cogentrix Energy's ability to service its
outstanding debt.
For the fiscal year ended December 31, 1998, our board of directors
declared a dividend on our outstanding common stock of $7.4 million. The
dividend 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 the senior notes 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 its
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 March 31, 1999, there have been no significant changes in the portfolio of
12
<PAGE> 13
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.
Year 2000 Compliance
We continue to assess our readiness with the Year 2000 issue, and
expect that all of our business critical systems such as corporate, embedded
technology systems, business partners and vendor systems will be Year 2000
compliant by June 30, 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 the embedded technology at the power generation
facilities was completed before January 1, 1999. The investigation and analysis
identified no significant Year 2000 issues. The power generation facilities as
currently configured require no action to be Year 2000 operational, but certain
remediation is under way and scheduled for completion by October 21, 1999, which
will address certain 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 March 31, 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, the inability of the plants to produce and distribute power.
These plans have been tested, and appear to be adequate. Despite our current
expectations, there can be no assurances that there will not be interruptions or
other limitations of financial and operating system functionality or that we
will not ultimately incur significant, unplanned costs to avoid such
interruptions or limitations.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Disputes with Coal Suppliers
Under the terms of the amended power sales agreements for our
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport facilities, the
purchasing utility has exercised its right to suspend or reduce purchases of
energy resulting in significantly reduced fuel requirements at each of these
facilities. Coal is supplied to the Elizabethtown, Lumberton and Kenansville
Facilities by James River Coal Sales, Inc., and one of its affiliates. Coal was
supplied to the Southport Facility until November, 1997 when the contract term
expired by Coastal Coal Sales, Inc. The coal sales agreements for the
Elizabethtown, Lumberton and Kenansville Facilities provide for the sale and
purchase of the coal requirements of those facilities through September, 2001.
Under the amended power sales agreement for our Portsmouth Facility,
Virginia Power has from time to time, since December, 1997, exercised its right
to suspend or reduce purchases of energy resulting in significantly reduced fuel
requirements at the facility. Coal is supplied to the Portsmouth Facility by
Arch Coal Sales Company, Inc. The coal sales agreement provides for the sale and
purchase of the coal requirements of the Portsmouth Facility through April,
2003.
As a result of the purchasing utility exercising its right to suspend
or reduce purchases of energy from these facilities and the consequent reduction
in fuel requirements, our project subsidiaries operating these facilities are
purchasing significantly less coal. In response the coal suppliers sought to
recover damages and, in some cases, sought injunction relief. A summary of the
resolution of each of these disputes is set forth below.
We recently resolved the contract dispute with James River Coal
concerning reduction in coal requirements at the Elizabethtown, Lumberton and
Kenansville Facilities, which has been pending since November, 1996. The issue
was arbitrated in March, 1999 with the coal supplier's claims for an amount in
excess of $24 million reduced to an award in favor of the coal supplier in the
amount of approximately $8 million. The arbitration award was satisfied by the
project subsidiary and the pending lawsuit by James River Coal against the
project subsidiary in the United States District Court was dismissed with
prejudice on May 6, 1999. Approximately $3 million of this $8 million award
relates to the reduction in purchase quantities prior to the arbitration and
approximately $5 million relates to the reduction in purchase quantities from
the arbitration award date through the balance of the term of the coal contract,
which ends in September, 2001. The future reduction in coal purchase quantities
provides future economic benefit to this project subsidiary.
We also recently resolved the contract dispute with Coastal Coal Sales
concerning reduction in coal requirements at the Southport Facility that has
been pending since October, 1996. The dispute was arbitrated in October, 1997
and the decision was in favor of our project subsidiary and against the coal
supplier. The successor company to Coastal Coal Sales challenged the arbitration
award in the United States District Court. In April, 1998 the District Court
issued an order vacating the arbitration award and directing a new arbitration
be conducted. We appealed the District Court's order to the United States Court
of Appeals for the Fourth Circuit, which by order dated April 1, 1999 reversed
the District Court and remanded the matter with direction to reinstate the
arbitration award in favor of the company. A subsequent request by the coal
supplier for reconsideration by the Court of Appeals has been denied.
We also recently resolved the contract dispute with Arch Coal Sales
concerning reduction in coal requirements at the Portsmouth Facility that has
been pending since February, 1998. In March, 1999 we entered into a
comprehensive settlement with this coal supplier which became final in May,
1999. Under the settlement agreement, our project subsidiary has agreed to take
a stated minimum quantity of coal in each of the five years remaining under the
term of the coal contract and, failing such purchases, to make a payment based
upon the shortfall quantity at an agreed upon price per ton. Given the projected
coal requirements for electric and steam production over that five year period,
we believe any required shortfall payments should not have a material adverse
effect on the projected aggregate amount of cash flow to Cogentrix Energy from
its project subsidiaries and unconsolidated affiliates.
14
<PAGE> 15
The amount paid to satisfy the arbitration award in favor of James
River Coal, even when combined with the amounts we expect to pay in the current
year under the settlement with Arch Coal Sales, will not materially reduce the
projected amount of cash flow to Cogentrix Energy for the current fiscal year.
The payment of these amounts should not, therefore, have a material adverse
effect on Cogentrix Energy's ability to service its outstanding debt.
Other Litigation
In addition to the litigation described above, we experience other
litigation in the normal course of business. Several 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 counsel retained
to represent these subsidiaries in its defense of such claims - that the
ultimate resolution of these claims should not have a material adverse effect on
our consolidated financial position, results of operations or ability to
generate sufficient cash flow to service its outstanding debt.
In addition, we experience other routine litigation in the normal
course of its business. Our management is of the opinion that none of this
routine litigation should have a material adverse effect on our financial
position or results of operation.
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.
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 Operation and Maintenance Agreement by and between LSP - Whitewater
Limited Partnership as Owner and LSP - Whitewater I, Inc. as
Operator dated as of April 15, 1999. (10.1) (*) (5)
10.2 Operation and Maintenance Agreement by and between LSP - Cottage
Grove, L.P. as Owner and LSP - Cottage Grove, Inc. as Operator dated
as of April 15, 1999. (10.2) (*) (5)
27 Financial Data Schedule, which is submitted electronically to the
U.S. Securities and Exchange Commission for information only and
is not filed.
- -------------
* 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 herein by reference to the Registration Statement on Form S-1
(File No. 33-74254) filed January 19, 1994. The number designating the
exhibit on the exhibit index to such previously-filed report is enclosed
in parentheses at the end of the description of the exhibit above.
(2) Incorporated herein 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 herein 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 herein 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. 33-95928) filed by LS
Power Funding Corporation, LSP - Whitewater Limited Partnership and LSP -
Cottage Grove, L.P. on May 17, 1999. The number designating the exhibit on
the exhibit index to such previously-filed report is endorsed in parentheses
at the end of the description of the exhibit above.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGENTRIX ENERGY, INC.
(Registrant)
May 17, 1999 /s/ Thomas F. Schwartz
-------------------------------------
Thomas F. Schwartz
Senior Vice President - Finance
Treasurer
(Principal Financial and Accounting
Officer)
17
<PAGE> 1
-----------------------------------------------------------------
AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
-----------------------------------------------------------------
Effective as of December 19, 1997, as amended
<PAGE> 2
INDEX OF AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
ARTICLE I
<TABLE>
<S> <C> <C>
OFFICES
Section 1. Principal Office
Section 2. Registered Office
Section 3. Other Offices
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting
Section 2. Substitute Annual Meeting
Section 3. Special Meetings
Section 4. Place of Meeting
Section 5. Notice of Meeting
Section 6. Waiver of Notice
Section 7. Closing of Transfer Books or
Fixing of Record Date
Section 8. Voting Lists
Section 9. Voting Groups
Section 10. Quorum
Section 11. Proxies
Section 12. Voting of Shares
Section 13. Votes Required
Section 14. Action of Shareholders Without Meeting
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers
Section 2. Number, Term and Qualifications
Section 3. Vacancies
Section 4. Removal
Section 5. Compensation
</TABLE>
<PAGE> 3
ARTICLE IV
<TABLE>
<S> <C> <C>
MEETINGS OF DIRECTORS
Section 1. Regular Meetings
Section 2. Special Meetings
Section 3. Notice
Section 4. Waiver of Notice
Section 5. Quorum
Section 6. Manner of Acting
Section 7. Presumption of Assent
Section 8. Action by Directors Without Meeting
Section 9. Meetings by Conference Telephone
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee
Section 2. Other Committees
Section 3. Vacancy
Section 4. Removal
Section 5. Minutes
Section 6. Responsibility of Directors
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation
Section 2. Appointment and Term
Section 3. Compensation of Officers
Section 4. Removal of Officers
Section 5. Bonds
Section 6. Chief Executive Officer
Section 7. Chief Operating Officer
Section 8. Chairman
Section 9. Vice Chairman
Section 10. President
Section 11. Vice Presidents
Section 12. Secretary
Section 13. Assistant Secretaries
Section 14. Treasurer
Section 14. Assistant Treasurers
</TABLE>
<PAGE> 4
ARTICLE VII
<TABLE>
<S> <C> <C>
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts
Section 2. Loans
Section 3. Checks and Drafts
Section 4. Deposits
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares
Section 2. Transfer of Shares
Section 3. Lost Certificates
Section 4. Holder of Record
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions
Section 2. Seal
Section 3. Fiscal Year
Section 4. Pronouns
Section 5. Amendments
ARTICLE X
INDEMNIFICATION
Section 1. Coverage
Section 2. Indemnification Limitations
Section 3. Payment
Section 4. Evaluation
Section 5. Consideration
Section 6. Definitions
</TABLE>
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
COGENTRIX ENERGY, INC.
(as of December 19, 1997)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located in Charlotte, Mecklenburg County, North Carolina, or at such
other place as the Board of Directors shall determine.
Section 2. Registered Office. The registered office of the corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical to the principal office. The address of the registered office
may be changed from time to time by the Board of Directors.
Section 3. Other Offices. The corporation may, from time to time, have
offices at such places, either within or without the State of North Carolina, as
the Board of Directors may designate or as the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the third Thursday in the month of March in each year, at the hour of
9:30 o'clock a.m. or such other time on such day designated in the notice of the
meeting, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday in the State of North Carolina, such meeting
shall be held on the next succeeding business day.
Section 2. Substitute Annual Meeting. If the annual meeting shall not
be held on the day designated by these Bylaws for the annual meeting of
shareholders, or at any adjournment thereof, then a substitute annual meeting
may be called in accordance with Section 3 of this Article and the meeting so
called shall be designated and treated for all purposes as the annual meeting.
<PAGE> 6
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the Chief Executive Officer or by the Board of Directors or shall
be called by the Secretary at the written request of shareholders holding at
least one-tenth of all shares entitled to vote at the meeting. Any such
shareholder request must be signed, dated and delivered to the Secretary and
must describe the purpose or purposes for which the meeting is to be held.
Section 4. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of North Carolina, as the place of
meeting for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of North
Carolina, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation.
Section 5. Notice of Meeting. Written or printed notice stating the
time and place of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chief Executive Officer,
the Secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the record of
shareholders of the corporation, with postage thereon prepaid. In addition to
the foregoing, notice of a substitute annual meeting shall state that the annual
meeting was not held on the day designated by these Bylaws and that such
substitute annual meeting is being held in lieu of and is designated as such
annual meeting.
If a meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment. If a new record
date for the adjourned meeting is fixed, however, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.
Section 6. Waiver of Notice.
(a) A shareholder may waive any notice required by law, the
Articles of Incorporation, or these Bylaws before or after the date and
time stated in the notice. The waiver must be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the
corporation for inclusion in the minutes or filing with the corporate
records.
(b) A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting
business at the meeting; and
2
<PAGE> 7
(2) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or
purposes described in the meeting notice, unless the
shareholder objects to considering the matter before it is
voted upon.
Section 7. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, seventy (70) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days and,
in the case of a meeting of shareholders, not less than ten (10) full days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired, and except where the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
Section 8. Voting Lists. After fixing a record date for a meeting, the
Secretary of the corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of a shareholders' meeting. The
list shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
shareholder. The shareholders' list shall be available for inspection by any
shareholder, beginning two (2) business days after notice of the meeting is
given for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, or his agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of N.C. Gen. Stat. 55-16-02(c), as may be hereafter amended, to
copy the list, during regular business hours and at his expense, during the
period it is available for inspection. The Secretary of the corporation shall
3
<PAGE> 8
make the shareholders' list available at the meeting, and any shareholder or his
agent or attorney is entitled to inspect the list at any time during the meeting
or any adjournment.
Section 9. Voting Groups. All shares of one or more classes or series
that under the Articles of Incorporation or the North Carolina Business
Corporation Act are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Except as provided in the immediately following
sentence, a majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. Shares entitled to vote as a separate voting group may take
action on a matter at the meeting only if a quorum of such shares exists. A
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
The shareholders at a meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn; and at any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the original meeting.
Section 11. Proxies. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact.
An appointment of a proxy is effective when received by the Secretary
or other officer or agent authorized to tabulate votes. An appointment is valid
for eleven (11) months unless a different period is expressly provided in the
appointment form.
Section 12. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Except as otherwise provided by law, the Articles of Incorporation or
these Bylaws, if a quorum exists, action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action.
Shares of its own stock owned by the corporation directly, or
indirectly through a corporation in which it owns, directly or indirectly, a
majority of the shares entitled to vote for directors, shall not be voted at any
meeting and shall not be counted in determining the total
4
<PAGE> 9
number of outstanding shares at a given time entitled to vote; provided that
this provision does not limit the power of the corporation to vote its own
shares held by it in a fiduciary capacity.
At each election for directors every shareholder entitled to vote at
such election shall have the right (i) to vote the number of shares standing of
record in his name for as many persons as there are directors to be elected and
for whose election he has a right to vote or (ii) to cumulate his votes for
directors; provided, that shares otherwise entitled to vote cumulatively may not
be voted cumulatively at a particular meeting unless: (a) the meeting notice or
proxy statement accompanying the notice states conspicuously that cumulative
voting is authorized; or (b) a shareholder or proxy who has the right to
cumulate his votes announces in open meeting, before voting for directors
starts, his intention to vote cumulatively; and if such announcement is made,
the chair shall declare that all shares entitled to vote have the right to vote
cumulatively and shall announce the number of shares present in person and by
proxy, and shall thereupon grant a recess of not less than one hour nor more
than four hours, as he shall determine, or of such other period of time as is
unanimously then agreed upon.
Section 13. Votes Required. The vote of a majority of the shares voted at a
meeting of shareholders, duly held at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting except as otherwise provided by law, by the Articles of
Incorporation or by these Bylaws. Any provision in these Bylaws prescribing the
vote required for any purpose as permitted by law may not itself be amended by a
vote less than the vote prescribed therein.
Section 14. Action of Shareholders Without Meeting. Any action which may be
taken at a meeting of the shareholders may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents signed by all the
shareholders before or after such action, describing the action taken and
delivered to the corporation for inclusion in the minutes or filing with the
corporate records. A consent signed under this Section has the effect of a
meeting vote and may be described as such in any document.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation
managed under the direction of, the Board of Directors.
Section 2. Number, Term and Qualifications. The number of directors
constituting the Board of Directors shall be nine (9).
The directors shall be elected at the annual meeting of the
shareholders (except as herein otherwise provided for the filling of vacancies)
and each director shall hold office until the next
5
<PAGE> 10
annual shareholders' meeting following his election or until such director's
earlier death, resignation, retirement, removal or disqualification. A decrease
in the number of directors shall not shorten an incumbent director's term.
Despite the expiration of a director's term, such director shall continue to
serve until a successor shall be elected or qualifies or until there is a
decrease in the number of directors. Directors need not be residents of the
State of North Carolina or shareholders of the corporation. Those persons who
receive the highest number of votes at a meeting at which a quorum is present
shall be deemed to have been elected.
Section 3. Vacancies. Except as otherwise provided by law or the
Articles of Incorporation, any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors even
though less than a quorum or by the sole remaining director. Any vacancy created
by an increase in the authorized number of directors shall be filled only by
election at an annual meeting or at a special meeting of shareholders.
Any director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
At a special meeting of shareholders the shareholders may elect a
director to fill any vacancy not filled by the directors.
Section 4. Removal. Any director may be removed at any time with or
without cause by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors. If cumulative
voting is authorized, a director may not be removed if the number of votes
sufficient to elect him under cumulative voting is voted against his removal.
However, unless the entire Board is removed, an individual director shall not be
removed when the number of shares voting against the proposal for removal shall
be sufficient to elect a director if such shares could be voted cumulatively at
an annual election.
Section 5. Compensation. The Board of Directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending meetings of the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. In addition to the
annual meeting of the Board of Directors, the Board of Directors shall meet once
in each calendar quarter, other than the calendar quarter in which the annual
meeting occurs, on such dates established annually in advance by the Board of
Directors of the Corporation. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings without other notice than such
resolution.
6
<PAGE> 11
Section 2. Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of North Carolina, as the place
for holding any special meeting of the Board of Directors called by them.
Section 3. Notice. The person calling the meeting shall give or cause
to be given oral or written notice of special meetings of the Board of Directors
to each director not less than three (3) days before the date of the meeting by
any usual means of communication.
Neither the business transacted at, nor the purposes of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 4. Waiver of Notice.
(a) A director may waive any notice required by law, the
Articles of Incorporation, or these Bylaws before or after the date and
time stated in the notice. Except as provided by subsection (b), the
waiver must be in writing, signed by the director entitled to the
notice, and delivered to the corporation for filing with the minutes or
corporate records.
(b) A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at
the beginning of the meeting (or promptly upon his arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or consent to action taken at the meeting.
Section 5. Quorum. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, a majority of the Directors fixed by these Bylaws
shall constitute a quorum for the transaction of business.
Section 6. Manner of Acting. If a quorum is present when a vote is
taken, the affirmative act of the majority of the directors present is the act
of the Board of Directors, except as otherwise provided in these Bylaws.
Section 7. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting;
(b) His dissent or abstention from the action taken is entered
in the minutes of the meeting; or
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<PAGE> 12
(c) He files written notice of his dissent or abstention with
the presiding officer of the meeting before its adjournment or with the
corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor
of the action taken.
Section 8. Action by Directors Without Meeting. Action required or
permitted by law to be taken at a Board of Directors' meeting may be taken
without a meeting if the action is taken by all members of the Board. The action
must be evidenced by one or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records. Action taken under this Section is
effective when the last director signs the consent unless the consent specifies
a different effective date. A consent signed under this Section has the effect
of a meeting vote and may be described as such in any document.
Section 9. Meetings by Conference Telephone. Any one or more directors,
upon reasonable notice to the Secretary of the Corporation, may participate in a
meeting of the Board or a committee by means of a conference telephone or
similar communications device by which all directors participating may
simultaneously hear each other during the meeting, and such participation in a
meeting shall be deemed presence in person at such meeting.
ARTICLE V
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by these Bylaws, may
designate two or more directors to constitute an Executive Committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors to the extent permitted
by applicable law; provided, however, that one of the designees must be a
director who owns less than five percent (5%) of the common stock of the
Corporation.
Section 2. Other Committees. The Board of Directors may create one or
more other committees and appoint members of the Board of Directors to serve on
them. Each committee must have two or more members, who serve at the pleasure of
the Board of Directors. The creation of a committee and appointment of members
to it must be approved by the greater of:
(a) A majority of all the directors in office when the action
is taken; or
(b) The number of directors constituting a quorum under the
Articles of Incorporation or these Bylaws.
Section 3. Vacancy. Any vacancy occurring in any committee shall be
filled by a majority of the number of directors fixed by these Bylaws at a
regular or special meeting of the Board of Directors.
8
<PAGE> 13
Section 4. Removal. Any member of a committee may be removed at any
time with or without cause by a majority of the number of directors fixed by
these Bylaws.
Section 5. Minutes. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 6. Responsibility of Directors. The designation of a committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility or liability imposed
upon it or him by law.
Any resolutions adopted or other action taken by a committee within the
scope of the authority delegated to it by the Board of Directors shall be deemed
for all purposes to be adopted or taken by the Board of Directors.
If action taken by a committee is not thereafter formally considered by
the Board, a director may dissent from such action by filing his written
objection with the Secretary with reasonable promptness after learning of such
action.
ARTICLE VI
OFFICERS
Section 1. Officers of the Corporation. The executive officers of the
Corporation shall consist of Chairman Emeritus (if appointed by the Board of
Directors), a Chairman, a Chief Executive Officer, a Chief Operating Officer, a
President, a Secretary, a Treasurer and such Vice Chairmen, Executive Vice
Presidents, Group Senior Vice Presidents, and such other officers as the Board
of Directors may from time to time appoint. The Chief Executive Officer may
appoint officers of the Corporation, other than the executive officers, provided
that each such other officer shall be subordinate to an executive officer. The
same individual may simultaneously hold more than one office in the Corporation,
and no individual may act in more than one capacity where action of two or more
officers is required.
Section 2. Appointment and Term. The executive officers of the
Corporation shall be appointed by the Board of Directors. Officers other than
the executive officers may be appointed by the Chief Executive Officer. Except
as otherwise provided in this Article VI, each officer shall hold office until
his/her death, resignation, retirement, removal, disqualification or his/her
successor shall have been appointed. The appointment of an officer does not
itself create contract rights.
Section 3. Compensation of Officers. The base salary and annual
performance bonus for the Chief Executive Officer of the corporation shall be
fixed by the Board of Directors after receiving the recommendation of the
Compensation Committee. The base salary of all other officers of the corporation
shall be fixed by the Chief Executive Officer. Notwithstanding the foregoing,
the annual and any special adjustment to base salary applicable to all exempt
employees
9
<PAGE> 14
of the corporation shall be effective for all officers without specific approval
by the Board of Directors or the Chief Executive Officer. No officer whose base
salary is fixed by the Board of Directors shall serve the corporation in any
other capacity and receive additional compensation therefor from the corporation
unless such additional compensation be authorized by the Board of Directors.
Section 4. Removal of Officers. The Board of Directors may remove any
officer at any time with or without cause, but such removal shall not itself
affect the officer's contract rights, if any, with the corporation.
Section 5. Bonds. The Board of Directors may by resolution require any
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned upon the faithful performance of the
duties of his respective office or position, and to comply with such other
conditions as may from time to time be required by the Board of Directors.
Section 6. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, supervise
the management of the corporation. He shall, when present, preside at all
meetings of the shareholders and at all meetings of the Board of Directors.
He shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation. The Chief Executive Officer may sign, with
the Secretary or an Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 7. Chief Operating Officer. The Chief Operating Officer of the
corporation, subject to the control of the Board of Directors and supervision
and direction of the Chief Executive Officer, shall supervise and control the
day-to-day operation of the corporation in accordance with these Bylaws.
In the absence of the Chief Executive Officer, or in the event of the
death, inability or refusal to act of the Chief Executive Officer, the Chief
Operating Officer shall perform the duties of the Chief Executive Officer, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. He shall sign any deeds,
mortgages, bonds, contract, or other instruments which may be lawfully executed
on behalf of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be delegated by the Board of Directors to some other officer or agent;
and, in general, he shall perform all duties incident to the office of Chief
Operating Officer and such other duties as may be prescribed by the Chief
Executive Officer or by the Board of Directors. The Chief Operating Officer may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the corporation.
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<PAGE> 15
Section 8. Chairman. The Chairman shall have such powers and perform
such duties as the Board of Directors or the Chief Executive Officer may from
time to time prescribe, and shall perform such other duties as may be prescribed
in these Bylaws. The Chairman may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the corporation. Unless the Board of
Directors indicates otherwise, the Chairman shall be the Chief Executive
Officer.
Section 9. Vice Chairmen. Each Vice Chairman shall have such powers and
perform such duties as the Board of Directors or the Chief Executive Officer may
from time to time prescribe, and shall perform such other duties as may be
prescribed in these Bylaws. Each Vice Chairman may sign, with the Secretary or
an Assistant Secretary, certificates for shares of the corporation.
Section 10. President. The President shall have such powers and perform
such duties as the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer may from time to time prescribe, and shall perform such other
duties as may be prescribed in these Bylaws. The President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the corporation.
Unless the Board of Directors indicates otherwise, the President shall be the
Chief Operating Officer.
Section 11. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer
or the Chief Operating Officer may from time to time prescribe, and shall
perform such duties as may be prescribed in these Bylaws. Each Vice President
may sign, with the Secretary or an Assistant Secretary, certificates for shares
of the corporation.
Section 12. Secretary. The Secretary shall: (a) attend all meetings of
the shareholders and of the Board of Directors, keep the minutes of such
meetings in one or more books provided for that purpose, and perform like duties
for the standing committees when required; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents, the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) have general charge of the
stock transfer books of the corporation; and (f) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the Board of Directors, by the Chief Executive
Officer, or by the Chief Operating Officer, under whose supervision he shall be.
The Secretary shall keep or cause to be kept in the State of North
Carolina at the corporation's principal place of business a record of the
corporation's shareholders, giving the names and addresses of all shareholders
and the number and class of shares held by each, and such other records as are
required to be kept at the corporation's principal office by N.C. Gen. Stat.
55-16-01 and any successor to such statute.
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Section 13. Assistant Secretaries. In the absence of the Secretary or
in the event of his death, inability or refusal to act, any Assistant Secretary,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the Secretary. They shall perform such other duties
as may be assigned to them by the Secretary, by the Chief Executive Officer, by
the Chief Operating Officer, or by the Board of Directors.
Any Assistant Secretary may sign, with the Chief Executive Officer, the
Chief Operating Officer, the Chairman, a Vice Chairman, the President or a Vice
President, certificates for shares of the corporation.
Section 14. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for money due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
depositories as shall be selected in accordance with the provisions of Article
VII, Section 4 of these Bylaws; and (b) in general perform all of the duties
incident to the office of Treasurer, and such other duties as from time to time
may be assigned to him by the Chief Executive Officer, by the Chief Operating
Officer, or by the Board of Directors.
Section 15. Assistant Treasurers. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the Assistant Treasurers in
the order of their length of service as Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall perform the duties of the Treasurer,
and when so acting shall have all the powers of and be subject to all the
restrictions upon the Treasurer. They shall perform such other duties as may be
assigned to them by the Treasurer, by the Chief Executive Officer, by the Chief
Operating Officer, or by the Board of Directors.
Section 16. Chairman Emeritus. Chairman Emeritus shall be an honorary
executive officer position appointed by the Board of Directors that may be held
only by a person who has previously served as Chairman of the Corporation. Such
position shall be available for appointment by the Board of Directors upon
termination of an individual's term as Chairman of the Corporation. There may be
more than one person serving as Chairman Emeritus at any time. A Chairman
Emeritus may be but shall not be required to be a member of the Board of
Directors. A Chairman Emeritus may be appointed for a term of years or for the
life of such person, and any person elected to such office shall not be removed
from office until the termination of such term. A Chairman Emeritus shall be
entitled to notice of and have a right to attend all meetings of the Board of
Directors of the Corporation, whether or not then serving as a member of the
Board of Directors. A Chairman Emeritus shall be entitled to the same
compensation and reimbursement as a member of the Board of Directors, if such
person is not or ceases to be a member of the Board of Directors.
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ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for
the payment of money, issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such depositories as the Board of Directors may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares of the corporation's classes
or series without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as shall be
determined by the Board of Directors. Certificates shall be signed by the Chief
Executive Officer, the Chief Operating Officer, the Chairman, a Vice Chairman,
the President or a Vice President and by the Secretary or an Assistant
Secretary. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number and class of shares and the date
of issue, shall be entered on the stock transfer books of the corporation. When
shares are represented by certificates, the corporation shall issue and deliver,
to each shareholder to whom such shares have been issued or transferred,
certificates representing the shares owned by him. When shares are not
represented by certificates, then within a reasonable time after the issuance or
transfer of such shares, the corporation shall send the shareholder to whom such
shares have been issued or transferred a written statement of the information
required by law to be on certificates.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney
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<PAGE> 18
thereunto authorized by power of attorney duly executed and filed with the
Secretary, and, when shares are represented by certificates, on surrender for
cancellation of the certificate for such shares.
Section 3. Lost Certificates. The Board of Directors or the Chief
Executive Officer may direct a new certificate to be issued in place of any
certificate theretofore issued by the corporation claimed to have been lost or
destroyed, upon receipt of an affidavit of such fact from the shareholder. When
authorizing such issuance of a new certificate, the Board of Directors or the
Chief Executive Officer may require that the shareholder give the corporation a
bond in such sum as the Board or the Chief Executive Officer may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate claimed to have been lost or destroyed or may require
the shareholder to agree to indemnify the corporation against any claims that
may be made against the corporation with respect to the certificate claimed to
have been lost or destroyed.
Section 4. Holder of Record. The corporation may treat as an absolute
owner of shares the person in whose name the shares stand of record on its books
just as if that person had full competency, capacity and authority to exercise
all rights of ownership irrespective of any knowledge or notice to the contrary
or any description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of any other
person appearing upon its records or upon the share certificate except that any
person furnishing to the corporation proof of his appointment as a fiduciary
shall be treated as if he were a holder of record of its shares.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may grant, distributions and share dividends
pursuant to law and subject to the provisions of its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the Board of Directors.
Section 4. Pronouns. Each reference to pronouns herein shall be
construed in the masculine, feminine, neuter, singular or plural, as the context
may require.
Section 5. Amendments. The Board of Directors may amend or repeal the
Bylaws, except to the extent otherwise provided by law, the Articles of
Incorporation or a Bylaw adopted by the shareholders, and except that a Bylaw
adopted, amended or repealed by the shareholders may not
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<PAGE> 19
be readopted, amended or repealed by the Board of Directors unless the Articles
of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular Bylaw or the Bylaws
generally.
ARTICLE X
INDEMNIFICATION
Section 1. Coverage. Any person who at any time serves or has served as
a director or officer of the corporation, serving in a capacity of Vice
President or any more senior office, or in such capacity at the request of the
corporation for any other corporation, partnership, joint venture, trust or
other enterprise, or as a trustee or administrator under an employee benefit
plan, or such other person as the Board of Directors may determine, shall have a
right to be indemnified by the corporation to the fullest extent permitted by
law against (a) reasonable expenses, including reasonable attorneys' fees,
actually incurred by him in connection with any threatened, pending or completed
action, suit or proceeding (and any appeal thereof), whether civil, criminal,
administrative, investigative or arbitrative, and whether or not brought by or
on behalf of the corporation, seeking to hold him liable by reason of the fact
that he is or was acting in such capacity, and (b) reasonable payments made by
him in satisfaction of any judgment, money decree, fine (including, without
limitation, an excise tax assessed with respect to an employee benefit plan),
penalty or settlement for which he may have become liable in any such action,
suit or proceeding.
Section 2. Indemnification Limitations. The corporation shall not be
liable under Section 1 of this Article to indemnify or agree to indemnify any
person described therein against any liability or litigation expense he may
incur on account of his activities which were at the time taken known or
believed by him to be clearly in conflict with the best interests of the
corporation, including, but not limited to, any activity from which he derived
an improper personal benefit. As used herein, the term, "improper personal
benefit," does not include any such person's reasonable compensation or other
reasonable incidental benefit for or on account of his service as a director,
officer or employee of the corporation.
Section 3. Payment. Expenses incurred by such person shall be paid in
advance of the final disposition of such investigation, action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the corporation.
Section 4. Evaluation. The Board of Directors of the corporation shall
take all such action as may be necessary and appropriate to authorize the
corporation to pay the indemnification required by this Article X, including
without limitation, to the extent needed, making a determination that
indemnification is permissible under the circumstances and a good faith
evaluation of the manner in which the claimant for indemnity acted and of the
amount of indemnity due him, and giving notice to and obtaining approval by, the
shareholders of the corporation.
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Section 5. Consideration. Any person who at any time after the adoption
of this Article X serves or has served in any of the aforesaid capacities for or
on behalf of the corporation shall be deemed to be doing or to have done so in
reliance upon, and as consideration for, the right of indemnification provided
herein. Such right shall inure to the benefit of the legal representatives of
any such person and shall not be exclusive of any other rights to which such
person may be entitled apart from the provisions of this Article X. Any repeal
or modification of these indemnification provisions shall not affect any rights
or obligations existing at the time of such repeal or modification.
Section 6. Definitions. For purposes of this Article X, terms defined
by the North Carolina Business Corporation Act and used but not defined herein
shall have the meanings assigned to them by the Act.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COGENTRIX
ENERGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 104,828
<SECURITIES> 0
<RECEIVABLES> 67,827
<ALLOWANCES> 0
<INVENTORY> 17,893
<CURRENT-ASSETS> 194,165
<PP&E> 699,094
<DEPRECIATION> 235,333
<TOTAL-ASSETS> 1,509,506
<CURRENT-LIABILITIES> 162,198
<BONDS> 1,101,247
0
0
<COMMON> 130
<OTHER-SE> 98,127
<TOTAL-LIABILITY-AND-EQUITY> 1,509,506
<SALES> 81,120
<TOTAL-REVENUES> 115,491
<CGS> 70,673
<TOTAL-COSTS> 70,673
<OTHER-EXPENSES> 3,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,732
<INCOME-PRETAX> 17,260
<INCOME-TAX> 6,866
<INCOME-CONTINUING> 10,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,394
<EPS-PRIMARY> 36.86
<EPS-DILUTED> 0
</TABLE>
