<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 2000
REGISTRATION NO. 333-48448
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COGENTRIX ENERGY, INC.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 4911, 4961 56-1853081
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9405 ARROWPOINT BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273-8110
(704) 525-3800
(Address and telephone number of principal executive offices)
---------------------
THOMAS F. SCHWARTZ
GROUP SENIOR VICE PRESIDENT -- CHIEF FINANCIAL OFFICER
9405 ARROWPOINT BOULEVARD
CHARLOTTE, NORTH CAROLINA 28273-8110
(704) 525-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
DUMONT CLARKE IV, ESQ.
MOORE & VAN ALLEN, PLLC
BANK OF AMERICA CORPORATE CENTER
100 NORTH TRYON STREET, FLOOR 47
CHARLOTTE, NC 28202-4003
(704) 331-1051
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COGENTRIX DELAWARE HOLDINGS, INC.
(Name of co-registrant as specified in its charter)
(See table below for additional information about co-registrant.)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
TABLE OF ADDITIONAL INFORMATION ON CO-REGISTRANT
<TABLE>
<CAPTION>
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Primary Standard
Jurisdiction of Industrial
Incorporation or Classification I.R.S. Employer
Name Organization Code Number Identification No.
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<S> <C> <C> <C>
COGENTRIX DELAWARE HOLDINGS, INC. DELAWARE 4911, 4961 51-0352024
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</TABLE>
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<PAGE> 2
P R O S P E C T U S
(COGENTRIX LOGO)
COGENTRIX ENERGY, INC.
EXCHANGE OFFER FOR
$100,000,000 OUTSTANDING 8.75% SENIOR NOTES DUE 2008
TERMS OF THE EXCHANGE OFFER
- Expires at 5:00 p.m., New York City time on December 8, 2000, unless
extended.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of outstanding notes may be withdrawn any time prior to the
expiration of the exchange offer.
- Not subject to any condition, other than that the exchange offer not
violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission.
- There will be no proceeds from the exchange offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- The terms of the notes to be issued in exchange for the outstanding notes
are substantially identical to the terms of the outstanding notes, except
for the transfer restrictions and registration rights relating to the
outstanding notes.
- There is no existing public market for the exchange notes, and we do not
intend to apply for their listing on any securities exchange.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OUTSTANDING NOTES IN THE
EXCHANGE OFFER.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The date of this prospectus is November 8, 2000.
<PAGE> 3
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
IN OR DELIVERED WITH THIS PROSPECTUS. THOSE DOCUMENTS, WHICH CONTAIN IMPORTANT
BUSINESS AND FINANCIAL INFORMATION ABOUT US, ARE AVAILABLE UPON REQUEST WITHOUT
CHARGE FROM COGENTRIX ENERGY, INC., 9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH
CAROLINA 28273, TELEPHONE NUMBER (704) 525-3800. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 27, 2000.
------------------
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 12
Capitalization........................ 18
Use of Proceeds....................... 18
The Exchange Offer.................... 19
Selected Consolidated Historical
Financial Information............... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 37
Introduction........................ 37
Our Strategy........................ 37
Industry Trends Creating Market
Opportunities.................... 38
Facilities Under Construction....... 39
Facilities In Operation............. 40
Project Agreements, Financing and
Operating Arrangements for Our
Facilities....................... 48
Principal Customers................. 51
Regulation.......................... 51
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management............................ 58
Principal Stockholders................ 65
Certain Relationships and Related
Transactions........................ 65
Description of Exchange Notes......... 67
Description of Non-Operating
Subsidiary Guarantee................ 100
Description of Certain Other
Indebtedness........................ 101
Certain Federal Income Tax
Considerations...................... 103
Plan of Distribution.................. 105
Legal Matters......................... 105
Independent Public Accountants........ 105
Where You Can Find More Information... 106
Incorporation of Previously-Filed
Documents by Reference.............. 106
Index to Cogentrix Energy, Inc. and
Subsidiary Companies Consolidated
Financial Statements................ F-1
Index to Cogentrix Delaware Holdings,
Inc. and Subsidiary Companies
Consolidated Financial Statements... F-34
</TABLE>
Each broker-dealer that receives exchange notes for its own account
pursuant to this exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of those exchange notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for outstanding notes where
such exchange notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Cogentrix Energy has
agreed that, starting on December 8, 2000 and ending on the close of business on
December 8, 2001, it will make this prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
i
<PAGE> 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements and financial discussion and analysis contained in this
prospectus that are not historical facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements generally will be accompanied by words such
as "anticipate," "believe," "estimate," "expect," "intend," "possible," "plan,"
"will," or other similar words that convey the uncertainty of future events or
outcomes. Although we believe these forward-looking statements are reasonable,
they are based upon a number of assumptions concerning future conditions, any or
all of which may ultimately prove to be inaccurate. Forward-looking statements
involve a number of risks and uncertainties that may be outside our control,
including among other things:
- operating risks, including equipment failure, dispatch levels,
availability, heat rate and output;
- governmental, statutory, regulatory or administrative changes or
initiatives affecting us or the electricity industry generally;
- our ability to complete the development or acquisition of current and
future projects;
- competition from other power plants, including new plants that may be
developed in the future;
- supply, demand and price for electric capacity and energy in the markets
served by our facilities; and
- political and business risks of international projects, including
uncertainties associated with currency exchange rates, currency
repatriation, expropriation, political instability, privatization efforts
and other issues.
For additional information about these and other risks that could affect
the accuracy of our forward-looking statements, you should read "Risk Factors"
beginning on page 12. In light of these and other risks, uncertainties and
assumptions, actual events or results may be very different from those expressed
or implied in the forward-looking statements in this prospectus, or may not
occur. We have no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
------------------
References in this prospectus to "we," "us," "our" or "Cogentrix" refer to
the combined business of Cogentrix Energy, Inc. and its subsidiaries, including
subsidiaries that hold investments in other corporations or partnerships whose
financial results are not consolidated with ours. The term "Cogentrix Energy"
refers only to Cogentrix Energy, Inc., a development and management company that
conducts its business primarily through subsidiaries. COGENTRIX ENERGY IS THE
ISSUER OF, AND, WITH THE EXCEPTION OF ONE NON-OPERATING SUBSIDIARY THAT HAS
GUARANTEED ALL OF ITS EXISTING AND FUTURE UNSECURED SENIOR DEBT, THE ONLY
OBLIGATED CORPORATION ON, THE OUTSTANDING SENIOR NOTES AND THE NOTES OFFERED IN
EXCHANGE FOR THE OUTSTANDING SENIOR NOTES. The subsidiaries of Cogentrix Energy
that are engaged in the ownership and operation of electric generating
facilities and whose financial results are consolidated with those of Cogentrix
Energy are sometimes referred to in this prospectus individually as a "project
subsidiary" or collectively as "project subsidiaries." The unconsolidated
affiliates of Cogentrix Energy that are engaged in the ownership and operation
of electrical generating facilities and in which we have less than a majority
interest are sometimes referred to in this prospectus as a "project affiliate"
or collectively as "project affiliates."
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed financial and other information contained
elsewhere in this prospectus and a description of the terms of the exchange
notes we are offering in exchange for the outstanding senior notes. We encourage
you to read the entire prospectus.
THE EXCHANGE OFFER
On September 22, 2000, Cogentrix Energy privately placed a total of $100
million of 8.75% Senior Notes due 2008. Simultaneously with their private
placement, Cogentrix Energy entered into a registration agreement with the
initial purchasers of these outstanding senior notes. Under this registration
agreement, Cogentrix Energy must deliver this prospectus and complete this
exchange offer for these outstanding senior notes on or before March 21, 2001.
If this exchange offer does not take place on or before March 21, 2001,
Cogentrix Energy must pay additional interest to the holders of these
outstanding senior notes until this exchange offer is completed.
You may exchange in this exchange offer the outstanding senior notes issued
September 22, 2000 that you currently hold for exchange notes issued by
Cogentrix Energy which have substantially identical terms. Before deciding to
tender your outstanding senior notes, you should read the discussion that begins
on page 8 under the heading "Summary of Terms of Exchange Notes" and in the back
of this prospectus under the heading "Description of the Exchange Notes."
We believe that you may resell the exchange notes you will receive without
complying with the registration and prospectus delivery provisions of the
Securities Act, unless you are an affiliate of Cogentrix Energy or an
underwriter or a broker-dealer. You should read the discussion that begins on
page 5 under the heading "Summary of the Exchange Offer" and on page 19 under
the heading "The Exchange Offer" for further information regarding resales of
the exchange notes and other aspects of the exchange offer.
USE OF PROCEEDS OF THE OUTSTANDING SENIOR NOTES
We have used or expect to use the net proceeds from the sale of the
outstanding senior notes to (1) repurchase $20 million of our outstanding 8.10%
senior notes due 2004 to satisfy a sinking fund payment obligation due March 15,
2001, (2) to prepay in full approximately $37 million of project subsidiary debt
that matures between the date of this prospectus and 2002 that bears interest at
LIBOR plus 1.0% (7.6% at June 30, 2000), and (3) for general corporate purposes.
The net proceeds we received from the sale of the outstanding senior notes were
approximately $97.6 million, after we deducted the discount to the initial
purchasers and estimated expenses of the offering.
COGENTRIX
Cogentrix Energy 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 to regulated electric utilities and power
marketers, principally under long-term power purchase agreements. 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 larger 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 4,821 megawatts. After taking
into account our part interests in the 17 plants that are not wholly-owned by
us, which range from 1.6% to approximately 74%, our net ownership interest in
the total production capability of our 25 electric generating plants is
approximately 2,254 megawatts. We currently operate 12 of our plants, nine of
which we developed and constructed.
<PAGE> 6
We also have ownership interests in and will operate four facilities
currently under construction in Oklahoma, Idaho, Louisiana and the Dominican
Republic with an aggregate production capability of approximately 2,196
megawatts. Once these facilities begin operation, we will have ownership
interests in a total of 28 domestic -- and one international -- electric
generating facilities that are designed with an aggregate production capability
of approximately 7,017 megawatts. Our net ownership interest in the total
production capability of these 29 facilities will be approximately 4,212
megawatts.
OUR STRATEGY
We intend to remain among the leaders in the independent power industry by
developing and constructing or acquiring -- entirely or in part -- electric
generating facilities in the United States and in foreign countries where the
political climate is conducive to increased foreign investment.
We have targeted three market segments for our future development and
acquisition activities:
- Developing New Electric Generating Plants. We intend to pursue domestic
development of new, highly-efficient, low-cost plants, concentrating on
facilities that use natural gas as fuel. We expect these facilities to
enter into long-term contractual arrangements with fuel suppliers,
electric utilities or power marketers. These contractual arrangements
will provide us a scheduled and/or indexed payment for electricity and
result in the fuel supplier, electric utility or power marketer assuming
the risks associated with fuel and energy price fluctuations. We also
intend to pursue international project development opportunities on a
highly selective basis. We expect to do so only in those countries where
demand for power is growing rapidly, private investment is encouraged and
favorable financing conditions exist.
- Acquiring Interests in Existing Domestic Electric Generating Plants. We
intend to generally focus our future acquisition opportunities on
projects that have already entered into power sales contracts with
electric utilities or other customers whose senior unsecured debt carries
investment-grade credit ratings. We may also seek to acquire interests in
electric generating facilities that do not have contracts in place but
are nonetheless highly efficient, low-cost providers that can take
advantage of opportunities in a rapidly deregulating energy market. If we
do, we intend to protect against the risk of changes in the market price
for electricity by entering into contracts at the time of acquisition
with fuel suppliers, utilities or power marketers that reduce or
eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term
market.
- Developing New or Managing Existing Plants for Industrial
Companies. Many large, industrial companies with significant energy
needs own on-site facilities for generating the electricity and producing
the steam they require for their manufacturing, refining or other
operations. We believe that cogenerating facilities with state-of-the-art
technology developed by us could replace or upgrade existing facilities
employing older technology that many of these industrial companies
currently operate themselves. We also expect that many industrial
companies choosing not to replace their existing facilities will seek to
contract with companies like us to manage and operate their existing
facilities.
We seek to manage the risks associated with owning and operating electric
generating facilities by emphasizing diversification and balance among our
investments in terms of the following criteria:
- the geographic location of the facilities in which we have an ownership
interest;
- the electric utility or power marketing customers for the electricity we
generate and the industrial customers for the steam we produce;
- the technology we employ to generate electricity and produce steam; and
- the coal, gas and other fuel suppliers to our plants.
2
<PAGE> 7
RECENT DEVELOPMENTS
We currently have four new "greenfield" electric generating facilities
under construction and have recently commenced commercial operations on another
facility.
- Batesville, Mississippi Facility. We own an approximate 51% interest in
and operate an 837 megawatt combined-cycle natural gas-fired electric
generating facility in Batesville, Mississippi that commenced commercial
operation in August 2000. Virginia Electric and Power Company and Aquila
Energy Marketing Corporation will deliver natural gas to and purchase
electricity produced by this plant under long-term power purchase
agreements. The power purchase agreements have initial terms of
approximately 13 and 16 years, respectively. Virginia Power and Aquila
Energy have options to extend these agreements for 12 and five years,
respectively.
- Sterlington, Louisiana Facility. In August 2000, we closed financing and
commenced construction on a wholly-owned 816 megawatt combined-cycle,
natural gas-fired electric generating facility near Sterlington,
Louisiana. Dynegy Power Marketing, Inc. will deliver natural gas to and
purchase electricity produced by this plant under a 15-year power
purchase agreement. This facility, which we will operate and manage, is
scheduled to commence commercial operations in mid-2002.
- Dominican Republic Facility. In April 2000, a partnership in which we
own a 65% interest closed financing and commenced construction on a 300
megawatt combined-cycle, fuel oil-fired electric generating facility in
the Dominican Republic. We will sell electricity produced by this
facility under a 20-year power purchase agreement to Corporacion
Dominicana de Electricidad, that is supported by a Dominican government
guarantee of the payment obligations. This facility, which we will
operate and manage, is scheduled to commence commercial operations in
early 2002.
- Rathdrum, Idaho Facility. In March 2000, a partnership in which we own a
51% interest closed financing and commenced construction on a 270
megawatt combined-cycle, natural gas-fired electric generating facility
in Rathdrum, Idaho. Avista Turbine Power, Inc. will deliver natural gas
to and purchase electricity produced by this plant under a 25-year power
purchase agreement. This facility, which we will operate and manage, is
scheduled to commence commercial operations in late 2001.
- Jenks, Oklahoma Facility. In December 1999, we closed financing and
commenced construction on a wholly-owned 810 megawatt combined-cycle,
natural gas-fired electric generating facility in Jenks, Oklahoma. PECO
Energy's Power Team will deliver natural gas to and purchase electricity
produced by this plant under a 20-year power purchase agreement. This
facility, which we will operate and manage, is scheduled to commence
commercial operations in early 2002.
COMPETITIVE WEAKNESSES AND RISKS
We discuss in this prospectus, particularly in the "Risk Factors" section,
our competitive weaknesses and the numerous uncertainties and contingencies
beyond our control that affect our business, including the following:
- our dependence on our utility customers whose failure to fulfill their
contractual obligations to make payments to us for a prolonged period of
time could, depending upon the customer and the size of the facilities
affected, result in a reduction of our anticipated cash flow and threaten
our ability to service our debt;
- risks associated with our power sales agreements that contain provisions
that permit the utility customer to terminate the agreement or change the
amount of the payments upon the occurrence of an event such as the
failure to demonstrate specified operating and reliability standards;
- the strong and increasing competition in the electric generating industry
for the development of new facilities and the acquisition of existing
electric generating assets;
3
<PAGE> 8
- our substantial leverage, which could adversely affect our financial
health and prevent us from fulfilling our obligations under the exchange
notes; and
- risks associated with uncertainties involving government regulation of
emissions and the environment, and electric utility industry
restructuring proposals.
You should carefully consider the information in the "Risk Factors" section
of this prospectus that begins on page 12, as well as the other information and
data included in this prospectus before deciding whether to participate in the
exchange offer.
------------------
4
<PAGE> 9
SUMMARY OF THE EXCHANGE OFFER
Registration Agreement..... We sold the outstanding senior notes to which this
exchange offer applies on September 22, 2000 to two
initial purchasers -- Salomon Smith Barney Inc. and
CIBC World Markets Corp. The initial purchasers
then sold the outstanding notes to qualified
institutional buyers, as defined in Rule 144A of
the Securities Act. Simultaneously with the initial
sales of the outstanding senior notes, we entered
into a registration agreement that provides for the
exchange offer.
You may exchange your outstanding senior notes for
exchange notes, which have substantially identical
terms. This exchange offer satisfies your rights
under the registration agreement. After this
exchange offer is over, you will not be entitled to
any exchange or registration rights with respect to
your outstanding senior notes.
The Exchange Offer......... We are offering to exchange $100.0 million total
principal amount of 8.75% Senior Notes due 2008 of
Cogentrix Energy, which have been registered under
the Securities Act, for your outstanding 8.75%
Senior Notes due 2008 issued September 22, 2000,
which have not been registered under the Securities
Act and are subject to restrictions on their
transfer. To exchange your outstanding senior
notes, you must properly tender them, and we must
accept them. We will exchange all outstanding
senior notes that you validly tender and do not
validly withdraw. We will issue registered exchange
notes at or promptly after the end of the exchange
offer.
Resales.................... We believe that you may offer for resale, resell
and otherwise transfer the exchange notes without
complying with the registration and prospectus
delivery requirements of the Securities Act if:
- you acquire the exchange notes in the ordinary
course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the exchange notes; and
- you are not an affiliate of Cogentrix, as
defined in Rule 405 of the Securities Act.
If any of these conditions are not satisfied and
you transfer any exchange note without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act. We do not assume or
indemnify you against that possible liability.
Each broker-dealer acquiring exchange notes for its
own account in exchange for outstanding senior
notes that it acquired through market-making or
other trading activities must acknowledge that it
will deliver a proper prospectus when any exchange
notes are transferred. A broker-dealer may use this
prospectus for an offer to resell, a resale or
other retransfer of the exchange notes.
Expiration Date............ The exchange offer expires at 5:00 p.m., New York
City time, December 8, 2000, unless we extend the
expiration date. We will not extend the expiration
date more than 15 days.
5
<PAGE> 10
Conditions to the Exchange
Offer...................... The exchange offer is not subject to any condition
other than that the exchange offer not violate
applicable law or any applicable interpretation of
the staff of the Securities and Exchange
Commission.
Procedures For Tendering
Outstanding Senior
Notes.................... Cogentrix Energy issued the outstanding senior
notes to which this exchange offer applies as
global securities. When those outstanding senior
notes were issued, Cogentrix Energy deposited them
with First Union National Bank, as book-entry
depositary. First Union National Bank issued a
certificateless depositary interest in each note,
which represents a 100% interest in the notes, to
DTC. Beneficial interests in the outstanding senior
notes, which are held by direct or indirect
participants in DTC through the certificateless
depositary interest, are shown on records
maintained in book-entry form by DTC.
If you wish to tender your outstanding senior notes
for exchange, you must transmit to First Union
National Bank, as exchange agent, on or prior to
the expiration date:
either
- a properly completed and duly executed letter
of transmittal, which accompanies this
prospectus, or a facsimile of the letter of
transmittal, including all other documents
required by the letter of transmittal, to the
exchange agent at the address set forth on the
cover page of the letter of transmittal; or
- a computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
system and received by the exchange agent and
forming a part of a confirmation of book-entry
transfer in which you acknowledge and agree to
be bound by the terms of the letter of
transmittal;
and, either
- a timely confirmation of book-entry transfer of
your outstanding senior notes into the exchange
agent's account at DTC, pursuant to the
procedure for book-entry transfers described in
this prospectus under the heading "The Exchange
Offer -- Procedures for Tendering", which must
be received by the exchange agent on or prior
to the expiration date; or
- the documents necessary for compliance with the
guaranteed delivery procedures described in
this prospectus under the heading "The Exchange
Offer -- Procedures for Tendering."
Do not send letters of transmittal and other
documents to Cogentrix Energy. Send these documents
only to the exchange agent. See "The Exchange
Offer -- Exchange Agent" for more information.
Special Procedures for
Beneficial Owners.......... If you are a beneficial owner whose outstanding
senior notes are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee and wish to tender your outstanding
senior notes in the exchange offer please contact
the registered holder as soon as possible and
instruct that holder to tender on your behalf.
6
<PAGE> 11
Withdrawal Rights.......... You may withdraw the tender of your outstanding
senior notes any time before 5:00 p.m. New York
City time on December 8, 2000, unless we extend the
expiration date.
Federal Income Tax
Considerations........... The exchange of your outstanding senior notes is
not a taxable exchange for United States federal
income tax purposes. You will not recognize any
taxable gain or loss or any interest income as a
result of the exchange. For additional information
regarding federal income tax considerations you
should read the discussion under the heading
"Certain Federal Income Tax Considerations."
Use of Proceeds............ We will not receive any proceeds from the issuance
of the exchange notes, and we will pay the expenses
of the exchange offer.
Exchange Agent............. First Union National Bank is serving as the
exchange agent in the exchange offer. The exchange
agent's address, and telephone and facsimile
numbers are listed in the section of this
prospectus entitled "The Exchange Offer -- Exchange
Agent" and in the letter of transmittal.
7
<PAGE> 12
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form and terms
of the outstanding senior notes, except that the exchange notes will be
registered under the Securities Act. As a result, the exchange notes will not
bear a legend restricting their transfer and will not have the registration
rights contained in the outstanding senior notes. The exchange notes issued in
the exchange offer will represent the same debt as the outstanding senior notes
issued September 22, 2000, which they will replace. Both the outstanding senior
notes and the exchange notes are governed by the same indenture.
Except where otherwise noted, references to exchange notes in this summary
include the $100.0 million of exchange notes offered hereby and the $255.0
million of 8.75% senior notes due 2008 issued under the same indenture by
Cogentrix Energy on April 19, 1999 in a previous exchange offer that are part of
the same series of notes as the exchange notes offered hereby.
Securities Offered......... $100,000,000 principal amount of 8.75% senior notes
due 2008.
Maturity Date.............. October 15, 2008.
Interest Payment Dates..... April 15 and October 15 of each year, commencing
April 15, 2001.
Ranking.................... The exchange notes:
- are general, unsecured and unsubordinated
obligations of Cogentrix Energy;
- rank equally in right of payment with all
existing and future unsecured and unsubordinated
senior debt of Cogentrix Energy;
- effectively rank subordinate to any secured debt
Cogentrix Energy is permitted to, and does,
issue; and
- effectively rank subordinate to any indebtedness
of project subsidiaries and project affiliates of
Cogentrix Energy.
Optional Redemption........ The exchange notes are redeemable, at our option,
in whole or in part, at any time or from time to
time at the redemption prices described in this
prospectus under the heading "Description of
Exchange Notes -- Optional Redemption", plus
accrued and unpaid interest, if any, to the date of
redemption.
Change of Control.......... Upon a change of control of Cogentrix Energy, you
shall have the right to require Cogentrix Energy to
repurchase any exchange notes you hold at a
repurchase price equal to 101% of the principal
amount of the exchange notes, plus accrued
interest, if any, to the date of repurchase. For
more information about this right and the
definition of change of control, you should read
"Description of Exchange Notes -- Important
Negative Covenants -- Repurchase of Exchange Notes
Upon a Change of Control" and "Risk
Factors -- Risks Relating to Our Operations and
Corporate Structure."
Negative Covenants......... The indenture under which the outstanding senior
notes have been, and the exchange notes are being
issued, contains covenants for your benefit that,
among other things and subject to exceptions that
are described in detail later in this prospectus,
restrict our ability to:
- incur additional debt;
- pay dividends and make other distributions;
- make investments;
8
<PAGE> 13
- create encumbrances to secure debt;
- engage in transactions with affiliates;
- dispose of assets; or
- merge or consolidate with or into, or sell or
otherwise transfer our properties and assets as
an entirety to, another entity.
For more information about these negative
covenants, you should read "Description of Exchange
Notes."
Change in Covenants When
the Exchange Notes Are
Rated Investment Grade... Following the first date upon which the exchange
notes outstanding under the indenture are rated
investment grade by two nationally-recognized
credit rating agencies, and provided that no
default exists under the indenture on such date,
some of the negative covenants contained in the
indenture will no longer apply to the exchange
notes. The negative covenants regarding
restrictions on transactions with affiliates,
limitations on liens and restrictions on mergers,
consolidations and sales of assets will, however,
remain in effect and a new covenant restricting
sale/leaseback transactions will then apply. If,
after the exchange notes are rated investment
grade, a default occurs, or the exchange notes
shall again be rated less than investment grade,
the negative covenants contained in the indenture
at the time of issuance of the exchange notes that
cease to apply after the exchange notes are rated
investment grade will not be reinstated. For more
information, you should read "Description of
Exchange Notes -- Change in Covenants When Exchange
Notes are Rated Investment Grade."
Book Entry; Delivery and
Form..................... The exchange notes issued in the exchange offer
will be represented by one or more permanent global
notes in definitive, fully registered form
deposited with First Union National Bank, as
custodian for, and registered in the name of, a
nominee of DTC. You will not receive exchange notes
in registered form unless one of the events
described under the heading "Description of
Exchange Notes -- Book-Entry; Delivery and Form"
occurs. Instead, beneficial interests in the
exchange notes issued in the exchange offer will be
shown on, and transfers of these will be effected
only through, records maintained in book-entry form
by DTC with respect to its participants.
Guarantee by Non-Operating
Subsidiary............... Cogentrix Delaware Holdings, Inc., a direct,
wholly-owned subsidiary of Cogentrix Energy, has
guaranteed all of the existing and future senior,
unsecured outstanding indebtedness for borrowed
money of Cogentrix Energy, including the
outstanding senior notes and the exchange notes. If
Cogentrix Energy cannot make payments on any of its
senior, unsecured outstanding indebtedness when
due, whether at the stated maturity, by
acceleration or otherwise, this subsidiary must
make them instead.
9
<PAGE> 14
You should note, however, that this subsidiary
guarantee is not full and unconditional because it:
- does not apply unless this subsidiary has assets
in excess of $150,000, except for assets
constituting investments in subsidiaries;
- may be waived or modified at any time by this
subsidiary and the agent bank for Cogentrix
Energy's corporate credit facility without your
consent or the consent of the trustee under the
indenture for the exchange notes; and
- terminates before the maturity date of the
exchange notes.
You should read "Risk Factors -- Risks Relating to
the Exchange Notes", and "Description of
Non-Operating Subsidiary Guarantee" for more
information about this subsidiary guarantee.
10
<PAGE> 15
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following tables present summary consolidated historical financial
information of Cogentrix for the periods indicated. We derived the summary
consolidated historical financial information from our consolidated financial
statements included elsewhere in this prospectus. You should read the
information presented below in conjunction with "Selected Consolidated
Historical Financial Information", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and our consolidated financial
statements and related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------------
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total operating revenue............ $349,914 $408,693 $447,563 $222,337 $257,836
Total operating expenses........... 273,592 264,592 277,869 138,468 159,844
Operating income................... 76,322 144,101 169,694 83,869 97,992
Interest expense................... (53,864) (74,949) (94,956) (47,307) (46,922)
Income before income taxes and
extraordinary loss............... 26,037 62,646 70,991 32,994 49,444
Net income......................... 14,781 36,989 43,415 19,735 30,278
OTHER DATA (UNAUDITED)(1):
Parent EBITDA...................... $ 38,980 $ 63,884 $ 96,982 $ 35,941 $ 52,303
Parent Fixed Charges............... 8,607 14,217 32,548 16,237 16,826
Ratio of Parent EBITDA/Parent Fixed
Charges.......................... 4.53x 4.49x 2.98x 2.21x 3.11x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------- AS OF JUNE 30,
1997 1998 1999 2000
-------- ---------- ---------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 71,833 $ 48,207 $ 80,344 $ 93,553
Total assets.................................... 822,974 1,499,851 1,998,386 2,166,261
Project financing debt(2)....................... 567,705 877,653 1,271,383 1,401,928
Parent debt(3).................................. 100,000 355,000 355,000 355,000
Total shareholders' equity...................... 58,298 87,863 121,451 151,798
</TABLE>
---------------
(1) Parent EBITDA represents cash flow to Cogentrix Energy prior to debt service
and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of some of its subsidiaries' indebtedness. Parent EBITDA is not
presented here as a measure of operating results. Our management believes
Parent EBITDA is a useful measure of Cogentrix Energy's ability to service
debt. Parent EBITDA should not be construed as an alternative either (i) to
operating income (determined in accordance with generally accepted
accounting principles) or (ii) to cash flows from operating activities
(determined in accordance with generally accepted accounting principles).
(2) Project financing debt with respect to each of our project subsidiaries is
substantially non-recourse to Cogentrix Energy and its other project
subsidiaries. For a discussion of the term "non-recourse," see
"Business -- Project Agreements, Financing and Operating Arrangements for
Our Facilities -- Project Financing."
(3) Parent debt represents obligations of Cogentrix Energy only and does not
include non-recourse obligations of our project subsidiaries or project
affiliates.
11
<PAGE> 16
RISK FACTORS
A holder of the outstanding senior notes should carefully consider the
following matters as well as the other information and data contained in this
prospectus before deciding whether to accept the exchange offer and, in
particular, the following factors:
RISKS RELATING TO OUR OPERATIONS AND CORPORATE STRUCTURE
WE ARE DEPENDENT UPON SOME OF OUR CUSTOMERS
Each of our operating facilities relies on power sales agreements with one
or two electric utilities or power marketers for the majority of its revenues
over the life of the power sales agreement(s). The failure of a customer to
fulfill its contractual obligations to us for a prolonged period of time could
materially reduce our cash flow and, as a result, weaken our financial position
and our ability to service our debt.
OPERATING A POWER PLANT INVOLVES RISKS OF EQUIPMENT FAILURE, FUEL INTERRUPTION
AND OTHER OPERATING PROBLEMS THAT COULD THREATEN OUR ABILITY TO SERVICE OUR
DEBT
The operation of a power plant involves many risks, including the breakdown
or failure of electric generating equipment or other equipment or processes,
fuel interruption and performance below expected levels of output or efficiency.
While our facilities contain backup components for critical equipment and we
have obtained insurance to protect against operating risks, that protection may
not be adequate to cover lost revenues or increased expenses, including higher
maintenance costs. As a result, a facility may be unable to perform under its
power and steam sales agreements and may be unable to fund principal and
interest payments under its project financing agreements. Further, each facility
may depend on a single or limited number of vendors to supply water, coal or
gas, to transport coal or gas or to wheel electricity. The failure of a water
supplier, a coal or gas transporter or a transmitter of electricity to fulfill
its contractual obligations to us for a prolonged period of time could
jeopardize our ability to operate a facility, resulting in reduced cash flow
from that project subsidiary or project affiliate to Cogentrix Energy,
threatening our ability to service our debt.
SOME OF OUR POWER SALES AGREEMENTS MAY BE TERMINATED IN CERTAIN CIRCUMSTANCES
Power sales agreements of some of our project subsidiaries and project
affiliates permit the purchasing utility or power marketer to terminate the
agreement or change the payments if the facility does not demonstrate
contractually specified operating and reliability standards. Some agreements
also permit the utility customer to reduce future payments or recover from the
project subsidiary or project affiliate payments previously made if a state
utility commission prohibits the utility from recovering from its customers'
payments made under the power sales agreement. Some of our power sales
agreements that contain these provisions also provide that the utility will
continue to pay the contract rates at least through the term of the related
project financing debt. Thereafter, the project subsidiary or project affiliate
recognizes a reduction in payments received under the power sales agreement to
the extent necessary to repay, or is required to repay, to the utility the
amount of the accrued liability with interest.
In the event a termination or modification of any of our power sales
agreements occurred, the affected project subsidiary or project affiliate would
likely generate reduced revenues or no revenues, possibly triggering default
provisions in its financing agreements. These events might allow the affected
lenders to accelerate the debt and could result in Cogentrix Energy not
receiving any cash flow from that project subsidiary or project affiliate, that,
in turn, could threaten our ability to service our debt.
DEVELOPING NEW ELECTRIC GENERATING PLANTS INVOLVES SIGNIFICANT RISKS THAT MAY
RESULT IN US ABANDONING PROJECTS AFTER HAVING INCURRED SIGNIFICANT PROJECT
DEVELOPMENT COSTS
The projects that we develop are complex, and substantial risks affect
their completion schedule. There can be no assurance that we will be able to
obtain new power sales agreements, overcome any local opposition to the
development of new projects, obtain site agreements, fuel supply and ash
disposal
12
<PAGE> 17
agreements, construction contracts, steam sales agreements, regulatory
approvals, licenses and certifications, environmental and other permits or
financing necessary for the successful development of new projects. These risks
may result in us abandoning projects after having incurred significant project
development expenses.
CONSTRUCTION OF AN ELECTRIC GENERATING FACILITY INVOLVES MANY RISKS
The construction of an electric generating facility involves many risks,
including material and labor interruption, work stoppages, labor disputes,
weather interferences, unforeseen engineering, environmental and geological
problems and unanticipated cost overruns. There is a risk that the cost of
delays will exceed negotiated limits on liquidated damages and insurance
coverage or that delays will be caused by events that are not within anyone's
control, as to which there may be no liquidated damages or insurance coverage.
Many power sales agreements permit the customer to terminate the agreement in
the event milestones, such as commencing commercial operation of the project,
are not met by specified dates.
START-UP OF A NEWLY-CONSTRUCTED ELECTRIC GENERATING FACILITY INVOLVES MANY
RISKS
The commencement of operation of a newly-constructed electric generating
plant involves many risks, including the breakdown or failure of equipment or
processes and performance below expected levels of output or efficiency. New
plants may employ recently developed and technologically complex equipment,
especially in the area of environmental emission control. The proceeds of
insurance, warranties or performance guarantees by contractors may not be
adequate to cover lost revenues or increased expenses. As a result, a project
subsidiary may be unable to fund principal and interest payments under its
project financing agreements and may operate at a loss. The project subsidiary
would, therefore, not be able to distribute any funds to Cogentrix Energy to pay
its debt service until its operations generated cash flow available to be
distributed to Cogentrix Energy.
THE RISKS OF DOING BUSINESS OUTSIDE OF THE UNITED STATES ARE GREATER THAN AND
DIFFERENT FROM THOSE IN THE UNITED STATES
Economic and political conditions and the unpredictable legal environment
in the countries where we are or could be exploring development opportunities
present risks of construction delays, interruption of business and expropriation
that are greater than those in the United States and that could reduce our cash
flows, impact our profitability and impair our ability to service our debt. The
uncertainty of the legal environment in foreign countries in which we may
develop or acquire projects could also impair our ability to enforce our rights
under agreements relating to those projects. Operations in foreign countries
also can present currency exchange, convertibility and repatriation risks.
OUR SUBSTANTIAL LEVERAGE MAKES US VULNERABLE TO CHANGES IN ECONOMIC AND
INDUSTRY CONDITIONS
Our substantial indebtedness makes us vulnerable to changes in economic and
industry conditions and could adversely affect our financial health and prevent
us from fulfilling our obligations under the exchange notes. Cogentrix is highly
leveraged as a result of the outstanding indebtedness of Cogentrix Energy and
the debt incurred by its project subsidiaries to finance the development and
construction of electric generating facilities. At June 30, 2000 we had
approximately $1.7 billion in total consolidated indebtedness and a ratio of
total debt to total capitalization of approximately 92.0%. With minor
exceptions, however, the debt incurred by our project subsidiaries to finance
the development and construction of our electric generating plants limits the
remedies of the creditors to recovery from the collateral for the loan. The
amount of our project subsidiaries' debt at June 30, 2000 was $1.4 billion. As
of June 30, 2000, our proportionate share, corresponding to our ownership
percentage of the outstanding indebtedness of our project affiliates, was
approximately $942.6 million. The lenders to our project subsidiaries and
project affiliates are generally prohibited from getting a judgment or seeking
other recourse against Cogentrix Energy and its other project subsidiaries and
project affiliates, except when Cogentrix Energy has agreed to limited
guarantees and other obligations with respect to a project.
13
<PAGE> 18
OUR HOLDING COMPANY STRUCTURE MAY ADVERSELY AFFECT YOUR RIGHT TO RECEIVE
INTEREST AND PRINCIPAL PAYMENTS
Your right to receive payments on the exchange notes could be adversely
affected if any of our project subsidiaries or project affiliates are unable to
pay funds to Cogentrix Energy or declare bankruptcy, liquidate or reorganize.
Cogentrix Energy is a development and management company that conducts its
business primarily through its project subsidiaries and other subsidiaries that
hold unconsolidated investments in project affiliates. Our ability to pay
principal of, premium, if any, and interest on the exchange notes is dependent
upon the cash flow of our project subsidiaries and project affiliates and the
receipt of sufficient funds from them in the form of dividends, distributions,
fees, interest, loans or otherwise. The project finance agreements that our
project subsidiaries and our project affiliates currently have in place restrict
their ability to pay dividends and make distributions to Cogentrix Energy. These
restrictions generally require that, prior to the payment of dividends,
distributions or other transfers, the project subsidiary or project affiliate
must provide for the payment of its other obligations, including operating
expenses, debt service and reserves, and must meet specified debt service
coverage ratios. In addition, two of our subsidiaries formed to hold interests
in multiple electric generating facilities maintain credit agreements that have
similar restrictions on their ability to pay dividends and to make distributions
to Cogentrix Energy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Our project subsidiaries and project affiliates are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due on the exchange notes or to make any funds available to us to pay
our debt service. Any right of Cogentrix Energy to receive any assets of any of
its project subsidiaries or project affiliates upon liquidation or
reorganization, and the consequent right of the holders of the exchange notes to
participate in the distribution of, or to realize proceeds from, those assets,
will be effectively subordinated to the claims of the project subsidiaries' or
project affiliates' creditors.
RISKS RELATING TO OUR INDUSTRY
WE OPERATE OUR BUSINESS IN AN INDUSTRY THAT IS SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION
Emissions Regulations -- Costs of compliance with stricter emission
regulations could have a material adverse impact upon our business.
The Clean Air Act Amendments of 1990 require states to impose permit fees
on emissions, and Congress may consider proposals to further restrict or tax
emissions. In 1997, the United States Environmental Protection Agency (the
"EPA") adopted more restrictive ambient air quality standards for ozone and
particulate matter and, in 1998 and 1999, issued new rules and took other steps
focusing on reducing nitrogen oxide emissions from various sources, including
electric generating facilities. These proposals, rules and other initiatives,
some of which continue to be the subject of legal challenges, will impose
additional costs on the operation of our facilities - principally the coal-fired
ones - and could reduce the amount of funds available to our project
subsidiaries and project affiliates to make distributions to Cogentrix Energy.
This reduction in funds available for distribution in turn could impair
Cogentrix Energy's ability to meet its debt service obligations on its exchange
notes and its other outstanding debt. We have made and will continue to make
capital and other expenditures to comply with environmental laws and
regulations. See "Business -- Regulation -- Environmental Regulations -- United
States" and "-- International."
Environmental Regulations -- Changes in the laws governing disposal of coal
ash generated by our plants that use coal as their fuel to classify coal ash
as a hazardous waste could increase our costs and expose us to greater
potential liability for environmental remediation.
Coal ash is not currently subject to regulation as a hazardous waste under
the Resource Conservation and Recovery Act or the laws of the states where our
facilities are located. Any change in law subjecting coal ash to regulation as a
hazardous or other restricted waste could increase our costs of doing business
and could result in greater potential liability for costs associated with
remediating any adverse environmental effects of the disposal or use of coal
ash. This occurrence could reduce our cash flow and consequently impact our
ability to service our debt.
14
<PAGE> 19
Energy Regulations -- Loss of the exemptions we currently enjoy from the
extensive regulation electric utilities and electric utility holding
companies are subject to could subject our business to increased federal and
state regulation and possibly result in the acceleration of some of our
project subsidiaries' and project affiliates' debt and termination of their
contracts.
The provisions of various laws and regulations, including the Public
Utility Regulatory Policies Act of 1978 and the Public Utility Holding Company
Act of 1935 apply to our cogenerating and small power production facilities. The
Public Utility Regulatory Policies Act of 1978 provides to qualifying facilities
exemptions from federal and state laws and regulations, including
organizational, rate and financial regulation exemptions. The Public Utility
Holding Company Act of 1935 regulates public utility holding companies and their
subsidiaries. We are not and will not be regulated as a holding company as long
as the power plants we own in whole or in part are qualifying facilities or
eligible facilities of exempt wholesale generators under the Public Utility
Holding Company Act of 1935.
Qualifying facility status is conditioned on meeting statutory criteria,
and would be jeopardized, for example, by the loss of a steam customer or
reduction of steam purchases below required amounts. If one of our qualifying
facilities that is not also an exempt wholesale generator were to lose its
status as a qualifying facility and we were not able to take prompt remedial
action to restore that status, the project subsidiary or project affiliate
owning the facility would lose its exemptions, that could subject it to
regulation and result in Cogentrix Energy inadvertently becoming a public
utility holding company. Our other facilities could in turn lose their status as
qualifying facilities and utility customers of some of those facilities could
elect to terminate their power sales agreements. The lenders to the affected
project subsidiaries or project affiliates could also elect to accelerate those
project subsidiaries' or project affiliates' debt that would materially reduce
our cash flow and consequently our ability to service our debt. See
"Business -- Regulation -- Energy Regulations."
ELECTRIC UTILITY INDUSTRY RESTRUCTURING PROPOSALS MAY LEAD TO A MORE
COMPETITIVE MARKET
Legislative proposals that would permit utility customers to choose their
electric energy supplier and deregulate electric rates are likely to lead in the
future to a more competitive and risky market for us and our electric utility
customers. The Federal Energy Regulatory Commission and many state utility
commissions are currently studying or implementing a number of proposals that
would dramatically change the structure and method of operation of the electric
utility industry in the United States. Under most of these proposals utility
customers would be permitted to choose their electric energy supplier in a
competitive electric energy market. We cannot predict the final form or timing
of the proposed changes, but any changes that are adopted are likely to make the
market for independent energy producers like us more competitive and risky.
The Federal Energy Regulatory Commission issued a final rule in April 1996
that requires utilities to offer wholesale customers and suppliers open access
to utility transmission lines, on a comparable basis to the utilities' own use
of the lines. All domestic, investor-owned utilities have already filed "open
access" tariffs in response.
The utilities contend that they should recover from departing customers who
choose another energy supplier their fixed costs that will be "stranded" by the
ability of their wholesale customers and perhaps eventually, their retail
customers, to choose new electric energy suppliers. The final rule adopted by
the Federal Energy Regulatory Commission endorses the recovery of legitimate and
verifiable "stranded costs." These may include the costs utilities are required
to pay under many power purchase agreements with independent power producers
like us that the utilities view as excessive when compared with current market
prices. As a result, some utilities are seeking ways to lower these contract
prices or end the contracts altogether, out of concern that their shareholders
will be required to bear all or part of any "stranded" costs. If any of our
facilities from which we derive a substantial amount of our revenue were to
become the target of a purchasing utility's successful effort to reduce its
stranded cost, our revenue, profitability and ability to service our debt could
suffer.
15
<PAGE> 20
THE MARKET FOR DEVELOPMENT OF NEW ELECTRIC GENERATING PLANTS IN THE UNITED
STATES AND FOR ACQUISITION OF EXISTING ELECTRIC GENERATING PLANTS IS EXTREMELY
COMPETITIVE
There are numerous strong and capable competitors in the electric
generating industry, both domestically and internationally, many of whom have
extensive and diversified developmental or operating experience and financial
resources similar to or greater than ours. In recent years the industry has been
characterized by strong and increasing competition with respect to both the
development of new facilities and the acquisition of existing electric
generating assets. This changing competitive environment includes a trend away
from negotiated transactions and toward competitive bidding. The intensifying
competition has contributed in many areas to a reduction in electricity prices.
Combined with the increasing competition among regulated electric utilities and
the many proposals that are being studied or implemented to deregulate the
electric industry, this reduction in electricity prices has put pressure on
electric utilities to lower their costs, including the cost of purchased
electricity from independent energy producers like us.
RISKS RELATING TO THE EXCHANGE NOTES
WE MAY NOT HAVE SUFFICIENT FUNDS TO REPURCHASE THE NOTES UPON A CHANGE OF
CONTROL
The indenture under which these exchange notes will be issued contains
provisions that require Cogentrix Energy, in the event of a change in the
control of Cogentrix Energy, to repurchase any exchange notes that holders
desire to have repurchased. Cogentrix Energy may not have the financial
resources necessary to purchase exchange notes upon a change of control. See
"Description of Exchange Notes -- Important Negative Covenants -- Repurchase of
Exchange Notes Upon a Change of Control."
THE TERMS OF THE GUARANTEE MAY BE WAIVED OR ALTERED AT ANY TIME
One of our two non-operating, direct subsidiaries, Cogentrix Delaware
Holdings, has guaranteed all of Cogentrix Energy's existing and future unsecured
debt for borrowed money. This guarantee was given by Cogentrix Delaware Holdings
to the lenders under Cogentrix Energy's corporate credit facility. The guarantee
expressly extends, however, to all holders of senior unsecured outstanding
indebtedness of Cogentrix Energy, including all exchange notes under the
indenture under which these additional exchange notes will be issued. We did
this to insure that the claims of our bank lenders would not effectively rank
senior, as a result of the guarantee, to the claims of the holders of our senior
notes outstanding under this and another indenture.
The guarantee provides, however, that the terms or provisions of the
guarantee may be waived, amended, supplemented or otherwise modified at any time
and from time to time by Cogentrix Delaware Holdings and the agent bank for the
lenders under the credit agreement. The guarantee further provides that any
waiver, amendment, supplement or modification shall be effective against the
holders of our exchange notes, notwithstanding any reliance by the holders of
our exchange notes or any of them on the guarantee prior to the waiver,
amendment, supplement or modification.
Because this guarantee can by its express terms be waived, amended,
supplemented or modified without your consent, and because this guarantee is not
incorporated in the indenture under which Cogentrix Energy is issuing these
exchange notes, you should not rely upon its continuing existence as a source of
payment for Cogentrix Energy's obligations under these exchange notes. You
should also note that unless the term of the credit agreement is extended or any
letters of credit issued by the banks remain outstanding, this guarantee
terminates when the credit agreement for the corporate credit facility
terminates in 2003, approximately five years before the maturity date of these
exchange notes.
THERE IS NO EXISTING MARKET FOR THE EXCHANGE NOTES AND WE DO NOT INTEND TO
APPLY FOR THEIR LISTING ON ANY NATIONAL SECURITIES EXCHANGE.
There is no public market for the exchange notes. There can be no assurance
as to the liquidity of any market that may exist for the exchange notes, the
ability of holders of the exchange notes to sell their exchange notes, or the
price at which holders would be able to sell their exchange notes. If the
exchange
16
<PAGE> 21
notes are traded, they may trade at a discount from their initial public
offering price depending upon prevailing interest rates, our operating results,
the market for similar securities and other factors. We do not intend to apply
for listing of the exchange notes on any securities exchange or the Nasdaq
National Market.
HOLDERS OF OUTSTANDING NOTES WHO DO NOT PARTICIPATE IN THE EXCHANGE OFFER MAY
NOT OFFER OR SELL THEM UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE TO
THEM AND THEY WILL NOT HAVE ANY REGISTRATION RIGHTS.
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes pursuant to the exchange offer will continue to be bound by
the restrictions on transfer of their outstanding notes discussed in the legend
on the outstanding notes. Outstanding notes not exchanged will continue to
remain outstanding. In general, the outstanding notes may not be offered or sold
unless registered under the Securities Act, except under an exemption from, or
in a transaction not governed by, the Securities Act and applicable state
securities laws. Cogentrix Energy does not currently anticipate that it will
register the outstanding notes under the Securities Act.
As a result of the making of, and upon acceptance for exchange of all
validly tendered outstanding notes under the terms of, this exchange offer,
Cogentrix Energy will have fulfilled a promise contained in the registration
agreement. Cogentrix Energy will not have any obligation to conduct another
exchange offer for any untendered outstanding notes. Holders of outstanding
notes who do not tender their outstanding notes in the exchange offer will
continue to hold their outstanding notes and will be entitled to all the rights
and limitations they previously had, except for any rights they had under the
registration agreement that by their terms terminate or cease to have further
effectiveness as a result of the making of this exchange offer. The restrictions
on transfer included in the indenture under which the outstanding notes were
issued will continue to apply to all untendered outstanding notes. To the extent
that outstanding notes are tendered and accepted in the exchange offer, the
trading market for untendered outstanding notes could become unavailable.
17
<PAGE> 22
CAPITALIZATION
The following table presents as of June 30, 2000, the actual consolidated
capitalization of Cogentrix and the consolidated capitalization of Cogentrix as
adjusted to give effect to the offering of the outstanding senior notes and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with our consolidated financial statements and related notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cogentrix (consolidated).................................. $ 93,553 $ 134,007
Cogentrix Energy (parent only)............................ 43,003 83,457
========== ==========
SHORT-TERM DEBT:
Current portion of non-recourse project financing debt.... $ 90,254 $ 68,642
LONG-TERM DEBT:
Non-recourse project financing debt, net of current
portion................................................ 1,311,674 1,296,140
Corporate Credit Facility(1).............................. -- --
2004 Senior Notes......................................... 100,000 80,000
2008 Senior Notes......................................... 255,000 355,000
---------- ----------
Total Long-term debt.............................. 1,666,674 1,731,140
---------- ----------
Total indebtedness................................ 1,756,928 1,799,782
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding.................. 130 130
Accumulated other comprehensive loss...................... (1,076) (1,076)
Accumulated earnings...................................... 152,744 152,744
---------- ----------
Total shareholders' equity........................ 151,798 151,798
---------- ----------
Total capitalization.............................. $1,908,726 $1,951,580
========== ==========
</TABLE>
---------------
(1) Cogentrix Energy has a credit agreement with a group of banks that provides
$250 million of revolving credit availability in the form of either direct
advances or letters of credit. As of the date of this prospectus, we had
used approximately $183.8 million of the credit available under this
facility primarily for letters of credit issued to support equity
contributions for projects currently under construction.
USE OF PROCEEDS
The exchange offer is intended to satisfy some of our obligations under the
exchange and registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes in the exchange offer. In
exchange for issuing the exchange notes as described in this prospectus, we will
receive an equal principal amount of original notes, which will be canceled.
The net proceeds we received from the sale of the outstanding senior notes
(after deducting the discount to the Initial Purchasers and estimated expenses
in connection with this Offering) were approximately $97.6 million. Cogentrix
has used or expects to use the net proceeds (1) to repurchase $20 million of its
outstanding 8.10% senior notes due 2004 to satisfy a sinking fund payment
obligation due March 15, 2001, (2) to prepay in full approximately $37 million
of project subsidiary debt that matures between the date of this prospectus and
2002 and that bears interest at LIBOR plus 1.0% (7.6% at June 30, 2000) and (3)
for general corporate purposes.
18
<PAGE> 23
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Simultaneously with the sale of the outstanding senior notes on September
22, 2000, we entered into a registration agreement with the initial purchasers
of the outstanding notes -- Salomon Smith Barney, Inc., and CIBC World Markets
Corp. Under this registration agreement, we agreed to file a registration
statement regarding the exchange of the outstanding senior notes for notes with
terms identical in all material respects. We also agreed to use our reasonable
best efforts to cause that registration statement to become effective with the
Securities and Exchange Commission. A copy of the registration agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
We are conducting the exchange offer to satisfy our contractual obligations
under the registration agreement. The form and terms of the exchange notes are
the same as the form and terms of the outstanding senior notes, except that the
exchange notes will be registered under the Securities Act. The registration
agreement requires, among other things, that we, at our cost, become obligated
to file a registration statement in connection with a registered exchange offer
within 90 days after the date on which the outstanding senior notes were first
issued, which was September 22, 2000, and use our best efforts to cause the
registration statement relating to such registered exchange offer to become
effective within 150 days after September 22, 2000. When the registration
statement is declared effective, we will offer to the holders of the outstanding
senior notes the opportunity to exchange their outstanding senior notes for a
like principal amount of exchange notes and will keep the exchange offer open
for not less than 30 days and not more than 45 days after the date notice of the
exchange offer is mailed to the holders, unless applicable law requires the
offer to remain open for a longer period of time. The exchange offer is not
extended to outstanding senior note holders in any jurisdiction where the
exchange offer does not comply with the securities or blue sky laws of that
jurisdiction.
In the event that applicable interpretations of the Staff of the Securities
and Exchange Commission do not permit us to conduct the exchange offer, or if
any holder of the outstanding senior notes notifies us that the holder is not
eligible to participate in, or would not receive freely tradeable exchange notes
in exchange for tendered outstanding senior notes in, the exchange offer, we
will use our best efforts to cause to become effective a shelf registration
statement with respect to the resale of the outstanding senior notes. We have
also agreed to use our best efforts to keep the shelf registration statement
effective at least two years after its date of effectiveness.
The term "holder" as used in this section of the prospectus entitled "The
Exchange Offer" means
(1) any person in whose name the outstanding senior notes issued September
22, 2000 are registered on our books, or
(2) any other person who has obtained a properly completed bond power from
the registered holder, or
(3) any person whose outstanding senior notes issued September 22, 2000
are held of record by DTC and who wants to deliver such outstanding
senior notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange up to $100,000,000 total principal amount of
exchange notes for a like total principal amount of outstanding senior notes
issued September 22, 2000. The outstanding senior notes must be tendered
properly on or before the expiration date and not withdrawn. In exchange for
outstanding senior notes properly tendered and accepted, we will issue a like
total principal amount of up to $100,000,000 in exchange notes.
The exchange offer is not conditioned upon holders tendering a minimum
principal amount of outstanding senior notes. As of the date of this prospectus,
$100,000,000 aggregate principal amount of senior notes issued September 22,
2000 are outstanding.
19
<PAGE> 24
If you do not tender outstanding senior notes or tender outstanding senior
notes that we do not accept, your outstanding senior notes will remain
outstanding. Any outstanding senior notes will be entitled to the benefits of
the indenture but will not be entitled to any further registration rights under
the registration agreement, except under limited circumstances. You should read
"Risk Factors -- Risks Relating to the Exchange Notes" for more information
regarding senior notes outstanding after the exchange offer.
After the expiration date, we will return to you, without cost, any
tendered outstanding senior notes that we did not accept for exchange.
Holders exchanging outstanding senior notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
Letter of Transmittal. We will pay the charges and expenses, other than the
transfer taxes described below, in the exchange offer. See "-- Fees and
Expenses" below for further information regarding fees and expenses.
WE DO NOT RECOMMEND YOU TO TENDER OR NOT TENDER OUTSTANDING SENIOR NOTES IN
THE EXCHANGE OFFER. IN ADDITION, WE HAVE NOT AUTHORIZED ANYONE TO MAKE ANY
RECOMMENDATION. YOU MUST DECIDE WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF
SO, THE AGGREGATE AMOUNT OF OUTSTANDING SENIOR NOTES TO TENDER.
The expiration date is 5:00 p.m., New York City time, on December 8, 2000
unless we extend the exchange offer.
We have the right, in accordance with applicable law, at any time:
- to delay the acceptance of the outstanding senior notes;
- to terminate the exchange offer if we determine that any of the
conditions to the exchange offer have not occurred or have not been
satisfied;
- to extend the expiration date of the exchange offer and keep all
outstanding senior notes tendered other than those outstanding senior
notes properly withdrawn; and
- to waive any condition or amend the terms of the exchange offer.
If we materially change the exchange offer, or if we waive a material
condition of the exchange offer, we will promptly file a post-effective
amendment to the registration statement disclosing the change or waiver. We also
will extend the exchange offer as required by Rule 14e-1 under the Exchange Act.
If we exercise any of the rights listed above, we will promptly give oral
or written notice of the action to the exchange agent and will issue a release
to an appropriate news agency, which is the only method of communication that we
are obligated to use. In the case of an extension, an announcement will be made
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
We will issue to the exchange agent exchange notes for outstanding senior
notes tendered and accepted and not withdrawn promptly after the expiration
date. The exchange agent might not deliver the exchange notes to all tendering
holders at the same time. The timing of delivery depends upon when the exchange
agent receives and processes the required documents.
We will be deemed to have exchanged outstanding senior notes validly
tendered and not withdrawn when we give oral or written notice to the exchange
agent of our acceptance. The exchange agent is our agent for receiving tenders
of outstanding senior notes, letters of transmittal and related documents. The
exchange agent is also your agent for receiving outstanding senior notes,
letters of transmittal and related documents and transmitting exchange notes to
you who validly tender. If for any reason, we
(1) delay the acceptance or exchange of any outstanding senior notes,
(2) extend the exchange offer or
(3) are unable to accept or exchange outstanding senior notes,
20
<PAGE> 25
then the exchange agent may, on our behalf and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered notes. Outstanding senior notes retained by
the exchange agent may not be withdrawn, except according to the withdrawal
procedures outlined in the section entitled "-- Withdrawal Rights" below.
In tendering outstanding senior notes, you must warrant in the letter of
transmittal or in an agent's message, meaning a message transmitted to the
exchange agent by DTC stating that you agree to be bound by the terms of the
letter of transmittal, that
- you have full power and authority to tender, exchange, sell, assign and
transfer outstanding senior notes,
- we will acquire good, marketable and unencumbered title to the tendered
outstanding senior notes, free and clear of all liens, restrictions,
charges and other encumbrances, and
- the outstanding senior notes tendered for exchange are not subject to any
adverse claims or proxies.
You also must warrant and agree that you will, upon request, execute and deliver
any additional documents requested by us or the exchange agent to complete the
exchange, sale, assignment, and transfer of the outstanding senior notes.
PROCEDURES FOR TENDERING
Valid Tender
You may tender your outstanding senior notes by book-entry transfer or by
other means. For book-entry transfer, you must deliver to the exchange agent
either a completed and signed letter of transmittal or an agent's message. You
must deliver your letter of transmittal or agent's message by mail, facsimile,
hand delivery or overnight carrier to the exchange agent on or before the
expiration date. In addition, to complete a book-entry transfer, you must also
either have DTC transfer the outstanding senior notes into the exchange agent's
account at DTC using DTC's Automated Tender Offer Program procedures for
transfer, and obtain a confirmation of such a transfer, or follow the guaranteed
delivery procedures described below under "-- Guaranteed Delivery."
If you tender fewer than all of your outstanding senior notes, you should
fill in the amount of notes tendered in the appropriate box on the letter of
transmittal. If you do not indicate the amount tendered in the appropriate box,
we will assume you are tendering all outstanding senior notes that you hold.
For tendering your outstanding senior notes other than by book-entry
transfer, you must deliver a completed and signed letter of transmittal to the
exchange agent. Again, you must deliver the letter of transmittal by mail,
facsimile, hand delivery or overnight carrier to the exchange agent on or before
the expiration date. In addition, to complete a valid tender you must either
deliver your outstanding senior notes to the exchange agent on or before the
expiration date, or follow the guaranteed delivery procedures set forth below
under "-- Guaranteed Delivery."
DELIVERY OF REQUIRED DOCUMENTS BY WHATEVER METHOD YOU CHOOSE IS AT YOUR
SOLE RISK. DELIVERY IS COMPLETE WHEN THE EXCHANGE AGENT ACTUALLY RECEIVES THE
ITEMS TO BE DELIVERED. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. IF DELIVERY IS
MADE BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
Signature Guarantees
You do not need to endorse certificates for the outstanding senior notes or
provide signature guarantees on the letter of transmittal, unless
(1) someone other than the registered holder tenders the certificate or
(2) you complete the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the letter of transmittal.
21
<PAGE> 26
In the case of (1) or (2) above, you must sign your outstanding senior note
or provide a properly executed bond power, with the signature on the bond power
and on the letter of transmittal guaranteed by a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as an eligible guarantor institution.
Eligible guarantor institutions include:
(1) a bank;
(2) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
(3) a credit union;
(4) a national securities exchange, registered securities association or
clearing agency; or
(5) a savings association that is a participant in a securities transfer
association.
Guaranteed Delivery
If a holder wants to tender outstanding senior notes in the exchange offer
and
- the certificates for the outstanding senior notes are not immediately
available or all required documents are unlikely to reach the exchange
agent on or before the expiration date or
- a book-entry transfer cannot be completed in time, the outstanding senior
notes may be tendered if the holder complies with the following
guaranteed delivery procedures:
(1) the tender is made by or through an eligible guarantor institution;
(2) you deliver a properly completed and signed notice of guaranteed
delivery, like the form provided with the letter of transmittal, to the
exchange agent on or before the expiration date; and
(3) you deliver the certificates or a confirmation of book-entry transfer
and a properly completed and signed letter of transmittal to the
exchange agent within three (3) New York Stock Exchange trading days
after the notice of guaranteed delivery is executed.
You may deliver the notice of guaranteed delivery by hand, facsimile or
mail to the exchange agent and must include a guarantee by an eligible guarantor
institution in the form described in the notice.
Our acceptance of properly tendered outstanding senior notes is a binding
agreement between you and us upon the terms and subject to the conditions of the
exchange offer.
Determination of Validity
We will resolve all questions regarding the form of documents, validity,
eligibility and acceptance for exchange of any tendered outstanding senior
notes. Our resolution of these questions as well as our interpretation of the
terms and conditions of the exchange offer, including the letter of transmittal,
is final and binding on all parties. A tender of outstanding senior notes is
invalid until all irregularities have been cured or waived. Neither we, any of
our affiliates or assigns, the exchange agent nor any other person is under any
obligation to give notice of any irregularities in tenders nor will we or they
be liable for failing to give any such notice. We reserve the absolute right, in
our sole discretion, to reject any tenders determined to be in improper form or
unlawful. We also reserve the absolute right to waive any of the conditions of
the exchange offer or any condition or irregularity in the tender of outstanding
senior notes by any holder. We need not waive similar conditions or
irregularities in the case of other holders.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless we
give a waiver, the person must submit proper evidence satisfactory to us, in our
sole discretion, of his or her authority to so act.
22
<PAGE> 27
A beneficial owner of outstanding senior notes that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian should contact that entity promptly if the beneficial
owner wants to participate in the exchange offer.
RESALES OF EXCHANGE NOTES
We are exchanging the outstanding senior notes for exchange notes based
upon the staff of the Securities and Exchange Commission's position set forth in
interpretive letters to third parties in other similar transactions. We will not
seek our own interpretive letter. As a result, we cannot assure you that the
staff will take the same position for this exchange offer as it did in
interpretive letters to other parties. Based on the staff's letters to other
parties, we believe that holders of exchange notes, other than broker-dealers,
can offer the notes for resale, resell and otherwise transfer the exchange notes
without delivering a prospectus to prospective purchasers. However, holders of
the outstanding senior notes who intend to participate in the exchange offer
must acquire the exchange notes in the ordinary course of business and have no
intention of engaging in a distribution of the exchange notes, as a
"distribution" is defined under the Securities Act.
Any holder of outstanding senior notes who is an "affiliate" of Cogentrix
or who intends to distribute exchange notes, or any broker-dealer who purchased
outstanding senior notes directly from Cogentrix or an "affiliate" of Cogentrix:
- cannot rely on the Staff's interpretations in the above mentioned
interpretive letters and
- must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the outstanding senior notes, unless the
sale is exempt.
In this situation, a broker-dealer must deliver a prospectus that contains
a plan of distribution that names the broker-dealer as a selling security holder
in connection with any resale of outstanding senior notes or exchange notes,
unless the resale is exempt under the Securities Act.
In addition, if any broker-dealer acquired outstanding senior notes for its
own account as a result of market-making or other trading activities and
exchanges the outstanding senior notes for exchange notes, the broker-dealer
must deliver a prospectus with any resales of the exchange notes.
If you want to exchange your outstanding senior notes for exchange notes,
you will be required to affirm that:
- you are not an "affiliate" of Cogentrix Energy;
- you are acquiring the exchange notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person to participate
in a distribution of the exchange notes, as "distribution" is defined
under the Securities Act; and
- you are not a broker-dealer, not engaged in, and do not intend to engage
in, a distribution of the exchange notes, as "distribution" is defined
under the Securities Act.
In addition, we may require you to provide information regarding the number
of "beneficial owners," within the meaning of Rule 13d-3 under the Exchange Act,
of the outstanding senior notes that are held in your name. Each broker-dealer
that receives exchange notes for its own account may be deemed to be an
"underwriter" under the Securities Act. These broker-dealers must also
acknowledge that they each acquired the outstanding senior notes for its own
account as the result of market-making activities or other trading activities
and agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of exchange notes. The letter of
transmittal indicates that by making this acknowledgment and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" under the Securities Act. Based on the staff's position enunciated
in interpretive letters to other parties, we believe that broker-dealers who
acquired outstanding senior notes for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange notes with a
prospectus meeting the requirements of the
23
<PAGE> 28
Securities Act. Accordingly, a broker-dealer may use this prospectus to satisfy
such requirements. We have agreed to allow a broker-dealer to use this
prospectus, as it may be amended or supplemented from time to time, for a period
starting on the expiration date and ending on the close of business on the first
anniversary of the expiration date. You should read "Plan of Distribution" for
further information. A broker-dealer intending to use this prospectus in the
resale of exchange notes must notify us, on or prior to the expiration date,
that it intends to participate in the exchange offer. This notice may be given
in the letter of transmittal or may be delivered to the exchange agent.
WITHDRAWAL RIGHTS
You can withdraw tenders of outstanding senior notes at any time on or
before the expiration date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a notice of withdrawal to the exchange agent
on or before the expiration date. The notice of withdrawal must specify the name
of the person tendering the outstanding senior notes to be withdrawn, the total
principal amount of outstanding senior notes withdrawn, and the name of the
registered holder of the outstanding senior notes if different from the person
tendering the outstanding senior notes. If you delivered outstanding senior
notes to the exchange agent, you must submit the serial numbers of the
outstanding senior notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an eligible guarantor institution, except in
the case of outstanding senior notes tendered for the account of an eligible
guarantor institution. If you tendered outstanding senior notes as a book-entry
transfer, the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of outstanding senior notes
and you must deliver the notice of withdrawal to the exchange agent by written,
telegraphic, telex or facsimile transmission. You may not rescind withdrawals of
tender. Outstanding senior notes properly withdrawn may again be tendered at any
time on or before the expiration date.
We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. Neither we, any of our affiliates or assigns, the exchange agent
nor any other person is under any obligation to give notice of any
irregularities in any notice of withdrawal, nor will we or they be liable for
failing to give any such notice. Withdrawn outstanding notes will be returned to
the holder after withdrawal, without cost to the holder.
INTEREST ON EXCHANGE NOTES
The exchange notes will bear interest at a rate of 8.75% per annum, payable
semi-annually, on April 15 and October 15 of each year, commencing April 15,
2001. Holders of exchange notes will receive interest on April 15, 2001 from the
date of initial issuance of the exchange notes, plus an amount equal to the
accrued interest on the outstanding senior notes. Interest on the outstanding
senior notes accepted for exchange will cease to accrue upon issuance of the
exchange notes.
CONDITIONS TO THE EXCHANGE OFFER
We do not have to exchange any outstanding senior notes, may terminate the
exchange offer or may waive any conditions to the exchange offer or amend the
exchange offer, if any of the following conditions have occurred:
- the staff no longer allows the exchange notes to be offered for resale,
resold and otherwise transferred by any of the holders without compliance
with the registration and prospectus delivery provisions of the
Securities Act,
- a governmental body passes any law, statute, rule or regulation which, in
our opinion, prohibits or prevents the exchange offer,
- the Securities and Exchange Commission or any state securities authority
issues a stop order suspending the effectiveness of the registration
statement or initiates or threatens to initiate a proceeding to suspend
the effectiveness of the registration statement, or
24
<PAGE> 29
- we are unable to obtain any governmental approval that we believe is
necessary to complete the exchange offer.
If we reasonably believe that any of the above conditions has occurred, we
may
(1) terminate the exchange offer and return all tendered outstanding
senior notes to the tendering holders,
(2) waive any condition to the exchange offer,
(3) extend the expiration date of the exchange offer and keep all
outstanding senior notes tendered other than those outstanding senior
notes properly withdrawn or
(4) amend the terms of the exchange offer in any respect. If our waiver or
amendment materially changes the exchange offer, we will promptly file
a post-effective amendment to the registration statement, disclosing
the change or waiver. We also will extend the exchange offer as
required by Rule 14e-1 of the Exchange Act.
EXCHANGE AGENT
First Union National Bank has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
<TABLE>
<S> <C> <C>
By Registered, Certified or Overnight Facsimile: Telephone Number:
Mail:
First Union National Bank 704-590-7628 704-590-7408
Corporate Trust Reorganization
1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153
Attention: Mike Klotz
By Hand:
First Union National Bank
40 Broad Street
5th Floor, Suite 550
New York, New York 10004
</TABLE>
IF YOU DELIVER LETTERS OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO
AN ADDRESS OR FACSIMILE NUMBER OTHER THAN THOSE LISTED ABOVE, YOUR TENDER IS
INVALID.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders for the exchange offer. We
will principally solicit tenders for the exchange offer by mail or overnight
courier, although our officers and regular employees may additionally solicit in
person by telephone or facsimile.
We have not retained any dealer-manager in connection with the exchange
offer and will not pay any brokers, dealers or other persons soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and its reasonable out-of-pocket
expenses. We may also pay brokerage houses and other custodians, nominees and
fiduciaries their reasonable out-of-pocket expenses for sending copies of this
prospectus, letters of transmittal and related documents to holders of the
outstanding notes, and in handling or tendering outstanding senior notes for
their customers.
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<PAGE> 30
We will pay the expenses for the exchange offer, including fees and
expenses of the exchange agent and trustee and accounting and legal fees and
expenses.
We will pay the transfer taxes for the exchange of the outstanding senior
notes in the exchange offer. If, however, exchange notes are delivered to or
issued in the name of a person other than the registered holder, or if a
transfer tax is imposed for any reason other than the exchange of outstanding
senior notes in the exchange offer, then the tendering holder will pay the
transfer taxes. If a tendering holder does not submit satisfactory evidence of
payment of such taxes or exemption from taxes with the letter of transmittal,
the taxes will be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding senior notes. Accordingly, we will not recognize any gain or loss
for accounting purposes. We will amortize expenses of the exchange offer over
the term of the exchange notes in accordance with generally accepted accounting
principles.
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<PAGE> 31
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain selected consolidated financial
information as of and for the five years ended December 31, 1999, as of June 30,
2000 and for the six-month periods ended June 30, 2000 and 1999. This
information should be read in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this prospectus and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The selected consolidated financial information as of and for each of the
four years in the period ended December 31, 1999, and as of December 31, 1995
set forth below has been derived from our audited consolidated financial
statements. The information as of June 30, 2000, the six-month periods ended
June 30, 2000 and 1999 and the year ended December 31, 1995 have been derived
from our unaudited consolidated financial statements. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial position and consolidated
results of operations for these periods. The unaudited consolidated results of
operations are not necessarily indicative of the consolidated results of
operations for any other period or for any year as a whole.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
----------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenue............ $397,677 $388,845 $349,914 $408,693 $447,563 $222,337 $257,836
Operating expenses:
Operating costs.................. 238,261 232,199 190,098 185,567 195,142 95,862 118,072
General, administrative and
development.................... 28,853 31,245 41,650 36,490 39,014 20,830 19,804
Depreciation and amortization.... 38,848 37,455 41,844 42,535 43,713 21,776 21,968
Loss on impairment and cost of
removal of cogeneration
facilities..................... -- 65,628 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses................ 305,962 366,527 273,592 264,592 277,869 138,468 159,844
-------- -------- -------- -------- -------- -------- --------
Operating income................... 91,715 22,318 76,322 144,101 169,694 83,869 97,992
Other income (expense):
Interest expense................. (59,362) (56,950) (53,864) (74,949) (94,956) (47,307) (46,922)
Other, net....................... 4,783 3,186 3,579 (6,506) (3,747) (3,568) (1,626)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary loss........... 37,136 (31,446) 26,037 62,646 70,991 32,994 49,444
Benefit (provision) for income
taxes............................ (13,783) 11,273 (9,754) (24,914) (27,576) (13,259) (19,166)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
loss............................. 23,353 (20,173) 16,283 37,732 43,415 19,735 30,278
Extraordinary loss on early
extinguishments of debt, net..... -- (703) (1,502) (743) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 23,353 $(20,876) $ 14,781 $ 36,989 $ 43,415 $ 19,735 $ 30,278
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common share... $ 82.81 $ (74.03) $ 52.41 $ 131.17 $ 153.95 $ 69.98 $ 107.37
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges
(unaudited)(1)................... 1.57x 0.49x 1.46x 1.80x 1.70x 1.95x 1.66x
======== ======== ======== ======== ======== ======== ========
OTHER DATA (UNAUDITED)(2):
Parent EBITDA...................... $ 27,674 $ 55,413 $ 38,980 $ 63,884 $ 96,982 $ 35,941 $ 52,303
Parent Fixed Charges............... 8,530 8,472 8,607 14,217 32,548 16,237 16,826
Parent EBITDA/Parent Fixed
Charges.......................... 3.24x 6.54x 4.53x 4.49x 2.98x 2.21x 3.11x
Cash dividends declared per common
share............................ 15.02 16.88 25.32 26.23 30.79 -- --
</TABLE>
27
<PAGE> 32
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- ---------- ---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities.......... $ 29,228 $ 89,188 $ 71,833 $ 48,207 $ 80,344 $ 93,553
Total assets............................ 914,136 865,941 822,974 1,499,851 1,998,386 2,166,261
Project financing debt(3)............... 639,823 620,885 567,705 877,653 1,271,383 1,401,928
Parent debt(4).......................... 100,000 100,000 100,000 355,000 355,000 355,000
Total shareholders' equity.............. 75,891 50,631 58,298 87,863 121,451 151,798
</TABLE>
---------------
(1) For purposes of this ratio, earnings include income (loss) before income
taxes, extraordinary loss and fixed charges. Fixed charges include interest,
whether capitalized or expensed and amortization of deferred financing
costs.
(2) Parent EBITDA represents cash flow to Cogentrix Energy prior to debt service
and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of some of its subsidiaries' indebtedness. Our management
believes Parent EBITDA is a useful measure of Cogentrix Energy's ability to
service debt. Parent EBITDA should not be construed, however, as an
alternative to operating income or to cash flows from operating activities.
(3) Project financing debt with respect to each of our project subsidiaries is
"substantially non-recourse" to Cogentrix Energy and its other project
subsidiaries. For a discussion of the term "non-recourse," see
"Business -- Project Agreements, Financing and Operating Arrangements for
our Facilities -- Project Financing."
(4) Parent debt represents obligations of Cogentrix Energy only and does not
include non-recourse obligations of our project subsidiaries and project
affiliates.
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<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, primarily under long-term power purchase
agreements, to regulated electric utilities and power marketers. 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 larger 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 operation in the United States. Our 25 plants are designed
to operate at a total production capability of approximately 4,821 megawatts.
After taking into account our part interests in the 17 plants that are not
wholly-owned by us, that range from 1.6% to approximately 74.0%, our net
ownership interests in the total production capability of our 25 electric
generating plants is approximately 2,254 megawatts. We currently operate 12 of
our facilities, 9 of which we developed and constructed.
We also have ownership interests in and will operate four facilities
currently under construction in Louisiana, Oklahoma, Idaho and the Dominican
Republic with an aggregate production capability of approximately 2,196
megawatts. Once these facilities begin operation, we will have ownership
interests in a total of 28 domestic -- and one international -- electric
generating facilities that are designed with an aggregate production capability
of approximately 7,017 megawatts. Our net ownership interest in the total
production capability of these 29 facilities will be approximately 4,212
megawatts.
RESULTS OF OPERATIONS
Six-Month Period Ended June 30, 2000 as compared to the Six-Month Period Ended
June 30, 1999
Total operating revenue increased 16.0% to $257.8 million as compared to
$222.3 million for the six-month period ended June 30, 1999. This increase was
primarily attributable to a $18.3 million increase in electric and service
revenue related to an increase in megawatt hours sold to the purchasing
utilities at several of our electric generating facilities. The increase in
operating revenue is also attributable to a $15.8 million increase in income
from unconsolidated investments in power projects. This increase is attributable
to an increase in megawatt hours sold to the purchasing utilities at some of the
facilities, and to a change in treatment for major overhaul expenses at four of
the facilities on January 1, 1999, requiring major maintenance overhauls to be
expensed as incurred. Previously, the estimated cost of major maintenance
overhauls was reserved in advance. The increase in income from our project
affiliates is also the result of the acquisition of an additional 19.9% interest
in the Indiantown facility late in the second quarter of 1999, and an additional
20.1% interest in the third quarter of 1999.
Our operating costs increased 23.1% to $118.1 million for the six-month
period ended June 30, 2000 as compared to $95.9 million for the six-month period
ended June 30, 1999. The increase was primarily due to a $16.6 million increase
in fuel expense. The increase in fuel expense was a result of an increase in
megawatt hours sold to the purchasing utilities at several of our electric
generating plants. Operating costs were also impacted by the inclusion of
startup costs incurred at the Batesville facility during the six-month period
ended June 30, 2000. These costs were not incurred during 1999. Operating costs
also increased as a result of an increase in expenses at the Richmond facility
as a result of an increase in the amount of its project debt during the second
quarter of 2000.
General, administrative and development expense decreased 4.8% to $19.8
million for the six-month period ended June 30, 2000 as compared to $20.8
million for the six-month period ended June 30, 1999.
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<PAGE> 34
The decrease resulted primarily from the capitalization of certain corporate
development costs related to projects under active development and construction.
The decrease in general, administrative and development expense was partially
offset by an increase in compensation expense related to an increase in the
number of corporate employees and an increase in incentive compensation expense
related to our increased profitability.
Interest expense decreased 0.8% to $46.9 million for the six months ended
June 30, 2000 as compared to the corresponding period of 1999. Our average
long-term debt increased to $1.7 billion, as compared to average long-term debt
of $1.2 billion for the six months ended June 30, 1999. The increase in average
long-term debt is primarily the result of the inclusion of $326.0 million of
construction financing related to the Batesville facility and additional
construction borrowings incurred during the six months ended June 30, 2000 for
projects in Idaho, Oklahoma and the Dominican Republic. Interest incurred on
these construction borrowings is capitalized during the construction phase. The
decrease in interest expense resulted primarily from the scheduled repayments on
outstanding project financing debt at several of our project subsidiaries.
The decrease in minority interest in income for the six-month period ended
June 30, 2000 as compared to the corresponding period of 1999 related primarily
to the inclusion of the losses incurred at the Batesville facility, on which we
completed construction and commenced commercial operation in August 2000.
Year Ended December 31, 1999 as compared to Year Ended December 31, 1998
Total operating revenues increased 9.5% to $447.6 million for the year
ended December 31, 1999 as compared to $408.7 million for the year ended
December 31, 1998. This increase was primarily attributable to the $19.4 million
increase in lease and service revenue earned under the power sales agreements
for the Cottage Grove and Whitewater facilities in which we acquired our
interests in March 1998. The increase in operating revenues also relates to a
$19.0 million increase in income from unconsolidated investments in power
projects. This increase was primarily attributable to the purchase of interests
in 12 electric generating facilities in October 1998. The increase in income
from unconsolidated investments in power projects was also impacted by the
purchase of an additional 40% interest in the Indiantown facility during 1999.
The increase in total operating revenues was partially offset by a decrease in
other operating revenue, due to the recognition of a $4.3 million construction
management fee received in 1998 for the completion of a 248 megawatt, gas-fired
electric generating facility in Clark County, Washington.
Total operating expenses increased 5.1% to $195.1 million for the year
ended December 31, 1999 as compared to $185.6 million for the year ended
December 31, 1998. This increase was primarily attributable to the $9.9 million
in cost of services incurred by the Cottage Grove and Whitewater facilities,
interests in which we acquired in March 1998. Total operating expenses also
increased as a result of an increase in fuel expense of $3.4 million associated
with an increase in overall megawatt hours sold to the purchasing utilities at
our plants, the amortization of an arbitration award to a coal supplier and an
increase in fuel sold to third parties at the Cottage Grove and Whitewater
facilities. The increase in total operating expenses was partially offset by a
decrease in operation and maintenance expenses due to routine maintenance
expenses incurred at several of our facilities during the year ended December
31, 1998.
General, administrative, and development expenses increased 6.8% to $39.0
million for the year ended December 31, 1999 as compared to $36.5 million for
the year ended December 31, 1998. This increase is primarily due to an increase
in compensation expense related to an increase in the number of corporate
employees, an increase in incentive compensation expense related to our
increased profitability, and expense related to the buyout of an executive's
participation in an incentive compensation plan. General and administrative
expense was also impacted, to a lesser extent, by an increase in information
system consulting costs resulting from the implementation of various new core
business systems. The increase in general, administrative, and development
expenses was partially offset by the capitalization of development
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<PAGE> 35
costs related to certain project development efforts during the year ended
December 31, 1999 and a decrease in travel and other development costs related
to international development activity.
Interest expense increased 26.8% to $95.0 million for the year ended
December 31, 1999 as compared to $74.9 million for the year ended December 31,
1998. Our average long-term debt increased to $1.2 billion, with a weighted
average interest rate of 7.62% for the year ended December 31, 1999 as compared
to average long-term debt of $1.0 billion, with a weighted average interest rate
of 7.25% for the year ended December 31, 1998. The increases in interest expense
and weighted average debt outstanding were related to the inclusion of the
project debt of the Cottage Grove and Whitewater facilities acquired in March
1998, the issuance of $255 million of 8.75% senior notes during the fourth
quarter of 1998, and borrowings incurred during the year under revolving credit
facilities at some subsidiaries related to acquisitions made during the year.
The increase in average long-term debt outstanding was also impacted, to a
lesser extent, by an outstanding construction loan of approximately $70.5
million in December 1999, for the project under construction in Jenks, Oklahoma.
The increase in interest expense was partially offset by a decrease in interest
expense at several of our project subsidiaries resulting from the scheduled
repayment of outstanding project finance debt, and the capitalization of
interest costs on projects under construction.
The increase in minority interest in income for the year ended December 31,
1999 as compared to the year ended December 31, 1998 related to the inclusion of
a full twelve months of operations for the Cottage Grove and Whitewater
facilities in the year ended December 31, 1999, as compared to only nine months
in the year ended December 31, 1998, and the settlement of certain matters under
the construction contracts relating to the Whitewater and Cottage Grove
facilities.
Year Ended December 31, 1998 as compared to Year Ended December 31, 1997
Total operating revenues increased 16.8% to $408.7 million for the year
ended December 31, 1998 as compared to $349.9 million for the year ended
December 31, 1997. This increase was primarily attributable to the $69.2 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 in March 1998. Operating revenues were also impacted by
an increase in income from unconsolidated investments in power projects. The
increase was primarily the result of the acquisition of ownership interests in
twelve electric generating facilities in October 1998. We recognized
approximately $2.8 million of revenue, net of premium amortization, related to
these ownership interests. These increases in operating revenues were partially
offset by a net decrease in electric revenue for the year ended December 31,
1998 as compared to the year ended December 31, 1997. This decrease is primarily
the result of a restructuring of power sales agreements at two of our facilities
to give the purchasing utility the right to suspend or reduce purchases of
energy. The decrease in electric revenues was partially offset by an increase in
electric revenue at three of our facilities due to an increase in megawatt hours
sold to the purchasing utilities.
Our operating costs decreased approximately 2.4% to $185.6 million for the
year ended December 31, 1998 as compared to $190.1 million for the year ended
December 31, 1997. The decrease in operating expenses was primarily the result
of a $37.7 million reduction in fuel expense at two of our facilities resulting
from the restructuring of their power sales agreements. The decrease was also a
result of a decrease in operating costs incurred by ReUse Technology, Inc., an
indirect, wholly-owned subsidiary, related to third-party agreements. This
decrease was partially offset by the $36.0 million in cost of services incurred
by the Cottage Grove and Whitewater facilities, interests in which we acquired
in March 1998. Operating expenses were also impacted by the increases in fuel
expense at two of our facilities associated with an increase in megawatt hours
sold.
General, administrative and development expenses for the year ended
December 31, 1998 decreased 12.5% to $36.5 million as compared to $41.7 million
for the year ended December 31, 1997. The decrease was primarily the result of
$10.7 million of expense recognized in the year ended December 31, 1997 related
to the restructuring or termination of incentive compensation arrangements for
certain employees, as well as expense incurred related to severance payments to
certain executive officers. The decrease was also due to a general decrease in
salary expense during the year ended December 31, 1998 as a result of a
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<PAGE> 36
restructuring we completed in the prior year. This decrease was partially offset
by an increase in incentive compensation expense related to our profit-sharing
plan as a result of the increase in our profitability for the year ended
December 31, 1998, and expenses incurred related to our project development
efforts.
Interest expense increased 39.0% to $74.9 million for the year ended
December 31, 1998 as compared to $53.9 million for the year ended December 31,
1997. Our average long-term debt increased to $1.0 billion, with a weighted
average interest rate of 7.25%, for the year ended December 31, 1998 as compared
to average long-term debt of $697 million, with a weighted average interest rate
of 7.73%, for the year ended December 31, 1997. The increases in interest
expense and weighted average debt outstanding are related to the inclusion of
the project finance debt of the Cottage Grove and Whitewater facilities acquired
in March 1998, and the increase in project finance debt outstanding at the
Portsmouth facility, that was refinanced in December 1997, and the Hopewell
facility, that was refinanced in February 1998. The increases also relate to the
issuance of $255 million of 8.75% senior notes in the fourth quarter of 1998 and
periodic borrowings under the corporate credit facility. The increase in
interest expense discussed above was partially offset by a decrease in interest
expense at several of our project subsidiaries due to the scheduled repayment of
outstanding project finance debt.
The increase in the equity in net loss of affiliates for the year ended
December 31, 1998 relates to an increase in losses recognized by the
partnerships operating tomato greenhouses in the states of New York and Texas.
In December 1998, we entered into an agreement to sell our interests in these
partnerships that resulted in the recognition of a $2.1 million gain included in
investment and other income in the accompanying consolidated statements of
income.
The increase in minority interests in income for the year ended December
31, 1998 as compared to the prior year relates to the recognition of the
minority partner's share of earnings in the Cottage Grove and Whitewater
facilities, and an increase in earnings at the Hopewell facility as a result of
that facility's restructured power sales agreement.
The extraordinary loss on early extinguishment of debt for the year ended
December 31, 1998 relates to the refinancing of the Hopewell facility's project
debt in February 1998. The loss consisted of a write-off of the deferred
financing costs on the Hopewell facility's original project debt and a swap
termination fee on an interest rate swap agreement hedging the original project
debt.
LIQUIDITY AND CAPITAL RESOURCES
The principal components of operating cash flow for the six-month period
ended June 30, 2000 were net income of $30.3 million, increases due to
adjustments for depreciation and amortization of $22.0 million, deferred income
taxes of $17.1 million and minimum lease payments received, net of amortization
of unearned lease income of $0.3 million, that were partially offset by minority
interest in income, net of dividends of $0.8 million, $7.6 million equity in net
income of project affiliates, net of dividends and a net $0.1 million use of
cash reflecting changes in other working capital assets and liabilities. Cash
flow provided by operations of $61.2 million, proceeds from borrowings of $176.8
million, $56.7 million of funds released from escrow, and repayments on notes
receivable of $1.0 million were primarily used to purchase property, plant and
equipment of $1.3 million, invest $1.7 million in project affiliates, make
payments on construction in progress and project development costs of $178.8
million, make deposits on turbines of $29.7 million, pay a common stock dividend
of $8.7 million, repay project finance borrowings of $46.5 million, and pay
deferred financing costs of $15.8 million.
The principal components of operating cash flow for the year ended December
31, 1999 were generated by net income of $43.4 million, increases due to
adjustments for depreciation and amortization of $43.7 million, deferred income
taxes of $23.9 million, minority interest in income, net of dividends of $8.5
million and equity in net income of project affiliates, net of dividends, of
$3.6 million that were partially offset by amortization of unearned lease
income, net of minimum lease payments received of $1.6 million and a net $1.3
million use of cash reflecting changes in other working capital assets and
liabilities. Cash flow provided by operating activities of $120.2 million,
proceeds from project finance borrowings of $191.3 million, and $12.2 million of
cash escrows released, were primarily used to purchase property, plant
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<PAGE> 37
and equipment additions of $4.3 million, to make investments in project
affiliates of $76.8 million, to pay deferred financing costs of $9.0 million, to
repay project finance borrowings of $122.2 million, to pay a dividend to common
shareholders of $7.4 million, to make deposits on turbines of $11.2 million and
to fund construction in progress and project development costs of $60.7 million.
As of June 30, 2000, we had long-term debt (including the current portion
thereof) of approximately $1.7 billion. With the exception of the $355.0 million
of senior notes currently outstanding, substantially all of such indebtedness is
project financing debt, a large portion of that is non-recourse to Cogentrix
Energy. The project financing debt generally requires 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. Future annual
maturities of long-term debt range from $54.8 million to $144.9 million in the
five-year period ending December 31, 2004. We believe that our project
subsidiaries and project affiliates will generate sufficient cash flow to pay
all required debt service on their project financing debt and to allow them to
pay management fees, dividends or distributions to Cogentrix Energy periodically
in sufficient amounts to allow Cogentrix Energy to pay all required debt
service, fund a significant portion of its development activities and meet its
other obligations.
The ability of our project subsidiaries and project affiliates to pay
dividends, distributions and management fees periodically to Cogentrix Energy is
subject to certain limitations in our respective financing documents. Such
limitations generally require that: (1) debt service payments be current, (2)
debt service coverage ratios be met, (3) all debt service and other reserve
accounts be funded at required levels and (4) there be no default or event of
default under the relevant financing documents. There are also additional
limitations that are adapted to the particular characteristics of each project
subsidiary and project affiliate. Management does not believe that such
restrictions or limitations will adversely affect Cogentrix Energy's ability to
meet its debt obligations.
In September 2000, we amended our corporate credit facility to increase
available commitments from $175.0 million to $250.0 million and to modify
certain covenants. The credit facility has been extended through October 2003
and is unsecured. The corporate credit facility provides direct advances to, or
the issuance of letters of credit for, our benefit in an amount up to $250.0
million. At or near the date of this Offering Memorandum, we had utilized
approximately $183.3 million of the credit available primarily for letters of
credit issued in connection with projects we had under construction in
Louisiana, Idaho, Oklahoma and the Dominican Republic. The balance of the
commitments 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.
Two of our wholly-owned subsidiaries, Cogentrix Eastern America, Inc. and
Cogentrix Mid-America, Inc. ("Mid-America"), formed to hold interests in
electric generating facilities acquired in 1999 and 1998, maintain credit
agreements with banks to provide for $75.0 million and $25.0 million of
revolving credit, respectively. Both credit facilities provide for credit in the
form of direct advances, and the Mid-America facility provides for issuances of
letters of credit. Including the credit facilities described above, and the
revolving credit facility at one of our project subsidiaries, we maintain
revolving credit that is non-recourse to Cogentrix Energy, with aggregate
commitments of $143.5 million. As of June 30, 2000, we had approximately $41.7
million available under these facilities. The aggregate commitments on these
facilities decrease to $136.0 million and $105.4 million as of December 31, 2000
and 2001, respectively, and to $25.0 million as of December 31, 2002, 2003 and
2004.
On August 17, 2000, we entered into a credit agreement with a bank, as
agent for several banks and other financial institutions, that provides up to
$460.0 million in borrowings, a credit support letter of credit in the maximum
amount of $30.0 million, and a $10.0 million debt service reserve letter of
credit that will be used to construct an approximate 816 megawatt,
combined-cycle, natural gas-fired electric generating facility located near the
city of Sterlington, Louisiana. The Company has committed to provide
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<PAGE> 38
an equity contribution to the project subsidiary of approximately $61.6 million
upon the earliest to occur of (1) an event of default under the project
financing agreements, (2) the incurrence of construction costs after all project
financing has been expended, or (3) June 1, 2002. The equity contribution
commitment is supported by a letter of credit, that is provided under Cogentrix
Energy's corporate credit facility. The Company expects the facility, that the
Company will operate, to begin operations in mid-2002.
On April 18, 2000, a partnership, in which we own a 65% interest, closed
credit facilities with a group of lending banks and financial institutions that
will provide up to $232.5 million in construction loans to be used to construct
an approximate 300 megawatt electric generating plant in the Dominican Republic.
This project will utilize fuel oil-fired, combined-cycle technology. We have
committed to provide an equity contribution to the project subsidiary of
approximately $50.3 million upon the earliest to occur of (1) an event of
default under the project subsidiary's financing agreement, (2) completion of
construction of the facility, or (3) February 2003. This equity commitment is
supported by a letter of credit, that is provided under Cogentrix Energy's
corporate credit facility. We expect the Dominican Republic facility, that we
will operate, to begin commercial operations in early 2002.
On March 9, 2000, a partnership, in which we own a 51% interest, closed a
credit agreement with a bank and a financial institution that provides for a
$126.0 million construction loan and a $5.0 million debt service reserve letter
of credit. Proceeds from the construction loan are being used to construct an
approximate 270 megawatt combined-cycle, natural gas-fired generating facility
located in Rathdrum, Idaho. We have committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (1) an event of default under the project subsidiary's financing
agreement, (2) the incurrence of construction costs after all project financing
has been expended, or (3) October 1, 2002. This equity contribution commitment
is supported by a letter of credit that is provided under Cogentrix Energy's
corporate credit facility. An indirect, wholly-owned subsidiary of Cogentrix
Energy has entered into an engineering, procurement and construction contract
with the partnership to construct the Rathdrum facility. Cogentrix Energy has
guaranteed this subsidiary's obligations under the contract. We expect the
Rathdrum facility, that we will operate, to begin operation in late 2001.
In December 1999, we closed a $350.0 million construction loan with two
banks and commenced construction on an approximate 810 megawatt, combined-cycle,
natural gas-fired generating facility located in Jenks, Oklahoma. We have
committed to provide an equity contribution to the project subsidiary of
approximately $48.7 million upon the earliest to occur of (1) an event of
default under the project subsidiary's financing agreement, (2) the incurrence
of construction costs after all project financing has been expended, or (3) June
24, 2002. This equity contribution commitment is supported by a letter of credit
that is provided under Cogentrix Energy's corporate credit facility. We expect
the Oklahoma facility, that we will operate, to begin operation in early 2002.
Any project we develop in the future, and those electric generating
facilities we may seek to acquire, are likely to require substantial capital
investment. Our ability to arrange financing on a non-recourse basis and the
cost of such capital are dependent on numerous factors. In order to access
capital on a non-recourse basis in the future, we may have to make larger equity
investments in, or provide more financial support for, the project entity.
We currently have commitments with a turbine supplier to purchase a
specified number of turbines with specified delivery dates. We have made
approximately $10.5 million in non-refundable deposits related to these
commitments. We expect to make additional progress payments of $3.5 million in
2000. The aggregate amount of these deposits will be repaid or funded from
proceeds of project financings we anticipate closing during the remainder of
2000.
For the fiscal year ended December 31, 1999, our board of directors
declared a dividend on our outstanding common stock of $8.7 million. The
dividend was paid in March 2000. The board of directors' policy, that 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
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for the Company's outstanding 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. We
protect against the risk of changes in the market price for electricity by
entering into contracts with fuel suppliers, utilities or power marketers that
reduce or eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term market.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The hedging
mechanism against increased fuel and transportation costs for most of our
currently operating facilities 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.
For our Batesville facility -- and most of our facilities currently under
construction -- we have tolling arrangements in place to minimize the impact of
fluctuating fuel prices. Under these tolling arrangements, each customer is
typically obligated to supply and pay for fuel necessary to generate the
electrical output expected to be dispatched by the customer.
Changes in interest rates could have a significant impact on our results of
operations because they affect the cost of capital needed to construct projects
as well as interest expense of existing project financing debt. As with fuel
price escalation risk, we attempt to hedge against the risk of fluctuations in
interest rates by arranging either fixed-rate financing or variable-rate
financing with interest rate swaps, collars or caps on a portion of our
indebtedness.
Although hedged to a significant extent, our financial results will likely
be affected to some degree by fluctuations in energy prices, interest rates and
inflation. The effectiveness of the hedging techniques implemented by us is
dependent, in part, on each counterparty's ability to perform in accordance with
the provisions of the relevant contracts. We have sought to reduce this risk by
entering into contracts with creditworthy organizations.
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Interest Rate Sensitivity
The following tables provide information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps, interest rate caps and debt
obligations.
The table below contains information on the interest rate sensitivity of
our debt portfolio. This table presents principal cash flows and related
weighted average interest rates by expected maturity dates for all of our debt
obligations as of December 31, 1999. This table does not reflect scheduled
future interest rate adjustments. The weighted average interest rates disclosed
in the table are calculated based on interest rates as of December 31, 1999.
Future interest rates are likely to vary from those disclosed in the table.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------- ------- -------- ------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt:
Fixed Rate.................. $ 6,386 $28,662 $ 30,227 $32,471 $54,934 $981,462 $1,134,142
Weighted average interest
rate................... 7.50% 7.49% 7.51% 7.47% 7.47% 8.01%
Variable Rate............... $83,728 $77,249 $114,722 $22,318 $23,272 $151,311 472,600
----------
Weighted average interest
rate................... 7.08% 7.07% 7.52% 7.63% 7.45% 7.48%
$1,606,742
==========
</TABLE>
The following tables contain information regarding interest rate swap and
interest rate cap agreements entered into by some of our project subsidiaries to
manage interest rate risk on their variable-rate project financing debt. The
notional amounts of debt covered by these agreements as of June 30, 2000 was
approximately $259,248,000. These agreements effectively changed the interest
rate, including applicable margins, on the portion of debt covered by the
notional amounts from a weighted average variable rate of 6.73% to a weighted
average effective rate of 6.35% at June 30, 2000.
FIXED RATE PAY/VARIABLE RATE RECEIVE INTEREST RATE SWAPS
<TABLE>
<CAPTION>
HEDGED
NOTIONAL EFFECTIVE MATURITY FIXED RATE VARIABLE RATE FAIR MARKET
AMOUNT DATE DATE PAY RECEIVE(1) VALUE
-------- --------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$46,750,000 2/12/98 12/31/02 5.6875% 6.7925% $ 736,170
4,500,000 8/30/90 8/30/00 9.503% 6.3381% (71,584)
37,119,000 4/28/00 7/31/06 6.078% 6.3750% 2,185,640
13,038,981 1/15/98 3/07/01 5.585% 6.7925% 73,545
21,150,000 1/14/98 6/30/02 5.555% 6.8263% 332,895
----------
$3,256,666
==========
</TABLE>
INTEREST RATE CAPS
<TABLE>
<CAPTION>
HEDGED MAXIMUM ACTUAL
NOTIONAL EFFECTIVE MATURITY INTEREST INTEREST FAIR MARKET
AMOUNT DATE DATE RATE RATE(1) VALUE
-------- --------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 4,540,000 12/31/96 3/31/01 7.50% 6.7800% $ 226
21,150,000 2/20/97 6/28/02 6.50% 6.8263% 127,059
80,000,000 9/18/99 7/31/00 9.00% 6.1825% --
31,000,000 7/31/00 7/31/02 9.00% -- 14,707
--------
$141,992
========
</TABLE>
---------------
(1) The "variable rate receive" and "actual interest rate" are based on the
interest rates in effect as of June 30, 2000. Interest rates in the future
are likely to vary from those disclosed in the tables above.
36
<PAGE> 41
BUSINESS
INTRODUCTION
Cogentrix Energy 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 to regulated electric utilities and power
marketers, primarily under long-term power purchase agreements. 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 larger 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 facilities in the United States. Our 25 plants are designed to
operate at a total production capability of approximately 4,821 megawatts. After
taking into account our part interests in the 17 plants that are not
wholly-owned by us, that range from 1.6% to approximately 74%, our net ownership
interests in the total production capability of our 25 electric generating
facilities is approximately 2,254 megawatts. We currently operate 12 of our
facilities, nine of which we developed and constructed.
We also have ownership interests in and will operate four facilities
currently under construction in Louisiana, Oklahoma, Idaho and the Dominican
Republic. Once these facilities begin operation, we will have ownership
interests in a total of 28 domestic -- and one international -- electric
generating facilities that are designed with a total production capability of
approximately 7,017 megawatts. Our net equity interest in the total production
capability of those 29 facilities will be approximately 4,212 megawatts.
OUR STRATEGY
We intend to remain among the leaders in the independent power industry by
developing and constructing or acquiring -- entirely or in part -- electric
generating facilities in the United States and in foreign countries where the
political climate is conducive to increased foreign investment.
We have targeted three market segments for our future development and
acquisition activities:
- Developing New Electric Generating Plants. We intend to pursue domestic
development of new, highly-efficient, low-cost plants, concentrating on
facilities that use natural gas as fuel. We expect these facilities to
enter into long-term contractual arrangements with fuel suppliers,
electric utilities or power marketers. These contractual arrangements
will provide us a scheduled and/or indexed payment for electricity and
result in the fuel supplier, electric utility or power marketer assuming
the risks associated with fuel and energy price fluctuations. We also
intend to pursue international project development opportunities on a
highly selective basis. We expect to do so only in those countries where
demand for power is growing rapidly, private investment is encouraged and
favorable financing conditions exist.
- Acquiring Interests in Existing Domestic Electric Generating Plants. We
intend to generally focus our future acquisition opportunities on
projects that already have entered into power sales contracts with
electric utilities or other customers whose senior unsecured debt carries
investment-grade credit ratings. We may also seek to acquire interests in
electric generating facilities that do not have contracts in place but
are nonetheless highly efficient, low-cost providers that can take
advantage of opportunities in a rapidly deregulating energy market. If we
do, we intend to protect Cogentrix against the risk of changes in the
market price for electricity by entering into contracts at the time of
acquisition with fuel suppliers, utilities or power marketers that reduce
or eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term
market.
37
<PAGE> 42
- Developing New or Managing Existing Plants for Industrial
Companies. Many large, industrial companies with significant energy
needs own on-site facilities for generating the electricity and producing
the steam they require for their manufacturing, refining or other
operations. We believe that cogenerating facilities with state-of-the-art
technology developed by us could replace or upgrade existing facilities
employing older technology that many of these industrial companies
currently operate themselves. We also expect that many industrial
companies choosing not to replace their existing facilities will seek to
contract with companies like Cogentrix to manage and operate their
existing facilities.
We seek to manage the risks associated with owning and operating electric
generating facilities by emphasizing diversification and balance among our
investments in terms of the following criteria:
- geographic location of the facilities in which we have an ownership
interest;
- electric utility or power marketing customers for the electricity we
generate and the industrial customers for the steam we produce;
- technology we employ to generate electricity and produce steam; and
- coal, gas and other fuel suppliers to our plants.
INDUSTRY TRENDS CREATING MARKET OPPORTUNITIES
Increasing Competition in the Domestic Electric Generating Industry
In response to increasing customer demand for access to low-cost
electricity and enhanced services, new regulatory initiatives are currently
being adopted or considered at both state and federal levels to increase
competition in the domestic electric generating industry. We believe that these
regulatory initiatives will lead to the transformation of the existing
regulated, utility dominated market, that sells to a captive customer base and
is based upon cost-of-service pricing, to a more competitive market in which end
users may purchase electricity from a variety of suppliers, including
non-utility generators, power marketers, public utilities and others at
competitive prices. Our management believes that these market trends will create
significant new business opportunities for us because we have demonstrated our
ability to construct and operate efficient, low-cost electric generating
facilities.
Growing Market for Sale of Electric Generating Assets
Regulatory initiatives to restructure the United States electric industry
have led to the development of a growing market for the sale of electric
generating assets principally by utilities, but also by independent power
producers and industrial companies. In addition to regulatory pressure, some
utilities' managements have decided for strategic reasons to sell some or all of
their generating assets and to concentrate on the transmission and distribution
segments of the power supply market. If this trend continues, it may create
additional investment opportunities for us. In connection with
acquiring -- entirely or in part -- any additional electric generating assets,
we expect to reduce our exposure to electric market price risk by entering into
contractual arrangements with fuel suppliers, utilities and/or power marketers
under which they would assume some or all of the risks associated with
fluctuations in energy prices.
Expanded Options Resulting from Passage of the Energy Policy Act
The passage of the Energy Policy Act in 1992 significantly expanded the
options available to independent power producers, particularly with respect to
siting a generating facility. Among other things, the Energy Policy Act enables
independent power producers to obtain an order from the Federal Energy
Regulatory Commission requiring an intermediary utility to give access to its
transmission lines to transmit or "wheel" electric power from a generating
facility to its utility purchaser. The availability of wholesale transmission
"wheeling" could be an important aspect in the development of new projects. For
example, we may be able to develop a project in one utility's service territory
and "wheel" the electric power produced by the project through the transmission
lines of that utility to a second utility or another
38
<PAGE> 43
wholesale purchaser. The Energy Policy Act also created a new class of
generator -- exempt wholesale generators -- that, unlike qualifying facilities,
are not required to use alternative or renewable fuels or to have useful thermal
energy output. See "Regulation -- Energy Regulations" herein.
FACILITIES UNDER CONSTRUCTION
We currently have four new "greenfield" electric generating facilities
under construction. A brief description of each of these facilities follows with
an estimate of the dates we expect them to commence commercial operations.
- Sterlington, Louisiana Facility. In August 2000, we closed financing and
commenced construction on a wholly-owned 816 megawatt combined-cycle,
natural gas-fired electric generating facility near Sterlington,
Louisiana. Dynegy Power Marketing, Inc. will deliver natural gas to and
purchase electricity produced by this plant under a 15-year power
purchase agreement. This facility, which we will operate and manage, is
scheduled to commence commercial operations in mid-2002.
- Dominican Republic Facility. In April 2000, a partnership, in which we
own a 65% interest, closed financing and commenced construction on a 300
megawatt combined-cycle, fuel oil-fired electric generating facility in
the Dominican Republic. We will sell electricity produced by this
facility under a 20-year power purchase agreement to Corporacion
Dominicana de Electricidad, that is supported by a Dominican government
guarantee of the payment obligations. This facility, which we will
operate and manage, is scheduled to commence commercial operations in
early 2002.
- Rathdrum, Idaho Facility. In March 2000, a partnership, in which we own
a 51% interest, closed financing and commenced construction on a 270
megawatt combined-cycle, natural gas-fired electric generating facility
in Rathdrum, Idaho. Avista Turbine Power, Inc. will deliver natural gas
and purchase electricity produced by this facility under a 25-year power
purchase agreement. This facility, which we will operate and manage, is
scheduled to commence commercial operations in late 2001.
- Jenks, Oklahoma Facility. In December 1999, we closed financing and
commenced construction on a wholly-owned 810 megawatt combined-cycle,
natural gas-fired electric generating facility in Jenks, Oklahoma. PECO
Energy's Power Team will deliver natural gas to and purchase electricity
produced by this plant under a 20-year power purchase agreement. This
facility, which we will operate and manage, is scheduled to commence
commercial operations in early 2002.
39
<PAGE> 44
FACILITIES IN OPERATION
Our facilities described below rely on power sales agreements for the
majority of their revenues. During the fiscal year ended December 31, 1999, two
regulated utility customers accounted for approximately 64% of our consolidated
revenues. The failure of either of these utility customers to fulfill its
contractual obligations for a prolonged period of time would have a material
adverse effect on our primary source of revenues. Both of these utilities have
senior, unsecured debt outstanding that nationally-recognized credit rating
agencies have rated investment grade. As a result of recent growth, our future
operations will be more diverse with regard to both geography and fuel source
and less dependent on any single project or customer.
<TABLE>
<CAPTION>
OUR
OUR NET EQUITY
PERCENT INTEREST IN
PLANT OWNERSHIP PLANT POWER
FACILITY LOCATION FUEL MEGAWATTS INTEREST MEGAWATTS PURCHASER
-------- -------- ---- --------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Batesville Batesville, MS Gas 837 51.4 430.0 Virginia Power,
Aquila Energy
Richmond Richmond, VA Coal 240 100.0 240.0 Virginia Power
Indiantown Martin County, FL Coal 380 50.0 190.0 Florida Power &
Light
Whitewater Whitewater, WI Gas 245 74.2 181.8 Wisconsin Electric
Power Corporation
Cottage Grove Cottage Grove, MN Gas 245 73.2 179.3 Northern States
Power Company
Birchwood King George, VA Coal 240 50.0 120.0 Virginia Power
Portsmouth Portsmouth, VA Coal 120 100.0 120.0 Virginia Power
Rocky Mount Rocky Mount, NC Coal 120 100.0 120.0 Virginia Power
Southport Southport, NC Coal 120 100.0 120.0 CP&L*
Logan Logan Township, NJ Coal 218 50.0 109.0 Atlantic City
Electric
Hopewell Hopewell, VA Coal 120 50.0 60.0 Virginia Power
Roxboro Roxboro, NC Coal 60 100.0 60.0 CP&L*
Northampton Northampton County, PA Waste coal 110 50.0 55.0 Metropolitan
Edison
Cedar Bay Jacksonville, FL Coal 260 16.0 41.6 Florida Power &
Light
Elizabethtown Elizabethtown, NC Coal 35 100.0 35.0 CP&L*
Kenansville Kenansville, NC Coal 35 100.0 35.0 CP&L*
Lumberton Lumberton, NC Coal 35 100.0 35.0 CP&L*
Carneys Point Carneys Point, NJ Coal 262 10.0 26.2 Atlantic City
Electric
Selkirk Albany, NY Gas 396 5.1 20.2 Consolidated
Edison & Niagara
Mohawk
Pittsfield Pittsfield, MA Gas 173 10.9 18.9 New England Power
Scrubgrass Scrubgrass Township, PA Waste coal 85 20.0 17.0 Pennsylvania
Electric
Gilberton Frackville, PA Waste coal 82 19.6 16.1 Pennsylvania Power
& Light
Panther Creek Carbon County, PA Waste coal 83 12.2 10.1 Metropolitan
Edison
Morgantown Morgantown, WV Coal/Waste coal 62 15.0 9.3 Monongahela Power
Mass Power Springfield, MA Gas 258 1.6 4.4 Boston Edison
----- -------
Totals 4,821 2,253.9
===== =======
</TABLE>
---------------
* Commonly-used acronym for Carolina Power & Light Company
Batesville, Mississippi Facility
Our Batesville facility is an 837-megawatt, natural gas-fired,
combined-cycle electric generating facility in Batesville, Mississippi. One of
our wholly-owned indirect subsidiaries owns an approximate
40
<PAGE> 45
51.4% membership interest. An affiliate of LS Power, LLC owns the remaining
membership interest of approximately 48.6%.
The Batesville facility is obligated to provide approximately 538 megawatts
of electrical capacity and dispatchable energy from two combined-cycle units to
Virginia Power under a power purchase agreement that initially expires in 2013.
Virginia Power has the option to extend this power purchase agreement through
2025. In addition, the Batesville facility is obligated to provide approximately
279 megawatts of electrical capacity and dispatchable energy from a third
combined cycle unit to Aquila Energy under a power purchase agreement that
initially expires in 2015. Aquila Energy has the option to extend this power
purchase agreement through 2020.
Both power purchase agreements are tolling arrangements, whereby Virginia
Power and Aquila Energy are obligated to supply natural gas to their respective
units necessary to generate the respective net electrical outputs. There is no
cost to the project for quantities of natural gas provided up to those levels
which would have been consumed by the respective units at a guaranteed fuel
efficiency. For quantities in excess of such levels, the Batesville facility
will incur fuel charges. Each of the power purchase agreements require the
applicable power purchaser to make the following payments to us:
- a monthly "reservation" payment based on the tested capacity and
availability of the generating units dedicated to them;
- an "energy" payment based on the amount of energy that we actually
produce for them and deliver to the interconnection point between our
power facility and certain utility transmission systems; and
- other payments, including payments based upon more efficient operation of
the generating units below the guaranteed fuel efficiency rates, payments
to compensate for non-delivery of fuel, and additional payments for start
up of the units in excess of a specified number of starts each year.
Capacity is tested periodically under the power purchase agreements at the
option of the respective power purchasers or the facility owner. Surplus
capacity may be provided to the power purchasers in excess of the tested
capacity at a different reservation payment. Both power purchase agreements
allow the power purchasers to dispatch the generating units we have dedicated to
them, meaning that the power purchasers have the right to control how much
electricity they want their dedicated units to produce. Even if we are not
dispatched at all by Virginia Power and Aquila Energy, they will still have to
pay us a reservation payment as provided under the power purchase agreements.
Reservation payments are reduced if availability exceeds a specified equivalent
forced outage hours percentage in any period, which calculations exclude
scheduled maintenance, system emergencies affecting the transmission grids,
other excused non-deliveries, and force majeure events. The Batesville facility
also retains the option of procuring and delivering to the power purchasers
replacement capacity and energy rather than declaring a forced outage.
The Batesville facility is not subject to "regulatory out" clauses which
could reduce payments to the facility in the event of non-recovery from a retail
customer base by the respective power purchasers. The Batesville facility
operates as an exempt wholesale generator, under which sales of electricity are
expected to be made solely to the wholesale markets. These wholesale
transactions are not subject to state regulatory commission review or approval
that could threaten the levels of future payments to the facility.
Cogentrix Batesville Operations, LLC, a subsidiary of Cogentrix Energy,
provides operation and maintenance services to the Batesville facility pursuant
to an operating agreement that expires in 2026. Pursuant to a management service
agreement, an affiliate of LS Power, LLC manages and administers the business of
the partnership that owns the facility.
Richmond, Virginia Facility
Our 240-megawatt stoker coal-fired cogeneration plant in Richmond, Virginia
provides 209 megawatts of declared production capability to Virginia Power under
two 25-year power sales agreements expiring in 2017. Our Richmond facility also
provides steam to E. I. DuPont de Nemours & Company.
41
<PAGE> 46
Each of the power sales agreements provides that in the event the state
utilities commission prohibits Virginia Power from recovering from its customers
payments made by Virginia Power to our project subsidiary, our subsidiary would
recognize a reduction in payments received under such power sales agreements
after the 18th anniversary of commencement of commercial operations of the
facility to the extent necessary to repay the amount of the disallowed payments
to Virginia Power with interest.
If the number of days in any year in which the Richmond facility is unable
to generate electricity in an amount equal to its declared production capability
is more than the greater of 25 days or ten percent of the total number of days
the facility was required by Virginia Power to operate, the fixed payments under
the contract for that period will be reduced by four percent for each excess
day. In the event testing indicates that the facility's dependable production
capability is less than 90% of the declared production capability, our
subsidiary will be obligated to pay annual liquidated damages to Virginia Power.
Our project subsidiary has posted letters of credit in favor of Virginia Power
to secure its obligations to perform under the power sales agreements.
Indiantown, Florida Facility
A Delaware limited partnership owns this 380-megawatt pulverized coal-fired
cogeneration facility located in Martin County, Florida. An indirect,
wholly-owned subsidiary of PG&E National Energy Group, Inc. ("PG&E") owns a 50%
general partnership interest in the partnership, and we own a 50% general
partnership interest. The Indiantown facility began operation in December 1995
and sells steam to Caulkins Indiantown Citrus Company.
The Indiantown facility provides 330 megawatts of declared production
capability to Florida Power & Light Company under a power sales agreement that
expires in 2025. Fixed payments by Florida Power & Light are subject to
adjustment on the basis of the Indiantown facility's actual production
capability.
Currently, Florida Power & Light is permitted full recovery from its
customers of payments made under the power sales agreement. The power sales
agreement contains a provision, that provides if Florida Power & Light at any
time is denied authorization to recover from its customers any payments to be
made under the power sales agreement, Florida Power & Light may, in its sole
discretion, adjust payments under the power sales agreement to the amount it is
authorized to recover from its customers. The utility may also require the
partnership that owns the facility to return payments subsequently disallowed by
the regulatory agency. If the obligations of Florida Power & Light and the
partnership that owns the facility are materially altered due to the operation
of this provision in the agreement, the partnership may terminate the power
sales agreement upon 60 days' notice. The partnership and Florida Power & Light
must then in good faith attempt to negotiate a new power sales agreement or any
agreement for transmission of the Indiantown facility's capacity and energy to
another investor-owned, municipal, or cooperative electric utility
interconnected with Florida Power & Light in Florida.
An affiliate of PG&E provides operation and maintenance services for the
Indiantown facility pursuant to an operating agreement that expires in 2025.
PG&E manages and administers the business of the partnership that owns the
facility pursuant to a management service agreement that expires in 2029.
Whitewater, Wisconsin Facility
Our Whitewater facility is a 245-megawatt combined-cycle, natural gas-fired
cogeneration facility in Whitewater, Wisconsin. One of our wholly-owned indirect
subsidiaries is the sole general partner of the general partnership that owns
the facility with a 1% general partnership interest. Another wholly-owned
indirect subsidiary of ours owns an approximate 73.2% limited partnership
interest. An affiliate of Tomen Power Corporation owns the remaining approximate
25.8% limited partnership interest.
The Whitewater facility provides approximately 236.5 megawatts of declared
production capability to Wisconsin Electric Power Company under a power sales
agreement that expires in 2022. The Whitewater facility may also sell to third
parties up to 12 megawatts of electric production capability and any energy that
the utility does not dispatch. Fixed payments from the utility are subject to
adjustment on the basis of
42
<PAGE> 47
performance-based factors that reflect the Whitewater facility's semiannually
tested production capability and average and on-peak availability for the
preceding contract year.
The fixed payments from the utility may be reduced to the extent that the
utility's senior debt is downgraded by any two of Standard & Poor's Corporation,
Moody's Investors Services, Inc. and Duff & Phelps as a result of the utility's
long-term power purchase obligations under the power purchase agreement for the
Whitewater facility. So long as the partnership's first mortgage bonds issued to
finance construction of the facility are outstanding, the reduction may not
exceed the level necessary to cause the partnership's debt service coverage
ratio to be less than 1.4 in any one month, with such ratio calculated on a
rolling average of the four fiscal quarters immediately preceding the proposed
adjustment. After the partnership's first mortgage bonds have been repaid, the
reduction may not exceed 50% of the partnership's revenues minus expenses.
Reductions precluded by application of these limitations are accumulated in a
tracking account with interest accruing at a specified rate. Tracking account
balances are to be repaid when possible, subject to the limitations described
above, or may be applied to the price of the utility's option to purchase the
Whitewater facility at the expiration of the power sales agreement.
Currently, Wisconsin Electric Power Company is permitted full recovery from
its customers of payments made under the power sales agreement. The power sales
agreement provides, however, if at any time the utility is denied rate recovery
from its customers of any payment to be made under the power sales agreement by
an applicable regulatory authority, the utility's payments may be
correspondingly reduced, subject to contractually specified limitations. While
the partnership's first mortgage bonds are outstanding, the fixed payments may
be reduced by the annual regulatory disallowance provided that the reduction may
not cause the partnership's debt service coverage ratio to be less than 1.4 in
any month calculated on a rolling average of the four fiscal quarters preceding
the proposed adjustment. After the outstanding first mortgage bonds are repaid,
reductions may not exceed 50% of the Whitewater facility's revenues minus
expenses. Reductions precluded by these restrictions are accumulated in a
tracking account with repayment subject to the same provisions as for bond
downgrading adjustments discussed above.
The Whitewater facility sells steam to the University of
Wisconsin -- Whitewater under a steam supply agreement expiring in 2005. The
facility also sells hot water to a greenhouse located adjacent to the facility.
FloriCulture, Inc., an affiliate of the partnership that owns the Whitewater
facility, has entered into an operational services agreement pursuant to which
FloriCulture provides all services necessary to produce, market and sell
horticulture products and to operate and maintain the greenhouse facility.
We manage and administer the partnership's business with respect to the
Whitewater facility, and provide management and administrative services to the
general partner of the partnership. Also, one of our wholly-owned subsidiaries
operates the facility pursuant to an O&M Agreement with the partnership.
Cottage Grove, Minnesota Facility
Our Cottage Grove facility is a 245-megawatt combined-cycle, natural
gas-fired cogeneration facility in Cottage Grove, Minnesota. One of our
wholly-owned indirect subsidiaries is the sole general partner of the
partnership that owns the facility with a 1% partnership interest. Another
wholly-owned indirect subsidiary of ours owns an approximate 72.2% limited
partnership interest in Cottage Grove. An affiliate of Tomen Power Corporation
owns the remaining approximate 26.8% limited partnership interest.
The Cottage Grove facility provides 245 megawatts of declared production
capability to Northern States Power Company measured at summer conditions and
262 megawatts of declared production capability measured at winter conditions
under a power sales agreement that expires in 2027. Fixed payments are subject
to adjustment on the basis of performance-based factors that reflect the Cottage
Grove facility's semiannually tested production capability and its rolling
12-month average and on-peak availability. Fixed payments are also adjusted for
transmission losses or gains relative to a reference plant. The Cottage Grove
facility also sells steam to Minnesota Mining and Manufacturing Company.
Currently, Northern States Power Company is permitted full recovery from
its customers of payments made under the power sales agreement. The power sales
agreement provides, however, that following the
43
<PAGE> 48
tenth anniversary of the commercial operation date, if Northern States Power
Company fails to obtain or is denied authorization by any governmental authority
having jurisdiction over its retail rates and charges, granting it the right to
recover from its customers any payments made under the power sales agreement,
the disallowed amounts will be monitored in a tracking account and the unpaid
balance in the tracking account shall accrue interest. Within 30 days after the
first mortgage bonds issued to finance the construction of the facility have
been fully retired, Northern States Power Company may begin reducing payments to
the partnership that owns the facility to ensure the payments are in line with
Minnesota Public Utility Commission rates and begin amortizing the balance in
the tracking account. Should Northern States Power Company exercise its right to
reduce payments, the maximum reduction is 75% of the payment otherwise due for
the period.
We manage and administer the partnership's business with respect to the
Cottage Grove facility, and provide certain management and administrative
services to the general partner of the partnership. Also, one of our
wholly-owned subsidiaries operates the facility pursuant to an O&M Agreement
with the partnership.
Birchwood, Virginia Facility
Through an indirect, wholly-owned subsidiary we have a 50% interest in a
partnership that owns a 240-megawatt pulverized coal-fired cogeneration facility
in King George, Virginia. A subsidiary of The Southern Company, a public utility
holding company, owns the remaining 50% of the facility. The 36-acre greenhouse
located adjacent to the facility, which is jointly owned by us and The Southern
Company, uses steam from the facility. An affiliate of The Southern Company
manages and operates the Birchwood facility.
The Birchwood facility provides 218 megawatts of declared production
capability to Virginia Power measured at summer conditions and 222 megawatts of
declared production capability measured at winter conditions under a power sales
agreement that expires in 2021. The power sales agreement provides that in the
event the state utilities commission prohibits Virginia Power from recovering
from its customers payments made by Virginia Power to our project subsidiary,
the partnership that owns the facility would recognize a reduction in payments
received under the power sales agreement after the 20th anniversary of
commencement of commercial operations of the facility to the extent necessary to
repay the amount of the disallowed payments to Virginia Power with interest.
If this facility is unable to operate within the parameters established by
Virginia Power under the power sales agreement, the fixed payments under the
agreement for the period the facility is not able to do so are subject to
reduction. In the event testing indicates that the facility's dependable
production capability is less than 90% of the declared production capability,
the partnership will be obligated to pay annual liquidated damages to Virginia
Power. The partnership has posted a letter of credit in favor of Virginia Power
to secure its obligations to perform under the power sales agreement.
Portsmouth, Virginia Facility
Our facility located in Portsmouth, Virginia is a 120-megawatt stoker
coal-fired cogeneration facility. The Portsmouth facility provides Virginia
Power declared production capability of up to 115 megawatts under a power sales
agreement that expires in June 2008. The Portsmouth facility also sells process
steam to BASF Corporation and Celanese Chemical, Inc.
If the power sales agreement for this facility is terminated prior to the
end of its initial or any subsequent term other than due to a default by
Virginia Power, then our project subsidiary must pay a penalty to Virginia
Power. The amount of the penalty is the difference between payments for
production capability already made and those that would have been allowable
under the applicable "avoided cost" schedules of Virginia Power plus interest.
44
<PAGE> 49
Rocky Mount, North Carolina Facility
Our facility located near Rocky Mount, North Carolina is a 120-megawatt
stoker coal-fired cogeneration plant. Under a power sales agreement with North
Carolina Power Company, a division of Virginia Power, the Rocky Mount facility
provides declared production capability of 115.5 megawatts of electricity for an
initial term expiring in October 2015. In addition, steam from the Rocky Mount
facility is sold to Abbott Laboratories.
The power sales agreement for this facility provides that in the event the
state utility commission prohibits North Carolina Power from recovering from its
customers payments made by North Carolina Power under the power sales agreement
to our project subsidiary, our project subsidiary would recognize a reduction in
payments received under the power sales agreement after the 18th anniversary of
commencement of commercial operations of the facility to the extent necessary to
repay North Carolina Power the amount disallowed by the utility commission with
interest. In light of this provision in the power sales agreement, the project
lender for the Rocky Mount facility has established a reserve account, which is
required to be funded at any time a disallowance of payments occurs or, from and
after January 1, 2004, any meritorious filing with the utility commission
challenging the pass-through of payments made by the utility under the power
sales agreement is made.
If a disallowance event occurs through 2002, then 25% of cash flow from the
facility must be deposited to the regulatory disallowance reserve account until
the balance of such account is equal to the amount required to be funded. If a
disallowance event occurs during the period from 2003 through 2013, then 100% of
the cash flow from the facility must be deposited to the reserve account until
the balance of the reserve account is equal to the amount required to be funded.
The amount required to be funded in such account is an amount equal to the
lesser of:
- projected reduction in cash flows from 2009 through 2013 as a result of
the disallowance of payments made by the utility, and
- the amount of our project subsidiary's debt outstanding at September 30,
2008.
If the number of days in any year in which the Rocky Mount facility is
unable to generate electricity in an amount equal to its declared production
capability is more than the greater of 25 days or ten percent of the total
number of days the facility was required by North Carolina Power to operate,
then the fixed payments under the contract for that period will be reduced by
four percent for each excess day. In the event testing indicates that the Rocky
Mount facility's dependable production capability is less than 90% of the
declared production capability, our project subsidiary will be obligated to pay
annual liquidated damages to North Carolina Power. A letter of credit has been
posted by our project subsidiary in favor of North Carolina Power to secure its
obligations to perform under the power sales agreement.
Roxboro and Southport, North Carolina Facilities
Our subsidiary, Cogentrix of North Carolina, Inc., operates two stoker
coal-fired cogeneration plants in Roxboro and Southport, North Carolina, that
are owned by another wholly-owned project subsidiary of Cogentrix Energy.
The Roxboro and Southport facilities sell electricity under separate power
sales agreements, each having an initial term expiring in December 2002. The
60-megawatt Roxboro facility may operate at a declared production capability of
up to 56 megawatts and the 120-megawatt Southport facility may operate at a
declared production capability of up to 107 megawatts. Cogentrix, Inc., has
guaranteed the performance of our project subsidiary under the power sales
agreements. Collins & Aikman Corporation purchases process steam for its textile
manufacturing facility from the Roxboro facility and Archer-Daniels-Midland
Company purchases steam for its pharmaceutical and chemical manufacturing
company from the Southport facility.
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Each of the power sales agreements provide that in the event our project
subsidiary desires to terminate the power sales agreement or abandons the
Roxboro or Southport facility, our project subsidiary must pay the utility a
termination charge. Such termination charge will be equal to the sum of the
following:
- the depreciated installed cost of the interconnection facilities relating
to the plant,
- the cost incurred by the utility to replace the production capability
provided by the Roxboro or Southport facility in excess of the fixed
payments that would have been made to our project subsidiary for the
Roxboro or Southport facility, and
- a carrying charge equal to the overall pretax cost of capital allowed to
the utility by the retail rate order of the state utilities commission in
effect during the time the energy credits were received.
Logan, New Jersey Facility
A Delaware limited partnership owns the Logan facility, a 218-megawatt
pulverized coal-fired cogeneration plant located on the Delaware River in Logan
Township, New Jersey. The partnership leases the Logan facility to another
Delaware limited partnership. An indirect, wholly-owned subsidiary of Cogentrix,
owns a 50% general partnership interest in each of the first limited partnership
and each of the partners of the second limited partnership. PG&E is the sole
limited partner in each of the first partnership and the partners of the second
limited partnership, owning a 1% limited partnership interest. The PG&E
subsidiary also owns a 49% general partnership interest in each of the first
partnership and each of the partners of the second limited partnership.
The Logan facility, which began operation in September 1994, provides up to
203 megawatts of declared production capability to Atlantic City Electric
Company under a power sales agreement that expires in 2024. The Logan facility
has the capability to provide up to approximately 15 megawatts of excess
production capability and energy to third parties. The Logan facility sells
steam to Solutia, Inc.
If the net deliverable production capability of the Logan facility falls
below 190,000 kilowatts, then the partnership that owns the facility must pay
liquidated damages to the utility in an amount calculated using a formula that
reflects both the amount of the deficiency and the rate those mid-Atlantic
electric utilities who are members of a mid-Atlantic regional power pool and
fail to satisfy their capacity obligations to the pool must pay to the other
members to make up the deficiency.
An affiliate of PG&E operates the Logan facility pursuant to an operation
and maintenance agreement with an initial term expiring in 2004. PG&E provides
management services pursuant to a management services agreement that expires in
2027.
Hopewell, Virginia Facility
Our facility, located in Hopewell, Virginia, is a 120-megawatt stoker
coal-fired cogeneration facility owned and operated by a general partnership, in
which a 50% general partnership interest is owned by one of our subsidiaries.
The remaining 50% partnership interest is owned by Capistrano Cogeneration
Company, a subsidiary of Edison Mission Energy.
The Hopewell facility provides declared production capability of up to 92.5
megawatts to Virginia Power under a power sales agreement that expires in
January 2008. If the power sales agreement is terminated prior to the end of its
initial or any subsequent term other than due to a default by Virginia Power,
the project partnership must pay a penalty to Virginia Power. The amount of the
penalty is the difference between payments for production capability already
made and those that would have been allowable under the applicable "avoided
cost" schedules of the utility plus interest. Honeywell International, formerly
known as Allied-Signal Corporation, purchases steam from the Hopewell facility.
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Northampton, Pennsylvania Facility
A Delaware limited partnership owns this 110-megawatt anthracite waste
coal-fired electric generating facility in Northampton County, Pennsylvania. An
indirect, wholly-owned subsidiary of Cogentrix owns a 50% general partnership
interest in this partnership. An indirect, wholly-owned subsidiary of PG&E owns
an aggregate 50% equity interest in the partnership owning this project, that
consists of a 48% general partnership interest and 2% limited partnership
interest.
The Northampton facility, which began operation in September 1995, provides
electric energy to Metropolitan Edison Company pursuant to a power sales
agreement that expires in 2020. Capacity in excess of 89 megawatts may be sold
to third parties, but no energy from the Northampton facility may be sold to any
entity other than Metropolitan Edison.
The Northampton facility is not directly interconnected to Metropolitan
Edison's electric system and accordingly requires an electric utility that is
interconnected with Metropolitan Edison's electric system to transmit the
Northampton facility's output to Metropolitan Edison. Pursuant to a transmission
service agreement (that expires in 2020) with Pennsylvania Power & Light
Company, that utility transmits the Northampton Facility's net electric energy
to Metropolitan Edison's existing electric system.
In the event the Northampton facility's annual average delivery of
electricity for any year following the commercial operation date during on-peak
hours is less than 85% of the Northampton facility's annual average delivery of
electricity during the on-peak hours for the prior three years, the partnership
that owns the facility is obligated to make a penalty payment to Metropolitan
Edison. During the first 11 years of the power sales agreement commencing with
the commercial operation date, the penalty payment will equal the difference
between 85% of the annual average on-peak electricity delivered in the prior
three years and the actual on-peak electricity delivered in the year to which
the penalty relates times 3.4c per kWh. After the eleventh year of the power
sales agreement, the penalty payment will be calculated as above, except that
the rate of 3.4c per kWh shall be adjusted annually according to changes in the
Gross Domestic Product Implicit Price Deflator.
Based on its use of waste coal as its primary fuel source, the Federal
Energy Regulatory Commission has certified the Northampton facility as a
"qualifying small power production facility".
An affiliate of PG&E operates and maintains the Northampton facility
pursuant to an operation and maintenance agreement with an initial term expiring
in 2020. PG&E provides management and administration services for the
Northampton facility pursuant to a management services agreement with an initial
term expiring in 2020.
In addition to the partners' original equity contributions to the
partnership that owns the Northampton facility, the partners have posted letters
of credit or corporate guarantees in an aggregate amount of $9 million as a
standby equity commitment to be used for certain fuel-related costs. They have
also posted a letter of credit in the amount of $2.2 million as a standby equity
commitment to be used solely to establish the bank debt service reserve fund for
the exclusive benefit of the banks. Cogentrix provides letters of credit or
corporate guarantees for 50% of those standby equity commitments.
Elizabethtown, Lumberton and Kenansville, North Carolina Facilities
Our subsidiary, Cogentrix Eastern Carolina Corporation, owns and operates
three 35-megawatt stoker coal-fired cogeneration plants in Elizabethtown,
Lumberton and Kenansville, North Carolina.
The Elizabethtown, Lumberton and Kenansville facilities sell electricity to
CP&L under separate power sales agreements. The power sales agreements for the
Elizabethtown and Lumberton facilities expire in November 2000, and the power
sales agreement for the Kenansville facility has an initial term expiring in
September 2001. Each of the facilities may operate at a declared production
capability of up to approximately 33 megawatts. Another subsidiary, Cogentrix,
Inc., has guaranteed the performance of CECC under the power sales agreements.
Alamac Knit Fabrics, Inc. purchases steam for its apparel fabrics division mills
from the Lumberton facility and the Elizabethtown facility under separate steam
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sales agreements. Guilford Mills, Inc. purchases steam from the Kenansville
facility for use in its textile manufacturing plant.
Each of the power sales agreements provide that in the event of a
termination prior to the expiration of the initial term of the power sales
agreements, our project subsidiary must pay CP&L a termination charge. In the
event of a material breach by the utility, our project subsidiary may terminate
the power sales agreement prior to its expiration without incurring the
termination charge. The termination charge is an amount equal to the excess paid
for capacity and energy over what would have been paid to our project subsidiary
under the state utilities commission's published rates plus interest.
If the average production capability or electricity generated or made
available during any 12-month period falls below 80% of the established contract
level, a special charge will be imposed by CP&L equal to a percentage of the
termination charge described above. In addition, if our project subsidiary
desires to terminate the power sales agreement prior to its expiration and a
substitute operator satisfactory to the utility is not secured, our project
subsidiary must pay to the utility the termination charge described above plus
an amount equal to the depreciated installed cost of the interconnection
facilities relating to the plant.
Carneys Point, New Jersey Facility
A Delaware limited partnership owns this 262-megawatt pulverized coal-fired
cogeneration facility located within the grounds of the DuPont Chamber Works, a
chemical complex in Carneys Point, New Jersey. The partnership leases the
Carneys Point facility to a partnership of wholly-owned subsidiaries of PG&E.
Lease payments are structured to equal project cash flow, and the lessee
partnership derives no net cash flow or benefit from the lease. We own a 10%
general partnership interest in the limited partnership that owns the facility.
The other general partner is an indirect, wholly-owned subsidiary of PG&E, that
owns a 50% general partnership interest. The sole limited partner is an
indirect, wholly-owned subsidiary of General Electric Capital Corporation, which
owns a 40% limited partnership interest.
The Carneys Point facility began operation in March 1994. The facility
provides Atlantic City Electric Company with 187.6 megawatts in the summer
months and 173.2 megawatts in the winter months for an annual average of 180.4
megawatts. If the actual available production capability falls below 95% of the
respective production capability requirement for the winter or summer period,
the partnership that owns the facility must make a deficiency payment to the
utility until actual production capability for such period reaches 95% of the
production capability requirements for the period.
Under an energy services agreement, the Carneys Point facility sells steam
and up to 40 megawatts of electricity to DuPont. The Carneys Point facility has
the capability to sell an average of approximately 30 megawatts of excess
production capability and energy to third parties.
An affiliate of PG&E operates the Carneys Point facility under an operation
and maintenance agreement with an initial term expiring in 2004. PG&E provides
management services for the facility pursuant to a management services agreement
with a term expiring in 2018.
PROJECT AGREEMENTS, FINANCING AND OPERATING ARRANGEMENTS FOR OUR FACILITIES
Project Agreements
Our facilities have long-term power sales agreements to sell electricity to
electric utilities and power marketers. A facility's revenue from a power sales
agreement usually consists of two components: variable payments, which vary in
accordance with the amount of energy the facility produces, and fixed payments
that are received in the same amounts whether or not the facility is producing
energy. Variable payments, which are generally intended to cover the costs of
actually generating electricity, such as fuel costs, if supplied by the
operating facility, and variable operation and maintenance expense, are based on
a facility's net electrical output measured in kilowatt hours. Variable payment
rates are either scheduled or indexed to the fuel costs of the electricity
purchaser and/or an inflationary index.
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Fixed payments, that are intended to compensate us for the costs incurred
by the project subsidiary whether or not it is generating electricity, such as
debt service on the project financing, are more complex and are calculated based
on a declared production capability of a facility. Declared production
capability is the electric generating capability of a plant in megawatts that
the project subsidiary contractually agrees to make available to the electricity
purchaser. It is generally less than 100% of the facility's design production
capability dictated by its equipment and design specifications. Fixed payments
are based either on a facility's net electrical output and paid on a
kilowatt-hour basis or on the facility's declared production capability and can
be adjusted if actual production capability varies significantly from declared
production capability.
Many power sales agreements permit the electricity purchaser to direct the
facility to deliver a variable amount of electrical output within limited
parameters. This means the purchaser may, within those parameters, direct the
facility to reduce or suspend the delivery of electricity. The power sales
agreements of substantially all of our facilities provide the electricity
purchaser with the right to reduce or suspend their purchases of electricity
whenever they determine that they can obtain lower cost power either by
generating power at their own plants or by purchasing electricity in bulk from
others. The power sales agreements for these facilities are structured in a
manner such that when the amount of electrical output is reduced, the facility
continues to receive the fixed payments, that cover fixed operating costs and
debt service requirements and provide substantially all of the project
subsidiary's profits. The variable payments, that cover the operating,
maintenance and fuel costs incurred by the project subsidiary to generate
electricity, are received only for each kilowatt hour delivered.
Many of our facilities produce process steam for use by an industrial
customer that has a manufacturing or other facility located nearby. Our
industrial customers, that include textile manufacturing companies,
pharmaceutical manufacturing companies, chemical producers and synthetic fiber
plants, use the process steam in their manufacturing processes. Our steam sales
contracts with these industrial customers generally are long-term contracts that
provide payment on a per thousand pound basis for steam delivered.
With the exception of facilities in which the electricity purchaser is
responsible for providing the fuel, each of our facilities purchases fuel under
long-term supply agreements. Substantially all fuel supply contracts are
structured so that the scheduled increases in the fuel cost are generally
matched by increases in the variable payments received by the project subsidiary
for electricity under its power sales agreement. This matching is typically
affected by having the fuel prices escalate as a function of the solid fuel
index of the purchasing utility. The matching is sometimes affected by
contracting for scheduled increases in the variable payments under our power
sales agreements designed to offset scheduled increases in fuel prices.
Project Financing
Each facility is financed primarily under financing arrangements at the
project subsidiary or project affiliate level that, except as noted below,
require the loans to be repaid solely from the project subsidiary's or project
affiliate's revenues. They also generally provide that the repayment of the
loans and payment of interest is secured solely by the physical assets,
agreements, cash flow and, in certain cases, the capital stock of or partnership
interests in that project subsidiary or project affiliate. This type of
financing is generally referred to as "project financing."
Project financing transactions are generally structured so that all
revenues of a project are deposited directly with a bank or other financial
institution acting as escrow or security deposit agent. These funds are then
payable in a specified order of priority to assure that, to the extent
available, they are used first to pay operating expenses, senior debt service
and taxes and to fund reserve accounts. Then, subject to satisfying debt service
coverage ratios and other conditions, any available funds may be disbursed to
Cogentrix Energy and its other partners in the case of jointly-owned facilities
in the form of management fees, dividends, or distributions.
Our facilities are financed using a high proportion of debt to equity. This
leveraged financing permits us and our project affiliates to develop projects
with a limited equity base but also increases the risk that a
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reduction in revenues could adversely affect a particular project's ability to
meet its debt or lease obligations. The lenders to each project subsidiary or
project affiliate have security interests covering some or all of the aspects of
the project, including the facility, related facility support agreements, the
stock or partnership interest of our project subsidiaries or project affiliates,
licenses and permits necessary to operate the facility and the cash flow derived
from the facility. In the event of a foreclosure after a default, the project
subsidiary or project affiliate would only retain an interest in the property
remaining, if any, after all debts and obligations were paid.
In addition, the debt of each operating project may reduce the liquidity of
our interest in such project since any sale or transfer of its interest would,
in most cases, be subject both to a lien securing such project debt and to
transfer restrictions in the relevant financing agreements. Also, our ability to
transfer or sell our interest in some of our projects is restricted by purchase
options or rights of first refusal we have granted in favor of our power and
steam purchasers.
Because the project debt is "non-recourse", the lenders under these project
financing structures cannot look to Cogentrix Energy or its other projects for
repayment unless Cogentrix Energy or another project subsidiary expressly agrees
to undertake liability. Cogentrix Energy has agreed to undertake limited
financial support for certain of its project subsidiaries in the form of limited
obligations and contingent liabilities. These obligations and contingent
liabilities take the form of guarantees, indemnities, capital infusions, support
agreements and agreements to pay debt service deficiencies. To the extent
Cogentrix Energy becomes liable under such guarantees and other agreements with
respect to a particular project, distributions received by Cogentrix Energy from
other projects may be used to satisfy these obligations. To the extent of these
obligations, the lenders to a project may look to Cogentrix Energy and the
distributions it receives from other projects for repayment. The aggregate
contractual liability of Cogentrix Energy to its project lenders is, in each
case, a small portion of the aggregate project debt. Thus, the project financing
structures are generally described throughout this report as being
"non-recourse" to Cogentrix Energy and its other projects.
In addition, Cogentrix, Inc., an indirect subsidiary of Cogentrix Energy,
has guaranteed two project subsidiaries' obligations to the purchasing utility
under five power sales agreements. 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. Although we believe it is unlikely that Cogentrix, Inc.
will have to honor either of these guarantees, if we or our subsidiary were
required to satisfy all of these guarantees and other obligations at the same
time, it could have a material adverse effect on our financial condition and
results of operations.
Two of our wholly-owned subsidiaries, which were formed to hold our
interests in the electric generating facilities we acquired in 1999 and 1998,
maintain their own credit agreements with banks that provide in the aggregate
$100.0 million of revolving credit availability. Distributions received by these
subsidiaries from the project subsidiaries or project affiliates they own or
hold an interest in may be used by these subsidiaries to satisfy any outstanding
obligations under these revolving credit facilities.
Our facilities are insured in accordance with covenants in each project's
debt financing agreements. Coverages for each plant include workers'
compensation, commercial general liability, supplemented by primary and excess
umbrella liability, and a master property insurance program including property,
boiler and machinery and business interruption.
Operating Arrangements
We operate 12 of our facilities. When we operate a facility, our project
subsidiary employs directly the persons required to operate the facility. We
invest in training our operating personnel and structure our facility bonus
program to reward safe, efficient and cost-effective operation of the
facilities. Our management meets and conducts, several times a year, on-site
facility performance reviews with each facility manager.
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We have established a strong record of safety, efficiency and reliability
in operating our electric generating plants, which reliability is measured in
the industry by a generating plant's "availability" to generate and sell
electricity. The table below shows the average "availability" of the plants we
operate for the periods indicated.
<TABLE>
<CAPTION>
PERIOD AVERAGE AVAILABILITY
------ --------------------
<S> <C>
Six months ended June 30, 2000.............................. 95.3%
Year ended December 31, 1999................................ 95.6
Year ended December 31, 1998................................ 96.4
Year ended December 31, 1997................................ 97.2
</TABLE>
We provide, to all but one of the facilities we operate, administrative and
management services for a periodic fee, that in some cases is adjusted annually
by an inflation factor. The ability of a project subsidiary to pay these
management fees is contingent upon the continuing compliance by the project
subsidiary with covenants under its project financing agreements and may be
subordinated to the payment of obligations under those agreements. We have
earned and will continue to earn incentive compensation from our Hopewell
facility, in which Cogentrix Energy holds a 50% general partnership interest and
is, through a subsidiary, the managing general partner, if the facility achieves
the contractually specified net income levels.
Ash Removal
Project subsidiaries owning nine of our coal-fired plants contract with our
subsidiary, ReUse Technology, to remove coal combustion by-products generated by
such facilities. ReUse constructs structural fills with these coal combustion
by-products on property owned by itself and others and provides coal combustion
by-products to others for use in manufacturing and producing various products
for resale.
PRINCIPAL CUSTOMERS
Electric utility customers accounting for more than ten percent of our
consolidated revenue for the fiscal years ended December 31, 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CP&L........................................................ 17% 19% 22%
Virginia Power.............................................. 47 50 64
</TABLE>
As a result of our recent acquisitions and our projects currently under
construction, our operations are now and will be even more diverse in the future
with regard to both geography and fuel source and less dependent on any single
project or customer.
REGULATION
Our plants are subject to federal, state and local energy and environmental
laws and regulations applicable to the development, ownership and operation of
electric generating facilities. Federal laws and regulations govern
transactions, as well as, types of fuel utilized, the type of energy produced
and power plant ownership for some plants. State regulatory commissions may
approve the rates and, in some instances, other terms under which utilities
purchase electricity from independent producers. These state commissions may
have broad jurisdiction over non-utility owned power plants. Power plants also
are subject to laws and regulations governing environmental emissions and other
substances produced by a plant, along with the geographical location, zoning,
land use and operation of a plant. Applicable federal environmental laws
typically have state and local enforcement and implementation provisions. These
environmental laws and regulations generally require that a wide variety of
permits and other approvals be obtained before construction or operation of a
power plant commences and that the power plant operates
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in compliance with them. We strive to comply with all environmental laws,
regulations, permits and licenses but, despite such efforts, at times we have
been in non-compliance.
Energy Regulations
QFs under the Public Utility Regulatory Policies Act of 1978. Most of our
current operating facilities are classified as a qualifying facility ("QF")
under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). QFs are
relieved of compliance with extensive federal, state and local regulations that
control the development, financial structure and operation of power plants and
cost-of-service based ratemaking to determine the prices at which electric
generating facilities sell energy. In order to be a QF, a cogeneration facility
must sequentially produce both electricity and useful thermal energy for non-
mechanical or non-electrical uses in specified proportions to the facility's
total useful energy output. A QF utilizing oil or natural gas as fuel also must
meet energy efficiency standards. A small power production facility may be a QF
if it uses alternative fuels as its primary energy input, subject to limitations
on fossil fuel input and size for the facility. Finally, a QF must not be
controlled or more than 50% owned by an electric utility or by an electric
utility holding company, or a subsidiary of either or any combination thereof.
PURPA exempts QFs from the Public Utility Holding Company Act of 1935
("PUHCA"), most provisions of the Federal Power Act (the "FPA") and, except
under limited circumstances, state rate and financial regulations. These
exemptions are important to us and our competitors.
In the absence of a power sales agreement, regulations adopted by the
Federal Energy Regulatory Commission ("FERC") require utilities to purchase
electricity generated by QFs at a price based on the purchasing utility's full
"avoided cost," and that the utility sell back-up power to the QF on a non-
discriminatory basis. Avoided costs are the incremental costs to a utility of
electric energy or capacity, or both, that, but for the purchase from QFs, the
utility would generate for itself or purchase from another source. Due to
increasing competition for utility contracts, the current practice is for most
power sales agreements to be awarded below avoided cost.
We endeavor to minimize the risk of our facilities losing their QF status.
The occurrence of events outside our control, such as loss of a steam customer,
could jeopardize QF status. While the facilities usually would be able to react
in a manner to avoid the loss of QF status by, for example, replacing the steam
customer or finding another use for the steam that meets PURPA's requirements,
there is no certainty that the alternative implemented would be practicable or
economic.
If one of our facilities were to lose its status as a QF, the subsidiary
may lose its exemptions from PUHCA and the FPA and from state laws and
regulations. This could subject the subsidiary to regulation under the FPA and
may result in Cogentrix Energy inadvertently becoming a public utility holding
company. Our other facilities could in turn lose their QF status. Moreover, loss
of QF status could result in utility customers terminating their power sales
agreement with the nonqualifying facility. If loss of QF status were threatened
for a facility, we could avoid holding company status and thereby protect the QF
status of our other facilities by applying to the FERC to obtain exempt
wholesale generator ("EWG") status for the owner of the nonqualifying facility.
See "-- EWGs under the Energy Policy Act of 1992" herein. Alternatively, the
FERC may grant a limited waiver to the QF that would provide continued exemption
under PUHCA, provided the facility's rates were regulated under the FPA.
EWGs under the Energy Policy Act of 1992. The passage of the Energy Policy
Act has significantly expanded the options available to independent power
producers with respect to their regulatory status. In addition to or in lieu of
QF status, an independent power producer selling exclusively at wholesale now
can also apply to the FERC to be granted status as an EWG. Except for existing
cost-of-service based facilities for which state consents are required, any
owner of a facility may apply for status as an EWG without prior condition. An
EWG, like a QF, is exempt from regulation under PUHCA. However, EWG status does
not exempt a facility from FERC and state public utility commission ("PUC")
regulatory reviews, which may be more expansive than those applicable to QFs.
Several of Cogentrix Energy's
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facilities that are QFs have also been determined to be EWGs. In addition,
several project subsidiaries developing new generating facilities have also been
determined to be EWGs.
Foreign Investments under the Energy Policy Act. The Energy Policy Act has
also expanded the options for companies that wish to invest in foreign
enterprises that own power production facilities outside the United States.
Amendments to PUHCA in the Energy Policy Act provide that a domestic company
making such an investment may avoid "holding company" status or other regulation
under PUHCA, if the foreign enterprise obtains EWG status or files a notice with
the Securities and Exchange Commission that it is a foreign utility company
("FUCO").
PUHCA. Under PUHCA, any entity owning or controlling ten percent or more
of the voting securities of a "public utility company" is a "holding company"
and is subject to registration with the Securities and Exchange Commission and
regulation under PUHCA, unless eligible for an exemption. Under the Energy
Policy Act and PURPA, EWGs, FUCOs, and owners and operators of QFs are deemed
not to be public utility companies under PUHCA. Momentum is growing in Congress
for the repeal of PUHCA, as more legislators adopt the view that this statute
has outlived its purpose. Elimination of PUHCA would enable more companies to
consider owning generating, transmission and distribution assets, would permit
"single state" utility systems to expand beyond their state borders, and would
permit companies that are currently in registered holding company systems to
diversify their investments to a greater extent than now permitted. This could
attract more competitors to the power development and power marketing business.
We believe that we are well positioned, however, to meet stronger competition
and, indeed, may be able to pursue more investment opportunities made available
by the repeal of PUHCA.
FPA. The FPA grants the FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce, including ongoing as well
as initial rate jurisdiction, that enables the FERC to revoke or modify
previously approved rates. While QFs under PURPA typically are exempt from the
traditional rate-making and certain other provisions of the FPA, projects not
qualifying for QF status, for example, most EWGs, are subject to the FPA and to
FERC rate making jurisdiction. Power marketers are also subject to FERC review
of their wholesale rates, and to FERC oversight of various business dealings
such as corporate reorganizations. Pursuant to the FPA, our power marketing
subsidiary has filed its wholesale electric power rates with the FERC and
obtained authorization to sell electric power at rates set by supply and demand
in the marketplace. In addition, the Logan facility, the Batesville facility and
certain other facilities in which Cogentrix Energy owns a small interest have
filed their rates with the FERC and obtained authorization to sell all of their
power pursuant to those rates. Several of our projects under development or in
construction have also filed and obtained from FERC market-based rates for sales
of power from these facilities.
State Regulation. PUCs regulate retail rates of electric utilities and, in
many states, the purchasers' power sales agreements from independent power
producers. In addition, states have been delegated the authority to determine
utilities' avoided costs under PURPA. PUCs often will pre-approve agreements
with prices that do not exceed avoided costs, because such contracts often have
been acquired through a competitive or market-based process. Recognizing the
competitive nature of the acquisition process, many PUCs will permit utilities
to "pass through" expenses associated with a power sales agreement with an
independent power producer. In addition, retail sales of electricity or steam by
an independent power producer may be subject to PUC regulation, depending on
state law.
EWGs may be subject to broad regulation by PUCs, ranging from the
requirement of certificates of public convenience and necessity to regulation of
organizational, accounting, financial and other corporate matters. In addition,
states may assert jurisdiction over the siting and construction of EWGs as well
as QFs and over the issuance of securities and the sale or other transfer of
assets by these facilities. Many state utility commissions and state
legislatures are actively seeking ways to lower electric power costs at the
retail level, including options that would permit or compel competition at the
retail level. Federal legislation that would require states to permit retail
competition is also being given serious consideration. An opening of the retail
market would create tremendous opportunities for companies that have until now
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been limited to the wholesale market. At the same time, state commissions are
pressuring the utilities they regulate to cut purchased power costs through
strict enforcement of existing contracts with QFs, many of which are considered
to be overpriced. State commissions are also encouraging efforts by utilities to
buy out or buy down such contracts.
Proposed Legislation. In addition to federal legislative initiatives, the
state commissions or state legislatures of many states are considering, or have
considered, whether to open the retail electric power market to competition.
These initiatives are generally called "retail access" or "customer choice".
Such "customer choice" plans typically allow customers to choose their
electricity suppliers by a certain date. Retail competition is possible when a
customer's local utility agrees, or is required, to "unbundle" its distribution
service, that is, the delivery of electric power to retail customers through its
local distribution lines, from its transmission and generating service.
The competitive price environment that will result from retail competition
may cause utilities to experience revenue shortfalls and deteriorating
creditworthiness. However, most, if not all, state plans will insure that
utilities receive sufficient revenues, through a distribution surcharge if
necessary, to pay their obligations under existing long-term power purchase
contracts with QFs and EWGs, including the above-market rates, or "stranded
investment" costs, provided for in such contracts. Many states will also provide
that the stranded investment costs will be "securitized" through new financial
instruments. On the other hand, QFs and EWGs may be subject to pressure to lower
their contract prices or to renegotiate contracts in an effort to reduce the
"stranded investment" costs of their utility customers.
Retail access programs may provide Cogentrix with additional opportunities
to provide power from our projects to industrial users or power marketers.
Transmission and Wheeling. Under the FPA, the FERC regulates the rates,
terms and conditions for electricity transmission in interstate commerce. The
FERC's authority under the FPA to require electric utilities to provide
transmission service to QFs and EWGs was significantly expanded by the Energy
Policy Act. Except when market factors such as an exceptional site or power
sales opportunity warrant it, we generally attempt to site our facilities within
the utility customer's service area, and thus avoid the need to utilize
wheeling. The new provisions of the Energy Policy Act, however, and actions
taken by the FERC under the FPA have improved transmission access and pricing
for independent power producers like us.
In April 1996, the FERC issued a rulemaking order under the FPA, Order 888,
requiring all jurisdictional public utilities to file "open access" transmission
tariffs. Compliance with Order 888 has been virtually universal. However, many
utilities are seeking permission from the FERC to recover for "stranded
investment" through add-ons to their transmission rates. To the extent that the
FERC permits such charges, the cost of transmission may be too high on some
systems to be of practical use to wholesale sellers like Cogentrix. Therefore,
the full value of Order 888 remains to be determined.
The FERC is also encouraging the voluntary restructuring of transmission
operations through the use of independent system operators and regional
transmission groups. Such entities may create efficiencies for traditional
utilities, but are not likely to have a substantial impact on power developers
and power marketers like Cogentrix.
Environmental Regulations -- United States
The following discussion includes forward-looking statements relating to
environmental protection compliance measures and the possible future impact on
us of increasingly stringent environmental regulations. This information
reflects current estimates that we periodically evaluate and revise. Our
estimates are subject to a number of assumptions and uncertainties, including
future Federal and state energy and environmental policy, other changing laws
and regulations, the ultimate outcome of complex factual investigations, changes
in emission control technology, and selection of compliance alternatives.
The construction and operation of power projects are subject to extensive
environmental protection and land use regulation in the United States. Those
regulations applicable to Cogentrix primarily involve
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the discharge of emissions into the water and air and the use of water, but can
also include wetlands preservation, endangered species, waste disposal and noise
regulation. These laws and regulations often require a lengthy and complex
process of obtaining and renewing licenses, permits and approvals from federal,
state and local agencies. If such laws and regulations are changed and our
facilities are not grandfathered, extensive modifications to power project
technologies and facilities could be required.
We expect that environmental regulations will continue to become more
stringent as environmental legislation previously passed is implemented and new
laws are enacted. Accordingly, we plan to continue a strong emphasis on
implementation of environmental controls and procedures to minimize the
environmental impact of energy generation at our facilities.
Clean Air Act and the 1990 Amendments. In late 1990, Congress passed the
Clean Air Act Amendments of 1990 (the "1990 Amendments") that affect existing
facilities - including facilities exempt from regulation under the Clean Air Act
of 1970 - as well as new project development. All of the facilities we operate
are currently in compliance with federal performance standards mandated for such
facilities under the Clean Air Act and the 1990 Amendments..
The 1990 Amendments create a marketable commodity called a sulfur dioxide
("SO(2)") "allowance." All non-exempt facilities over 25 megawatts that emit
SO(2), including independent power plants, must obtain allowances in order to
operate after 2000. Each allowance gives the owner the right to emit one ton of
SO(2). The 1990 Amendments exempt from the SO(2) allowance provisions all
independent power projects that were operating, under construction or with power
sales agreements or letters of intent as of November 15, 1990, as well as
facilities outside the contiguous 48 states. As a result, most of the facilities
we operate are exempt. The non-exempt facilities we operate have determined
their need for allowances and have accounted for these requirements in their
operating budgets and financial forecasts. Most of the facilities we have
developed in recent years and expect to develop in the future rely on natural
gas technology. The additional costs of obtaining the number of allowances
needed for our future projects should not materially affect our ability to
develop new projects.
The 1990 Amendments also contain other provisions that could affect our
projects. Provisions dealing with geographical areas the EPA has designated as
being in "nonattainment" with national ambient air quality standards require
that each new or expanded source of air pollutants in nonattainment areas must
obtain emissions reductions from existing sources that more than offset the
emissions from the new or expanded source. While the "offset" requirements may
hamper new project development in certain geographical areas, development of new
projects has continued, and management expects will likely continue,
particularly as markets for "offsets" develop.
The 1990 Amendments also provide an extensive new operating permit program
for existing sources called the Title V permitting program. Because all of the
facilities we operate were permitted under the Prevention of Significant
Deterioration New Source Review Process, the permitting impact to Cogentrix
under the 1990 Amendments at those facilities is expected to be minimal. The
costs of applying for and maintaining operating air permits are not anticipated
to be significant.
The 1990 Amendments also regulate certain hazardous air pollutant ("HAP")
emissions. Although the HAP provisions of the 1990 Amendments exclude electric
steam generating facilities, they direct the EPA to prepare a study on HAP
emissions from power plants. The EPA has conducted a series of studies and is
expected to make a final determination on whether to regulate mercury emissions
from power plants by December 2000. If it is determined that mercury emissions
from power plants should be regulated, the use of "maximum achievable control
technology" could be required, which could require additional control equipment
on some or all of our facilities.
The EPA has recently commenced an industry-wide investigation of coal-fired
electric power generators to determine compliance with environmental
requirements under the Clean Air Act associated with repairs, maintenance,
modifications and operational changes made to the facilities over the years. The
EPA's focus is on whether any of the changes made were subject to new source
review or new performance standards, and whether best available control
technology was or should have been used.
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Cogentrix has not received any notices of violation from the EPA relating to any
of its facilities as a result of this industry-wide investigation. Management
believes that if it did, Cogentrix would have a meritorious defense to any
action brought by the EPA relating to any of its facilities.
Subsequent EPA Initiatives. In July 1997, the EPA promulgated more
restrictive ambient air quality standards for ozone and for particulate matter.
These new standards, which continue to be subject to legal challenge, will
likely increase the number of nonattainment areas for both ozone and particulate
matter. If our facilities are in these new nonattainment areas, further emission
reduction requirements, which states will be required to adopt, could require us
to install additional control technology for oxides of nitrogen ("NO(x)")
emissions and other ozone precursors. These standards were appealed to the D.C.
Circuit Court of Appeals, which in May 1999 remanded them to the EPA. The EPA
has appealed this remand to the Supreme Court.
In October 1998, the EPA issued a final rule addressing the regional
transport of ground-level ozone across state boundaries to the eastern United
States through NO(x) emissions reduction. The rule focuses on such reductions in
the eastern United States, requiring 22 states and the District of Columbia to
submit revised "state implementation plans" (SIPs) by September 1999 and have
NO(x) emission controls in place by May 2003 (the "NO(x) SIP call"). In March
2000, a federal appeals court upheld the NO(x) SIP call rule.
In a related action, the EPA in December 1999 granted petitions of four
northeastern states seeking to reduce transport of ozone across state boundaries
by requiring reductions in NO(x) emissions from sources in 30 states and the
District of Columbia. As a result, 392 facilities, including those operated by
our project subsidiaries in North Carolina and Virginia, will have to reduce
NO(x) emissions or take other steps to meet these NO(x) emission reduction
requirements. These facilities must implement controls or use emission
allowances to achieve required NO(x) emission reductions by May 2003.
We are evaluating the NO(x) emission reductions that these EPA initiatives
will require us to meet. We expect we will need to install additional or new
control equipment at several of the facilities operated by our project
subsidiaries in North Carolina and Virginia. In addition to installing new
control equipment, we may need, or decide to, purchase NO(x) "allowances".
The Kyoto Protocol. In 1998, the Kyoto Protocol regarding greenhouse gas
emissions and global warming was signed by the U.S., committing to reductions in
greenhouse gas emissions of at least 7% below 1990 levels to be achieved by
2008 - 2012. The U.S. Senate must ratify the agreement for the protocol to take
effect. The level of opposition evidenced by the lack of Senate action at this
point makes approval of the Kyoto Protocol in its present form questionable. The
Clinton Administration has proposed a package of legislative and administrative
policies to curb greenhouse gases, none of which are affected by the need for
Senate ratification. Future initiatives on this issue and the effects on
Cogentrix are unknown at this time.
Clean Water Act. Our facilities are subject to a variety of state and
federal regulations governing existing and potential water/wastewater and
stormwater discharges from the facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through National Pollutant Discharge Elimination System
permits. Under current provisions of the Clean Water Act, existing permits must
be renewed every five years, at which time permit limits are under extensive
review and can be modified to account for more stringent regulations. In
addition, the permits have re-opener clauses that can be used to modify a permit
at anytime. Several of the facilities we operate have either recently gone
through permit renewal or will be renewed within the next few years. Based upon
recent renewals, we do not anticipate more stringent monitoring requirements for
any of the facilities we operate. We believe that the plants we operate are in
material compliance with applicable discharge requirements under the Clean Water
Act.
Emergency Planning and Community Right-to-Know Act. In April of 1997, the
EPA expanded the list of industry groups required to report the Toxic Release
Inventory under Section 313 of the Emergency Planning and Community
Right-to-Know Act to include electric utilities. Our operating facilities are
required to complete a toxic chemical inventory release form for each listed
toxic chemical manufactured,
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processed or otherwise used in excess of threshold levels. The purpose of this
requirement is to inform the EPA, states, localities and the public about
releases of toxic chemicals to the air, water and land that can pose a threat to
the community.
Comprehensive Environmental Response, Compensation, and Liability Act. The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA" or "Superfund"), requires cleanup of sites from which there
has been a release or threatened release of hazardous substances and authorized
the EPA to take any necessary response action at Superfund sites, including
ordering potentially responsible parties ("PRPs") liable for the release to take
action or pay for such actions by others. PRPs are broadly defined under CERCLA
to include past and present owners and operators of sites, as well as generators
of wastes sent to a site. At present, we are not subject to liability for any
Superfund matters and take measures to assure that CERCLA will not apply to
properties we own or lease. However, we do generate certain wastes in the
operation of our plants, including small amounts of hazardous wastes, and send
certain wastes to third-party waste disposal sites. As a result, there can be no
assurance that we will not incur liability under CERCLA in the future.
Resource Conservation and Recovery Act ("RCRA"). RCRA regulates the
generation, treatment, storage, handling, transportation and disposal of
hazardous wastes. We are exempt from the solid waste requirements under RCRA
regarding coal combustion by-products. We are classified as a conditionally
exempt small quantity generator of hazardous wastes at all of our facilities. We
will continue to monitor regulations under this rule and will strive to maintain
the exempt status.
Environmental Regulations -- International
Although the type of environmental laws and regulations applicable to
independent power producers and developers varies widely from country to
country, many foreign countries have laws and regulations relating to the
protection of the environment and land use that are similar to those found in
the United States. Laws applicable to the construction and operation of electric
generating facilities in foreign countries generally regulate discharges and
emissions into water and air and also regulate noise levels.
Air pollution laws in foreign jurisdictions often limit the emissions of
particulates, dust, smoke, carbon monoxide, sulfur dioxide, nitrogen oxide and
other pollutants. Water pollution laws in foreign countries generally limit
wastewater discharges into municipal sewer systems and require treatment of
wastewater that does not meet established standards. New projects and
modifications to existing projects are also subject, in many cases, to land use
and zoning restrictions imposed in the foreign country. In addition, developers
of foreign independent power projects often conduct environmental impact
assessments of proposed projects pursuant to existing legislative requirements.
Lenders to international development projects may impose their own requirements
relating to the protection of the environment.
We believe that the level of environmental awareness and enforcement is
growing in most countries, including most of the countries in which we intend to
develop and operate new projects. As a result, plants built overseas will likely
include pollution control equipment that is required in the United States.
Therefore, based on current trends, we believe that the nature and level of
environmental regulation that we are subject to will become increasingly
stringent, whether we undertake new projects in foreign countries or in the
United States.
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MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of Cogentrix Energy.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George T. Lewis, Jr....................... 72 Chairman Emeritus and Director
David J. Lewis............................ 44 Chairman of the Board, Chief Executive Officer and
Director
Mark F. Miller............................ 46 President, Chief Operating Officer and Director
James E. Lewis............................ 37 Vice Chairman and Director
Dennis W. Alexander....................... 53 Group Senior Vice President, General Counsel,
Secretary and Director
James R. Pagano........................... 40 Group Senior Vice President -- Development Mergers &
Acquisitions
Bruno R. Dunn............................. 50 Group Senior Vice President -- Operations
Thomas F. Schwartz........................ 38 Group Senior Vice President -- Chief Financial
Officer
Betty G. Lewis............................ 71 Director
Robert W. Lewis........................... 47 Director
W.E. "Bill" Garrett....................... 69 Director
John A. Tillinghast....................... 73 Director
</TABLE>
George T. Lewis, Jr., our founder, has been a Director of Cogentrix Energy
since its formation in 1993 and was appointed Chairman Emeritus in March 1999.
Prior to March 1999, Mr. Lewis was Chairman of the Board since December 1993,
Chief Executive Officer and a Director of Cogentrix, Inc. from 1983 to 1993,
Chairman of the Board of Cogentrix, Inc. since 1990 and President of Cogentrix,
Inc. from 1983 to 1989. Mr. Lewis previously served for over 18 years with Chas
T. Main, Inc., an engineering firm headquartered in Boston. In 1971, he became a
Senior Vice President responsible for that firm's work with the utility
industry. From 1978 through 1980, he headed that firm's Southern District office
located in Charlotte, North Carolina and directed its involvement in the area of
coal-fired industrial power plants. In 1980, Mr. Lewis was promoted to Group
Vice President and director and returned to Boston to assume responsibility for
all corporate marketing and sales. George Lewis is the father of David J. Lewis,
James E. Lewis and Robert W. Lewis and the spouse of Betty G. Lewis.
David J. Lewis has been a Director of Cogentrix Energy since its formation
and was appointed Chairman of the Board and Chief Executive Officer in March
1999. Prior to March 1999, Mr. Lewis was Vice Chairman of the Board and Chief
Executive Officer since August 1995, Executive Vice President -- Marketing and
Development, Chief Executive Officer -- Elect since June 1994, Group Senior Vice
President -- Marketing and Development with Cogentrix, Inc. since September 1993
and a Director of Cogentrix, Inc. since 1988. From 1989 until September 1993, he
was Senior Vice President -- CGX Environmental Systems and President and Chief
Operating Officer -- CGX Environmental Systems Division of Cogentrix, Inc. From
1987 to 1989, he was Vice President -- Administration of Cogentrix, Inc. from
1986 to 1987, he was Resident Construction Manager and from 1985 to 1986, he was
Assistant Construction Manager. Prior to joining Cogentrix, Inc. in 1985, he was
Operations Manager with Bartex Corporation, an export management company
headquartered in Portland, Oregon. David Lewis is a son of George T. Lewis, Jr.
and Betty G. Lewis.
Mark F. Miller was appointed President, Chief Operating Officer and a
Director of Cogentrix Energy in May 1997. Prior to joining Cogentrix Energy, Mr.
Miller was Vice President for Northrop Grumman in Bethpage, New York. He joined
Northrop Grumman in 1982 and held successive positions in the material, law and
contracts departments before being named Vice President, Contracts and Pricing
at Northrop's B-2 Division in 1991. In 1993, he became Vice President-Business
Management at the B-2 Division. In 1994, Northrop acquired the Grumman
Corporation and Mr. Miller was named Vice President-Business Management for the
newly formed Electronics and Systems Integration Division, a position he held
until
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his move to Cogentrix Energy. From 1980 to 1982, he was an Associate with the
law firm of Dolack, Hansler.
James E. Lewis has been a Director of Cogentrix Energy since its formation,
and was appointed Vice Chairman in March 1999. Prior to March 1999, Mr. Lewis
was Executive Vice President since December 1993, Executive Vice President of
Cogentrix, Inc. since November 1992 and a Director of Cogentrix, Inc. since
1988. From 1991 to 1992, he was Senior Vice President of Operations responsible
for the daily operations of Cogentrix, Inc.'s facilities. From 1989 to 1991, Mr.
Lewis was Vice President -- Utility Operations. Mr. Lewis joined Cogentrix in
1986 and in 1987, he was selected as Assistant Project Manager responsible for
the construction of the Portsmouth facility. James Lewis is a son of George T.
Lewis, Jr. and Betty G. Lewis.
Dennis W. Alexander has been Group Senior Vice President, General Counsel,
Secretary and a Director since joining Cogentrix Energy in February 1994.
Immediately prior to joining Cogentrix Energy, Mr. Alexander was Vice
President/General Counsel of Wheelabrator Environmental Systems Inc., the
waste-to-energy and cogeneration subsidiary of Wheelabrator Technologies Inc.,
an independent power and environmental services and products company, as well as
Director, Environmental, Health and Safety Audit Program for Wheelabrator
Technologies Inc. From 1988 to 1990, Mr. Alexander was Vice President/General
Counsel -- Operations of Wheelabrator Environmental Systems Inc. and from 1986
to 1988 was Vice President/General Counsel of Wheelabrator Energy Systems, a
cogeneration project development subsidiary. From 1984 to 1986, he served as
Group General Counsel for The Signal Company and from 1980 to 1984 as Division
General Counsel of Wheelabrator-Frye Inc., each a diversified public company.
James R. Pagano has been Group Senior Vice President -- Development,
Mergers & Acquisitions since February 1999. From May 1997 until then he was
Group Senior Vice President -- Chief Financial Officer of Cogentrix Energy,
prior to which he was Senior Vice President -- Project Finance since February
1995 and Vice President -- Project Finance since Cogentrix Energy's formation.
Previously, Mr. Pagano was Vice President -- Project Finance of Cogentrix, Inc.
since July 1993, Vice President -- Legal and Finance from July 1992 to July
1993, and from January 1992 to July 1992, Mr. Pagano was Vice President and
Assistant General Counsel of Cogentrix, Inc. Prior to joining Cogentrix, Inc. he
was Vice President of The Deerpath Group, Inc., a financial advisory firm. From
1987 to 1990, Mr. Pagano was an Associate with the law firm of Simpson Thacher &
Bartlett.
Bruno R. Dunn has been Group Senior Vice President Operations since joining
Cogentrix Energy in January 1999. Immediately prior to joining Cogentrix Energy,
Mr. Dunn was Vice President Operations of Wheelabrator Technologies, Inc., an
independent power and environmental services and product company as well as Vice
President Operations of Wheelabrator Environmental Systems, Inc., the
waste-to-energy and cogeneration subsidiary of Wheelabrator Technologies. From
1988 to 1995 Mr. Dunn was Vice President Construction for Wheelabrator
Technologies, Inc. From 1980 to 1988 Mr. Dunn was a project manager and/or
operations manager for various Wheelabrator trash-to-energy facilities.
Thomas F. Schwartz has been Group Senior Vice President -- Finance and
Chief Financial Officer since December 1999. From March 1997 until then he was
Senior Vice President -- Finance and Treasurer of Cogentrix Energy, prior to
which he was Vice President -- Finance and Treasurer since Cogentrix Energy's
formation. Previously, Mr. Schwartz was Controller of Cogentrix, Inc. since
April 1991. Prior to joining Cogentrix, he was an audit manager with Arthur
Andersen LLP's Small Business Advisory Division.
Betty G. Lewis has been a Director of Cogentrix Energy since September
1994. Betty Lewis is the spouse of George T. Lewis, Jr.
Robert W. Lewis has been a Director of Cogentrix Energy since its
formation, prior to which he was a Director of Cogentrix, Inc. since 1988. In
April 1991, Mr. Lewis resigned from his positions of Vice Chairman and Secretary
of Cogentrix, Inc., which he had held since March 1991. From October 1990 to
March 1991, Mr. Lewis was Executive Vice President and Secretary. From March
1988 to October 1990,
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Mr. Lewis was Senior Vice President -- Corporate Development and Secretary, in
which position Mr. Lewis was in charge of Cogentrix, Inc.'s development efforts.
From March 1987 to March 1988, Mr. Lewis was Senior Vice
President -- Administration and Secretary. From September 1983 to March 1987,
Mr. Lewis was Vice President -- Administration and Secretary. Mr. Lewis joined
Cogentrix, Inc. in April 1983 and served as Secretary through September 1983.
Robert Lewis is a son of George T. Lewis, Jr. and Betty G. Lewis.
W. E. "Bill" Garrett has been a Director of Cogentrix Energy since its
formation and became a Director of Cogentrix, Inc. in September 1993. Mr.
Garrett served on the staff of the National Geographic Society for 36
years -- the last 10 as Editor-in-Chief of the magazine. As a member of the
Board of Trustees of the National Geographic Society and its Research and
Exploration Committee, he was instrumental in the Society's emergence as the
world's largest educational and scientific institution. He resigned in 1990 and
became the President of the La Ruta Maya Conservation Foundation, which is
involved in cultural and conservation work with the Maya Indians. Mexico,
Guatemala and Italy have honored him with prestigious awards for his work in the
region. Mr. Garrett currently serves on the boards of the National Capital
Bicentennial Celebration, the American Land Conservancy, Partners for Livable
Communities and the Editorial Board of Nature's Best Magazine.
John A. Tillinghast was elected a Director of Cogentrix Energy on March 19,
1998. Mr. Tillinghast served from 1994 through May 1998 as President, Chairman
and CEO of Great Bay Power Corporation, a public utility in Portsmouth, New
Hampshire. He also has served from 1997 through May 1998 as the President,
Chairman and CEO of BayCorp Holdings, Ltd., the holding company for Great Bay
Power Corporation. Since May 1998 Mr. Tillinghast has served as Chairman of
BayCorp Holdings and Great Bay Power. After graduating from Columbia University
in 1949 with BS and MS degrees in mechanical engineering, Mr. Tillinghast began
a 30-year career with American Electric Power Company, rising through the
engineering ranks to become Vice Chairman of the Board in charge of engineering
and construction. Prior to his current position at Bay Corp Holdings, LTD., he
served as Chairman of the Energy Engineering Board of the National Academy of
Sciences, Director of the Edison Electric Institute and is a Fellow of the
American Society of Mechanical Engineers. Mr. Tillinghast is registered as a
professional engineer in nine states and holds two U.S. and seven foreign
patents.
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EXECUTIVE COMPENSATION
The following table sets forth information for the calendar years ended
December 31, 1999, 1998 and 1997 concerning the annual compensation paid or
accrued by Cogentrix to or for the account of each of the following: (1) the
only person who served as the chief executive officer of Cogentrix during the
fiscal year ended December 31, 1999 and (2) the four most highly compensated
executive officers of Cogentrix incumbent at December 31, 1999, other than the
chief executive officer, for the year then ended (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER COMPENSATION
-----------------------------
RETIREMENT TERMINATION
ANNUAL COMPENSATION CONTRIBUTIONS OF
NAME AND TWELVE-MONTH ----------------------------------- AND INCENTIVE
PRINCIPAL POSITION PERIOD ENDING SALARY(1) BONUS(2) TOTAL OTHER(3) AGREEMENTS(4)
------------------ ----------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Lewis............. December 31, 1999 $641,392 $1,254,585 $1,895,977 $120,678 $ 0
Chairman and December 31, 1998 633,428 1,117,302 1,750,730 62,010 0
Chief Executive Officer December 31, 1997 613,960 841,239 1,455,199 58,157 862,329
Mark F. Miller............. December 31, 1999 $387,452 $1,082,227 $1,469,679 $195,580 $ 0
President and Chief December 31, 1998 386,412 779,057 1,165,469 127,989 0
Operating Officer December 31, 1997 249,164 173,046 422,210 193,243 0
James E. Lewis............. December 31, 1999 $378,664 $ 902,530 $1,281,194 $ 66,498 $956,366
Vice Chairman December 31, 1998 378,788 679,642 1,058,430 32,570 0
December 31, 1997 364,524 415,163 779,687 25,831 884,692
James R. Pagano............ December 31, 1999 $307,240 $1,052,530 $1,359,770 $ 67,048 $ 0
Group Senior Vice December 31, 1998 291,118 660,227 951,345 29,169 0
President -- Development,.. December 31, 1997 223,532 345,033 568,565 28,412 0
Mergers & Acquisitions
Dennis W. Alexander........ December 31, 1999 $295,524 $ 878,833 $1,174,357 $ 60,705 $ 0
Group Senior Vice December 31, 1998 295,328 635,227 930,555 27,922 0
President and December 31, 1997 284,086 175,033 459,119 21,845 0
General Counsel
</TABLE>
---------------
(1) Amounts listed in this column include all fees for service on Cogentrix's
board of directors.
(2) Amounts listed in this column reflect annual performance bonuses and annual
distributions under our profit-sharing plan, executive incentive bonus plan
and facility cash flow incentive compensation agreements discussed below.
The amounts listed do not include the distributions made under such plan and
agreements to the Named Executive Officers during any fiscal year in which
such distribution was earned in the previous fiscal year.
(3) The amounts shown in this column include Cogentrix's matching contributions
on behalf of the Named Executive Officers to Cogentrix's 401(k) savings plan
in which all Cogentrix employees are eligible to participate and to a
non-qualified Supplemental Retirement Savings Plan in which approximately 39
employees, including all of the Named Executive Officers, participate. The
amounts shown for Mark F. Miller also include compensation related to
relocation and a company-provided life insurance policy.
(4) The amounts shown in this column for the year ended December 31, 1997
include the payments made to David J. Lewis and James E. Lewis related to
the termination of the facility cash flow incentive compensation agreements,
net of the awards each of these Named Executive Officers would have
otherwise received under these plans for the fiscal year ended June 30,
1997, which amounts are included under the column heading "Bonuses." The
amount for James E. Lewis for the year ended December 31, 1999 represents
severance benefits earned under our profit sharing plan related to his
resignation effective January 1, 2000 from Cogentrix as an employee and
officer.
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COMPENSATION PURSUANT TO INCENTIVE COMPENSATION PLANS
Profit-Sharing Plan
We have a profit-sharing plan which is a non-qualified incentive
compensation plan for the benefit of approximately 42 employees of Cogentrix.
Under our profit-sharing plan, we have entered into arrangements with each of
our executive officers, which provide for annual cash compensation distribution
awards to each participant equal to a designated percentage of our adjusted net
income before taxes each fiscal year plus the amount of any accrual for payments
to be made under our profit-sharing plan, with the designated percentage
determined annually at the discretion of our Chief Executive Officer or Chief
Operating Officer based on criteria they deem appropriate. For the fiscal year
ended December 31, 1999, David J. Lewis earned $796,971, Mark F. Miller earned
$557,880, James E. Lewis and James R. Pagano each earned $478,183, and Dennis W.
Alexander earned $398,486 under our profit sharing plan. In addition, James E.
Lewis earned $956,366 in severance benefits under our profit sharing plan
related to his resignation from Cogentrix as an executive officer.
In the event a participant in our profit-sharing plan terminates his or her
employment with Cogentrix (for a reason other than death, total disability,
retirement or termination by Cogentrix for willful misconduct), the participant
is entitled to receive a severance benefit equal to a percentage (ranging from
100% after six years of full-time employment to a maximum of 200% after ten
years or more of full-time employment) of the most recent annual distribution to
which the employee is then entitled. In the event of a participant's death or
total disability, the participant (or his or her beneficiary) is entitled to
receive from zero to five years of annual distribution awards thereafter,
depending upon the participant's length of service with Cogentrix.
Executive Incentive Bonus Plan
In addition to the annual cash compensation distribution awards payable
under our profit-sharing plan, each of the Named Executive Officers, with the
exception of David J. Lewis, may receive additional incentive cash compensation
awards, determined on a sliding scale, if we achieve contractually specified
levels of net income before income tax targets for a given fiscal year. For the
fiscal year ended December 31, 1999, each of the Named Executive Officers, with
the exception of David J. Lewis, earned $324,347 under the executive incentive
bonus plan. Upon his resignation effective January 1, 2000 from Cogentrix as an
employee and officer, James E. Lewis will no longer participate in the executive
incentive bonus plan.
Facility Cash Flow Incentive Compensation Agreements
We previously had in effect non-qualified incentive compensation agreements
with two of the Named Executive Officers, David J. Lewis and James E. Lewis,
each of whom is a director and a shareholder of Cogentrix Energy. These
agreements provided for each of these Named Executive Officers to receive,
through June 30, 2007, annual distributions equal to a designated percentage of
the net cash flow for the fiscal year of two of our facilities. In the fiscal
year ended June 30, 1997, we terminated the facility cash flow incentive
compensation agreements with these Named Executive Officers. In connection with
the termination of these plans, David J. Lewis and James E. Lewis were paid
$1,157,996 and $1,119,816 in the fiscal year ended June 30, 1997, respectively.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
David J. Lewis
In March 1999, the board of directors elected David J. Lewis Chairman of
the Board of Cogentrix. He was previously elected Chief Executive Officer of
Cogentrix in August 1995. George T. Lewis, Jr., the former Chief Executive
Officer and Chairman of the Board, will serve as Chairman Emeritus. We have an
employment agreement with David J. Lewis through August 2005 which provides for
a base annual salary for each fiscal year at least equal to the base salary for
the immediately preceding fiscal year. In addition to the base salary, Mr. Lewis
is entitled to participate in our profit sharing plan, at a level of no less
than 1.25% of net income before taxes, and to receive annual incentive
compensation in an amount determined by the board of directors, which amount,
when combined with the base salary and profit sharing payable to
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him, shall be at least sufficient to provide him with total annual compensation
that is competitive with total annual compensation offered by other similarly
situated companies to their employees in comparable positions.
Upon our giving notice, the employment agreement is terminable in the event
at least two-thirds of the board of directors terminates Mr. Lewis' employment
for cause. In addition, we may terminate the agreement at any time at our option
by a vote of at least two-thirds of the directors then in office. In the event
we terminate his employment, other than for cause, Mr. Lewis is entitled to
continue to receive base salary, performance bonus (based on historical levels)
and distributions under the profit sharing plan through the remainder of the
term of this employment agreement.
Mr. Lewis can terminate his employment for good reason as a result of
- a change in control of Cogentrix
- a change in title, authority or duties
- our failure to make any other payment to Mr. Lewis or our breach of the
employment agreement.
If Mr. Lewis elects to terminate his employment for good reason, he is entitled
to continue to receive, for five years, an amount equal to the average annual
salary, bonus and profit sharing distribution received prior to his termination.
Mark F. Miller
We have an employment agreement with Mark F. Miller through May 2007, which
provides a minimum base annual salary of $350,000, which at the beginning of
each fiscal year is increased by an amount, if positive, that will reflect
increases in the cost of living. He is also entitled to participate in our
profit sharing plan, at a level of no less than 0.9% of net income before taxes,
and to receive a performance bonus each fiscal year, the level of which is
determined in the sole discretion of the Chief Executive Officer. We have the
right to terminate Mr. Miller's employment upon sixty days written notice. In
the event we terminate his employment, other than for cause, Mr. Miller is
entitled to continue to receive base salary, bonus (based upon historical
levels) and distributions under the profit sharing plan through the remainder of
the term of the employment agreement.
Mr. Miller can terminate his employment for good reason as a result of
- a change in control of Cogentrix
- a change in title, authority or duties
- our failure to make any other payment to Mr. Miller or our breach of the
employment agreement
If Mr. Miller elects to terminate his employment for good reason, he is
entitled to continue to receive, through the remainder of the term of the
employment agreement, an amount equal to the average annual salary, bonus and
profit sharing distribution received prior to his termination.
Dennis W. Alexander
We have an employment agreement with Dennis W. Alexander to serve as Senior
Vice President, General Counsel and Secretary and as a member of the Board of
Directors. Under the employment agreement, Mr. Alexander is entitled to a
minimum base annual salary of $180,000, subject to adjustment in future years.
He is also entitled to participate in our profit sharing plan, at a level of no
less than 0.3% of net income before taxes, and our executive incentive bonus
plan. The employment agreement is for a one-year term that renews automatically
at the end of each calendar year unless we previously exercise our right to
terminate Mr. Alexander's employment. We have the right to terminate Mr.
Alexander's employment upon 30 days' written notice. A material change in his
title, authority, duties or current compensation following a change in control
of Cogentrix constitutes a de facto termination by us. In the event we terminate
his employment, Mr. Alexander is entitled to receive, within 30 days of his
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termination, a severance payment in an amount equal to his total compensation
received in the prior calendar year, including any fees he received for serving
as a member of the Board of Directors.
James R. Pagano
In January 1999, we entered into an employment agreement with James R.
Pagano, Group Senior Vice President -- Development, Mergers & Acquisitions.
Under the employment agreement, Mr. Pagano is entitled to an annual base salary
of $306,000, which may be increased in future years. He is also entitled to
participate in our profit sharing plan, at a level of no less than 0.5% of net
income before taxes, and our executive incentive bonus plan. The employment
agreement is for a one-year term that renews automatically at the end of each
calendar year unless we previously exercise our right to terminate Mr. Pagano's
employment. We have the right to terminate Mr. Pagano's employment upon 30 days'
written notice. Following a change in control of Cogentrix, we will be deemed to
have terminated Mr. Pagano as the result of
- a change in his title, authority, duties or location of workplace and
responsibilities,
- a reduction in his annual base salary or profit sharing participation or
- our failure to make any other payment to Mr. Pagano.
In the event we terminate his employment, Mr. Pagano is entitled to
receive, within 30 days of his termination, a severance payment in an amount
equal to 250% of his total compensation received in the prior calendar year,
including salary, bonuses and profit sharing.
DIRECTORS' COMPENSATION AND CONSULTING AGREEMENTS
Directors, including employee directors, receive an annual retainer of
$25,000 for service on the board of directors. In addition, for each meeting
attended, each director receives a fee of $1,000. During the year ended December
31, 1999, there were five meetings of Cogentrix Energy's board of directors.
We have entered into consulting agreements with Messrs. Garrett and
Tillinghast each of which provides for payment of $15,000 annually for
consulting services to be rendered to us.
George T. Lewis, Jr.
We previously had in effect a non-qualified incentive compensation
agreement with George T. Lewis, Jr., the current Chairman Emeritus of the Board
and a shareholder of Cogentrix Energy. This agreement provided for Mr. Lewis to
receive, through June 30, 2007, annual distributions equal to a designated
percentage of the net cash flow for the fiscal year of one of our facilities. In
the fiscal year ended June 30, 1997, we terminated the facility cash flow
incentive compensation agreement with Mr. Lewis. In connection with the
termination of this plan, Mr. Lewis was paid $1,247,259 in the fiscal year ended
June 30, 1997.
In August 2000, our five-year employment and noncompetition agreement with
George T. Lewis, Jr., expired. Mr. Lewis received base compensation of $424,052
through August 2000 related to this agreement.
Robert W. Lewis
While Robert W. Lewis was employed as an executive officer, Cogentrix
entered into a non-qualified incentive compensation agreement with him similar
to the agreements described above under "-- Facility Cash Flow Incentive
Compensation Agreements" providing for him to receive incentive compensation
annually equal to a designated percentage of the net cash flow for the fiscal
year of two of our facilities. Our obligation to make such annual payments to
him continues through June 30, 2007. We have agreed to pay him an annual minimum
payment of $200,000 regardless of whether his actual annual distribution would
yield such amount. Robert W. Lewis must repay to Cogentrix, on or before January
31, 2008, an amount equal to the aggregate amount of minimum payments made in
excess of the actual annual distributions which he was entitled to receive. The
actual amount of the distribution Mr. Lewis received pursuant to his facility
cash flow compensation agreement for the year ended December 31, 1999 was
$293,265.
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If at any time through June 1, 2007 Mr. Lewis sells or transfers any of the
shares of common stock of Cogentrix Energy held by him to anyone other than
other designated members of the Lewis family without granting Cogentrix Energy a
right of first refusal with respect to the shares sold or transferred, he will
forfeit his right to the annual distributions under his facility cash flow
incentive compensation agreement and the right to the annual minimum payment of
$200,000.
James E. Lewis
On January 1, 2000, we entered into a consulting agreement with James E.
Lewis, a shareholder, director, officer and former employee of Cogentrix. Under
the terms of the consulting agreement, Mr. Lewis is required, subject to certain
limits, to be available during customary business hours for consultations,
either in person or by telephone, with respect to such of our business and
affairs as we may reasonably call on him to furnish.
Pursuant to the consulting agreement, base compensation is payable to Mr.
Lewis in the following amounts for the following periods:
<TABLE>
<CAPTION>
PERIOD BASE COMPENSATION
------ -----------------
<S> <C>
01/01/00 to 12/31/00........................................ $350,424
01/01/01 to 12/31/01........................................ 219,015
01/01/02 to 12/31/03........................................ 187,727
01/01/04 to 12/31/04........................................ 125,151
</TABLE>
In the event of Mr. Lewis' death or inability to provide services due to
disability, we are obligated to continue making payments, when due, to him or
his estate.
PRINCIPAL STOCKHOLDERS
All of the issued and outstanding shares of common stock of Cogentrix
Energy are beneficially owned as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES OWNERSHIP
---- --------- ----------
<S> <C> <C>
George T. Lewis, Jr.(1)..................................... 73,320 26%
John C. Fennebresque(2)..................................... 73,320 26
Betty G. Lewis.............................................. 73,320 26
David J. Lewis.............................................. 45,120 16
James E. Lewis.............................................. 45,120 16
Robert W. Lewis............................................. 45,120 16
</TABLE>
---------------
(1) George T. Lewis, Jr.'s shares are held of record by a revocable grantor
trust (the "Trust") that may be revoked by Mr. Lewis at any time prior to
his death, in which event the shares held by the Trust would be transferred
to him. Accordingly, he is deemed to be the beneficial owner of the shares
held by the Trust.
(2) The 73,320 shares shown as beneficially owned by Mr. Fennebresque are all
held of record by the Trust described in Note 1 above. Mr. Fennebresque is
deemed to be the beneficial owner of these shares, because he is the sole
trustee of the Trust and, as such, has the power to vote and invest the
shares held by the Trust. Since George T. Lewis, Jr. is also deemed to be
the beneficial owner of these shares, they are also included in the amount
shown for the number of shares beneficially owned by George T. Lewis, Jr.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The transactions described or referred to below were entered into between
related parties. Our board of directors has adopted a policy that all material
transactions with related parties must be on terms no less favorable than could
be obtained from third parties and that any variance from this policy is subject
to approval by a majority of our disinterested directors. The indentures and the
covenants of the Corporate
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Credit Facility place certain limitations on our ability to enter into material
transactions with related parties as well.
LEASES AND REAL PROPERTY TRANSACTIONS
Equipment Leasing Partners ("ELP"), a North Carolina general partnership
consisting of four of our shareholders, George T. Lewis, Jr., David J. Lewis,
James E. Lewis and Robert W. Lewis, owns and leases certain equipment to our
project subsidiaries related to the operations of the plants. Each of the
partners in ELP is a member of our board of directors. David J. Lewis is
Chairman and Chief Executive Officer of Cogentrix. Total rent paid by us to ELP
under such equipment leases was $901,000, $726,000, and $896,000 for the fiscal
years ended December 31, 1999, 1998 and 1997, respectively.
ELP also owns and leases to us our executive offices under a long term
lease with an initial term expiring in 2004. Total rent paid by us to ELP under
such lease was $868,000, $856,000 and $843,000 for the fiscal years ended
December 31, 1999, 1998 and 1997, respectively.
ELP leases the land on which our executive offices are located under a
long-term ground lease from an unrelated third party with an initial term
expiring in 2047, all payments under which are guaranteed by Cogentrix. Total
amounts paid by ELP under such lease were $118,000, $112,000 and $112,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
FACILITY CASH FLOW INCENTIVE COMPENSATION AGREEMENTS
We have entered into agreements with four of the beneficial owners of our
outstanding shares of common stock, each of whom is also a director, that
provide for them to receive annual distributions equal to a designated
percentage of the net cash flow for each fiscal year of one or both of two of
our facilities. During the fiscal year ended June 30, 1997, we terminated these
agreements for the three executive officers. See "Executive
Compensation -- Compensation Pursuant to Incentive Compensation Plans --
Facility Cash Flow Incentive Compensation Agreements" and "Executive
Compensation -- Directors' Compensation and Consulting Agreements" herein.
SHAREHOLDER STOCK TRANSFER AGREEMENT
In August 1994, George T. Lewis, Jr. entered into an agreement with Betty
G. Lewis ("Ms. Lewis") providing for, among other things, the transfer by George
T. Lewis, Jr. of a portion of his shares of our common stock to Ms. Lewis.
In accordance with the agreement, if Ms. Lewis desires to transfer or
otherwise dispose of any of her shares of common stock of Cogentrix, she must
first offer to sell them to us at a price equal to a bona fide offer from an
unrelated party. Any shares, the offer of sale of which is not accepted by us
after receipt of the written offer, must be offered by Ms. Lewis at the same
price to the other shareholders, who have the right to purchase such shares on a
pro rata basis determined in accordance with the then current stock ownership of
those shareholders. In the event neither we nor the other shareholders notify
Ms. Lewis of its or their intention to purchase her shares within 15 days after
receipt of the written offer, Ms. Lewis shall have the right for 90 days
thereafter to consummate the sale of her shares with the unrelated party who
provided the bona fide offer.
SHAREHOLDER REVOLVING CREDIT FACILITY
In March 2000, Cogentrix Energy established a revolving credit facility
whereby each of its shareholders may borrow from time to time up to $1,000,000
from Cogentrix Energy on a revolving basis. Shareholder borrowings will accrue
interest at the prime rate of a major United States bank plus 1.0%, payable
annually. Principal payments on any borrowings made under the facility are due
in three equal annual installments on each annual shareholder dividend payment
date following the borrowing. Upon the sale of any of a shareholder's shares
(except a permitted transfer), the principal balance outstanding will become due
and payable immediately. There are no amounts currently outstanding under this
shareholder revolving credit facility.
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DESCRIPTION OF EXCHANGE NOTES
You cannot understand this description of exchange notes without first
reading and understanding the definitions of the defined terms that are used in
this description. You can find the definitions of terms used in this description
under the subheading -- "Important Definitions" on page 86 of this prospectus.
Cogentrix Energy will issue the exchange notes under an indenture dated as
of October 20, 1998 between itself and First Union National Bank, as trustee.
The terms of the exchange notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act of 1939, as
amended. The outstanding senior notes to which this exchange offer relates were
issued under the same indenture on September 22, 2000.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the exchange notes. The indenture is an exhibit to the registration
statement which includes this prospectus. Except where otherwise noted,
references in this section of this prospectus to exchange notes include the
$100.0 million of exchange notes offered hereby and the $255.0 million of 8.75%
senior notes due 2008 issued April 19, 1999 in a previous exchange offer that
are part of the same series of notes as the exchange notes offered hereby.
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes:
- are general, unsecured obligations of Cogentrix Energy only and, with one
exception, are not guaranteed by any of its subsidiaries; and
- are equal in right of payment with all existing and future unsecured
senior indebtedness of Cogentrix Energy.
Assuming Cogentrix Energy had completed the offering of the outstanding
senior notes on June 30, 2000 and applied the proceeds as described under "Use
of Proceeds", Cogentrix Energy would have had approximately $606.2 million of
unsecured senior indebtedness outstanding on that date, including letters of
credit outstanding under its corporate credit facility.
HOLDING COMPANY STRUCTURE
Cogentrix Energy's ability to pay principal of, premium, if any, and
interest on the exchange notes will be dependent upon the receipt of sufficient
funds from its current and future project subsidiaries and its project
affiliates. The terms of their existing project financing arrangements restrict
their ability to distribute funds to Cogentrix Energy in the form of dividends,
distributions, management fees, principal, interest, loans or otherwise.
Substantially all of the indebtedness of Cogentrix Energy's project subsidiaries
and project affiliates is, however, non-recourse project financing secured by
the assets of the project subsidiaries and project affiliates of Cogentrix
Energy. Assuming Cogentrix Energy had completed the offering of the $100 million
of senior notes issued September 22, 2000 on June 30, 2000 and applied the
proceeds as described under "Use of Proceeds", approximately $1.4 billion of
outstanding indebtedness of Cogentrix Energy's project subsidiaries would be
effectively senior to the exchange notes. In addition, as of the same date,
approximately $942.6 million of outstanding indebtedness of Cogentrix Energy's
project affiliates would be effectively senior to the exchange notes.
PRINCIPAL, MATURITY AND INTEREST
In this exchange offer, Cogentrix Energy will issue exchange notes in
denominations of $1,000 and integral multiples of $1,000 with a maximum
aggregate principal amount of $100.0 million. All exchange notes will mature on
October 15, 2008.
Interest on the exchange notes will accrue at the rate of 8.75% per annum
and will be payable semi-annually in arrears on April 15 and October 15,
commencing on April 15, 2001 on the exchange notes
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offered hereby. Cogentrix Energy will make each interest payment to the Holders
of record of the exchange notes at the close of business on the immediately
preceding April 1 and October 1.
Interest on the exchange notes will accrue from the date of their initial
issuance. Holders of the exchange notes offered hereby will receive interest on
April 15, 2001 from the date of initial issuance of their exchange notes, plus
an amount equal to the accrued interest on the outstanding senior notes accepted
for exchange. Interest on exchange notes will be computed on the basis of a
360-day year comprised of twelve 30-day months. Interest on overdue principal
and -- to the extent permitted by applicable law -- on overdue installments of
interest shall accrue at a rate of 1% in excess of the rate per annum borne by
the exchange notes.
Subject to the limitations described below under "Important Negative
Covenants -- Debt", the indenture allows Cogentrix Energy to issue up to $65.0
million aggregate principal amount of additional senior notes in addition to the
$355,000,000 of senior notes already outstanding under the indenture. Any
additional senior notes Cogentrix Energy issues in the future shall have the
same terms, including the same interest rates and interest payment dates, as the
exchange notes. Any additional senior notes that Cogentrix Energy may issue
shall be a part of the same series as the exchange notes described in this
prospectus.
In addition, subject to the limitations described below under "Important
Negative Covenants -- Debt", Cogentrix Energy may issue additional securities
under the indenture in one or more series.
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
Cogentrix Energy will pay principal, interest and premium, if any, on the
exchange notes at the office or agency of Cogentrix Energy in Charlotte, North
Carolina or by mailing a check to the Holder of the exchange notes. The exchange
notes may be presented at the office or agent of the trustee in New York City
for forwarding to the trustee. However, if a Holder of the exchange notes has
given wire transfer instructions to Cogentrix Energy and its paying agent,
Cogentrix Energy will make all principal, premium, if any, and interest payments
on the exchange notes in accordance with those instructions. All payments of
principal, premium, if any, and interest with respect to the exchange notes
represented by the permanent global note registered in the name of or held by
DTC or its nominee will be made by wire transfer of immediately available funds
to DTC or its nominee as the registered owner thereof. See "-- Book-Entry;
Delivery and Form".
THE TRUSTEE
First Union National Bank is the trustee under the indenture.
REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any exchange notes are outstanding, Cogentrix Energy will furnish to the
Holders of exchange notes, within the time periods specified in the Securities
and Exchange Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if Cogentrix Energy were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Cogentrix
Energy's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if Cogentrix Energy were
required to file such reports.
In addition, whether or not required by the Securities and Exchange
Commission, Cogentrix Energy will file a copy of all of the information and
reports referred to in clauses (1) and (2) above with the trustee and with the
Securities and Exchange Commission for public availability within the time
periods
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specified in the Securities and Exchange Commission's rules and regulations,
unless the Securities and Exchange Commission will not accept such a filing, and
make such information available to securities analysts and prospective investors
upon request.
OPTIONAL REDEMPTION
The exchange notes may be redeemed in whole or in part at Cogentrix
Energy's option at any time prior to maturity, upon not less than 30 nor more
than 60 days' prior notice, at a redemption price equal to:
(1) the then outstanding principal amount of the exchange notes being
redeemed plus accrued and unpaid interest thereon to the date of
redemption, plus
(2) a premium equal to the excess of:
(A) the present value at the time of redemption of the principal
amount of the exchange notes being redeemed plus any required interest
payments due on the exchange notes being redeemed through Stated
Maturity computed using a discount rate equal to the Treasury Rate plus
50 basis points
-- over --
(B) the then outstanding principal amount of the exchange notes
being redeemed.
IMPORTANT NEGATIVE COVENANTS
Unless waived or amended, the covenants in the indenture, including the
ones summarized below, will, unless the events described under "-- Changes in
Covenants When Exchange Notes are Rated Investment Grade" occur, be applicable
so long as any of the exchange notes are outstanding.
These covenants are for your benefit and, among other things, restrict our
ability, with exceptions that are described below, to
- incur additional debt or permit our subsidiaries to do so;
- pay dividends and make other distributions;
- make investments;
- engage in transactions with affiliates;
- create encumbrances to secure debt;
- dispose of our assets; or
- merge or consolidate with or into, or sell or otherwise transfer our
properties and assets as an entirety to, another entity.
Debt
Cogentrix Energy shall not Incur any Debt, including Acquisition Debt,
unless, after giving effect to the Incurrence of such Debt and the receipt and
application of the proceeds therefrom, the Fixed Charge Ratio of Cogentrix
Energy would be equal to or greater than 2.0 to 1.
Despite the preceding sentence, Cogentrix Energy may Incur each and all of
the following:
(1) Debt issued in exchange for, or the proceeds of which are used to
refinance, outstanding exchange notes or other Debt of Cogentrix Energy in
an amount -- or, if such new Debt provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, with an original issue price -- not to exceed the
amount so exchanged or
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refinanced (plus accrued interest and fees and expenses related to such
exchange or refinancing), the amount so exchanged or refinanced being equal
to the lesser of:
(A) the principal amount or involuntary liquidation preference of
the Debt so exchanged or refinanced and
(B) if the Debt being exchanged or refinanced was issued with an
original issue discount, the accreted value thereof, as determined in
accordance with GAAP, at the time of such refinancing; provided that
such Debt of Cogentrix Energy will rank equal with or expressly
subordinated in right of payment to the exchange notes and the Average
Life of the new Debt shall be equal to or greater than the Average Life
of the Debt to be exchanged or refinanced;
(2) Debt of Cogentrix Energy to any of its Subsidiaries and to any
Joint Ventures in which Cogentrix Energy is a direct or indirect partner,
shareholder, member or other participant if such Debt of Cogentrix Energy
is expressly subordinated in right of payment to the exchange notes;
provided that any transfer of such Debt by a Subsidiary or a Joint
Venture -- other than to another Subsidiary or Joint Venture -- will be
deemed to be an Incurrence of Debt;
(3) Debt issued under or in respect of Permitted Working Capital
Facilities;
(4) Debt in an aggregate principal amount not to exceed $10 million at
any one time outstanding;
(5) Debt in respect of Currency Protection Agreements or Interest Rate
Protection Agreements; and
(6) Debt outstanding as of the date of original issuance of notes
under the indenture.
Guarantees of Debt, and obligations with respect to letters of credit
supporting Debt, that are normally included in the definition of Debt below
under "-- Important Definitions," shall not be included for purposes of
determining any particular amount of Debt under this covenant. For purposes of
determining compliance with this covenant, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, Cogentrix Energy, in its sole discretion, shall classify such item of
Debt and only be required to include the amount and type of such Debt in one of
such clauses.
Subsidiary Debt
Cogentrix Energy shall not permit any Subsidiary to Incur, assume or
otherwise cause or suffer to exist, directly or indirectly, any Debt.
Despite the preceding sentence, each and all of the following Debt may be
Incurred by a Subsidiary:
(1) Debt outstanding as of the date of the original issuance of notes
under the indenture;
(2) Debt owed by a Subsidiary to Cogentrix Energy;
(3) Debt Incurred to finance the development, acquisition,
construction or operation of a Power Generation Facility in which such
Subsidiary has a direct or indirect interest; provided that such Debt shall
be permitted under this clause (3) only to the extent of the amount thereof
that is Non-Recourse to Cogentrix Energy and is Non-Recourse to any other
Subsidiary with a direct or indirect interest in any other Power Generation
Facility;
(4) Debt issued in exchange for, or the proceeds of which are used to
refinance, outstanding Debt of such Subsidiary otherwise permitted under
the indenture in an amount -- or, if such new Debt provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, with an original issue price -- not to
exceed the amount so
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exchanged or refinanced plus accrued interest and fees and expenses related
to such exchange or refinancing, the amount so exchanged or refinanced
being equal to the lesser of:
(A) the principal amount or involuntary liquidation preference of
the Debt so exchanged or refinanced and
(B) if the Debt being exchanged or refinanced was issued with an
original issue discount, the accreted value thereof, as determined in
accordance with GAAP, at the time of such refinancing; provided that
(x) the new Debt shall be Non-Recourse to Cogentrix Energy to no
lesser extent than the Debt to be exchanged or refinanced,
(y) the new Debt shall be Non-Recourse to any other Subsidiary
with a direct or indirect interest in any other Power Generation
Facility to no lesser extent than the Debt to be exchanged or
refinanced, and
(z) the Average Life of the new Debt shall be equal to or
greater than the Average Life of the Debt to be exchanged or
refinanced;
(5) Debt issued in exchange for, or the proceeds of which are used to
refinance, outstanding Debt of such Subsidiary otherwise permitted under
the indenture in an amount -- or, if such new Debt provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, with an original issue price -- in
excess of the amount so exchanged or refinanced plus accrued interest and
fees and expenses related to such exchange or refinancing. The provisions
of this clause (5) shall only apply if:
(A) the new Debt shall be Non-Recourse to Cogentrix Energy to no
lesser extent than the Debt to be exchanged or refinanced,
(B) the new Debt shall be Non-Recourse to any other Subsidiary with
a direct or indirect interest in any other Power Generation Facility to
no lesser extent than the Debt to be exchanged or refinanced,
(C) the Average Life of the new Debt shall be equal to or greater
than the Average Life of the Debt to be exchanged or refinanced and
(D) after giving effect to the incurrence of such new Debt and the
retirement of the Debt to be exchanged or refinanced, the Fixed Charge
Ratio of Cogentrix Energy would be equal to or greater than 2.0 to 1;
(6) Debt issued in exchange for, or the proceeds of which are used to
refinance, outstanding Debt that is not Non-Recourse to the Company or to
any other Subsidiary in an amount -- or if such new Debt provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration or acceleration thereof, with an original issue price -- not to
exceed the amount so exchanged or refinanced plus accrued interest and fees
and expenses related to such exchange or refinancing. In order for clause
(6) to apply, the amount so exchanged or refinanced shall be equal to the
lesser of
(A) the principal amount of the Debt so exchanged or refinanced and
(B) if the Debt being so exchanged or refinanced was issued with an
original issue discount, the accreted value thereof -- as determined in
accordance with GAAP -- at the time of such refinancing.
Additionally, this clause (6) shall not apply unless the Average Life of the new
Debt shall be equal to or greater than the Average Life of the Debt to be
exchanged or refinanced;
(7) Debt Incurred to support the performance obligations of a
Subsidiary engaged in providing construction management or operating
services to a Power Generation Facility; provided that such
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Debt shall be permitted under this clause (7) only to the extent of the
amount thereof that is Non-Recourse to Cogentrix Energy and is Non-Recourse
to any other Subsidiary with a direct or indirect interest in any other
Power Generation Facility;
(8) Debt of a Subsidiary, provided that after giving effect to the
incurrence of such new Debt and the retirement of any Debt to be exchanged
or refinanced, the Fixed Charge Ratio of Cogentrix Energy would be equal to
or greater than 2.0 to 1;
(9) Debt Incurred by a Person prior to the time:
(A) such Person became a Subsidiary of Cogentrix Energy;
(B) such Person merges with or into a Subsidiary of Cogentrix
Energy; or
(C) another Subsidiary of Cogentrix Energy merges with or into such
Person in a transaction in which such Person becomes a Subsidiary of
Cogentrix Energy; provided that, giving effect to such transaction, such
Debt could have been Incurred at the time of such merger or acquisition
by Cogentrix Energy pursuant to the covenant described in the first
paragraph of "-- Debt" above or by the Subsidiary pursuant to either of
the covenants described in clauses (3) or (4) of this paragraph;
(10) Debt Incurred by a Subsidiary of which at least 80% of each class
of Common Stock is owned, directly or indirectly, by Cogentrix Energy, to
another Subsidiary of which at least 80% of each class of Common Stock is
owned, directly or indirectly, by Cogentrix Energy; and
(11) Debt issued by Cogentrix Delaware Holdings, Inc. under or in
respect of Permitted Working Capital Facilities.
Guarantees of Debt, and obligations with respect to letters of credit
supporting Debt, that are normally included in the definition of Debt below
under "-- Important Definitions," shall not be included for purposes of
determining any particular amount of Debt under this covenant. For purposes of
determining compliance with this covenant, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, Cogentrix Energy, in its sole discretion, shall classify such item of
Debt and only be required to include the amount and type of such Debt in one of
such clauses.
Restricted Payments
Cogentrix Energy will not, and will not permit any Subsidiary to, directly
or indirectly, make any Restricted Payment if at the time of such Restricted
Payment and after giving effect thereto:
(1) an Event of Default or an event that, after the giving of notice
or lapse of time or both, would become an Event of Default shall have
occurred and be continuing;
(2) Cogentrix Energy could not Incur at least $1 of Debt under the
covenant described in the first paragraph of "-- Debt" above;
(3) the aggregate amount of all Restricted Payments made by Cogentrix
Energy and its Subsidiaries -- the amount so made, if other than in cash,
to be determined in good faith by the Board of Directors, as evidenced by a
Board resolution -- after the date of original issuance of notes under the
indenture shall exceed the sum, without duplication, of:
(A) $25 million plus 50% of the Net Income of Cogentrix Energy and
its consolidated Subsidiaries for the period, taken as one accounting
period, beginning on the first day of the fiscal quarter during which
notes were first issued under the indenture and ending on the last day
of the fiscal quarter immediately prior to the date of such calculation;
provided that if Net Income for such period is less than zero, then
minus 100% of the amount of such net loss; plus
(B) the aggregate net proceeds, including the fair market value of
proceeds other than cash, as determined in good faith by the Board of
Directors, received by Cogentrix Energy from and
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after the date of original issuance of notes under the indenture from
the issuance and sale other than to a Subsidiary of its Capital
Stock -- excluding Redeemable Stock, but including Capital Stock other
than Redeemable Stock issued upon conversion of, or in exchange for,
Redeemable Stock or securities other than its Capital Stock -- and
warrants, options and rights to purchase its Capital Stock other than
Redeemable Stock, but excluding the net proceeds from the issuance,
sale, exchange, conversion or other disposition of its Capital Stock
convertible -- whether at the option of Cogentrix Energy or the holder
thereof or upon the happening of any event -- into
(x) any security other than its Capital Stock or
(y) its Redeemable Stock; plus
(C) the net reduction in Investments of the type specified in
clause (4) of the definition of Restricted Payment resulting from
payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets to Cogentrix Energy or other
Person that made the original Investment from the Person in which such
Investment was made; provided that such payment shall not exceed the
amount of the original Investment; plus
(D) any amount previously included as a Restricted Payment on
account of an obligation by Cogentrix Energy or any Subsidiary to make a
Restricted Payment that has not actually been made by Cogentrix Energy
or any Subsidiary and that is no longer required to be made by Cogentrix
Energy or any Subsidiary; provided that the foregoing clause (3) shall
not prevent the payment of any dividend within 60 days after the date of
its declaration if such dividend could have been paid on the date of its
declaration without violation of the provisions of the "-- Restricted
Payments" covenant.
The indenture defines Restricted Payments to exclude Permitted Payments
that include Permitted Investments. See "-- Important Definitions" below.
Dividends and Other Payment Restrictions Affecting Subsidiaries
Cogentrix Energy will not, and will not permit any Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Subsidiary owned by Cogentrix
Energy directly or indirectly,
(2) make payments in respect of any Debt owed to Cogentrix Energy or
any other Subsidiary of Cogentrix Energy,
(3) make loans or advances to Cogentrix Energy or any other Subsidiary
of the Company or
(4) transfer any of its Property to Cogentrix Energy or any other
Subsidiary, other than those encumbrances and restrictions created or
existing
(A) on the date of the original issuance of notes under the
indenture,
(B) pursuant to the indenture,
(C) in connection with the Incurrence of any Debt permitted under
the covenant described in clauses (3) and (7) of the second paragraph of
"Subsidiary Debt" above; provided that the President or the Chief
Financial Officer of Cogentrix Energy determines in good faith, as
evidenced by an Officers' Certificate, that such encumbrances or
restrictions are required in order to effect such financing and are not
materially more restrictive, taken as a whole, on the ability of the
applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (1) through (4) above than
encumbrances and restrictions, taken as a whole, customarily
accepted -- or, in the absence of any industry custom, reasonably
acceptable -- in comparable transactions,
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(D) in connection with the execution and delivery of an electric
power or thermal energy purchase contract to which such Subsidiary is
the supplying party or other contracts with customers, suppliers and
contractors to which such Subsidiary is a party and where such
Subsidiary is engaged, directly or indirectly, in the development,
construction, acquisition or operation of a Power Generation Facility;
provided that the President or the Chief Financial Officer of Cogentrix
Energy determines in good faith, as evidenced by an Officers'
Certificate, that such encumbrances or restrictions are required in
order to effect such contracts and are not materially more restrictive,
taken as a whole, on the ability of the applicable Subsidiary to make
the payments, distributions, loans, advances or transfers referred to in
clauses (1) through (4) above than encumbrances and restrictions, taken
as a whole, customarily accepted -- or, in the absence of any industry
custom, reasonably acceptable -- in comparable transactions,
(E) in connection with any Debt of a Person outstanding when such
Person becomes a Subsidiary permitted under the covenant described in
clause (9) of the second paragraph of "-- Subsidiary Debt" above;
provided that such encumbrance or restriction was not Incurred in
contemplation of such Subsidiary becoming a Subsidiary,
(F) in connection with the Incurrence of any Debt permitted under
clause (4), (5), (6), (8) or (to the extent not covered by (C) above)
(3) of the covenant described in the second paragraph of "-- Subsidiary
Debt" above; provided that the President or the Chief Financial Officer
of Cogentrix Energy determines in good faith, as evidenced by an
Officers' Certificate, that such encumbrances or restrictions taken as a
whole are not materially more restrictive on the ability of the
applicable Subsidiary to make the payments, distributions, loans,
advances or transfers referred to in clauses (1) through (4) above than
those, taken as a whole, customarily accepted -- or, in the absence of
any industry custom, reasonably acceptable -- in comparable financing
transactions of the same nature as the Debt being Incurred, and
(G) customary non-assignment provisions in leases or other
contracts entered into in the ordinary course of business of Cogentrix
Energy or any Subsidiary and
(H) any restrictions imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all of the Capital
Stock or assets of any Subsidiary or Joint Venture that apply pending
the closing of such sale or disposition.
Dispositions
Subject to the provisions of "-- Mergers, Consolidations and Sales of
Assets" below, Cogentrix Energy will not make and will not permit any of its
Subsidiaries to make any Asset Disposition unless Cogentrix Energy or a
Subsidiary receives consideration at the time of each such Asset Disposition at
least equal to the fair market value of the securities or assets sold or
otherwise disposed of, determined in good faith by the Board of Directors, as
evidenced by a Board resolution. Additionally, the indenture requires Cogentrix
Energy to apply any Net Cash Proceeds from Asset Dispositions in the manner
described below.
Within 90 days from the later of the date of such Asset Disposition or the
receipt of Net Cash Proceeds related thereto, Cogentrix Energy must apply the
Net Cash Proceeds of such Asset Disposition to the payment of the principal of
and premium, if any, and interest on any Senior Debt of Cogentrix
Energy -- including to cash collateralize letters of credit -- if required by
the terms, of any Senior Debt. In connection with any such payment, any related
loan commitment, standby facility or the like shall be permanently reduced in an
amount equal to the principal amount so repaid.
To the extent such Net Cash Proceeds are not required by the terms of the
Senior Debt to be applied in accordance with the preceding paragraph or, if
after being so applied there remain Net Cash Proceeds, then at Cogentrix
Energy's election, such Net Cash Proceeds may be applied either:
(A) to the permanent repayment, prepayment or purchase of other senior
indebtedness or invested in the business or businesses of Cogentrix Energy
or any of its Subsidiaries or
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(B) in the case of any Asset Disposition by a Subsidiary, to the
payment of any Debt -- or as otherwise required under the terms of such
Debt -- of such Subsidiary or any Wholly-Owned Subsidiary, other than Debt
owed to Cogentrix Energy or another Subsidiary. In connection with any such
payment, any related loan commitment, standby facility or the like shall be
permanently reduced by an amount equal to the principal amount so repaid.
For purposes of this paragraph, Cogentrix Energy must apply the Net Cash
Proceeds within 365 days from the later of the date of such Asset Disposition or
the receipt of the Net Cash Proceeds related thereto.
To the extent of any Net Cash Proceeds from Asset Dispositions that are not
applied as provided in the immediately preceding two paragraphs above, the
balance of such Net Cash Proceeds shall be applied to make a tender offer to
purchase any of Cogentrix Energy's outstanding 8.10% senior notes due 2004
pursuant and subject to the conditions of the indenture under which those 2004
senior notes were issued at a purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest to the purchase date.
Any Net Cash Proceeds from Asset Dispositions that are not applied as
provided in the immediately preceding three paragraphs above shall constitute
"Excess Proceeds." In the event the Company or any Subsidiary shall receive any
Excess Proceeds, such Excess Proceeds shall be applied in the manner described
below to make a tender offer to purchase the then outstanding exchange notes.
In the event of an Asset Disposition that requires the purchase of exchange
notes, Cogentrix Energy will be required to make an offer to all holders of the
exchange notes to purchase the maximum principal amount of exchange notes that
may be purchased out of the Excess Proceeds. The offering price shall be payable
in cash and shall be equal to 100% of the principal amount of the exchange notes
tendered in the offer plus accrued and unpaid interest, if any, to the date of
purchase in accordance with the procedures set forth in the indenture. Cogentrix
Energy may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate purchase price of the exchange notes tendered in the offer exceeds
the amount of Excess Proceeds, Cogentrix Energy shall purchase tendered exchange
notes on a pro rata basis. Cogentrix Energy will not be required to make an
offer if the Excess Proceeds available therefor are less than $10 million. Any
lesser amounts will be carried forward and cumulated for each 36 consecutive
month period for purposes of determining whether an offer is required with
respect to any Excess Proceeds of any subsequent Asset Dispositions. Any lesser
amounts so carried forward and cumulated need not be segregated or reserved and
may be used for general corporate purposes.
Cogentrix Energy will make such required offer by mailing written notice to
each Holder of the exchange notes, within 30 days from the receipt of any Excess
Proceeds. The notice shall specify the purchase date, that shall be not less
than 10 days nor more than 60 days after the date of such notice. The notice
shall contain information concerning the business of Cogentrix Energy that
Cogentrix Energy believes in good faith will enable the Holders of the exchange
notes to make an informed decision. Holders electing to have their exchange
notes purchased will be required to surrender such exchange notes at least one
Business Day prior to the purchase date.
In the event Cogentrix Energy is unable to purchase exchange notes from
Holders in an offer because of provisions of applicable law, Cogentrix Energy
need not make an offer.
Cogentrix Energy will comply with all applicable tender offer rules,
including without limitation Rule 14e-1 under the Exchange Act, in connection
with an offer under the provisions of this covenant.
To the extent that any or all of the Net Cash Proceeds of any Foreign Asset
Disposition is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Cash Proceeds so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Subsidiary so long, but only so long, as the
applicable local law will not permit repatriation to the United States.
Cogentrix Energy will agree to promptly take or cause the applicable Subsidiary
to promptly take all actions required by the applicable local law to permit such
repatriation. Once such repatriation of any of such affected Net Cash Proceeds
is permitted under the applicable local law, such repatriation shall be promptly
effected and such repatriated Net Cash Proceeds will be applied in
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the manner set forth in this provision as if such Asset Disposition had occurred
on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Cash Proceeds of any Foreign Asset
Disposition would have a material adverse tax consequence to Cogentrix Energy,
the Net Cash Proceeds so affected may be retained outside of the United States
by the applicable Subsidiary for so long as such material adverse tax
consequence would continue.
Transactions with Affiliates
Cogentrix Energy will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction, including the sale, purchase
or lease of any assets or properties or the rendering of any services, involving
aggregate consideration with respect to such transaction in excess of $2 million
with any Affiliate or holder of 5% or more of any class of Capital Stock of
Cogentrix Energy except for transactions, including, subject to the covenant
described in the first paragraph of "-- Restricted Payments" above, any loans or
advances by or to, or guarantee on behalf of, any Affiliate or holder, made in
good faith the terms of which:
(1) are fair and reasonable to Cogentrix Energy or a Subsidiary; and
(2) are at least as favorable as the terms that could be obtained by
Cogentrix Energy or a Subsidiary in a comparable transaction made on an
arm's-length basis with Persons who are not such a holder or Affiliate.
If a transaction with an Affiliate or holder of 5% or more of any class of
Capital Stock of Cogentrix Energy is approved by a majority of the members of
the Board of Directors of Cogentrix Energy, including a majority of Cogentrix
Energy's independent directors, and the related resolutions of the Board of
Directors specifically state that such directors have found the transaction to
be on terms that are fair and reasonable to Cogentrix Energy or any of its
Subsidiaries and on terms that are at least as favorable as the terms that could
be obtained on an arm's-length basis with Persons who are not such a holder or
Affiliate, then such transaction shall be presumed to be on such terms. The
fairness, reasonableness and arm's-length nature of the terms of any transaction
that is part of a series of related transactions may be determined on the basis
of the terms of the series of related transactions taken as a whole.
With respect to the purchase or disposition of assets of Cogentrix Energy
or any of its Subsidiaries having a net book value in excess of $10 million, in
addition to such approval of its Board of Directors, Cogentrix Energy shall
obtain a written opinion of an Independent Financial Advisor stating that the
terms of such transaction are fair to Cogentrix Energy or its Subsidiary, as the
case may be, from a financial point of view.
This covenant shall not apply to:
(1) transactions between Cogentrix Energy or any of its Subsidiaries
and any employee of Cogentrix Energy or any of its Subsidiaries who is not
a holder of 5% or more of any class of Capital Stock of Cogentrix Energy,
or a member of such holder's immediate family, that are approved by the
Board of Directors or any committee of the Board of Directors consisting of
Cogentrix Energy's independent directors,
(2) the payment of reasonable and customary regular fees to directors
of Cogentrix Energy or a Subsidiary of Cogentrix Energy, including
directors who are employees,
(3) any transaction between Cogentrix Energy and any of its
Subsidiaries or between any of its Subsidiaries,
(4) any Permitted Payment and any Restricted Payment not otherwise
prohibited by the covenant described in "-- Restricted Payments" above or
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(5) equipment and real property lease transactions with and loans to
ELP outstanding on the date of the indenture, indebtedness of the
shareholders of Cogentrix Energy outstanding on the date of the indenture
and the agreements with George T. Lewis, Jr., David J. Lewis and Robert W.
Lewis.
Liens
Prohibited Liens. Cogentrix Energy may not Incur any Debt that is secured,
directly or indirectly, with, nor will Cogentrix Energy grant or cause or suffer
to exist, a Lien on the Property of Cogentrix Energy now owned or hereafter
acquired unless contemporaneous therewith or prior thereto the exchange notes
are equally and ratably secured.
Permitted Liens. Despite the preceding sentence, each and all of the
following Debt may be Incurred by Cogentrix Energy, and Cogentrix Energy may
grant or cause to suffer to exist, each and all of the following Liens on its
Property now owned or hereafter acquired:
(1) any such Debt secured by Liens existing on the assets of any
entity at the time such assets are acquired by the Company, whether by
merger, consolidation, purchase of assets or otherwise; provided that such
Liens
(A) are not created, incurred or assumed in contemplation of such
assets being acquired by Cogentrix Energy and
(B) do not extend to any other Property of Cogentrix Energy;
(2) any other Debt required to be equally and ratably secured as a
result of the Incurrence of such Debt;
(3) Liens on Cogentrix Energy's interest in Subsidiaries and Joint
Ventures in which Cogentrix Energy is a partner, shareholder, member or
other participant, which Liens are granted in good faith in connection with
the acquisition of such assets or as part of the financing of a Power
Generation Facility; provided that the President or Chief Financial Officer
of Cogentrix Energy determines in good faith, as evidenced by an Officers'
Certificate that such Liens are required in order to effect such financing
and are not materially more restrictive, taken as a whole, than Liens,
taken as a whole, customarily accepted -- or in the absence of any industry
custom, reasonably acceptable -- in substantially Non-Recourse project
financing;
(4) Liens on the stock or partnership interests of Subsidiaries and
interests in Joint Ventures in which Cogentrix Energy directly or
indirectly becomes a partner, shareholder, member or other participant,
which Liens are granted in good faith as part of a project financing or the
development of a project; provided that the President or Chief Financial
Officer of Cogentrix Energy determines in good faith, as evidenced by an
Officers' Certificate, that such Liens are required in order to effect such
transaction and are not materially more restrictive, taken as a whole, than
Liens, taken as a whole, customarily accepted -- or in the absence of
industry custom, reasonably acceptable -- in substantially Non-Recourse
project financing;
(5) Liens existing on the date of the original issuance of notes under
the indenture;
(6) purchase money Liens incurred to secure Debt incurred by Cogentrix
Energy as permitted by the "-- Debt" covenant, which Debt finances the
purchase price of Property acquired in the ordinary course of business, and
which Liens will not cover any property other than that being purchased,
improved or constructed;
(7) Liens on any assets of Cogentrix Energy securing up to $50 million
in obligations pursuant to Permitted Working Capital Facilities and any
Guarantees thereof;
(8) Liens incurred in connection with Capitalized Lease Obligations
incurred by Cogentrix Energy as permitted by the "-- Debt" covenant;
(9) Liens in respect of extensions, renewals, refunding or refinancing
of any Debt secured by the Liens referred to in clauses (1), (2), (3), (4),
(5), (6), (7) or (8) above, provided that the Liens in
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connection with such renewal, extension, refunding or refinancing shall be
limited to all or part of the specific Property that was subject to the
original Lien; and
(10) any Lien arising by reason of:
(A) any judgment, decree or order or any court, so long as such
Lien is being contested in good faith and is adequately bonded, and any
appropriate legal proceedings that may have been duly initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired,
(B) taxes not yet delinquent or that are being contested in good
faith,
(C) security for payment of worker's compensation or other
insurance,
(D) security for the performance of tenders, contracts other than
contracts for the payment of money or leases,
(E) deposits to secure public or statutory obligations, or to
secure permitted contracts for the purchase or sale of any currency
entered into in the ordinary course of business,
(F) operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialman, laborers, employees or suppliers, incurred in
the ordinary course of business for sums that are not yet delinquent or
being contested in good faith by negotiations or by appropriate
proceedings that suspend the collection thereof,
(G) easements, rights-of-way, zoning and similar covenants and
restrictions and other similar encumbrances or title defects that, in
the aggregate, are not material, and that do not in any case materially
detract from the value of the Property subject thereto or materially
interfere with the ordinary conduct of the business of Cogentrix Energy
or
(H) leases and subleases of real property that do not interfere
with the ordinary conduct of the business of Cogentrix Energy, and that
are made on customary and usual terms applicable to similar properties;
or
(I) Liens in addition to the foregoing, provided that the amount of
the obligations secured by such Liens does not exceed in the aggregate
$1 million.
Repurchase of Exchange Notes Upon a Change of Control
If a Change of Control occurs, each Holder of the exchange notes shall have
the right to require Cogentrix Energy to repurchase the Holder's exchange notes.
The repurchase price shall be payable in cash and shall be equal to 101% of the
principal amount of senior notes repurchased plus accrued and unpaid interest
thereon, if any, to the date of repurchase. After giving effect to a transaction
that, except for this sentence, would constitute a Change of Control, a Change
of Control shall not be deemed to have occurred if the senior notes are rated
BB+ or better by Standard & Poor's Corporation and Ba1 or better by Moody's
Investors Service, Inc.
The trustee or the Board of Directors may not waive the Change of Control
provisions, and any modification thereof must be approved by each Holder.
Nevertheless, the Change of Control provisions will not necessarily afford
protection to Holders, including protection against an adverse effect on the
value of the exchange notes, in the event that Cogentrix Energy or its
Subsidiaries Incur additional Debt, whether through recapitalizations or
otherwise.
Within 30 days following any Change of Control, Cogentrix Energy shall mail
a notice to each Holder with a copy to the trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require Cogentrix Energy to repurchase such Holder's exchange
notes at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued interest, if any, to the date of repurchase;
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(2) the circumstances and relevant facts regarding such Change of
Control, including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control;
(3) the repurchase date, which shall be a Business Day and be not
earlier than 30 days or later than 60 days from the date such notice is
mailed;
(4) that interest on any exchange note not tendered will continue to
accrue;
(5) that interest on any exchange note accepted for payment in a
repurchase shall cease to accrue after the repurchase date;
(6) that Holders electing to have a exchange note purchased will be
required to surrender the exchange note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the exchange note completed, to
the paying agent at the address specified in the notice prior to the close
of business on the repurchase date;
(7) that Holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the third
Business Day, or such shorter periods as may be required by applicable law,
preceding the repurchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
exchange notes the Holder delivered for purchase, and a statement that such
Holder is withdrawing his election to have such exchange notes purchased;
and
(8) that Holders which elect to have their exchange notes purchased
only in part will be issued new exchange notes in a principal amount equal
to the unpurchased portion of the exchange notes surrendered.
On the Business Day preceding the repurchase date, Cogentrix Energy shall
(1) accept for payment exchange notes or portions thereof tendered
pursuant to the Change of Control,
(2) deposit with the trustee money sufficient to pay the purchase
price of all exchange notes or portions thereof so tendered and
(3) deliver or cause to be delivered to the trustee exchange notes so
accepted together with an Officers' Certificate identifying the exchange
notes or portions thereof tendered to Cogentrix Energy.
The trustee shall promptly mail to the Holders of the exchange notes so
accepted payment in an amount equal to the purchase price, and promptly
authenticate and mail to such Holders a new exchange note in a principal amount
equal to any unpurchased portion of the exchange notes surrendered. Cogentrix
Energy will publicly announce the results of any repurchases of exchange notes
upon a Change of Control on or as soon as practicable after the repurchase date.
Cogentrix Energy will comply with all applicable tender offer rules,
including without limitation Rule 14e-1 under the Exchange Act, in connection
with any repurchases of exchange notes upon a Change of Control.
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MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
Cogentrix Energy may not consolidate with, merge with or into, or transfer
all or substantially all of its assets, as an entirety or substantially an
entirety in one transaction or a series of related transactions, to any Person
unless:
(1) Cogentrix Energy shall be the continuing Person, or, if Cogentrix
Energy is not the continuing Person, the Person formed by such
consolidation or into which Cogentrix Energy is merged or to which
properties and assets of Cogentrix Energy are transferred shall:
(A) be a corporation organized and existing under the laws of the
U.S. or any State thereof or the District of Columbia and
(B) expressly assume in writing all the obligations of Cogentrix
Energy under the indenture and the exchange notes;
(2) immediately after giving effect to such transaction, no Event of
Default or event or condition that through the giving of notice or lapse of
time or both would become an Event of Default shall have occurred and be
continuing;
(3) the Net Worth of Cogentrix Energy or the surviving entity, as the
case may be, on a pro forma basis after giving effect to such transaction,
is not less than the Net Worth of Cogentrix Energy immediately prior to
such transaction; and
(4) immediately after giving effect to such transaction on a pro forma
basis, Cogentrix Energy or the surviving entity would be able to Incur at
least $1 of Debt under the first paragraph of the "-- Debt" covenant
described above.
If a transaction does not have as one of its purposes the evasion of the
limitations imposed by the covenant described in this paragraph, then clause (4)
of this covenant shall not prohibit a transaction, the principal purpose of
which is, as determined in good faith by the Board of Directors and evidenced by
a Board resolution, to change the state of incorporation of Cogentrix Energy.
CHANGE IN COVENANTS WHEN EXCHANGE NOTES ARE RATED INVESTMENT GRADE
Following the first date upon which the exchange notes are rated Investment
Grade and provided that no Event of Default -- or event that with notice or
passage of time would constitute an Event of Default -- shall exist on the date
of rating, substantially all of the provisions and covenants described under
"-- Important Negative Covenants" above will no longer apply to the exchange
notes. The provisions and covenants of "-- Transactions with Affiliates" and
"-- Liens" and clause (4) under "-- Mergers, Consolidations and Sales of Assets"
will, however, continue to apply. In addition to the covenants and provisions
that will remain applicable, the covenant described below under
"-- Sale/Leaseback Transactions" will also apply. There can be no assurance the
exchange notes will be rated Investment Grade or, if they are rated Investment
Grade, that the exchange notes will continue to be rated Investment Grade. If,
after the exchange notes are rated Investment Grade, an Event of Default -- or
event that with notice or passage of time would constitute an Event of
Default -- shall exist with respect to the exchange notes, the provisions and
covenants contained in the indenture at the time of issuance of the exchange
notes that cease to apply after the exchange notes are rated Investment Grade
will not be reinstated. Additionally, if after the exchange notes are rated
Investment Grade, the exchange notes are rated less than Investment Grade, the
provisions and covenants contained in the indenture at the time of the issuance
of the exchange notes that cease to apply after the exchange notes are rated
Investment Grade will not be reinstated.
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Sale/Leaseback Transactions
Following the first date upon which the exchange notes are rated Investment
Grade, so long as any of the exchange notes remain outstanding, neither
Cogentrix Energy nor any Subsidiary shall enter into any sale and leaseback
transaction unless:
(1) such transaction involves a lease for a term, including renewals,
of not more than three years;
(2) such transaction is between Cogentrix Energy or a Subsidiary, on
the one hand, and a Subsidiary of Cogentrix Energy on the other hand;
(3) Cogentrix Energy would be entitled to incur Debt secured by a Lien
on the assets or property involved in such transaction at least equal in
amount to the Attributable Debt with respect to such sale and leaseback
transaction, without equally and ratably securing the exchange notes,
pursuant to "-- Liens" above; or
(4) (A) Cogentrix Energy or a Subsidiary, receives consideration at
the time of each sale and leaseback transaction at least equal to the fair
market value of the property sold or otherwise disposed of, as determined
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board resolution, and
(B) Cogentrix Energy or a Subsidiary within 365 days following the
later of the date of sale and leaseback transaction or the receipt of Net
Cash Proceeds related thereto, regardless of whether such sale or transfer
may have been made by Cogentrix Energy or such Subsidiary, as the case may
be, applies, in the case of a sale or transfer for cash, an amount equal to
the Net Cash Proceeds thereof and, in the case of a sale or transfer
otherwise than for cash, an amount equal to the fair value of the assets so
leased at the time of entering into such arrangement, as determined by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board resolution, to
(x) the retirement of Indebtedness of Cogentrix Energy or any
Subsidiary owed to a Person other than an Affiliate of Cogentrix Energy
or
(y) investment in properties or assets that will be used in the
business of Cogentrix Energy or a Subsidiary, as the case may be,
existing on the date that the exchange notes are issued or in businesses
reasonably related thereto.
To the extent that any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction is prohibited or delayed by applicable local law from
being repatriated to the United States, the portion of such Net Cash Proceeds so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Subsidiary so long, but only so long, as the
applicable local law will not permit repatriation to the United States.
Cogentrix Energy will agree to promptly take or cause the applicable Subsidiary
to promptly take all actions required by the applicable local law to permit such
repatriation. Once such repatriation of any of such affected Net Cash Proceeds
is permitted under the applicable local law, such repatriation shall be promptly
effected and such repatriated Net Cash Proceeds will be applied in the manner
set forth in this provision as if such Foreign Sale/Leaseback Transaction had
occurred on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction would have a material adverse tax consequence to
Cogentrix Energy, the Net Cash Proceeds so affected need not be repatriated to
the United States by the applicable Subsidiary for so long as such material
adverse tax consequence would continue.
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MODIFICATION OF THE INDENTURE
With the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding notes under the indenture, Cogentrix Energy
and the trustee, may modify the indenture or any supplemental indenture or the
rights of the Holders of the exchange notes. However, in addition, no
modification shall:
(1) without the consent of the Holder of each of the exchange notes so
affected:
(A) extend the final maturity of any of the exchange notes,
(B) reduce the principal amount thereof,
(C) reduce the rate or extend the time of payment of interest
thereon,
(D) reduce any amount payable on redemption thereof,
(E) impair or affect the right of any Holder to institute suit for
the payment thereof or
(F) make any change in the covenant regarding a Change of Control,
or
(2) without the consent of the Holders of all exchange notes, reduce
the percentage of outstanding exchange notes that are referred for any such
modification.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default as to the payment of principal, the Change of Control
purchase price or premium, if any, when due on any exchange note;
(2) default as to the payment of interest on any exchange note 30 days
after payment is due;
(3) default on any other Debt of Cogentrix Energy or any Significant
Subsidiary if either
(A) such default results from failure to pay principal of such Debt
in excess of $10 million at final maturity of such Debt, or
(B) as a result of such default, the maturity of such Debt has been
accelerated, so that the same shall be or becomes due and payable prior
to the date on which the same would otherwise have become due and
payable and such acceleration shall not be rescinded or annulled within
30 days, and the principal amount of such Debt, together with the
principal amount of any other Debt of Cogentrix Energy or any
Significant Subsidiary in default, or the maturity of which has been
accelerated, aggregates $10 million or more; provided that such default
shall not be an Event of Default if:
(x) such Debt is Debt of a Significant Subsidiary,
(y) is Non-Recourse to Cogentrix Energy in respect of the
amounts not paid or due upon acceleration and
(z) Cogentrix Energy could, at the time of default, Incur at
least $1 of Debt under the covenant described in the first paragraph
of "-- Debt" above;
(4) default in the performance, or breach, of any other of the
covenants or agreements contained in the indenture and the exchange notes
and such failure continues for 30 days after written notice is given to
Cogentrix Energy by the trustee or the Holders of at least 25% in principal
amount of the outstanding exchange notes, as provided in the indenture,
(5) the entry by a court of one or more judgments or orders against
Cogentrix Energy or any Significant Subsidiary for the payment of money
that in the aggregate exceeds $3 million, excluding the amount thereof
covered by insurance or by a bond written by third parties, and which
judgments or orders have not been vacated, discharged or satisfied or
stayed pending appeal within 30 days from
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the entry thereof; provided, that such a judgment or order shall not be an
Event of Default if such judgment or order is against a Significant
Subsidiary and does not require any payment by Cogentrix Energy and
Cogentrix Energy could, at the expiration of the applicable 30 day period,
Incur at least $1 of Debt under the covenant described in the first
paragraph of "-- Debt" above; and
(6) some events involving bankruptcy, insolvency or reorganization of
Cogentrix Energy.
If the trustee considers it in the interest of Holders to do so, it may
withhold notice to the Holders of any default, except in payment of principal
of, premium, if any, the Change of Control purchase price or interest on the
exchange notes.
If an Event of Default, other than an event of bankruptcy, insolvency or
reorganization of Cogentrix Energy, shall have occurred and be continuing,
either the trustee or the Holders of not less than 25% in principal amount of
the outstanding exchange notes may declare the principal of all exchange notes
to be due and payable immediately. Upon some conditions specified in the
indenture, such declaration may be annulled and the Holders of a majority in
principal amount of the then outstanding exchange notes may waive past defaults
except, unless theretofore cured, a default in payment of principal of, or
Change of Control purchase price or premium, if any, or interest on the exchange
notes. If an Event of Default due to the bankruptcy, insolvency or
reorganization of Cogentrix Energy occurs, all unpaid principal, premium, if
any, and interest will become immediately due and payable.
The Holders of a majority in principal amount of the then outstanding
exchange notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee with respect
to the exchange notes, subject to limitations specified in the indenture, if the
Holders of the exchange notes shall have offered to the trustee reasonable
indemnity against expenses and liabilities. Cogentrix Energy is required to file
annually with the trustee a written statement as to compliance with the
principal covenants contained in the indenture.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Cogentrix Energy, may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding exchange notes
("Legal Defeasance") except for, among other matters, obligations:
(1) to register the transfer or exchange of the exchange notes,
(2) to replace stolen, lost or mutilated exchange notes,
(3) to maintain paying agencies and
(4) to hold monies for payment in trust.
In addition, Cogentrix Energy may, at its option and at any time, elect to
have the obligations of Cogentrix Energy released with respect to the covenants
described in clauses (3) and (4) under "-- Mergers, Consolidations and Sales of
Assets" and all of the covenants described herein under "-- Important Negative
Covenants," "-- Changes in Covenants When Exchange Notes are Rated Investment
Grade" and clause (4) under "-- Events of Default and Remedies" with respect to
the covenants described therein and with respect to clauses (3) and (4) under
"-- Mergers, Consolidations and Sales of Assets" ("Covenant Defeasance"). In the
event Covenant Defeasance occurs, clauses (3) and (5) under "-- Events of
Default and Remedies" shall not be deemed to be Events of Default under the
indenture.
In order to exercise either Legal Defeasance or Covenant Defeasance, the
following must occur as applicable:
(1) Cogentrix Energy has deposited with the trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
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accrued interest on the exchange notes, on the Stated Maturity of such
payments in accordance with the terms of the indenture and the exchange
notes,
(2) in the case of Legal Defeasance, Cogentrix Energy has delivered to
the trustee:
(A) either
(x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of Cogentrix Energy's exercise of its option under the
"Defeasance" provision of the indenture and will be subject to
federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such legal defeasance
had not occurred, that Opinion of Counsel must be based upon a ruling
of the Internal Revenue Service to the same effect or a change in
applicable federal income tax law or related treasury regulations
after the date of the indenture or
(y) a ruling directed to the trustee received from the Internal
Revenue Service to the same effect as the Opinion of Counsel
described in (x) above and
(B) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the 123rd day following the deposit, the trust fund will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally,
(3) in the case of Covenant Defeasance, Cogentrix Energy has delivered
to the trustee an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the 123rd day following the deposit, the trust fund will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally,
(4) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending
on the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which Cogentrix Energy is a party or by
which Cogentrix Energy is bound,
(5) if at such time the senior notes are listed on a national
securities exchange, Cogentrix Energy has delivered to the trustee an
Opinion of Counsel to the effect that the exchange notes will not be
delisted as a result of such deposit, defeasance and discharge, and
(6) in the case of Covenant Defeasance, Cogentrix Energy has delivered
to the trustee an Opinion of Counsel to the effect that, among other
things, the Holders of the exchange notes will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
defeasance of the covenants included in the definition of Covenant
Defeasance and Events of Default and will be subject to federal income tax
on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Legal Defeasance and Covenant Defeasance will not occur until the 123rd day
after the deposit referred to above has been made.
If Cogentrix Energy exercises its option to omit compliance with the
covenants and provisions of the indenture with respect to the exchange notes as
described in the immediately preceding paragraph and the exchange notes are
declared due and payable because of the occurrence of an Event of Default that
remains applicable, the amount of money and/or U.S. Government Obligations on
deposit with the trustee will be sufficient to pay amounts due on the exchange
notes at the time of their Stated Maturity, but may not be sufficient to pay
amounts due on the exchange notes at the time of acceleration resulting from
such Event of Default. Cogentrix Energy will, however, remain liable for such
payments.
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GOVERNING LAW
The indenture and the exchange notes are governed by, and construed in
accordance with, the law of the State of New York.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be represented by one permanent, global note, in
definitive, fully registered form without interest coupons and will be deposited
with the Trustee as custodian for DTC and registered in the name of a nominee of
DTC for the accounts of Euroclear and Clearstream. Except in the limited
circumstances described below, owners of beneficial interests in the global note
will not be entitled to receive physical delivery of individual notes in
registered form without coupons. The outstanding notes are not issuable, and the
exchange notes will not be issuable, in bearer form.
Upon the issuance of the global note, DTC or the custodian will credit, on
its internal system, the respective principal amount of the individual
beneficial interest represented by the global note to the accounts of Persons
who have accounts with such depository. Ownership of beneficial interests in the
global note will be limited to Persons who have accounts with DTC
("participants") or Persons who hold interests through participants. Ownership
of beneficial interests in the global note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee, with respect to interests of participants, and the records of
participants, with respect to interests of persons other than participants.
Persons who are not participants may beneficially own securities held by or
behalf of DTC indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of the
global note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the exchange notes represented by the global note for
all purposes under the indenture and the exchange notes. Unless DTC notifies
Cogentrix Energy that it is unwilling or unable to continue as depository for
the global note, or ceases to be a "Clearing Agency" registered under the
Exchange Act, owners of beneficial interests in the global note will not be
entitled to have any portions of such global note registered in their names,
will not receive or be entitled to receive physical delivery of exchange notes
in individual definitive form and will not be considered the owners or holders
of the global note, or any exchange notes represented thereby, under the
indenture or the exchange notes. In addition, no beneficial owner of an interest
in the global note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
indenture.
Payments of the principal of, premium, if any, and interest on, the global
note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither Cogentrix Energy, the trustee nor any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made for beneficial ownership interests in the global note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Cogentrix Energy expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of the global
note, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the global
note as shown on the records of DTC or its nominee. Cogentrix Energy also
expects that payments by participants to owners of beneficial interests in the
global note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in next-day funds. If a Holder
requires physical delivery of individual notes for any reason, including to sell
exchange notes to Persons in states which require delivery of the exchange notes
or to pledge the exchange notes, such Holder must transfer its interest in the
global note in accordance with the normal procedures of DTC and the procedures
set forth in the indenture.
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Cogentrix Energy understands that DTC will take any action permitted to be
taken by a Holder only at the direction of one or more participants to whose
account the DTC interests in the global note is credited and only in respect of
such portion of the aggregate principal amount of exchange notes as to which
such participant or participants has or have given such direction. However, if
there is an Event of Default under the indenture, DTC will exchange the global
note for certificated notes which it will distribute to its participants.
Cogentrix Energy understands that DTC is a limited-purpose trust company
that was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and other similar organizations. Indirect access to the DTC system is available
to others such as banks, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the global note among participants of DTC, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither Cogentrix Energy nor the
trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of its respective obligations
under the rules and procedures governing its operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depository for
the global note and Cogentrix Energy does not appoint a successor depository
within 90 days, Cogentrix will issue certificated notes in exchange for the
global note.
IMPORTANT DEFINITIONS
Set forth below is a summary of the defined terms used in this description.
Reference is made to the indenture for the full definitions of all such terms as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquisition Debt" is defined to mean Debt of any Person existing at the
time such Person became a Subsidiary of Cogentrix Energy -- or such Person is
merged into Cogentrix Energy or one of its Subsidiaries -- or assumed in
connection with the acquisition of assets from any such Person, other than
assets acquired in the ordinary course of business, including Debt Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary of
Cogentrix Energy -- but excluding Debt of such Person that is extinguished,
retired or repaid in connection with such Person becoming a Subsidiary of
Cogentrix Energy.
"Adjusted Consolidated Net Income" is defined to mean for any period, for
any Person the aggregate Net Income or loss of such Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP plus the Net
Income of any Subsidiary of such Person for prior periods to the extent such Net
Income is actually paid in cash to such Person during such period plus the Net
Income of such Person, other than a Subsidiary thereof, in which any third
Person has a joint interest for prior periods to the extent such Net Income is
actually paid in cash to such Person during such period; provided that the
following items shall be excluded in computing Adjusted Consolidated Net Income
without duplication:
(1) the Net Income or loss of such Person, other than a Subsidiary
thereof, in which any third Person has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid in
cash to such Person during such period by such Person in which the joint
interest is held, which dividends and distributions shall be included in
such computation;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to the covenant described in clause
(3)(A) or (3)(B) of the first paragraph of
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"-- Restricted Payments" above -- and in such case, except to the extent
includable pursuant to clause (1) above -- Net Income, if positive, such
Person accrued prior to the date it becomes a Subsidiary of any other
Person or is merged into or consolidated with such other Person or any of
its Subsidiaries or all or substantially all of the property and assets of
such Person are acquired by such other Person or any of its Subsidiaries;
(3) the Net Income of any Subsidiary of such Person, except to the
extent that (A) such Net Income, if positive, is actually paid in cash to
such Person during such period and (B) such Net Income, if negative, is
actually paid in cash to such Subsidiary during such period;
(4) any gains or losses on an after-tax basis attributable to Asset
Sales;
(5) the cumulative effect of a change in accounting principle; and
(6) any amounts paid or accrued as dividends on Preferred Stock of
such Person or Preferred Stock of any Subsidiary of such Person.
"Affiliate" of any Person is defined to mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with," when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean:
(1) an investment by Cogentrix Energy or any of its Subsidiaries in
any other Person pursuant to which such Person shall become a Subsidiary of
Cogentrix Energy or any of its Subsidiaries or shall be merged into or
consolidated with Cogentrix Energy or any of its Subsidiaries or
(2) an acquisition by Cogentrix Energy or any of its Subsidiaries of
the Property of any Person other than Cogentrix Energy or any of its
Subsidiaries that constitutes substantially all of an operating unit or
business of such Person.
"Asset Disposition" is defined to mean, with respect to any Person, any
sale, transfer, conveyance, lease or other disposition, including by way of
merger, consolidation or sale-leaseback, by such Person or any of its
Subsidiaries to any Person, other than to such Person or a Subsidiary of such
Person and other than in the ordinary course of business, of:
(1) any Property of such Person or any of its Subsidiaries or
(2) any shares of Capital Stock of such Person's Subsidiaries. For
purposes of this definition, any disposition in connection with directors'
qualifying shares or investments by foreign nationals mandated by
applicable law shall not constitute an Asset Disposition. In addition, the
term "Asset Disposition" shall not include
(A) any sale, transfer, conveyance, lease or other disposition of
the Capital Stock or assets of Subsidiaries pursuant to the terms of any
power sales agreements or steam sales agreements to which such
Subsidiaries are parties on the date of the original issuance of notes
under the indenture or pursuant to the terms of any power sales
agreements or steam sales agreements to which such Subsidiaries become a
party after such date if the Board of Directors determines in good
faith, as evidenced by a Board resolution, that such provisions are
necessary in order to effect such agreements and are reasonable,
(B) any sale, transfer, conveyance, lease or other disposition of
assets governed by the "-- Mergers, Consolidations and Sales of Assets"
covenant described above,
(C) the sale, transfer, conveyance, lease or other disposition of
the Capital Stock or assets of Cogentrix of Pennsylvania, Inc. and ReUse
Technology, Inc. and
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(D) any transaction or series of related transactions consisting of
the sale, transfer, conveyance, lease or other disposition of Capital
Stock or assets with a fair market value aggregating less than $5
million.
The term "Asset Disposition" also shall not include (1) the grant of a Lien by
any Person in any assets or shares of Capital Stock securing a borrowing by, or
contractual performance obligation of, such Person or any Subsidiary of such
Person or any Joint Venture in which such Person has an interest, which Lien is
not prohibited under the covenant described in "-- Liens" above or the exercise
of remedies thereunder or (2) a sale-leaseback transaction involving
substantially all of the assets of a Power Generation Facility where a
Subsidiary of Cogentrix Energy sells the Power Generation Facility to a Person
in exchange for the assumption by that Person of the Debt financing the Power
Generation Facility and the Subsidiary leases the Power Generation Facility from
such Person.
"Asset Sale" is defined to mean the sale or other disposition by Cogentrix
Energy or any of its Subsidiaries, other than to Cogentrix Energy or another
Subsidiary of Cogentrix Energy, of
(1) all or substantially all of the Capital Stock of any Subsidiary of
Cogentrix Energy or
(2) all or substantially all of the Property that constitutes an
operating unit or business of Cogentrix Energy or any of its Subsidiaries.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as of
the time of determination, the present value discounted at the interest rate
assumed in making calculations in accordance with GAAP of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction, including any period for which such
lease has been extended.
"Attributable Value" means, as to a Capitalized Lease Obligation under
which any Person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear on
the face of a balance sheet of such Person in accordance with GAAP.
"Average Life" is defined to mean, at any date of determination with
respect to any Debt security or Preferred Stock, the quotient obtained by
dividing
(1) the sum of the product of
(A) the number of years from such date of determination to the
dates of each successive scheduled principal or involuntary liquidation
value payment of such Debt security or Preferred Stock, respectively,
multiplied by
(B) the amount of such principal or involuntary liquidation value
payment by
(2) the sum of all such principal or involuntary liquidation value
payments.
"Board of Directors" is defined to mean either the Board of Directors of
Cogentrix Energy or any committee of such Board duly authorized to act on behalf
of such Board.
"Business Day" is defined to mean a day that in the city, or in any of the
cities, if more than one, where amounts are payable in respect of the senior
notes is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents however designated,
whether voting or non-voting, of, or interests in, the equity of such Person
that is outstanding or issued on or after the date of the indenture, including,
without limitation, all Common Stock and Preferred Stock and partnership and
joint venture interests of such Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any Property of which the discounted present value of the rental obligations
of such Person as lessee, in conformity with GAAP, is required to be capitalized
on the balance sheet of such Person.
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"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Debt represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Change of Control" is defined to mean the occurrence of one or more of the
following events:
(1) prior to the initial Public Equity Offering Consummation Date, any
"person," as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, other than one or more Permitted Holders, is or becomes the
"beneficial owner," as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time,
directly or indirectly, or has the absolute power to direct the vote of,
with respect to the election of directors of Cogentrix Energy, shares of
Capital Stock entitled to cast more than the greater of 35% or the Original
Group Percentage of the votes entitled to be cast with respect to the
election of directors of Cogentrix Energy. The "Original Group Percentage"
shall mean, as of any date of determination, the percentage of the votes
entitled to be cast with respect to the election of directors of the
Company, by the Permitted Holders and by persons who have agreed to vote as
directed by the Permitted Holders with respect to the election of such
directors;
(2) subsequent to the initial Public Equity Offering Consummation
Date, any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, other than one or more Permitted Holders, is or becomes the
beneficial owner, as defined in clause (1) above, directly or indirectly,
of more than 35% of the total voting power of the Voting Stock of Cogentrix
Energy; provided, however, that the Permitted Holders "beneficially own,"
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of Cogentrix Energy than such other person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors,
for the purposes of this clause (2), any person shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation"), if
such person "beneficially owns" -- as so defined -- directly or indirectly,
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" -- as so
defined -- directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the board of directors of such
parent corporation; or
(3) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors -- together with any new
directors elected by such Board of Directors or nominated for election by
the shareholders of Cogentrix Energy by a vote of at least a majority of
the directors of Cogentrix Energy then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved -- cease for any reason to
constitute a majority of the Board of Directors then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred if one or more of the above events occur or circumstances exist
and, after giving effect thereto, the exchange notes are rated Ba1 or better by
Moody's Investors Service, Inc. and BB+ or better by Standard & Poor's
Corporation.
"Common Stock" is defined to mean with respect to any Person, Capital Stock
of such Person that does not rank prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
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"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus:
(1) income taxes, excluding income taxes -- either positive or
negative -- attributable to extraordinary and nonrecurring gains or losses
or Asset Sales, all determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP,
(2) Consolidated Fixed Charges,
(3) depreciation and amortization expense, all determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP,
(4) all other non-cash items reducing Adjusted Consolidated Net Income
for such period, all determined on a consolidated basis for such Person and
its consolidated Subsidiaries in accordance with GAAP, and
(5) the aggregate amount actually received in cash by such Person
during such period relating to non-cash items increasing Adjusted
Consolidated Net Income for prior periods, and less:
(A) all non-cash items increasing Adjusted Consolidated Net Income
during such period and
(B) the aggregate amount actually paid in cash by such Person
during such period relating to non-cash items reducing Adjusted
Consolidated Net Income for prior periods; provided that depreciation
and amortization expense of any Subsidiary of such Person and any other
non-cash item of any Subsidiary of such Person that reduces Adjusted
Consolidated Net Income shall be excluded without duplication in
computing Consolidated EBITDA, except to the extent that the positive
cash flow associated with such depreciation and amortization expense and
other non-cash items is actually distributed in cash to such Person
during such period.
"Consolidated Fixed Charges" of any Person is defined to mean, for any
period, the aggregate of
(1) Consolidated Interest Expense,
(2) the interest component of Capitalized Leases, determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP excluding any interest component of Capitalized Leases
in respect of that portion of a Capitalized Lease Obligation of a
Subsidiary that is Non-Recourse to such Person and
(3) cash and noncash dividends due whether or not declared on the
Preferred Stock of any Subsidiary of such Person and any Redeemable Stock
of such Person.
"Consolidated Interest Expense" of any Person is defined to mean, for any
period, the aggregate interest expense in respect of Debt, including
amortization or original issue discount and non-cash interest payments or
accruals, of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Agreements and any amounts paid during such period in respect of such interest
expense, commissions, discounts, other fees and charges that have been
capitalized; provided that Consolidated Interest Expense of Cogentrix Energy
shall not include any interest expense, including all commissions, discounts,
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs associated with Interest Rate Agreements, in
respect of that portion of Debt of a Subsidiary of Cogentrix Energy that is
Non-Recourse to Cogentrix Energy; and provided further that Consolidated
Interest Expense of Cogentrix Energy in respect of a Guarantee by Cogentrix
Energy of Debt of a Subsidiary shall be equal to the commissions, discounts,
other fees and charges that would be due with respect to a
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hypothetical letter of credit issued under a bank credit agreement that can be
drawn by the beneficiary thereof in the amount of the Debt so guaranteed if
(1) Cogentrix Energy is not actually making directly or indirectly
interest payments on such Debt and
(2) GAAP does not require Cogentrix Energy on an unconsolidated basis
to record such Debt as a liability of Cogentrix Energy.
"Consolidated Total Assets" is defined to mean, with respect to any Person
at any time, the total assets of such Person and its consolidated Subsidiaries
at such time determined in conformity with GAAP.
"Currency Protection Agreement" is defined to mean with respect to any
Person any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in currency values to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of the
indenture or becomes a party or a beneficiary thereafter.
"Debt" is defined to mean, with respect to any Person at any date of
determination without duplication,
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(3) all obligations of such Person in respect of letters of credit or
bankers' acceptance or other similar instruments or reimbursement
obligations with respect thereto,
(4) all obligations of such Person to pay the deferred purchase price
of property or services, except Trade Payables,
(5) the Attributable Value of all obligations of such Person as lessee
under Capitalized Leases,
(6) all Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person; provided that, for
purposes of determining the amount of any Debt of the type described in
this clause, if recourse with respect to such Debt is limited to such
asset, the amount of such Debt shall be limited to the lesser of the fair
market value of such asset or the amount of such Debt,
(7) all Debt of others Guaranteed by such Person to the extent such
Debt is Guaranteed by such Person,
(8) all Redeemable Stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends and
(9) to the extent not otherwise included in this definition, all
obligations of such Person under Currency Protection Agreements and
Interest Rate Protection Agreements.
"Excess Cash Flow" of any Person for any period is defined to mean
Consolidated EBITDA less Consolidated Fixed Charges less any income taxes
actually paid during such period.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis, of
(1) the aggregate amount of Consolidated EBITDA of any Person for the
Reference Period immediately prior to the date of the transaction giving
rise to the need to calculate the Fixed Charge Ratio (the "Transaction
Date") to
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(2) the aggregate Consolidated Fixed Charges of such Person during
such Reference Period; provided that for purposes of such computation, in
calculating Consolidated EBITDA and Consolidated Fixed Charges,
(A) the Incurrence of the Debt giving rise to the need to calculate
the Fixed Charge Ratio and the application of the proceeds therefrom
shall be assumed to have occurred on the first day of the Reference
Period,
(B) Asset Sales and Asset Acquisitions that occur during the
Reference Period or subsequent to the Reference Period and prior to the
Transaction Date -- but including any Asset Acquisition to be made with
the Debt Incurred pursuant to (1) above -- shall be assumed to have
occurred on the first day of the Reference Period,
(C) the Incurrence of any Debt during the Reference Period or
subsequent to the Reference Period and prior to the Transaction Date and
the application of the proceeds therefrom shall be assumed to have
occurred on the first day of such Reference Period,
(D) Consolidated Interest Expense attributable to any Debt, whether
existing or being Incurred, computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire period
unless such Person or any of its Subsidiaries is a party to an Interest
Rate Protection Agreement, that shall remain in effect for the twelve
month period after the Transaction Date, that has the effect of fixing
the interest rate on the date of computation, in which case such rate
whether higher or lower shall be used and
(E) there shall be excluded from Consolidated Fixed Charges any
Consolidated Fixed Charges related to any amount of Debt that was
outstanding during and subsequent to the Reference Period but is not
outstanding on the Transaction Date, except for Consolidated Fixed
Charges actually incurred with respect to Debt borrowed, as adjusted
pursuant to clause (D),
(x) under a revolving credit or similar arrangement to the
extent the commitment thereunder remains in effect on the Transaction
Date or
(y) pursuant to the covenant described in clause (3) in the
second paragraph of "-- Debt" above.
For the purpose of making this computation, Asset Sales and Asset
Acquisitions that have been made by any Person that has become a
Subsidiary of Cogentrix Energy or been merged with or into Cogentrix
Energy or any Subsidiary of Cogentrix Energy during the Reference
Period, or subsequent to the Reference Period and prior to the
Transaction Date shall be calculated on a pro forma basis, including all
of the calculations referred to in clauses (A) through (E) above
assuming such Asset Sales or Asset Acquisitions occurred on the first
day of the Reference Period.
"Foreign Asset Disposition" means an Asset Disposition in respect of the
Capital Stock or assets of a Foreign Subsidiary or a Foreign Joint Venture to
the extent that the proceeds of such Asset Disposition are received by a Person
subject in respect of such proceeds to the tax laws of a jurisdiction other than
the United States of America or any State thereof or the District of Columbia.
"Foreign Joint Venture" means a Joint Venture organized under the laws of a
jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
"Foreign Sale/Leaseback Transaction" means a Sale/Leaseback Transaction in
respect of the Capital Stock or assets of a Foreign Subsidiary or a Foreign
Joint Venture to the extent that the proceeds of such Sale/Leaseback Transaction
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.
"Foreign Subsidiary" means a Subsidiary that is organized under the laws of
a jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
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"GAAP" is defined to mean generally accepted accounting principles in the
U.S. as in effect as of the date of the indenture applied on a basis consistent
with the principles, methods, procedures and practices employed in the
preparation of Cogentrix Energy's audited financial statements, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay or advance or supply funds for the purchase or
payment of such Debt or other obligation of such other Person, whether
arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, or to
take-or-pay, or to maintain financial statement conditions or otherwise, or
(2) entered into for purposes of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Holder", "holder of exchange notes" and other similar terms are defined to
mean the registered holder of any exchange note.
"Incur" is defined to mean with respect to any Debt, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such Debt;
provided that neither the accrual of interest, whether such interest is payable
in cash or kind, nor the accretion of original issue discount shall be
considered an Incurrence of Debt.
"Independent Financial Advisor" is defined to mean a nationally recognized
investment banking firm (1) that does not, and whose directors, officers,
employees and Affiliates do not, have a direct or indirect material financial
interest in Cogentrix Energy and (2) that, in the sole judgment of the Board of
Directors, is otherwise independent and qualified to perform the task for which
such firm is being engaged.
"Interest Rate Protection Agreement" is defined to mean, with respect to
any Person, any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement designed to protect such
Person or any of its Subsidiaries against fluctuations in interest rates to or
under which such Person or any of its Subsidiaries is a party or a beneficiary
on the date of the indenture or becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly, or other transfer of
assets to, such Person.
"Investment Grade" is defined to mean, with respect to the exchange notes,
a rating of Baa3 or better by Moody's Investors Service, Inc. and a rating of
BBB- or better by Standard & Poor's Corporation.
"Joint Venture" is defined to mean a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that, as to any such arrangement in corporate form, such corporation
shall not, as to any Person of which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a party.
"Lien" is defined to mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property; provided, however, that the term "Lien" shall not mean any
easements, rights-of-way, restrictions and other similar encumbrances and
encumbrances consisting of zoning restrictions, leases, subleases, licenses,
sublicenses, restrictions on the
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use of property or defects in the title thereto. For purposes of the indenture,
Cogentrix Energy shall be deemed to own subject to a Lien any Property that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Property.
"Net Cash Proceeds" from an Asset Disposition or a Sale/Leaseback
Transaction is defined to mean cash payments received -- including any cash
payments received by way of a payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, including
any cash received upon sale or disposition of such note or receivable, excluding
any other consideration received in the form of assumption by the acquiring
Person of Debt or other obligations relating to the Property disposed of in such
Asset Disposition or Sale/Leaseback Transaction, as the case may be, or received
in any other noncash form -- therefrom, in each case, net of all legal, title
and recording tax expenses, commissions and other fees and expenses incurred or
payable, and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability under GAAP:
(1) as a consequence of such Asset Disposition or Sale/Leaseback
Transaction, as the case may be,
(2) as a result of the repayment of any Debt in any jurisdiction other
than the jurisdiction where the Property disposed of was located or
(3) as a result of any repatriation to the U.S. of any proceeds of
such Asset Disposition or Sale/Leaseback Transaction, as the case may be,
and in each case net of a reasonable reserve for the after-tax-cost of any
indemnification payments fixed and contingent attributable to seller's
indemnities to the purchaser undertaken by Cogentrix Energy or any of its
Subsidiaries in connection with such Asset Disposition or Sale/Leaseback
Transaction, as the case may be, but excluding any payments, that by the
terms of the indemnities will not, under any circumstances, be made prior
to the Stated Maturity of the senior notes, and net of all payments made on
any Debt that is secured by such Property, in accordance with the terms of
any Lien upon or with respect to such Property or which must by its terms
or by applicable law be repaid out of the proceeds from such Asset
Disposition or Sale/Leaseback Transaction, as the case may be, and net of
all distributions and other payments made to holders of minority interests
in Subsidiaries or Joint Ventures as a result of such Asset Disposition or
Sale/Leaseback Transaction, as the case may be.
"Net Income" of any Person for any period is defined to mean the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.
"Net Worth" of any Person is defined to mean, as of any date the aggregate
of capital, surplus and retained earnings, including any cumulative translation
adjustment, of such Person and its consolidated Subsidiaries as would be shown
on a consolidated balance sheet of such Person and its consolidated Subsidiaries
prepared as of such date in accordance with GAAP.
"Non-Recourse" to a Person as applied to any Debt or portion thereof is
defined to mean that such Person is not, directly or indirectly, liable to make
any payments with respect to such Debt or portion thereof, that no Guarantee of
such Debt or portion thereof has been made by such Person other than a Guarantee
limited in recourse to the Capital Stock of the Person incurring such Debt -- or
any shareholder, partner, member or participant of such Person -- and that such
Debt or portion thereof is not secured by a Lien on any asset of such Person
other than the Capital Stock of the Person incurring such Debt -- or any
shareholder, partner, member or participant of such Person -- or of the Person
whose obligations were Guaranteed, provided that for purposes of this definition
the status of a Subsidiary as a general partner of a partnership or Joint
Venture shall not, without more, cause such Person to be, directly or
indirectly, liable to make payments with respect to such Debt or constitute a
Guarantee of such Debt for purposes of determining whether Debt is Non-Recourse,
and provided further that none of the
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following shall cause any Debt to fail to be Non-Recourse: the incurrence of
Debt, Guarantees or Liens jointly by
(1) Cogentrix Eastern Carolina Corporation and Cogentrix of North
Carolina, Inc., or a successor to the merger or other combination of such
entities, with respect to the cogeneration facilities located at
Elizabethtown, Kenansville, Lumberton, Southport and Roxboro, North
Carolina;
(2) Cogentrix Virginia Leasing Corporation and James River
Cogeneration Company, or a successor to the merger or other combination of
such entities, with respect to the cogeneration facilities located at
Portsmouth and Hopewell, Virginia; and
(3) Subsidiaries or Joint Ventures in which Cogentrix Energy or one of
its Subsidiaries is a partner, shareholder, member or other participant,
that become such after the date of the indenture, incurred thereafter with
respect to the future development or acquisition of multiple Power
Generation Facilities.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors or any Vice Chairman of the Board of
Directors or the President or any Vice President or by the Chief Financial
Officer or the Secretary or any Assistant Secretary of Cogentrix Energy and
delivered to the trustee. Each such certificate shall comply with Section 314 of
the Trust Indenture Act and include the statements provided for in the indenture
if and to the extent required thereby.
"Opinion of Counsel" is defined to mean an opinion in writing signed by
legal counsel satisfactory to the trustee, who may be an employee of or counsel
to Cogentrix Energy. Each such opinion shall comply with Section 314 of the
Trust Indenture Act and include the statements provided for in the indenture, if
and to the extent required thereby.
"Permitted Holders" is defined to mean George T. Lewis, Jr., Betty G.
Lewis, Robert W. Lewis, David J. Lewis, James E. Lewis (collectively, the
"Current Holders"), members of the immediate families of the Current Holders,
trusts for the benefit of the Current Holders or members of the immediate
families of the Current Holders, and a non-profit corporation or foundation
controlled by any of the Permitted Holders. Members of a Person's "immediate
family" shall mean such Person's parents, brothers, sisters, spouse and lineal
descendants.
"Permitted Investment" is defined to mean any Investment of the type
specified in clause (4) of the definition of Restricted Payment that is made
directly or indirectly by the Company and its Subsidiaries; provided that the
Person in which the Investment is made is:
(1) a Subsidiary that, directly or indirectly, is or will be engaged
in the development, construction, marketing, management, acquisition,
ownership or operation of a Power Generation Facility or
(2) a Joint Venture; provided further, that, in the case of an
Investment in a Joint Venture:
(A) at the time such Investment is made, Cogentrix Energy could
Incur at least $1 of Debt under the covenant described in "-- Debt"
above;
(B) at the time such Investment is made, no Event of Default or
event that, after the giving of notice or lapse of time or both would
become an Event of Default, shall have occurred and be continuing; and
(C) such Investment is in a Joint Venture that, directly or
indirectly, is or will be engaged in the development, construction,
marketing, management, acquisition, ownership or operation of a Power
Generation Facility.
"Permitted Payments" is defined to mean with respect to Cogentrix Energy or
any of its Subsidiaries:
(1) any dividend on shares of Capital Stock payable or to the extent
paid solely in shares of Capital Stock, other than Redeemable Stock, or in
options, warrants or other rights to purchase Capital Stock, other than
Redeemable Stock;
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(2) any dividend or other distribution payable to Cogentrix Energy by
any of its Subsidiaries or by a Subsidiary to a Wholly-Owned Subsidiary;
(3) the repurchase or other acquisition or retirement for value of any
shares of Cogentrix Energy's Capital Stock, or any option, warrant or other
right to purchase shares of Cogentrix Energy's Capital Stock with
additional shares of, or out of the proceeds of a substantially
contemporaneous issuance of, Capital Stock other than Redeemable Stock,
unless the redemption provisions of such Redeemable Stock prohibit the
redemption thereof prior to the date on which the Capital Stock to be
acquired or retired was by its terms required to be redeemed;
(4) any defeasance, redemption, repurchase or other acquisition for
value of any Debt that by its terms ranks subordinate in right of payment
to the senior notes with the proceeds from the issuance of
(A) Debt that is also subordinate to the exchange notes at least to
the extent and in the manner as the Debt to be defeased, redeemed,
repurchased or otherwise acquired is subordinate in right of payment to
the exchange notes; provided that such subordinated Debt provides for no
payments of principal by way of sinking fund, mandatory redemption or
otherwise including defeasance by Cogentrix Energy -- including, without
limitation, at the option of the holder thereof other than an option
given to a holder pursuant to an "asset disposition" or a "change of
control" covenant that is no more favorable to the holders of such Debt
than the provisions contained in the "-- Dispositions" or the "-- Change
of Control" covenants described above and such Debt provides that the
Company will not repurchase such Debt pursuant to such provisions prior
to Cogentrix Energy's repurchase of the exchange notes required to be
repurchased by Cogentrix Energy pursuant to the "-- Repurchase of
Exchange Notes Upon a Change of Control" or the "-- Dispositions"
covenants described above -- prior to, or in an amount greater than, any
Stated Maturity of the Debt being replaced and the proceeds of such
subordinated Debt are utilized for such purpose within 45 days of
issuance or
(B) Capital Stock, other than Redeemable Stock;
(5) in respect of any actual payment on account of an Investment,
other than a Permitted Investment, that is not fixed in amount at the time
when made, the amount determined by the Board of Directors to be a
Restricted Payment on the date such Investment was originally deemed to
have been made (the "Original Restricted Payment Charge") plus an amount
equal to the interest on a hypothetical investment in a principal amount
equal to the Original Restricted Payment Charge assuming interest at a rate
of 7% per annum compounded annually for a period beginning on the date the
Investment was originally deemed to have been made and ending with respect
to any portion of the Original Restricted Payment Charge actually paid on
the date of actual payment less any actual payments previously made on
account of such Investment; provided that the Permitted Payment under this
clause (5) shall in no event exceed the payment actually made;
(6) any amount required to be paid with respect to an obligation
outstanding on the date of the original issuance of notes under the
indenture; or
(7) a Permitted Investment.
"Permitted Working Capital Facilities" is defined to mean one or more
credit agreements providing for the extension of credit to Cogentrix Energy
and/or its Subsidiary Cogentrix Delaware Holdings, Inc. for working capital
purposes in an aggregate principal amount at any one time outstanding not to
exceed $125 million, provided, however, that such limit shall not apply
following the Rating Event Date.
"Person" is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Power Generation Facility" is defined to mean an electric power or thermal
energy generation or cogeneration facility or related facilities, including
residual waste management and, to the extent such
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facilities are in existence on the date of original issuance of the senior notes
or are required by contract or applicable law, rule or regulation, facilities
that use thermal energy from a cogeneration facility, and its or their related
electric power transmission, fuel supply and fuel transportation facilities,
together with its or their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management or operation of the foregoing, as well as other
contractual arrangements with customers, suppliers and contractors.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents however designated,
whether voting or non-voting, of preferred or preference stock of such Person
that is outstanding or issued on or after the date of original issuance of the
exchange notes.
"Property" of any Person is defined to mean all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person under
GAAP.
"Public Equity Offering" means a public offering, registered under the
Securities Act, of Common Stock of Cogentrix Energy made after the date of
original issuance of the exchange notes.
"Public Equity Offering Consummation Date" means the date on which
Cogentrix Energy receives any proceeds from a Public Equity Offering.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is
(1) required to be redeemed prior to the Stated Maturity of the
exchange notes,
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the exchange
notes or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Debt having a scheduled maturity prior to the
Stated Maturity of the exchange notes;
provided that any Capital Stock that would not constitute Redeemable Stock but
for provisions thereof giving holders thereof the right to require Cogentrix
Energy to repurchase or redeem such Capital Stock upon the occurrence of an
"asset disposition" or a "change of control" occurring prior to the Stated
Maturity of the exchange notes shall not constitute Redeemable Stock if the
"asset sale" or "change of control" provision applicable to such Capital Stock
is no more favorable to the holders of such Capital Stock than the provisions
contained in the covenants described in "-- Dispositions" and "-- Repurchase of
Exchange Notes Upon a Change of Control" above and such Capital Stock
specifically provides that Cogentrix Energy will not repurchase or redeem any
such Capital Stock pursuant to such provisions prior to Cogentrix Energy's
repurchase of the exchange notes required to be repurchased by Cogentrix Energy
under the covenants described in "-- Dispositions" and "-- Repurchase of
Exchange Notes Upon a Change of Control" above.
"Reference Period" is defined to mean the four complete fiscal quarters for
which financial information is available preceding the date of a transaction
giving rise to the need to make a financial calculation.
"Restricted Payment" is defined to mean, with respect to any Person:
(1) any dividend or other distribution on any shares of such Person's
Capital Stock;
(2) any payment on account of the purchase, redemption, retirement or
acquisition for value of such Person's Capital Stock;
(3) any defeasance, redemption, repurchase or other acquisition or
retirement for value prior to the Stated Maturity of any Debt ranked
subordinate in right of payment to the exchange notes; and
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(4) any Investment made in an Affiliate, other than Cogentrix Energy
or Cogentrix Delaware Holdings. Notwithstanding the foregoing, "Restricted
Payment" shall not include any Permitted Payment.
"Senior Debt" is defined to mean the principal of and interest on all Debt
of Cogentrix Energy whether created, Incurred or assumed before, on or after the
date of original issuance of notes under the indenture, other than the exchange
notes; provided that Senior Debt shall not include:
(1) Debt that, when Incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, was Non-Recourse to
Cogentrix Energy,
(2) Debt of Cogentrix Energy to any Affiliate and
(3) any Debt of Cogentrix Energy that by the terms of the instrument
creating or evidencing the same is specifically designated as not being
senior in right of payment to the exchange notes.
"Significant Subsidiary" of a Person is defined to mean, as of any date,
any Subsidiary, or two or more Subsidiaries taken together in the event of a
cross-collateralization of such multiple Subsidiaries' Debt, that has two or
more of the following attributes:
(1) it contributed 20% or more of such Person's Excess Cash Flow for
its most recently completed fiscal quarter or
(2) it contributed 15% or more of Net Income before tax of such Person
and its consolidated Subsidiaries for such Person's most recently completed
fiscal quarter or
(3) it constituted 20% or more of Consolidated Total Assets of such
Person at the end of such Person's most recently completed fiscal quarter.
"Stated Maturity" is defined to mean, with respect to any debt security or
any installment of interest thereon, the date specified in such debt security as
the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation or other entity of which a majority of the Capital Stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity -- as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) that
has become publicly available at least two business days prior to the date fixed
for redemption, or if such Statistical Release is no longer published, any
publicly available source of similar market data -- most nearly equal to the
then remaining years to Stated Maturity of the senior notes; provided that if
the number of years to Stated Maturity of the senior notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation, calculated to the nearest one-twelfth of a year, from the weekly
average yields of United States Treasury securities for which such yields are
given except that if the average life to Stated Maturity of the senior notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"U.S. Government Obligations" is defined to mean securities that are
(1) direct obligations of the U.S. for the payment of which its full
faith and credit is pledged or
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(2) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the U.S., the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
U.S., that, in either case are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a
bank or trust company as custodian with respect to any such U.S. Government
Obligations or a specific payment of interest on or principal of any such
U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that, except as required by law,
such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the
specific payment of interest on or principal of the U.S. Government
Obligation evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, or persons fulfilling similar responsibilities, of such Person.
"Wholly-Owned Subsidiary" is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Capital Stock or other ownership
interests in such Subsidiary having ordinary voting power to elect the entire
board of directors or entire group of other persons performing similar
functions -- other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law -- is owned directly or indirectly,
by one or more Wholly-Owned Subsidiaries of such Person's Wholly-Owned
Subsidiaries, by such Person.
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DESCRIPTION OF NON-OPERATING SUBSIDIARY GUARANTEE
The following description is a summary of the material provisions of the
subsidiary guarantee. You should read the guarantee because it, and not this
description, defines your rights as third-party beneficiaries of the guarantee.
We have filed a copy of the guarantee as an exhibit to the registration
statement which includes this prospectus.
Cogentrix Delaware Holdings has guaranteed all of the existing and future
senior, unsecured outstanding indebtedness for borrowed money of Cogentrix
Energy, including as specifically referenced in the guarantee, the exchange
notes. In the event Cogentrix Energy is unable to make payments on its senior,
unsecured indebtedness when due, whether at the stated maturity, or otherwise,
Cogentrix Delaware Holdings will be obligated to make these payments instead.
Cogentrix Delaware Holdings will not be required to satisfy its obligations
under the guarantee unless it has assets in excess of $150,000, except for
assets constituting investments in subsidiaries, on the day it is required to
satisfy these obligations. The maximum liability of Cogentrix Delaware Holdings
under the guarantee will also be limited as necessary to prevent the guarantee
from constituting a fraudulent conveyance under applicable law. Unless Cogentrix
Energy's corporate credit facility is renewed or letters of credit issued to
Cogentrix Energy by the lenders under its corporate credit facility remain
outstanding, the guarantee terminates by its terms upon the expiration of
Cogentrix Energy's corporate credit facility in 2003. See "Risk Factors -- Risks
Relating to the Exchange Notes".
The guarantee contains negative covenants for the direct benefit of the
lenders under Cogentrix Energy's corporate credit facility and the indirect
benefit of the other holders of Cogentrix Energy's senior, unsecured
indebtedness for borrowed money. These negative covenants limit, among other
things, Cogentrix Delaware Holdings' ability to:
- incur additional debt and liens other than non-recourse project financing
debt secured by liens on Cogentrix Delaware Holdings' interests in these
project subsidiaries or joint ventures;
- transfer assets to Cogentrix Energy, including the payment of dividends;
and
- extend credit or make investments other than investments in any
subsidiary of Cogentrix Delaware Holdings and other limited permitted
investments.
The terms or provisions of the guarantee may be waived, amended,
supplemented or otherwise modified at any time and from time to time by
Cogentrix Delaware Holdings and the agent bank for Cogentrix Energy's corporate
credit facility. Any waiver, amendment, supplement or modification will be
effective against all holders of Cogentrix Energy's senior unsecured outstanding
indebtedness for borrowed money, including the holders of the exchange notes,
the trustee under the indenture for the exchange notes and the trustee under the
indenture under which Cogentrix Energy issued its 8.10% senior notes due 2004,
despite any reliance by them, or any of them, on the guarantee.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
THE 2004 SENIOR NOTES
In March 1994, Cogentrix Energy issued $100 million aggregate principal
amount of 8.10% senior notes due 2004 in an underwritten public offering. The
2004 senior notes are unsecured obligations of Cogentrix Energy and rank equally
in right of payment with the exchange notes offered hereby. Cogentrix Energy
intends to use approximately $20 million of the proceeds from the sale of the
senior notes issued September 22, 2000 to repurchase outstanding 2004 senior
notes to satisfy its obligation to redeem $20 million of outstanding 2004 senior
notes in March 2001.
The 2004 senior notes bear interest at a rate of 8.10% per annum payable
semiannually on March 15 and September 15 of each year and mature on March 15,
2004. They are redeemable at any time at the option of Cogentrix Energy at a
redemption price equal to
(1) the then outstanding principal amount of the 2004 senior notes
plus accrued and unpaid interest thereon to the date of redemption plus
(2) a premium equal to the excess of
(A) the present value at the time of redemption of the principal
amount of the 2004 senior notes plus any required interest payments due
on the 2004 senior notes through Stated Maturity, as defined in the 2004
indenture, computed using a discount rate equal to the Treasury Rate, as
defined in the 2004 indenture, plus 50 basis points
-- over --
(B) the then outstanding principal amount of the 2004 senior notes.
Upon a Change of Control, as defined in the indenture under which the 2004 notes
were issued, each holder of 2004 senior notes will have the right to require
Cogentrix Energy to repurchase such 2004 senior notes at a repurchase price in
cash equal to 101% of the principal amount thereof plus accrued interest, if
any, to the date of repurchase.
The indenture under which the 2004 notes were issued contains negative
covenants that are substantially the same as the negative covenants contained in
the indenture.
The foregoing description is a brief description of the indenture under
which the 2004 notes were issued and the 2004 senior notes. You should read the
indenture under which the 2004 notes were issued because it, and not this
description, defines the rights of the holders of the 2004 senior notes. A copy
of the indenture under which the 2004 notes were issued is available upon
request made to Cogentrix Energy. The foregoing summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to the
indenture under which the 2004 notes were issued and the form of 2004 senior
notes.
PREVIOUSLY-ISSUED 2008 SENIOR NOTES
In October and November 1998, Cogentrix Energy issued a total of $255
million of its 8.75% senior notes due 2008. Those 2008 senior notes were issued
under the same indenture under which Cogentrix Energy issued the $100 million of
outstanding 2008 senior notes on September 22, 2000 that are the subject of this
exchange offer. Subsequently, in April 1999, Cogentrix Energy completed a
registered exchange offer for those $255 million of 2008 senior notes. Both
before and after completion of this exchange offer, Cogentrix Energy has, and
will continue to have, a total of $355 million of its 8.75% senior notes due
2008 outstanding. The indenture under which those 2008 senior notes are issued
permits Cogentrix Energy to issue up to $65.0 million aggregate amount of
additional 8.75% senior notes due 2008, subject to the limitations described
above under "Description of Exchange Notes -- Important Negative
Covenants -- Debt".
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CORPORATE CREDIT FACILITY
Australia and New Zealand Banking Group Limited, as agent for a group of
lending banks, has extended Cogentrix Energy a revolving credit facility that
provides for direct advances to, or the issuance of letters of credit for, the
benefit of Cogentrix Energy. The corporate credit facility, as amended, provides
direct advances, or the issuance of letters of credit for our benefit, in an
amount up to $250.0 million. As of the date of this prospectus, we had utilized
approximately $183.3 million of the credit available under the corporate credit
facility primarily for letters of credit issued in connection with projects
under construction in Louisiana, Idaho, Oklahoma and the Dominican Republic. 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.
The foregoing description is a brief description of the corporate credit
facility. You should read the corporate credit facility because it, and not this
description, defines the rights of the parties thereto. The corporate credit
facility is an exhibit to the registration statement which includes this
prospectus. A copy of the corporate credit facility is also available upon
request made to Cogentrix Energy. The foregoing summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to the
corporate credit facility.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion set forth in this summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and
proposed Treasury regulations thereunder ("Treasury Regulations"), and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, including possibly on a
retroactive basis. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could affect the tax consequences to
holders of the outstanding senior notes issued on September 22, 2000 and the
exchange notes.
This summary addresses the material federal income tax consequences that
may be applicable to a holder of outstanding senior notes issued on September
22, 2000 or exchange notes. The tax treatment of a holder of outstanding senior
notes issued on September 22, 2000 or exchange notes may, however, vary
depending on its particular situation. For example, some holders, including
individual retirement and other tax-deferred accounts, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States, may be subject to special rules not discussed below. In addition, this
discussion addresses the tax consequences to the initial holders of the senior
notes issued on September 22, 2000 and not the tax consequences to subsequent
transferees of those notes or the exchange notes.
Each holder should consult its own tax advisor with respect to the federal
income tax consequences set forth below and any other federal, state, local or
foreign tax consequences of exchanging outstanding senior notes issued on
September 22, 2000 for exchange notes and of holding and disposing of any
outstanding senior notes or exchange notes.
EXCHANGE OFFER
Under Section 1001 of the Code, modifications in debt instruments may be
deemed to constitute a taxable exchange of the existing debt instrument for a
new debt instrument. The IRS has issued Treasury Regulations providing rules for
determining when a modification of a debt instrument constitutes a taxable
exchange. Because the terms of the exchange notes are identical to the terms of
the outstanding senior notes, except that the exchange notes will not contain
terms with respect to transfer restrictions, each exchange note will be viewed
as a continuation of the corresponding outstanding senior note. As a result, the
issuance of the exchange note will be disregarded for federal income tax
purposes, and a holder exchanging an outstanding senior note for an exchange
note, as well as a non-exchanging holder, will not recognize any gain or loss as
a result of the exchange.
STATED INTEREST
A holder of an outstanding senior note or an exchange note will be required
to report as income for federal income tax purposes interest earned on the
outstanding senior note or an exchange note in accordance with the holder's
method of tax accounting. A holder of an outstanding senior note or an exchange
note using the accrual method of accounting for tax purposes is, as a general
rule, required to include interest in ordinary income as such interest accrues,
while a cash basis holder must include interest income when cash payments are
received, or made available for receipt, by such holder.
ORIGINAL ISSUE DISCOUNT
Under a "de minimis" test, if the excess of the stated redemption price at
maturity over the issue price is less than 1/4 of 1% of the stated redemption
price at maturity multiplied by the number of complete years to maturity from
the issuance of the outstanding senior notes, then no original discount exists.
The outstanding senior notes issued on September 22, 2000 were issued at a price
(the "issue price") that was 99.359% of their aggregate stated "redemption price
at maturity." The period from the issue date of these outstanding senior notes
to maturity of these outstanding senior notes includes eight complete years.
Accordingly, no original issue discount existed on the issuance of these
outstanding senior notes.
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SALE, EXCHANGE, OR REDEMPTION OF AN OUTSTANDING SENIOR NOTE OR AN EXCHANGE NOTE
Except for transfers in the exchange offer as discussed above, upon the
sale, exchange, or redemption of an outstanding senior note or an exchange note,
a holder will recognize taxable gain or loss equal to the difference between
- the amount of cash -- other than amounts received attributable to
interest not previously taken into account, which amount will be treated
as interest received -- and the fair market value of property received
and
- the holder's adjusted tax basis in the outstanding senior note or
exchange note.
A holder's adjusted tax basis in an outstanding senior note or exchange
note generally will equal the cost of the outstanding senior note or exchange
note to the holder, increased by the amount of any OID previously included in
income by the holder with respect to the outstanding senior note or exchange
note and reduced by any payments previously received by the holder with respect
to the outstanding senior note or exchange note, other than qualified stated
interest payments, and by any premium amortization deductions previously claimed
by the holder. Provided that the outstanding senior note or exchange note is a
capital asset in the hands of the holder and has been held for more than one
year, any gain or loss recognized by the holder will generally be a long-term
capital gain or loss.
FOREIGN INVESTORS
Distributions of interest, including OID, made on an outstanding senior
note or exchange note to a holder of such senior note that is not a U.S. person
(a "Non-U.S. Person") will be considered "portfolio interest" within the meaning
of Code Section 871(c)(2) and generally will be exempt from U.S. federal income
and withholding taxes. To qualify for the exemption, (1) the holder of the
outstanding senior notes or exchange notes must not be subject to U.S. federal
income tax as a result of engaging in a trade or business that is connected to
the United States, (2) the holder must not be a controlled foreign corporation
described in Code Section 881(c)(3)(C), and (3) the holder of such senior note
signs a statement that certifies the holder is a Non-U.S. Person and provides
the name and address of the holder. If this statement, or any other required
statement is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty. Investors who are Non-U.S.
Persons should consult their tax advisors regarding the specific tax
consequences to them of owning an outstanding senior note or exchange note.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of an outstanding senior note
or an exchange note may be subject to a backup withholding at the rate of 31% on
interest paid on the outstanding senior note or exchange note or on any cash
payment with respect to the sale or redemption of the outstanding senior note or
exchange note unless such holder is a corporation or comes under other exempt
categories and when required demonstrates this fact or such holder provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules in the Treasury Regulations.
We will report to the holders of the outstanding senior notes and exchange
notes and to the IRS the amount of any "reportable payments" for each calendar
year and the amount of tax withheld, if any, with respect to payments on the
outstanding senior notes and exchange notes.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the holder's federal income tax liability, provided
that the required information in furnished to the IRS.
The foregoing discussion of material federal income tax considerations is
for general information only and is not intended to be, nor should it be
construed to be, legal or tax advice with respect to the consequences of the
exchange, ownership, and disposition of outstanding senior notes and exchange
notes, including the applicability and effect of state, local, foreign, and
other tax laws.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for outstanding notes where
the outstanding senior notes were acquired for the broker-dealer's own account
as a result of market-making activities or other trading activities, other than
outstanding senior notes acquired directly from Cogentrix Energy or an
"affiliate" of Cogentrix Energy. Cogentrix Energy has agreed that it will make
this prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale for a
period starting on the expiration date and ending on the close of business on
the first anniversary of the expiration date. A broker-dealer intending to use
this prospectus in the resale of exchange notes must notify Cogentrix Energy on
or before the expiration date, that it intends to use this prospectus. This
notice may be given in the space provided for in the letter of transmittal or
may be delivered to the exchange agent. Cogentrix Energy has agreed that, for a
period starting on the expiration date and ending on the close of business on
the first anniversary of the expiration date, it will make this prospectus, and
any amendment or supplement to this prospectus, available to any broker-dealer
that requests these documents in the letter of transmittal. See "The Exchange
Offer -- Resales of Exchange Notes" for more information.
Cogentrix Energy will not receive any proceeds from any sale of exchange
notes. Broker-dealers acquiring exchange notes for their own accounts in the
exchange offer may sell the exchange notes in one or more transactions in the
over-the-counter market or, in negotiated transactions, through the writing of
options on the exchange offer or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any resale may be made directly
to purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any of the exchange notes.
Any broker-dealer that resells exchange notes that it received for its own
account in the exchange offer and any broker-dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act. Any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date, Cogentrix Energy will
promptly send additional copies of this prospectus, and any amendment or
supplement to this prospectus, to any broker-dealer that requests such documents
in the letter of transmittal. Cogentrix Energy has agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the securities, other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the securities, including any
broker-dealers, against liabilities specified in the registration agreements,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
Cogentrix Energy by Moore & Van Allen PLLC, Charlotte, North Carolina.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Cogentrix Energy, Inc. as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 included in this prospectus have
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been audited by Arthur Andersen LLP, independent public accountants, as stated
in their report appearing herein.
The consolidated financial statements of Cogentrix Delaware Holdings, Inc.
and subsidiary companies as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
stated in their report appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
In connection with the exchange offer, Cogentrix Energy and Cogentrix
Delaware Holdings, Inc. have filed a registration statement under the Securities
Act. As permitted by the Securities and Exchange Commission's rules, we have
omitted from this prospectus information included in the registration statement.
For a more complete understanding of this exchange offer, you should refer to
the registration statement, including its exhibits.
Notwithstanding that it is not required to remain subject to the
informational reporting requirements of the Exchange Act, Cogentrix Energy has
covenanted in the indentures for its 2004 senior notes and 2008 senior notes to,
and, in accordance therewith, files, and will continue to file, reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York (Seven World Trade Center, 13th Floor, New York,
New York 10048), and Chicago (Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661). The public may obtain information on the
operation of the public reference room by calling the SEC at 1-800-732-0330. In
addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
INCORPORATION OF PREVIOUSLY-FILED DOCUMENTS BY REFERENCE
Cogentrix Energy's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, its Quarterly Reports on Form 10-Q for the quarterly period
ended March 31, 2000 and the quarterly period ended June 30, 2000, have been
filed by Cogentrix Energy with the Commission and are incorporated herein by
reference.
All documents filed by Cogentrix Energy with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of any offering of exchange notes made by this
prospectus shall be deemed to be incorporated by reference into this prospectus
and to be a part of this prospectus from the respective dates of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement or
document so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of this prospectus.
The Company will furnish without charge to each person to whom this
prospectus is delivered, upon written or oral request of such person, a copy of
the registration statement, of which this prospectus is a part, and any and all
of the documents described above that are incorporated by reference herein other
than exhibits to such documents that are not specifically incorporated by
reference in such documents. Written or telephone requests should be directed
to: Cogentrix Energy, Inc., 9405 Arrowpoint Boulevard, Charlotte, North Carolina
28273, telephone number (704) 525-3800.
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INDEX TO
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets at June 30, 2000 (unaudited),
December 31, 1999 and December 31, 1998................... F-3
Consolidated Statements of Income for the Six Months Ended
June 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997...... F-5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) and the Years
Ended December 31, 1999, 1998 and 1997.................... F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COGENTRIX ENERGY, INC.:
We have audited the accompanying consolidated balance sheets of Cogentrix
Energy, Inc. (a North Carolina corporation) and subsidiary companies as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cogentrix Energy, Inc. and
subsidiary companies as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 9, 2000.
F-2
<PAGE> 113
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
2000 1999 1998
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 93,553 $ 80,344 $ 48,207
Restricted cash.......................................... 24,908 81,647 40,604
Accounts receivable...................................... 64,862 59,360 66,586
Inventories.............................................. 22,612 20,137 18,697
Other current assets..................................... 2,795 2,252 4,061
---------- ---------- ----------
Total current assets............................. 208,730 243,740 178,155
NET INVESTMENT IN LEASES................................... 499,990 500,195 498,614
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $281,737, $262,963 and $225,928,
respectively............................................. 418,919 437,483 473,065
LAND AND IMPROVEMENTS...................................... 6,324 5,764 3,981
CONSTRUCTION IN PROGRESS................................... 530,088 350,243 161
DEFERRED FINANCING COSTS, net of accumulated amortization
of $28,334, $23,950 and $15,557, respectively............ 61,561 51,315 37,007
NATURAL GAS RESERVES....................................... 416 744 1,557
INVESTMENTS IN UNCONSOLIDATED AFFILIATES................... 334,716 325,504 251,312
PROJECT DEVELOPMENT COSTS.................................. 6,087 7,124 --
NOTES RECEIVABLE........................................... 18,502 19,502 11,488
OTHER ASSETS............................................... 80,928 56,772 44,511
---------- ---------- ----------
$2,166,261 $1,998,386 $1,499,851
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................ $ 90,254 $ 90,114 $ 86,255
Accounts payable......................................... 47,668 37,588 25,511
Accrued compensation..................................... 4,357 8,415 8,096
Accrued interest payable................................. 20,153 25,708 7,729
Accrued dividends payable................................ -- 8,683 7,398
Other accrued liabilities................................ 13,586 15,621 13,492
---------- ---------- ----------
Total current liabilities........................ 176,018 186,129 148,481
LONG-TERM DEBT............................................. 1,650,029 1,518,773 1,127,184
DEFERRED INCOME TAXES...................................... 90,085 72,980 52,306
MINORITY INTERESTS......................................... 68,822 69,608 61,167
OTHER LONG-TERM LIABILITIES................................ 29,509 29,445 22,850
---------- ---------- ----------
2,014,463 1,876,935 1,411,988
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(NOTES 9, 10, 14, AND 15)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding................. 130 130 130
Accumulated other comprehensive loss..................... (1,076) (1,144) --
Accumulated earnings..................................... 152,744 122,465 87,733
---------- ---------- ----------
151,798 121,451 87,863
---------- ---------- ----------
$2,166,261 $1,998,386 $1,499,851
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE> 114
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE YEARS ENDED DECEMBER 31,
1999, 1998, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND EARNINGS PER COMMON SHARE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric.................................. $159,968 $145,366 $294,185 $293,083 $307,104
Steam..................................... 14,488 12,911 25,236 25,043 26,123
Lease..................................... 22,385 22,331 44,697 34,715 --
Service................................... 26,601 22,894 43,888 34,470 --
Income from unconsolidated investment in
power projects, net of premium
amortization........................... 26,567 10,732 25,464 6,474 1,412
Other..................................... 7,827 8,103 14,093 14,908 15,275
-------- -------- -------- -------- --------
257,836 222,337 447,563 408,693 349,914
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Fuel...................................... 53,746 37,114 81,835 78,420 118,731
Cost of service........................... 28,199 24,529 45,933 36,039 --
Operations and maintenance................ 36,127 34,219 67,374 71,108 71,367
General, administrative and development
expenses............................... 19,804 20,830 39,014 36,490 41,650
Depreciation and amortization............. 21,968 21,776 43,713 42,535 41,844
-------- -------- -------- -------- --------
159,844 138,468 277,869 264,592 273,592
-------- -------- -------- -------- --------
OPERATING INCOME............................ 97,992 83,869 169,694 144,101 76,322
OTHER INCOME (EXPENSE):
Interest expense.......................... (46,922) (47,307) (94,956) (74,949) (53,864)
Investment and other income............... 4,200 3,020 11,213 9,226 9,789
Equity in net loss of affiliates, net..... -- (106) (208) (3,274) (1,538)
-------- -------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS....... 55,270 39,476 85,743 75,104 30,709
MINORITY INTERESTS IN INCOME................ (5,826) (6,482) (14,752) (12,458) (4,672)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS...................................... 49,444 32,994 70,991 62,646 26,037
PROVISION FOR INCOME TAXES.................. (19,166) (13,259) (27,576) (24,914) (9,754)
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS............ 30,278 19,735 43,415 37,732 16,283
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT, AND
MINORITY INTEREST......................... -- -- -- (743) (1,502)
-------- -------- -------- -------- --------
NET INCOME.................................. $ 30,278 $ 19,735 $ 43,415 $ 36,989 $ 14,781
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss.......... $ 107.37 $ 69.98 $ 153.95 $ 133.80 $ 57.74
Extraordinary loss........................ -- -- -- (2.63) (5.33)
-------- -------- -------- -------- --------
$ 107.37 $ 69.98 $ 153.95 $ 131.17 $ 52.41
======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................... 282,000 282,000 282,000 282,000 282,000
======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-4
<PAGE> 115
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR DIVIDENDS PER COMMON SHARE)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON COMPREHENSIVE ACCUMULATED COMPREHENSIVE
STOCK INCOME EARNINGS INCOME (LOSS) TOTAL
------ ------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. $130 $ -- $ 50,501 $ -- $ 50,631
Comprehensive income
Net income........................... -- 14,781 14,781 -- --
Other comprehensive income, net of
tax:
Unrealized holding gain during
year............................ -- 26 -- 26 --
-------
Comprehensive income:........ $14,807 14,807
=======
Common stock dividends ($25.32 per
common share)........................ -- (7,140) -- (7,140)
---- -------- ------- --------
Balance, December 31, 1997............. 130 58,142 26 58,298
Comprehensive income
Net income........................... -- 36,989 36,989 -- --
Other comprehensive income, net of
tax:
Realized gains included in net
income.......................... -- (26) -- (26) --
-------
Comprehensive income:........ $36,963 36,963
=======
Common stock dividends ($26.23 per
common share)........................ -- (7,398) -- (7,398)
---- -------- ------- --------
Balance, December 31, 1998............. 130 87,733 -- 87,863
Comprehensive income
Net income........................... -- 43,415 43,415 -- --
Other comprehensive loss, net of tax:
Unrealized holding losses during
year............................ -- (1,144) -- (1,144) --
-------
Comprehensive income:........ $42,271 42,271
=======
Common stock dividends ($30.79 per
common share)........................ -- (8,683) -- (8,683)
---- -------- ------- --------
Balance, December 31, 1999............. $130 $122,465 $(1,144) $121,451
==== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-5
<PAGE> 116
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE YEARS ENDED DECEMBER 31,
1999, 1998, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------
2000 1999 1999 1998 1997
--------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 30,278 $ 19,735 $ 43,415 $ 36,989 $ 14,781
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 21,968 21,776 43,713 42,535 41,844
Deferred income taxes......................... 17,060 6,234 23,933 14,182 4,927
Extraordinary loss on early extinguishment of
debt........................................ -- -- -- 2,172 2,458
Minority interest in income of joint venture,
net of dividends............................ (807) 3,028 8,461 (14,494) 1,935
Gain on sale of investment in affiliate....... -- -- -- (2,063) --
Equity in net (income) loss of unconsolidated
affiliates.................................. (24,383) (10,290) (22,998) (3,200) 126
Dividends received from unconsolidated
affiliates.................................. 16,833 13,090 26,647 13,362 15,354
Minimum lease payments received............... 22,590 21,558 43,116 31,500 --
Amortization of unearned lease income......... (22,385) (22,331) (44,697) (33,473) --
Decrease (increase) in accounts receivable.... (5,502) (2,849) 7,487 (7,278) 3,437
Decrease (increase) in inventories............ (2,475) 1,321 (627) (1,029) 4,385
Increase (decrease) in accounts payable....... 10,080 (5,028) (9,791) (4,212) (9,490)
Increase (decrease) in accrued liabilities.... (11,648) (4,633) 5,074 5,179 499
Decrease (increase) in other, net............. 9,571 (855) (3,527) (5,425) 2,320
--------- -------- --------- --------- ---------
Net cash flows provided by operating
activities.................................... 61,180 40,756 120,206 74,745 82,576
--------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions....... (1,289) (592) (4,305) (7,391) (2,449)
Decrease in marketable securities............. -- -- -- 42,118 21,577
Investments in unconsolidated affiliates...... (1,662) (39,852) (76,827) (180,292) (61,063)
Acquisition of facilities, net of cash
acquired.................................... -- -- -- (155,324) --
Construction in progress, project development
costs and turbines.......................... (208,563) (4,667) (71,902) -- --
Decrease (increase) in restricted cash........ 56,739 (2,391) 12,243 22,952 1,532
--------- -------- --------- --------- ---------
Net cash flows used in investing activities..... (154,775) (47,502) (140,791) (277,937) (40,403)
--------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term
debt........................................ 176,790 54,280 191,340 384,104 65,171
Repayments of notes payable and long-term
debt........................................ (46,487) (43,223) (122,255) (193,812) (118,778)
Increase in deferred financing costs.......... (15,816) (778) (8,965) (8,586) (921)
Common stock dividends paid................... (8,683) (7,398) (7,398) (2,140) (5,000)
Repayment on note receivable.................. 1,000 -- -- -- --
--------- -------- --------- --------- ---------
Net cash flows provided by (used in) financing
activities.................................... 106,804 2,881 52,722 179,566 (59,528)
--------- -------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 13,209 (3,865) 32,137 (23,626) (17,355)
CASH AND CASH EQUIVALENTS, beginning of period.... 80,344 48,207 48,207 71,833 89,188
--------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 93,553 $ 44,342 $ 80,344 $ 48,207 $ 71,833
========= ======== ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-6
<PAGE> 117
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cogentrix Energy, Inc. and subsidiary companies (collectively, the
"Company") is principally engaged in the business of acquiring, developing,
owning and operating independent power generating facilities (individually, a
"Facility," or collectively, the "Facilities"). As of December 31, 1999, the
Company owned or had interests in 25 Facilities in operation in the United
States with an aggregate installed capacity of approximately 4,000 megawatts.
After taking into account the part interests in the 16 plants that are not
wholly-owned by the Company, which range from 1.7% to approximately 74%, the
Company's net ownership interest in the total production capability of the 25
Facilities, in operation, is approximately 1,840 megawatts. Electricity
generated by each Facility is sold to an electric utility (the "Utility") and
steam is sold to an industrial company (the "Steam Purchaser"), all under
long-term contractual agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation -- The accompanying
consolidated financial statements include the accounts of Cogentrix Energy, Inc.
and its subsidiary companies. 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 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, Inc., its subsidiary companies and its consolidated joint
ventures have been eliminated in the accompanying consolidated financial
statements.
Information presented as of June 30, 2000 and for the six months ended June
30, 2000 and 1999 is unaudited. In the opinion of management, however, such
information reflects all adjustments, which consist of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 2000, and the results of operations and cash flows for the six
months ended June 30, 2000 and 1999. 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.
Cash and Cash Equivalents -- Cash and cash equivalents include bank
deposits, commercial paper, government securities and certificates of deposit
that mature within three months of their purchase. Amounts in debt service
accounts which might otherwise be considered cash equivalents are treated as
current restricted cash.
Inventories -- Coal inventories consist of the contract purchase price of
coal and all transportation costs incurred to deliver the coal to each Facility.
Gas inventories represent the cost of natural gas purchased as fuel reserves
that are forecasted to be consumed during the next fiscal year. Spare parts
inventories consist of major equipment and recurring maintenance supplies
required to be maintained in order to facilitate routine maintenance activities
and minimize unscheduled maintenance outages. As of December 31, 1999 and 1998,
fuel and spare parts inventories are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Coal........................................................ $ 8,469 $ 8,028
Natural gas................................................. 2,875 2,773
Spare parts................................................. 8,138 7,377
Fuel oil.................................................... 655 519
------- -------
$20,137 $18,697
======= =======
</TABLE>
F-7
<PAGE> 118
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Coal inventories at certain Facilities are recorded at last-in, first-out
("LIFO") cost, with the remaining Facilities' coal inventories recorded at
first-in, first-out ("FIFO") cost. The cost of coal inventories recorded on a
LIFO basis was approximately $374,000 and $305,000 less than the cost of these
inventories on a FIFO basis as of December 31, 1999 and 1998, respectively.
Spare parts inventories are recorded at average cost.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at actual cost. Substantially all property, plant and equipment consists of
cogeneration facilities which are depreciated on a straight-line basis over
their estimated useful lives (ranging from 9 to 30 years). Other property and
equipment is depreciated on a straight-line basis over the estimated economic or
service lives of the respective assets (ranging from 3 to 10 years). Maintenance
and repairs are charged to expense as incurred. Emergency and rotatable spare
parts inventories are included in plant and are depreciated over the useful life
of the related components.
Construction in Progress -- Construction progress payments, engineering
costs, insurance costs, wages, interest and other costs relating to construction
in progress are capitalized. Construction in progress balances are transferred
to property, plant and equipment when the assets are ready for their intended
use. Interest is capitalized on projects during the development and construction
period. For the year ended December 31, 1999, the Company capitalized $1,812,000
of interest in connection with the development and construction of power plants.
There was no interest capitalized in 1998 or 1997.
Deferred Financing Costs -- Financing costs, consisting primarily of legal
and other direct costs incurred to obtain financing, are deferred and amortized
over the financing term.
Natural Gas Reserves -- Natural gas reserves consist of the cost of natural
gas purchased as long-term fuel reserves for a Facility. These reserves are
recorded at cost.
Investments in Affiliates -- Investments in affiliates include investments
in unconsolidated entities which own or derive revenues from power projects
currently in operation and investments in unconsolidated development joint
venture entities. The Company's share of income or loss from investments in
operating power projects is included in operating revenue in the accompanying
consolidated statements of income. The Company's share of income or loss from
investments in development joint venture entities and investments previously
held in entities which own and operate greenhouses, is included in other income
(expense) in the accompanying consolidated statements of income
Project Development Costs -- The Company capitalizes project development
costs once it is determined that it is probable that such costs will be realized
through the ultimate construction of a power plant. These costs include
professional services, salaries, permits and other costs directly related to the
development of a new project. These costs are generally transferred to
construction in progress when financing is obtained, or expensed when the
Company determines that a particular project will no longer be developed.
Capitalized costs are amortized over the estimated useful life of the project.
Revenue Recognition -- Revenues from the sale of electricity and steam are
recorded based upon output delivered and capacity provided at rates specified
under contract terms. Significant portions of the Company's revenues have been
derived from certain electric utility customers. Two customers accounted for 47%
and 17% of revenues in the year ended December 31, 1999, 50% and 19% of revenues
in the year ended December 31, 1998 and 64% and 22% of revenues in the year
ended December 31, 1997.
Interest Rate Protection Agreements -- The Company enters into interest
rate protection agreements with major financial institutions to fix or limit the
volatility of interest rates on its long-term debt. The differential paid or
received is recognized as an adjustment to interest expense. Any premiums
associated with interest rate protection agreements are capitalized and
amortized to interest expense over the effective
F-8
<PAGE> 119
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term of the agreement. Unamortized premiums are included in other assets in the
accompanying consolidated balance sheets.
Income Taxes -- Deferred income tax assets and liabilities are recognized
for the estimated future income tax effects of temporary differences between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets are also established for the estimated future
effect of net operating loss and tax credit carryforwards when it is more likely
than not that such assets will be realized. Deferred taxes are calculated based
on provisions of the enacted tax law.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company has chosen to
disclose Comprehensive Income, which encompasses net income and unrealized
holding losses during the year in the Consolidated Statement of Shareholders'
Equity. Prior years have been restated to conform to the SFAS No. 130
requirements.
New Accounting Pronouncements -- In April 1998, the American Institute of
Certified Public Accounts ("AICPA") issued Statement of Position ("SOP") No.
98-5, "Reporting on the Costs of Start-Up Activities" which is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP No.
98-5 requires costs incurred for start-up activities to be expensed as incurred.
For purposes of this SOP, start-up activities are defined broadly as those
one-time activities related to opening a new facility, conducting business in a
new territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing a new operation.
Start-up activities include activities related to organizing a new entity
(commonly referred to as organization costs). The Company adopted SOP No. 98-5
as of January 1, 1999. The adoption of SOP No. 98-5 did not have a material
impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheets as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in current earnings unless specified hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Investments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 requires the adoption of SFAS No. 133 to be
effective for fiscal years beginning after June 15, 2000. Early adoption is
allowed.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
the consolidated financial statements and has not determined the timing or
method of adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings.
F-9
<PAGE> 120
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Change of Fiscal Year -- Effective January 1, 1998, the Company changed its
fiscal year to commence on January 1 and conclude on December 31 of each year.
The Company's fiscal year previously commenced each July 1, concluding on June
30 of the following calendar year. The Company has restated its consolidated
financial statements for the 1997 fiscal year to a calendar year basis.
Reclassifications -- Certain amounts included in the accompanying
consolidated financial statements for the fiscal year ended December 31, 1998
have been reclassified from their original presentation to conform with the
presentation for the year ended December 31, 1999.
3. ACQUISITIONS
LS Power Acquisition -- In March 1998, the Company acquired from LS Power
Corporation (the "LS Power Acquisition") an approximate 74% ownership interest
in two partnerships which own and operate electric generating facilities located
in Whitewater, Wisconsin (the "Whitewater Facility") and Cottage Grove,
Minnesota (the "Cottage Grove Facility"). Each of the Cottage Grove and
Whitewater Facilities is a 245-megawatt gas-fired, combined-cycle cogeneration
facility. Commercial operations of both of these facilities commenced in the
last half of calendar 1997. The Cottage Grove Facility sells capacity and energy
to Northern States Power Company under a 30-year power sales contract
terminating in 2027. The Whitewater Facility sells capacity and energy to
Wisconsin Electric Power Company under a 25-year power sales contract
terminating in 2022. Each of the power sales contracts has characteristics
similar to a lease in that the agreement gives the purchasing utility the right
to use specific property, plant and equipment. As such, each of the power sales
contracts is accounted for as a "sales-type" capital lease in accordance with
SFAS No. 13, "Accounting for Leases" (see Note 7).
The aggregate acquisition price for the equity interests in the Cottage
Grove and Whitewater Facilities acquired by the Company was approximately $158.0
million. In addition, the Company pre-funded a $16.7 million distribution to the
previous owners, which represented unused construction contingency funds and
cash flows that were accumulated by the Cottage Grove and Whitewater Facilities
prior to January 1, 1998. Cogentrix Energy, Inc. received $15.7 million of this
distribution in April 1998 and received the remaining $1 million in 1999. The
purchase price was ultimately funded with a portion of the net proceeds of the
Company's 2008 senior notes (see Note 6) and corporate cash balances.
The Company accounted for the LS Power Acquisition using the purchase
method of accounting. The purchase price has been allocated to the assets and
liabilities acquired based on their fair market values at the date of
consummation. An adjustment in the amount of $22.2 million was recorded to
reflect the Company's portion of the excess of the fair value of the
Partnerships' fixed rate debt over its historical carrying value. This fair
value adjustment, or debt premium, will be amortized to income over the life of
the debt acquired using the effective interest method. The historical book
values of the remaining assets and liabilities approximated their fair values at
the date of consummation. The excess of the purchase price over the fair value
of the net assets acquired was approximately $27.7 million. This excess is
included in other assets on the accompanying balance sheets as of December 31,
1999 and 1998, and is being amortized on a straight line basis over the lives of
the power purchase agreements for the two facilities. The minority owner's share
of each partnership's net assets is included in minority interests on the
accompanying consolidated balance sheets as of December 31, 1999 and 1998. The
accompanying consolidated statement of income for the year ended December 31,
1998 includes the results of operations of the acquired facilities for the
period beginning March 20, 1998 (closing date of LS Power Acquisition) to
December 31, 1998.
During 1999, the Company and the contractor, with the concurrence of the
independent engineer, reached a final agreement regarding the settlement of all
outstanding issues and obligations of the Cottage Grove and Whitewater
facilities and the contractor pursuant to the construction contracts. The final
F-10
<PAGE> 121
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
settlement of the construction contract provided for a payment to the contractor
of approximately $4,030,000 from funds available in Cottage Grove's and
Whitewater's construction retainage accounts. The contractor has also agreed to
extend various warranty periods and perform various repairs and inspections.
Cottage Grove and Whitewater, in turn, acknowledged that final acceptance shall
have been deemed to have occurred. Upon the release of the remaining
construction retainage accounts and settlement of outstanding warranty claims,
the Company recorded a gain of approximately $6,257,000 before minority
interests in income. The gain is included in other income in the accompanying
consolidated statements of income for the year ended December 31, 1999.
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 summer 2000. Electricity generated by the Batesville Facility will
be sold under long-term power purchase agreements with two investment-grade
utilities.
The Batesville acquisition was originally accounted for under the equity
method of accounting, as the Company originally deemed its approximate 52%
interest to be temporary. As of December 31, 1999, the Company has reassessed
its ownership, and has determined that it will maintain an approximate 51%
interest in the project. As such, the Company has consolidated the net assets of
the Batesville Facility in the accompanying consolidated balance sheets at
December 31, 1999. The accompanying consolidated statements of income at
December 31, 1999 and 1998 recognized earnings from the Batesville facility
under the equity method of accounting.
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
"BGCI Acquisition"). The aggregate acquisition price, including acquisition
costs, for the interests in the BGCI assets was approximately $189.7 million.
The Company utilized a portion of the net proceeds from the issuance of $255
million of senior notes due 2008 to fund the BGCI Acquisition.
The BGCI Acquisition has been 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
BGCI Acquisition are being amortized over the remaining lives of the facilities
or over the remaining terms of the power purchase agreements. The Company uses
the equity method of accounting to account for its ownership interests in eight
of these facilities and uses the cost method of accounting for its ownership
interests in the other four facilities (see Note 4).
Subsequent to December 31, 1999, the Company purchased an additional 1%
interest in the Logan and Northampton facilities, two of the twelve electric
generating facilities included in the BGCI Acquisition. The Company paid
approximately $1,650,000 for these additional interests. The Company will
continue to account for its 50% interest in the Logan and Northampton facilities
using the equity method.
Indiantown Acquisition -- In June 1999, the Company entered into an
agreement to purchase an additional 40% ownership interest in the Indiantown
cogeneration facility (the "Indiantown Acquisition"), one of the twelve electric
generating facilities included in the BGCI Acquisition, in a three-phase
transaction. The Company paid $39.8 million to acquire a 19.9% interest in the
facility in June 1999, $36.6 million to acquire a 20% interest in the facility
in September 1999 and $0.2 million to acquire a 0.1%
F-11
<PAGE> 122
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest in the facility in November 1999. The Company funded the purchase of
these interests with proceeds from credit facilities. These purchases resulted
in a premium of approximately $38,000,000. This premium will be amortized over
the remaining term of the power purchase agreement. The Company currently has a
50% interest in the Indiantown facility. This investment is accounted for using
the equity method of accounting.
The following unaudited pro forma consolidated results for the Company for
the years ended December 31, 1999 and 1998 give effect to the LS Power
Acquisition, the BGCI Acquisition and the Indiantown Acquisition as if these
transactions had occurred on January 1, 1999 and January 1, 1998, respectively
(dollars in thousands, except per share amount).
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $452,891 $453,566
Net Income.................................................. $ 43,942 $ 37,336
Earnings per Share.......................................... $ 155.82 $ 132.40
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED POWER PROJECTS
Birchwood Power Partners, L.P.
The Company owns a 50% interest in Birchwood Power Partners, L.P.
("Birchwood Power"), a partnership which owns a 220-megawatt, coal fired
cogeneration facility (the "Birchwood Facility") which sells electricity to a
utility and provides thermal energy to a 36-acre greenhouse under long-term
contracts. The Birchwood Facility is operated by an affiliate of The Southern
Company under a long-term operations and maintenance agreement. The Company has
50% representation on Birchwood Power's management committee, which must approve
all material transactions of Birchwood Power. The Company is accounting for its
investment in Birchwood Power under the equity method. The Company's share of
net income of Birchwood Power is recorded net of the amortization of the $36.4
million premium paid to purchase the Company's 50% share interest in Birchwood
Power. This premium is being amortized on a straight-line basis over the
estimated useful life of the Birchwood Facility. The Company recognized
approximately $3,509,000, $3,714,000 and $1,412,000 in income from
unconsolidated investments in power projects, net of premium amortization, in
the accompanying consolidated statements of income for the years ended December
31, 1999, 1998 and 1997, respectively, related to its investment in Birchwood
Power. The following table presents summarized financial information for
Birchwood Power as of December 31, 1999 and 1998 and for the years ended
December 31, 1999, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 48,805 $ 48,416
Noncurrent assets......................................... 333,318 344,374
-------- --------
Total assets........................................... $382,123 $392,790
======== ========
Current liabilities....................................... $ 9,882 $ 7,952
Noncurrent liabilities.................................... 323,598 329,428
Partners' capital......................................... 48,643 55,410
-------- --------
$382,123 $392,790
======== ========
</TABLE>
F-12
<PAGE> 123
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...................................... $75,582 $71,908 $69,275
Operating income........................................ 36,399 36,863 35,087
Net income.............................................. 9,740 9,747 6,451
</TABLE>
BGCI Assets
The Company acquired interests in 12 electric generating facilities from
BGCI on October 20, 1998 (the "BGCI assets") (see Note 3). The following table
presents the Company's ownership interests at December 31, 1999 in the BGCI
assets that are accounted for under the equity method:
<TABLE>
<CAPTION>
PERCENT NET EQUITY
OWNERSHIP INTEREST
PLANT INTEREST IN PLANT
PROJECT MEGAWATTS ACQUIRED MEGAWATTS
------- --------- --------- ----------
<S> <C> <C> <C>
Logan.................................................. 218 49.0% 106.8
Northampton............................................ 110 49.0 53.9
Indiantown............................................. 380 50.0 190.0
Carney's Point......................................... 262 10.0 26.2
Panther Creek.......................................... 83 12.2 10.1
Scrubgrass............................................. 85 20.0 17.0
Gilberton.............................................. 82 19.6 16.1
Morgantown............................................. 62 15.0 9.3
</TABLE>
The Company recognized approximately $21,954,000 and $2,760,000 in income
from unconsolidated investments in power projects in the accompanying
consolidated statements of income for the year ended December 31, 1999 and for
the period from October 20, 1998 to December 31, 1998 related to its investment
in the projects acquired from BGCI. The following table presents summarized
combined financial data of the unconsolidated power projects acquired from BGCI
being accounted for under the equity method as of December 31, 1999 and 1998 and
for the year ended December 31, 1999 and for the period from October 20, 1998 to
December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 157,396 $ 131,178
Noncurrent assets......................................... 2,988,277 2,827,875
---------- ----------
Total assets........................................... $3,145,673 $2,959,053
========== ==========
Current liabilities....................................... $ 205,667 $ 137,205
Noncurrent liabilities.................................... 2,523,826 2,398,944
Partners' capital......................................... 416,180 422,904
---------- ----------
$3,145,673 $2,959,053
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 20, 1998 TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues................................ $624,010 $96,622
Operating income.................................. 365,429 51,948
Net income........................................ 56,818 15,071
</TABLE>
F-13
<PAGE> 124
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENT IN OTHER UNCONSOLIDATED AFFILIATES
The Company makes investments in other joint venture partnerships whose
purpose is to develop power projects. The Company utilizes the equity method of
accounting for those partnerships in which it holds an ownership interest
between 20% and 50%. The Company recognized approximately $208,000, $307,000,
and $471,000 in equity losses for the years ended December 31, 1999, 1998 and
1997, respectively, related to its investments in these partnerships. These
losses are reflected in equity in loss of affiliates in the accompanying
consolidated statements of income.
The Company entered into an agreement with Agro Power Development, Inc. a
developer and operator of greenhouse facilities, ("Agro") to make investments in
partnerships which develop, construct and operate greenhouses which produce
tomatoes. The Company obtained a 50% interest in four limited partnerships which
had a combined 107 acres of production capacity in operation. In December 1998,
the Company entered into an agreement to sell its 50% interest in the
partnerships to EcoScience Corporation ("EcoScience"), the parent of Agro. In
return for its 50% interest, the Company received 1,000,000 shares of common
stock of EcoScience and a note receivable from EcoScience (the "EcoScience
Note") in the amount of approximately $20.6 million. The original note
receivable from EcoScience accrued interest at 11.25% per annum with principal
and interest due on March 15, 1999, (see below), and was secured by a pledge of
all of the outstanding stock of Agro. The Company recognized a gain of $2.1
million related to the fair market value of common stock received from the sale
of the greenhouse partnerships. This gain is included in investment and other
income in the accompanying consolidated statement of income for the year ended
December 31, 1998. As of December 31, 1999, the Company has recorded an
unrealized holding loss on the EcoScience common stock, which has been included
in accompanying consolidated financial statements.
On March 15, 1999, the Company agreed to extend the due date for principal
and interest on the EcoScience Note to June 30, 1999. In exchange for this
extension, the Company received an extension fee of $1 million in the form of a
promissory note from EcoScience, which bears the same terms as the original
note. As of December 31, 1999 and 1998, the Company had a recorded investment in
the EcoScience Note of $21,600,000 and $20,600,000, respectively. The Company
has an allowance for credit losses related to the entire balance of its recorded
investment in the EcoScience Note of approximately $14,400,000 and $11,800,000
at December 31, 1999 and 1998, respectively. Currently, the Company is recording
interest income only as cash is received. The Company recognized and received no
interest on this note for the year ended December 31, 1999. The Company would
have recognized gross interest income of approximately $2,400,000 for the year
ended December 31, 1999 if EcoScience would have been current in their interest
payments.
Subsequent to December 31, 1999, the Company entered into an agreement to
exchange the EcoScience Note and all outstanding interest due for a promissory
note in the amount of $15,900,000. The promissory note bears interest at 5% per
year, and is due in five annual installments of $3,180,000, beginning on
December 1, 2003 until December 1, 2007. In consideration for this exchange,
EcoScience authorized and issued 333,333 shares of Series A Preferred Stock of
EcoScience to the Company.
Prior to the sale of the greenhouse partnerships, the Company accounted for
its investment in these partnerships under the equity method, and recognized
approximately $2,967,000, and $1,067,000 in equity losses in the accompanying
consolidated statements of income for the years ended December 31, 1998 and
1997, respectively.
F-14
<PAGE> 125
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
The following long-term debt was outstanding as of December 31, 1999 and
1998, respectively (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
PROJECT FINANCING DEBT:
HOPEWELL FACILITY:
Note payable to banks.................................. $ 51,000 $ 67,000
PORTSMOUTH FACILITY:
Note payable to banks.................................. 41,649 43,129
ROCKY MOUNT FACILITY:
Note payable to financial institution.................. 120,182 123,422
RINGGOLD FACILITY:
Note payable to banks.................................. 10,995 13,440
RICHMOND FACILITY:
Commercial paper notes payable, net of unamortized
issue discount of $745 and $350, respectively, and
tax-exempt bonds...................................... 171,848 185,814
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
Notes payable to banks................................. 6,824 16,964
ROXBORO AND SOUTHPORT FACILITIES:
Note payable to banks.................................. 52,608 73,400
COTTAGE GROVE AND WHITEWATER FACILITIES:
Bonds payable, due 2010 and 2016, including unamortized
fair market value adjustment related to purchase of
facilities of $20,386 and $21,345..................... 352,386 353,345
BATESVILLE FACILITY:
Bonds payable, due 2014 and 2025....................... 326,000 --
JENKS FACILITY:
Construction note payable to banks..................... 70,531 --
CEA CREDIT FACILITY......................................... 66,400 --
OTHER....................................................... 960 1,139
---------- ----------
Total Project Financing Debt................................ 1,271,383 877,653
SENIOR NOTES (including net unamortized gain (loss) on hedge
transactions of $(18,246) and $(20,048), respectively and
net bond issuance premium of $750 and $835,
respectively)............................................. 337,504 335,786
---------- ----------
Total Long-Term Debt........................................ 1,608,887 1,213,439
Less: Current portion....................................... (90,114) (86,255)
---------- ----------
Long-term portion........................................... $1,518,773 $1,127,184
========== ==========
</TABLE>
Information related to each of these borrowings is as follows:
HOPEWELL FACILITY:
The Hopewell Facility's project debt agreement was amended in February 1998
resulting in an extension of the final maturity of the note payable by six
months to December 31, 2002. The amended terms of the loan agreement increased
outstanding borrowings by $34.6 million, the proceeds of which (net of
transaction costs) were paid as a distribution to the partners in that project.
The amended note payable accrues interest at an annual rate equal to the
applicable LIBOR rate, as chosen by the Company, plus an additional margin of
1.00% (7.15% at December 31, 1999). The amended note payable also provides for a
F-15
<PAGE> 126
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$5 million letter of credit to secure the project's obligation to pay debt
service. Cogentrix Energy, Inc. has indemnified the lenders of the note payable
for any cash deficits the Hopewell Facility could experience as a result of
incurring certain costs, subject to a cap of $10.6 million.
An extraordinary loss of $2.4 million was recorded in the first quarter of
1998 related to the write-off of unamortized deferred financing costs from the
original project debt and a swap termination fee on an interest rate swap
agreement hedging the original project debt. The Company's share of this
extraordinary loss of approximately $700,000, net of a tax benefit of
approximately $500,000 and $1.2 million of minority interest, is shown in the
accompanying consolidated statements of income.
PORTSMOUTH FACILITY:
The Portsmouth Facility's project debt agreement was amended in December
1997, resulting in the extension of the final maturity of the loan by three
months to December 31, 2002. The amended terms of the loan agreement also
increased the outstanding credit commitment from the project lenders to $43.5
million in the form of a revolving credit facility. As of December 31, 1999, the
balance outstanding under the credit facility is approximately $41,600,000 of
which $20,400,000 was outstanding under the revolving credit facility. The
amended terms of the loan agreement provide for interest to accrue at an annual
rate equal to the applicable LIBOR rate, as chosen by the Company, plus an
additional margin of 1.0% (7.15% at December 31, 1999). The banks' outstanding
credit commitment under the loan agreement is reduced quarterly, with interest
payable the earlier of the maturity of the applicable LIBOR term or quarterly
through December 2002. The loan agreement also provides for a $6 million letter
of credit to secure the project's obligations to pay debt service. Cogentrix
Energy, Inc. has indemnified the lenders of the senior credit facility for any
cash deficits the Portsmouth Facility could experience as a result of incurring
certain costs, subject to a cap of $30 million.
An extraordinary loss of $2,458,000 was recorded in the year ended December
31, 1997 related to the write-off of unamortized deferred financing costs from
the original senior loan of $1,395,000 and net swap termination fees of
$1,063,000 related to interest rate swap agreements hedging the original project
debt. This extraordinary loss is shown net of a tax benefit of $956,000 in the
accompanying consolidated statement of operations.
ROCKY MOUNT FACILITY:
The note payable to financial institution consists of a $120,182,000 senior
loan which accrues interest at a fixed annual rate of 7.58%. Payment of
principal and interest is due quarterly through December 2013.
RINGGOLD FACILITY (SEE NOTE 15):
The note payable to banks consists of a senior loan which accrues interest
at an annual rate equal to the applicable LIBOR rate, as chosen by the Company,
plus 1.35% per annum (7.36% at December 31, 1999). Interest is payable at the
earlier of the maturity of the applicable LIBOR term or quarterly in arrears.
Payments of principal under the senior loan are due semiannually through April
2004.
In January 1998, the Company signed an agreement with Pennsylvania Electric
Company ("Penelec") to terminate the project subsidiary's power purchase
agreement (the "Penelec Termination Agreement"). The Penelec Termination
Agreement was the result of a request for proposals from the utility to buy-back
or restructure power sales agreements issued to all major operating independent
power producers in Penelec's territory in April 1997. The Penelec Termination
Agreement provides for a payment to the project subsidiary of approximately
$20.4 million, which will be sufficient to retire all of the project
subsidiary's outstanding debt. The buy-back of the power purchase agreement is
subject to the issuance of a satisfactory final order by the Pennsylvania Public
Utility Commission, which is not subject to appeal,
F-16
<PAGE> 127
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granting Penelec the authority to fully recover from its customers the
consideration paid under the buyout agreement. Management does not expect the
termination of this project subsidiary's power purchase agreement, if it occurs,
to have an adverse impact on the Company's consolidated results of operations or
financial position.
RICHMOND FACILITY:
Commercial paper notes outstanding are supported by an irrevocable,
direct-pay letter of credit provided by a syndicate of banks (the "Banks"). The
maximum amount of commercial paper notes supported by the letter of credit is
$124,600,000 as of December 31, 1999. The annual interest rate incurred is the
yield on the commercial paper notes plus a 1.25% to 1.50% per annum fee
(weighted average rate of 7.27% at December 31, 1999) paid to the Banks for
providing the letter of credit.
Tax-exempt industrial development bonds (the "Bonds") have been issued to
support the purchase of certain pollution control and solid waste disposal
equipment for the Facility ($48 million outstanding at December 31, 1999 and
1998). Principal and interest payments on the Bonds are supported by an
irrevocable, direct-pay letter of credit provided by the Banks. The annual
interest rate is the yield on the Bonds plus a 1.25% to 1.50% per annum fee
(5.6% at December 31, 1999). The letters of credit described above are part of
one credit facility (the "Credit Facility"). The Credit Facility provides for
commitment reductions through September 2007.
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
The project debt on the Elizabethtown, Lumberton and Kenansville Facilities
consists of a senior note payable that accrues interest at an annual rate equal
to the applicable LIBOR rate, as chosen by the Company, plus 1% (7.21% at
December 31, 1999). Principal is payable quarterly with interest payable at the
earlier of the maturity of the applicable LIBOR term or quarterly through
September 2000. The senior credit facility also provides for a $3.3 million
letter of credit to secure the project's obligations to pay debt service.
ROXBORO AND SOUTHPORT FACILITIES:
The project debt agreement for the Roxboro and Southport Facilities
consists of a senior note payable that accrues interest at an annual rate equal
to the applicable LIBOR rate, as chosen by the Company, plus 1% through
September 2001 and 1.125% thereafter (7.21% at December 31, 1999). Principal is
payable quarterly with interest payable at the earlier of the maturity of the
applicable LIBOR term or quarterly through June 2002. The senior credit facility
also provides for a $6.5 million letter of credit to secure the project's
obligations to pay debt service.
COTTAGE GROVE AND WHITEWATER FACILITIES:
The project debt of the Cottage Grove and Whitewater Facilities consist of
the following senior secured bonds (dollars in thousands):
<TABLE>
<S> <C>
7.19% Senior Secured Bonds due June 30, 2010................ $105,551
8.08% Senior Secured Bonds due December 30, 2016............ 226,449
--------
$332,000
========
</TABLE>
Interest and principal is payable on these bonds semi-annually on June 30
and December 30 of each year. Principal payments commence on June 30, 2000 for
the 2010 Bonds and December 30, 2010 for the 2016 Bonds.
F-17
<PAGE> 128
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, Cogentrix Mid-America, Inc., a wholly-owned subsidiary,
which holds the Company's interest in the Cottage Grove and Whitewater
Facilities, entered into a credit agreement with a bank to provide for a $25
million revolving credit facility available in a form of the issuance of letters
of credit to support the debt reserve requirements for the 2010 and 2016 Bonds
which vary from $12.9 million to $28.1 million over the term of the Bonds. The
credit agreement also provides for direct advances up to the amount of any
excess of the $25 million commitment over the then debt service reserve
requirement. As of December 31, 1999, letters of credit totalling $14.1 million
were issued and outstanding under the credit agreement.
BATESVILLE FACILITY:
The project debt of the Batesville Facility consists of the following
senior secured bonds (dollars in thousands):
<TABLE>
<S> <C>
7.16% Senior Secured Bonds due January 15, 2014............. $150,000
8.16% Senior Secured Bonds due June 15, 2025................ 176,000
--------
$326,000
========
</TABLE>
Interest and principal is due on these bonds semi-annually on January 15
and July 15 each year. Principal payments commence on July 15, 2001 for the 2014
Bonds, and July 15, 2014 for the 2025 Bonds.
JENKS FACILITY:
The construction loan agreement for the Jenks facility consists of a
construction note payable up to $350 million to construct an 800-megawatt
combined cycle natural gas-fired generating facility. The construction loan will
convert to a term loan, due December 2006, upon commencement of commercial
operations. The loan agreement provides for interest to accrue at an annual rate
equal to the applicable LIBOR rate, as chosen by the Company plus 1.25% to 1.50%
per annum. The loan facility also provides for an $8 million letter of credit to
secure the project's obligation to pay debt service.
In accordance with the terms of the project financing agreements, the
Company is committed to provide an equity contribution to the project subsidiary
of approximately $56.9 million upon the earliest to occur of (a) an event of
default under the project subsidiary's financing agreement, (b) the incurrence
of construction costs after all project financing has been expended or (c) June
24, 2002. The equity contribution commitment will be reduced by approximately
$8.2 million upon the project subsidiary's receipt of a waste water discharge
permit. This equity contribution commitment is supported by a letter of credit,
which is provided under the corporate credit facility. Subsequent to December
31, 1999, the Company received the waste water discharge permit and the equity
contribution commitment was reduced to $48.7 million.
CEA CREDIT FACILITY:
In September 1999, one of the Company's wholly-owned subsidiaries,
Cogentrix Eastern America, Inc., formed to hold the Company's ownership interest
in twelve electric generating facilities acquired in the BGCI Acquisition,
entered into a $75 million, three-year credit facility. The commitment under
this facility reduces to $67.5 million after one year and to $60 million after
two years. As of December 31, 1999, advances totaling $66.4 million were
outstanding under this facility.
INTEREST RATE PROTECTION AGREEMENTS:
The Company has entered into interest rate cap and interest rate swap
agreements (Note 12) to manage its interest rate risk on its variable-rate
project financing debt. The notional amounts of debt
F-18
<PAGE> 129
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
covered by these agreements as of December 31, 1999 and 1998 were approximately
$263,279,000 and $343,112,000, respectively. The agreements effectively change
the interest rate on the portion of debt covered by the notional amounts from a
weighted average variable rate of 7.2% at December 31, 1999 to a weighted
average effective rate of 7.1% at December 31, 1999. These agreements expire at
various dates through July 2006.
SENIOR NOTES (SEE NOTE 15):
On March 15, 1994, Cogentrix Energy, Inc. issued $100 million of
registered, unsecured senior notes due 2004 (the "2004 Notes") in a public debt
offering. The 2004 Notes were priced at par to yield 8.10%. In February 1994,
Cogentrix Energy, Inc. entered into a forward sale of ten-year U.S. Treasury
Notes in order to protect against a possible increase in the general level of
interest rates prior to the completion of the 2004 Notes offering. This hedge
transaction resulted in the recognition of a gain which has been deferred and
included as part of the 2004 Notes on the accompanying consolidated balance
sheets. This deferred gain will be recognized over the term of the 2004 Notes,
reducing the effective rate of interest on the 2004 Notes to 7.5%. The 2004
Notes require annual sinking fund payments beginning in March 2001. The impact
of the sinking fund requirements has been reflected in the schedule of future
maturities of long-term debt contained herein.
On October 20, 1998, Cogentrix Energy, Inc. issued $220 million of
registered, unsecured 8.75% senior notes due 2008 (the "2008 Notes"). These
notes were issued at a discount resulting in an effective rate of approximately
8.82%. On November 25, 1998, the Company issued an additional $35 million of the
2008 Notes at a premium.
In March 1998, in anticipation of the offering of the 2008 Notes, the
Company entered into an interest rate hedge agreement to protect against a
possible increase in the general level of interest rates. The settlement costs
of approximately $22.1 million related to this hedge agreement were deferred and
are recognized over the term of the 2008 Notes, resulting in an overall
effective rate of approximately 9.59%.
CORPORATE CREDIT FACILITY (SEE NOTE 15):
In May 1997, the Company entered into a credit agreement with Australia and
New Zealand Banking Group Limited, as agent for a group of lending banks. In
October 1998, the Company amended and restated the corporate credit facility to
provide for $125 million of revolving credit available through October 2001 in
the form of direct advances or the issuance of letters of credit (the "Corporate
Credit Facility"). Borrowings bear interest at LIBOR plus an applicable margin
based on the credit rating on Cogentrix Energy's 2004 and 2008 Notes. Commitment
fees related to the Corporate Credit Facility are currently 50 basis points per
annum, payable each quarter on the outstanding unused portion of the Corporate
Credit Facility. As of December 31, 1999, the Company has used this credit
facility to issue approximately $117 million of letters of credit in connection
with investments made in electric-generating plants, and two plants under
construction. Subsequent to December 31, 1999, the Corporate Credit Facility was
amended to provide for $175 million of revolving credit and to modify the
covenants. The revolving credit facility has been extended through October 2002.
The project financing debt is substantially non-recourse to the Company (as
parent). The project financing agreements of the Company's subsidiaries, the
indentures for the 2004 and 2008 Senior Notes and the Corporate Credit Facility
agreement contain certain covenants which, among other things, place limitations
on the payment of dividends, limit additional indebtedness, and restrict the
sale of assets. The project financing agreements also require certain cash to be
held with a trustee as security for future debt service payments. In addition,
the Facilities, as well as the long-term contracts which support them, are
pledged as collateral for the Company's obligations under the project financing
agreements.
F-19
<PAGE> 130
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ability of the Company's subsidiaries to pay dividends and management
fees periodically to the Company (as parent) is subject to certain limitations
in their respective financing documents. Such limitations generally require
that: (i) debt service payments be current, (ii) debt service coverage ratios be
met, (iii) all debt service and other reserve accounts be funded at required
levels, and (iv) there be no default or event of default under the relevant
credit documents. Dividends, when permitted, are declared and paid immediately
to the Company at the end of such period.
The Company's ability to pay dividends to its shareholders is restricted by
certain covenants of the Indentures for the 2004 and 2008 Senior Notes and the
Corporate Credit Facility agreement. These covenants did not restrict the
Company's ability to declare dividends of $8.7 million and $7.4 million to the
Company's shareholders for the years ended December 31, 1999 and 1998.
Future maturities of long-term debt at December 31, 1999, excluding the
unamortized issue discounts on commercial paper notes, the net unamortized
premium on senior notes, the unamortized balance of the deferred gains and
losses on hedge transactions and the unamortized fair market value adjustments
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
2000........................................................ $ 90,114
2001........................................................ 105,911
2002........................................................ 144,949
2003........................................................ 54,789
2004........................................................ 78,206
Thereafter.................................................. 1,132,773
----------
$1,606,742
==========
</TABLE>
Cash paid for interest on the Company's long-term debt amounted to
$92,228,000, $76,358,000, and $55,339,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
7. SALES TYPE CAPITAL LEASE
The power purchase agreements acquired by the Company as a result of the LS
Power Acquisition have characteristics similar to leases in that the agreements
confer to the purchasing utility the right to use specific property, plant and
equipment. At the commercial operations date, the partnerships accounted for the
power purchase agreements as "sales-type" capital leases in accordance with SFAS
No. 13, "Accounting for Leases".
The components of the net investment in the leases at December 31, 1999 and
1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Gross Investment in Leases.................................. $1,097,787 $1,140,909
Unearned Income on Leases................................... (597,592) (642,295)
---------- ----------
Net Investment in Leases.................................... $ 500,195 $ 498,614
========== ==========
</TABLE>
Gross investment in leases represents total capacity payments receivable
over the terms of the power purchase agreements, net of executory costs, which
are considered minimum lease payments in accordance with SFAS No. 13.
F-20
<PAGE> 131
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated minimum lease payments over the remaining term of the power
purchase agreements as of December 31, 1999 are as follows (dollars in
thousands):
<TABLE>
<S> <C>
2000........................................................ $ 45,180
2001........................................................ 45,187
2002........................................................ 47,253
2003........................................................ 49,052
2004........................................................ 50,957
Thereafter.................................................. 860,158
----------
Total............................................. $1,097,787
==========
</TABLE>
8. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997, consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current
Federal............................................... $ 980 $ 6,561 $3,619
State................................................. 2,663 3,698 252
------- ------- ------
3,643 10,259 3,871
------- ------- ------
Deferred
Federal............................................... 22,402 13,565 3,942
State................................................. 1,531 617 985
------- ------- ------
23,933 14,182 4,927
------- ------- ------
$27,576 $24,441 $8,798
======= ======= ======
Statements of Income Captions
Tax effect of extraordinary loss...................... $ -- $ (473) $ (956)
Provision for income taxes............................ 27,576 24,914 9,754
------- ------- ------
$27,576 $24,441 $8,798
======= ======= ======
</TABLE>
Reconciliations between the federal statutory income tax rate and the
Company's effective income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of loss carryforwards and federal
tax impact................................................ 4.7 3.4 3.4
Other....................................................... (0.9) 1.4 (0.9)
---- ---- ----
Effective tax rate.......................................... 38.8% 39.8% 37.5%
==== ==== ====
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the accompanying consolidated balance sheets as of December 31,
1999 and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Net current deferred tax liability (asset).................. $ 227 $(2,269)
Net noncurrent deferred tax liability....................... 72,980 52,306
------- -------
Net deferred tax liability.................................. $73,207 $50,037
======= =======
</TABLE>
F-21
<PAGE> 132
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. Significant components of the
Company's net deferred tax liability as of December 31, 1999 and 1998 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation/amortization and book/tax basis
differences............................................ $ 56,436 $ 59,435
Book/tax timing differences on joint venture interest..... 74,968 34,043
Other..................................................... 21,663 10,124
-------- --------
153,067 103,602
-------- --------
Deferred tax assets:
Depreciation/amortization and book/tax basis
differences............................................ 14,687 13,463
Operating loss carryforwards.............................. 20,202 3,852
Accrued expenses not currently deductible................. 7,220 7,211
Alternative minimum tax credit carryforwards.............. 24,002 22,867
Other..................................................... 13,749 6,172
-------- --------
79,860 53,565
-------- --------
Net deferred tax liability................................ $ 73,207 $ 50,037
======== ========
</TABLE>
As of December 31, 1999, the Company has net federal operating loss
carryforwards available to offset future federal taxable income of approximately
$25,082,000 which expire in 2019. The Company also has state net operating loss
carryforwards available to offset future state taxable income of approximately
$140,431,000 which expire from 2005 to 2019. In addition, the Company has
alternative minimum tax credit carryforwards of approximately $24,002,000 which
are available to reduce future federal regular income taxes, if any, over an
indefinite period.
Cash paid for income taxes amounted to approximately $2,142,000,
$11,367,000, and $12,127,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
9. LEASE COMMITMENTS
The Company leases an office building and land from Equipment Leasing
Partners ("ELP"), a partnership formed by several of the Company's shareholders,
with remaining initial lease terms of 3 years and 47 years, respectively. The
Company also leases certain equipment from ELP used to transport and handle coal
and ash at certain Facilities. Future minimum lease payments under the
agreements with ELP and agreements with other equipment providers at December
31, 1999 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
YEAR ENDED EQUIPMENT
DECEMBER 31, ELP PROVIDERS TOTAL
------------ ------ --------- ------
<S> <C> <C> <C>
2000....................................................... $1,575 $182 $1,757
2001....................................................... 1,375 96 1,471
2002....................................................... 1,348 -- 1,348
2003....................................................... 1,118 -- 1,118
2004....................................................... 1,056 -- 1,056
Thereafter................................................. 5,076 -- 5,076
</TABLE>
F-22
<PAGE> 133
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Long-Term Contracts -- The Company has several long-term contractual
commitments that comprise a significant portion of its financial obligations.
These contractual commitments with original terms varying in length from 10 to
30 years are the basis for a major portion of the revenue and operating expenses
recognized by the Company and provide for specific services to be provided at
fixed or indexed prices. The major long-term contractual commitments are as
follows:
(i) The Company is required to sell electricity generated by each
Facility to a Utility and the Utility is required to purchase this
electricity or make capacity payments at pre-established or annually
escalating prices.
(ii) The Company is required to sell and the Steam Purchaser is
required to purchase a minimum amount of process steam from each Facility
for each contract year. The Steam Purchaser is generally required to
purchase its entire steam requirements from the Company. The purchase price
of steam under these contracts escalates annually or is fixed and
determinable during the term of the contracts.
(iii) The Company is obligated to purchase and fuel suppliers are
required to supply all of the fuel requirements of each Facility. Fuel
requirements include the quality and estimated quantity of fuel required to
operate each Facility. The price of fuel escalates annually for the term of
each contract. In addition, the Company has transportation contracts with
various entities to deliver the fuel to each Facility. These contracts also
provide for annual escalations throughout the term of the contracts.
Effective September 1996, the Company amended the power sales agreements on
its Lumberton, Elizabethtown, Kenansville, Roxboro and Southport Facilities.
These amendments provide the purchasing utility additional rights related to the
dispatch of the Facilities and eliminated the purchase options which the utility
held related to the Roxboro and Southport Facilities.
The Company has also amended the power sales agreement on its Portsmouth
Facility and Hopewell Facility, effective December 1997 and February 1998,
respectively. These amendments provide the purchasing utility additional rights
related to the dispatch of these Facilities. The terms of Portsmouth's amended
power sales agreement also eliminated Portsmouth's accrued obligation to return
previously disallowed capacity payments to the purchasing utility.
Under the terms of certain contracts with electricity purchasers, the
Company is obligated to pay up to $37,350,000 in aggregate liquidated damages to
the respective electricity purchasers if the respective facility does not
demonstrate certain operating and reliability standards. Banks have issued
letters of credit, non recourse to Cogentrix Energy, Inc., in favor of the
electricity purchaser which secure the Company's obligations to the electricity
purchaser under this provision of the contracts.
Under certain power sales agreements, the Utility is permitted to reduce
future payments or recover certain payments previously made upon the occurrence
of certain events, which include a state utility commission prohibiting the
Utility from recovering such payments made under such power sales agreement.
However, in most cases, the Utility is prohibited from reducing or recovering
such payments prior to the maturity date of the original project financing debt.
Management Incentive Compensation Plans -- The Company has entered into
various incentive compensation plans with certain employees which provide for
compensation to the employees (during the period of employment) equal to a
percentage, as determined by the board of directors, of the Company's income
before income taxes or certain subsidiaries' cash flow. The Company incurred
expense under these plans of approximately $8,236,000, $5,758,000, and
$9,123,000 for the fiscal years ended December 31, 1999, 1998 and 1997,
respectively. During the fiscal year ended December 31, 1997, the Company
incurred
F-23
<PAGE> 134
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$10.7 million of expenses in connection with the restructuring or termination of
these incentive compensation plans.
Employee Benefit Plans -- The Company sponsors a defined contribution
401(k) savings plan for its full-time employees. The Company matches employees'
contributions to the plan up to specified limitations. Company contributions to
the plan were approximately $1,664,000, $1,435,000, and $1,483,000 for the
fiscal years ended December 31, 1999, 1998 and 1997, respectively.
The Company has a non-qualified Supplemental Retirement Plan agreement with
certain directors and officers. Under the plan, the participants may elect to
have up to 35% of their compensation deferred. In addition, the Company will
credit the participant's deferral account, up to specified limitations, with an
amount equal to the participant deferral. The participants' account balances are
distributable upon termination of employment or death. The Company purchases
insurance on the participants' lives (cash surrender value of approximately
$10,350,000 and $4,853,000 at December 31, 1999 and 1998, respectively) which is
used to fully fund the liability under the plan on an annual basis. The Company
is owner and beneficiary of the policies.
Guarantees -- In connection with its non-recourse project financings and
certain other subsidiary contracts, the Company and its subsidiary, Cogentrix,
Inc. have expressly undertaken certain limited obligations and commitments, most
of which will only be effective or will be terminated upon the occurrence of
future events. These obligations and commitments include guarantees by
Cogentrix, Inc. of a certain subsidiary's obligation capped at $1.5 million and
certain subsidiaries' performance under their contracts with one Utility. In
addition, Cogentrix Energy, Inc. has indemnified the project lenders of certain
subsidiaries for any cash deficits such subsidiaries could experience as a
result of incurring certain costs, subject to an aggregate cap of $40.6 million.
Cogentrix Delaware Holdings, Inc., a wholly-owned subsidiary of Cogentrix
Energy, Inc., has guaranteed all of the existing and future senior, unsecured
outstanding indebtedness for borrowed money of Cogentrix Energy, Inc. This
guarantee, provided for in the credit agreement for the Corporate Credit
Facility, expires by its terms in 2002, unless the term of the credit agreement
is extended. The agreement under which the guarantee was given provides that the
terms or provisions of the guarantee may be waived, amended, supplemented or
otherwise modified at any time and from time to time by Cogentrix Delaware
Holdings, Inc. and the agent bank for the lenders under the credit agreement.
Turbine Deposits -- The Company has entered into commitments with a turbine
supplier to purchase a specified number of turbines with specified delivery
dates. The Company has made approximately $11,205,000 in non-refundable deposits
related to these commitments through December 31, 1999. The Company expects to
make additional deposits of approximately $82.9 million, of which approximately
$75.8 million would be repaid or funded from proceeds of financing the Company
anticipates closing.
Claims and Litigation -- One of the Company's indirect, wholly-owned
subsidiaries is party 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 the subsidiary in
the defense of such claims--that the ultimate resolution of these claims should
not have a material adverse effect on our consolidated financial position or
results of operations or on Cogentrix Energy's ability to generate sufficient
cash flow to service its outstanding debt.
In addition to the litigation described above, the Company experiences
other routine litigation in the normal course of business. The Company's
management is of the opinion that none of this routine litigation will have a
material adverse impact on its consolidated financial position or results of
operations.
F-24
<PAGE> 135
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FUNDS HELD BY TRUSTEES
The majority of revenue received by the Company is required by the terms of
various credit agreements to be deposited in accounts administered by certain
banks (the "Trustees"). The Trustees invest funds held in these accounts at the
direction of the Company. These accounts are established for the purpose of
depositing all receipts and monitoring all disbursements of each Facility. In
addition, special accounts are established to provide debt service payments and
income taxes. The funds in these accounts are pledged as security under the
project financing agreements of each subsidiary.
Funds held by the Trustees were approximately $118,494,000 and $56,637,000
at December 31, 1999 and 1998, respectively. Debt service account balances are
reflected as restricted cash, whereas all other accounts are classified as cash
and cash equivalents in the accompanying consolidated balance sheets.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The Company invests its temporary cash balances in U.S. government
obligations, corporate obligations and financial instruments of highly-rated
financial institutions. A substantial portion of the Company's accounts
receivable are from two major regulated electric utilities and the associated
credit risks are limited.
The carrying values reflected in the accompanying consolidated balance
sheets at December 31, 1999 and 1998, approximate the fair values for cash and
cash equivalents and variable-rate long-term debt. Investments in certificates
of deposit and restricted investments are included in restricted cash and are
reported at fair market value, which approximates cost, at December 31, 1999,
and 1998. The fair value of the Company's fixed-rate borrowings at December 31,
1999 and 1998 is $30,480,000 lower and $84,194,000 greater than the historical
carrying value of $1,133,181,000 and $810,422,000, respectively. In making such
calculations, the Company utilized credit reviews, quoted market prices and
discounted cash flow analyses, as appropriate.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to the Company's interest rate protection
agreements (see Note 6). The Company does not obtain collateral or other
security to support such agreements but continually monitors its positions with,
and the credit quality of, the counterparties to such agreements. As of December
31, 1999 and 1998, the net unrealized gain (loss) on the interest rate
protection agreements was $2,325,000 and $(6,086,000), respectively.
13. RELATED PARTY TRANSACTIONS
The Company has notes receivable and advances due from shareholders and an
affiliated entity of approximately $1,105,000 and $405,000 as of December 31,
1999 and 1998, respectively. The notes receivable bear interest at various
rates, all of which are in excess of the prime rate in effect from time to time,
and have specified repayment terms. These notes have been primarily classified
as notes receivable in the accompanying consolidated balance sheets.
The Company leases certain equipment, its principal executive office
building and land from an affiliated entity. Payments by the Company under these
lease agreements were approximately $1,887,000, $1,694,000, and $1,851,000, for
the years ended December 31, 1999, 1998 and 1997, respectively.
A shareholder, director and former executive officer was a participant in
management incentive compensation plans (see Note 10) while employed as an
executive officer of the Company and continues to receive incentive compensation
annually pursuant to such plans equal to a percentage of net cash flow, as
defined, of certain subsidiaries. Total compensation to the shareholder under
the consulting agreement and incentive compensation plans was approximately
$290,000, $278,000, and $324,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
F-25
<PAGE> 136
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1999, the Company entered into a consulting
agreement with a shareholder, director and former executive officer to provide
consulting services related to general business matters. The agreement provides
for monthly payments of $29,202 through December 31, 2000, monthly payments of
$18,251 for January 2001 through December 2001, monthly payments of $15,644 for
January 2002 through December 2003 and monthly payments of $10,429 for January
2004 through December 2004.
Three shareholders, who were also employees of the Company, terminated
their participation in certain management incentive compensation plans during
the fiscal year ended December 31, 1997 (see Note 10). The Company recognized
$3.5 million of expense in the year ended December 31, 1997 related to the
termination of the shareholders' participation in these plans.
14. SUBSEQUENT EVENT
RATHDRUM, IDAHO FACILITY
On March 9, 2000, Rathdrum Power, LLC ("Rathdrum Power") entered into a
credit agreement with a bank, as agent for a group of lending banks, and a
financial institution which provides up to $126.0 million in borrowings and a
$5.0 million debt service reserve letter of credit. Proceeds from the credit
agreement will be used to construct an approximate 270 megawatt combined-cycle
natural gas-fired generating facility located in Rathdrum, Idaho. Rathdrum Power
is owned 51% by a wholly-owned, project subsidiary of the Company and 49% by
Avista Power, Inc. The Company has committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (a) an event of default under the project subsidiary's financing
agreement, (b) the incurrence of construction costs after all project financing
has been expended, or (c) October 1, 2002. This equity contribution commitment
is supported by a letter of credit, which is provided under Cogentrix Energy's
corporate credit facility. An indirect, wholly-owned subsidiary of Cogentrix
Energy has entered into an engineering, procurement and construction contract
(the "EPC Contract") with Rathdrum Power to construct the Rathdrum facility.
Cogentrix Energy has guaranteed this subsidiary's obligations under the EPC
Contract. The Company expects the Rathdrum facility, which the Company will
operate, to begin operation in late 2001. Electricity generated by the Rathdrum
facility will be sold under a 25 year power purchase agreement with Avista
Turbine Power, Inc. ("Avista Turbine"). In addition, Avista Turbine will supply
fuel to the Rathdrum facility.
The credit agreement provides borrowings up to $49.0 million from the
financial institution and $77.0 million from the banks. The financial
institution loans accrue interest at 8.56% per annum and have a term equal to
the construction period plus 25 years and the bank loans accrue interest at the
applicable LIBOR rate plus an applicable margin ranging from 1.25% to 2.25% and
will have a term equal to the construction period plus periods up to 18 years.
15. SUBSEQUENT EVENTS (UNAUDITED)
DOMINICAN REPUBLIC FACILITY
On April 18, 2000, La Compania de Electricidad de San Pedro de Macoris
("Macoris") entered into credit facilities with a group of lending banks and
financial institutions which provide up to $232.5 million which will be used to
construct an approximate 300 megawatt oil-fired, combined-cycle electric
generating facility located in the province of San Pedro de Macoris, Dominican
Republic. Macoris is owned 65% by a wholly-owned project subsidiary of the
Company, and 35% by Commonwealth Development Corporation of Great Britain. The
Company has committed to provide an equity contribution to the project
subsidiary of approximately $50.3 million upon the earliest to occur of (a) an
event of default under the project subsidiary's credit facility, (b) completion
of construction of the Dominican Republic facility, or (c) February 2003. This
equity contribution is supported by a letter of credit, which is provided under
Cogentrix Energy's corporate credit facility. The Company expects the Dominican
Republic facility, which
F-26
<PAGE> 137
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company will operate, to commence commercial operations in early 2002.
Electricity generated by the Dominican Republic facility will be sold under a 20
year power purchase agreement with Corporacion Dominicana de Electricidad
("CDE"). Macoris has entered into an agreement with the government of the
Dominican Republic which provides for government assistance and assurances
related to, among other things, the obtaining of certain rights, licenses and
permits, seaward access, importation of fuel and equipment, foreign currency
exchange and transfer of funds. The government has also executed an irrevocable
and unconditional guarantee for the full and prompt payment of all of CDE's
payment obligations to Macoris under the power purchase agreement.
The Macoris loans will be provided under the following facilities: a $72.0
million bank loan, accruing interest per annum at the applicable LIBOR rate plus
an applicable margin ranging from 1.75% to 2.75% during the 12-year loan life,
$83.3 million of fixed rate loans, guaranteed by certain export credit agencies,
accruing interest per annum at fixed rates ranging from 7.71% to 7.78% during
the 14-year loan lives, a $12.0 million unguaranteed loan accruing interest per
annum at either a fixed rate or LIBOR rate, as chosen by the Company, plus an
applicable margin during the 8-year life and a $65.0 million institutional loan
accruing interest at the 10-year U.S. Treasury rate plus 4% during the 17-year
loan life.
STERLINGTON, LOUISIANA FACILITY
On August 17, 2000, Ouachita Power, LLC ("Ouachita"), an indirect
wholly-owned subsidiary of the Company, entered into a credit agreement with a
bank, as agent for several banks and other financial institutions which provides
up to $460.0 million in borrowings, a credit support letter of credit in the
maximum amount of $30.0 million, and a $10.0 million debt service reserve letter
of credit. The proceeds of the borrowing will be used to construct an
approximate 816 megawatt, combined-cycle, natural gas-fired electric generating
facility located near the city of Sterlington, Louisiana. The Company has
committed to provide an equity contribution to the project subsidiary of
approximately $61.6 million upon the earliest to occur of (a) an event of
default under the project financing agreements, (b) the incurrence of
construction costs after all project financing has been expended, or (c) June 1,
2002. The equity contribution commitment is supported by a letter of credit,
which is provided under Cogentrix Energy's corporate credit facility. The
Company expects the Ouachita facility, which the Company will operate, to begin
operations in mid-2002. Electricity generated by the facility will be sold under
a 15-year power purchase agreement with Dynegy Power Marketing Inc ("Dynegy").
An affiliate of Dynegy will supply fuel to the Ouachita facility.
The borrowings under the credit agreement accrue interest per annum at an
annual rate equal to the applicable LIBOR rate plus 1.25% during the
construction period. The construction loans convert to term loans on the
earliest to occur of (a) the commencement of commercial operations, or (b) June
1, 2002. The term loans accrue interest per annum at an annual rate equal to the
applicable LIBOR rate plus 1.30% to 1.63%. The term loans mature 5 years after
the commencement of commercial operations.
RINGGOLD, PENNSYLVANIA FACILITY
On September 1, 2000, the Company received approximately $18.0 million as
consideration for the execution of the Penelec Termination Agreement. A portion
of the proceeds were used to retire the entire amount of the project
subsidiary's outstanding debt. In conjunction with this termination, the Company
discontinued operation of the facility. The Company expects to record a gain of
approximately $13.0 million, net of transaction costs.
CORPORATE CREDIT FACILITY AMENDMENT
During September 2000, the Corporate Credit Facility was amended to
increase available commitments from $175.0 million to $250.0 million, to modify
certain covenants, to reduce the
F-27
<PAGE> 138
COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment fee to 37.5 basis points per annum when greater than 50% of the
available commitments are utilized and to extend the facility through October
2003.
ADDITIONAL SENIOR NOTES DUE 2008
On September 22, 2000, the Company privately placed a total of $100.0
million of additional 2008 Notes. The Company sold these additional 2008 Notes
at a discount resulting in an effective rate of approximately 8.86%.
TURBINE COMMITMENT
During October 2000, we entered into an agreement with a turbine supplier
to purchase a specified number of turbines with specified delivery dates. The
Company expects to make deposits of approximately $66.5 million which would be
repaid from proceeds of financings the Company anticipates closing.
NEW ACCOUNTING PRONOUNCEMENT
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements". In June 2000 the SEC amended SAB 101 to
delay the implementation date until no later than the fourth fiscal quarter of
fiscal year beginning after December 15, 1999. SAB 101, which the Company will
implement by the fourth quarter of 2000, provides the SEC Staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company does not expect the adoption of SAB 101 to have
a material impact on its results of operations, financial position or cash
flows.
F-28
<PAGE> 139
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED BALANCE SHEETS OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 35,243 $ 14,884
Restricted cash........................................... 7,549 7,351
Accounts receivable....................................... 436 1,313
Accounts receivable from affiliates, net.................. 37,678 20,997
Other current assets...................................... 279 200
-------- --------
Total current assets.............................. 81,185 44,745
INVESTMENT IN SUBSIDIARIES (ON THE EQUITY METHOD)........... 428,423 408,780
EQUIPMENT, net of accumulated depreciation.................. 2,257 2,661
OTHER ASSETS:
Income tax benefit........................................ 77,981 59,020
Deferred financing costs, net of accumulated
amortization........................................... 7,991 8,547
Notes receivable from affiliates.......................... 4,891 5,801
Other..................................................... 30,619 5,934
-------- --------
Total other assets................................ 121,482 79,302
-------- --------
Total Assets...................................... $633,347 $535,488
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 167 $ 7,452
Accrued liabilities....................................... 65,417 25,346
Accrued dividends......................................... 8,683 7,398
-------- --------
Total current liabilities......................... 74,267 40,196
LONG-TERM LIABILITIES:
Notes payable to affiliates............................... 76,410 54,528
Long-term debt............................................ 337,504 335,787
Other..................................................... 22,571 17,114
-------- --------
Total long-term liabilities....................... 436,485 407,429
-------- --------
Total liabilities................................. 510,752 447,625
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock.............................................. 130 130
Accumulated earnings...................................... 122,465 87,733
-------- --------
Total shareholders' equity........................ 122,595 87,863
-------- --------
Total Liabilities and Shareholders' Equity........ $633,347 $535,488
======== ========
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
F-29
<PAGE> 140
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF INCOME OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INCOME:
Development and construction management fees.............. $ 618 $ 4,471 $ 5,329
Operating management fees................................. 23,618 22,836 20,002
-------- -------- --------
Total income...................................... 24,236 27,307 25,331
-------- -------- --------
OPERATING EXPENSES:
General, administrative and development expenses.......... 37,981 34,310 40,765
Depreciation and amortization............................. 2,115 1,467 1,304
-------- -------- --------
Total operating expenses.......................... 40,096 35,777 42,069
-------- -------- --------
OPERATING LOSS.............................................. (15,860) (8,470) (16,738)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (34,466) (15,018) (10,635)
Investment and other income............................... 1,456 236 2,137
-------- -------- --------
Total other expense............................... (33,010) (14,782) (8,498)
-------- -------- --------
LOSS BEFORE INCOME TAXES.................................... (48,870) (23,252) (25,236)
INCOME TAX BENEFIT.......................................... 18,962 9,255 9,413
EQUITY IN EARNINGS OF SUBSIDIARIES.......................... 73,323 50,986 30,604
-------- -------- --------
NET INCOME.................................................. $ 43,415 $ 36,989 $ 14,781
======== ======== ========
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
F-30
<PAGE> 141
SCHEDULE I
COGENTRIX ENERGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS OF REGISTRANT
FOR THE YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES............. $ 94,508 $ 78,803 $36,860
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted investments........................ -- 250 19,750
Equipment additions....................................... (389) (2,485) (201)
Investments in subsidiaries............................... (88,193) (301,077) (46,239)
-------- --------- -------
Net cash flows used in investing activities............... (88,582) (303,312) (26,690)
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayment) from notes payable to affiliate,
net.................................................... 21,882 10,123 (10,878)
Increase in restricted cash............................... (198) (4,940) (22)
Proceeds from issuance of long term debt.................. -- 233,705 --
Decrease (increase) in notes receivable from affiliates... 910 1,325 (3,612)
Increase in deferred financing costs...................... (763) (6,944) (661)
Dividends paid............................................ (7,398) (2,140) (5,000)
-------- --------- -------
Net cash flows provided by (used in) financing
activities............................................. 14,433 231,129 (20,173)
-------- --------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 20,359 6,620 (10,003)
CASH AND CASH EQUIVALENTS, beginning of year................ 14,884 8,264 18,267
-------- --------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 35,243 $ 14,884 $ 8,264
======== ========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH DIVIDENDS RECEIVED................................... $141,873 $ 97,605 $59,291
======== ========= =======
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
F-31
<PAGE> 142
SCHEDULE I
COGENTRIX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
1. SIGNIFICANT ACCOUNTING POLICIES
These condensed notes should be read in conjunction with the consolidated
financial statements and accompanying notes.
Accounting for Subsidiaries -- Cogentrix Energy, Inc. has accounted for its
investment in and earnings of its subsidiaries on the equity method in the
condensed financial information.
Income Taxes -- The benefit for income taxes has been computed based on the
Company's consolidated effective income tax rate.
Change of Fiscal Year -- Effective January 1, 1998, Cogentrix Energy, Inc.
changed its fiscal year to commence on January 1 and conclude on December 31 of
each year. Cogentrix Energy, Inc.'s fiscal year previously commenced each July
1, concluding on June 30 of the following calendar year. Cogentrix Energy has
restated its financial statements for the years ending December 31, 1997 fiscal
year to a calendar year basis.
2. LONG-TERM DEBT
Senior Notes
On March 15, 1994, Cogentrix Energy, Inc. issued $100 million of
registered, unsecured senior notes due 2004 (the "2004 Notes") in a public debt
offering. The 2004 Notes were priced at par to yield 8.10%. In February 1994,
Cogentrix Energy, Inc. entered into a forward sale of ten-year U.S. Treasury
Notes in order to protect against a possible increase in the general level of
interest rates prior to the completion of the 2004 Notes offering. This hedge
transaction resulted in the recognition of a gain which has been deferred and
included as part of the 2004 Notes on the accompanying consolidated balance
sheets. This deferred gain will be recognized over the term of the 2004 Notes,
reducing the effective rate of interest on the 2004 Notes to 7.5%. The 2004
Notes require annual sinking fund payments beginning in March 2001. The impact
of the sinking fund requirements has been reflected in the schedule of future
maturities of long-term debt contained herein.
On October 20, 1998, Cogentrix Energy, Inc. issued $220 million of
registered, unsecured 8.75% senior notes due 2008 (the "2008 Notes"). These
notes were issued at a discount resulting in an effective rate of approximately
8.824%. On November 25, 1998, the Company issued an additional $35 million of
the 2008 Notes at a premium. See Note 15 to the consolidated financial
statements for additional discussion.
In March 1998, in anticipation of the offering of the 2008 Notes, the
Company entered into an interest rate hedge agreement to protect against a
possible increase in the general level of interest rates. The settlement costs
of approximately $22.1 million related to this hedge agreement were deferred and
will be recognized over the term of the 2008 Notes resulting in an overall
effective rate of approximately 9.59%.
F-32
<PAGE> 143
COGENTRIX ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT -- (CONTINUED)
Future maturities of long-term debt at December 31, 1999, excluding the
unamortized balance of the net deferred hedge loss and excluding the net
unamortized premium, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
2000........................................................ $ 0
2001........................................................ 20,000
2002........................................................ 20,000
2003........................................................ 20,000
2004........................................................ 20,000
Thereafter.................................................. 275,000
--------
$355,000
========
</TABLE>
Corporate Credit Facility
In May 1997, the Company entered into a credit agreement with Australia and
New Zealand Banking Group Limited, as agent for a group of lending banks. In
October 1998, the Company amended and restated the corporate credit facility to
provide for $125 million of revolving credit available through October 2002 in
the form of direct advances or the issuance of letters of credit (the "Corporate
Credit Facility"). Borrowings bear interest at LIBOR plus an applicable margin
based on the credit rating on Cogentrix Energy's 2004 and 2008 Notes. Commitment
fees related to the Corporate Credit Facility are currently 50 basis points per
annum, payable each quarter on the outstanding unused portion of the Corporate
Credit Facility. As of December 31, 1999, the Company has used this credit
facility to issue approximately $117 million of letters of credit in connection
with investments made in electric-generating plants, and two plants under
construction. Subsequent to December 31, 1999, the Corporate Credit Facility was
amended to provide for $175 million of revolving credit available through
October 2002. See Note 15 to the consolidated financial statements for
additional discussion.
Cogentrix Delaware Holdings, Inc., a wholly-owned subsidiary of Cogentrix
Energy, has guaranteed all of the existing and future senior, unsecured
outstanding indebtedness for borrowed money of Cogentrix Energy. This guarantee,
provided for in the credit agreement for the Corporate Credit Facility, expires
by its terms in 2002, unless the term of the credit agreement is extended. The
agreement under which the guarantee was given provides that the terms or
provisions of the guarantee may be waived, amended, supplemented or otherwise
modified at any time and from time to time by Cogentrix Delaware Holdings, Inc.
and the agent bank for the lenders under the credit agreement.
F-33
<PAGE> 144
INDEX TO
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-35
Consolidated Balance Sheets at June 30, 2000 (unaudited),
December 31, 1999 and December 31, 1998................... F-36
Consolidated Statements of Income for the Six Months Ended
June 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999, 1998 and 1997.......................... F-37
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1999, 1998 and 1997...... F-38
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) and the Years
Ended December 31, 1999, 1998 and 1997.................... F-39
Notes to the Consolidated Financial Statements.............. F-40
</TABLE>
F-34
<PAGE> 145
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COGENTRIX DELAWARE HOLDINGS, INC.:
We have audited the accompanying consolidated balance sheets of Cogentrix
Delaware Holdings, Inc. (a Delaware corporation) and subsidiary companies as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cogentrix Delaware Holdings,
Inc. and subsidiary companies as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 9, 2000.
F-35
<PAGE> 146
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
2000 1999 1998
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 50,277 $ 44,914 $ 33,027
Restricted cash.......................................... 20,100 74,098 33,253
Accounts receivable...................................... 64,356 60,930 64,637
Inventories.............................................. 22,612 20,137 18,697
Other current assets..................................... 2,327 1,972 5,018
---------- ---------- ----------
Total current assets............................. 159,672 202,051 154,632
NET INVESTMENT IN LEASES................................... 499,990 500,195 498,614
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $278,112, $259,710 and $223,481,
respectively............................................. 417,190 435,681 470,853
LAND AND IMPROVEMENTS...................................... 6,324 5,757 3,974
CONSTRUCTION IN PROGRESS................................... 482,513 347,064 --
DEFERRED FINANCING COSTS, net of accumulated amortization
of $24,577, $20,950 and $12,371, respectively............ 43,440 43,324 28,419
NATURAL GAS RESERVES....................................... 416 744 1,557
INVESTMENTS IN UNCONSOLIDATED AFFILIATES................... 334,716 325,504 251,312
PROJECT DEVELOPMENT COSTS.................................. 118 1,763 --
NOTE RECEIVABLE FROM PARENT................................ 109,897 76,410 57,348
OTHER ASSETS............................................... 53,486 52,326 50,234
---------- ---------- ----------
$2,107,762 $1,990,819 $1,516,943
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................ $ 90,254 $ 90,114 $ 86,256
Accounts payable......................................... 73,230 55,973 27,766
Payable to Parent........................................ 7,969 10,365 15,537
Income taxes payable to Parent........................... 21,968 16,745 38,511
Other accrued liabilities................................ 27,339 31,837 15,936
---------- ---------- ----------
Total current liabilities........................ 220,760 205,034 184,006
LONG-TERM DEBT............................................. 1,261,324 1,181,269 791,397
DEFERRED INCOME TAXES...................................... 143,045 129,193 91,460
MINORITY INTERESTS......................................... 68,822 69,608 61,167
OTHER LONG-TERM LIABILITIES................................ 14,724 15,300 15,879
---------- ---------- ----------
1,708,675 1,600,404 1,143,909
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(SEE NOTES 9, 13 AND 14)
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000 shares authorized...... 1 1 1
Additional paid-in capital from Parent................... 627,579 610,458 522,381
Accumulated other comprehensive loss..................... (1,076) (1,144) (15)
Accumulated deficit...................................... (227,417) (218,900) (149,333)
---------- ---------- ----------
399,087 390,415 373,034
---------- ---------- ----------
$2,107,762 $1,990,819 $1,516,943
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated balance sheet.
F-36
<PAGE> 147
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND EARNINGS PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Electric.................................. $159,968 $145,366 $294,185 $293,083 $307,104
Steam..................................... 14,488 12,911 25,236 25,043 26,123
Lease..................................... 22,385 22,331 44,697 34,715 --
Service................................... 26,601 22,894 43,888 34,470 --
Income from unconsolidated investment in
power projects, net of premium
amortization........................... 26,567 10,732 25,464 6,474 1,412
Other..................................... 8,899 11,092 18,964 15,908 13,264
-------- -------- -------- -------- --------
258,908 225,326 452,434 409,693 347,903
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Fuel...................................... 53,746 35,463 81,835 78,420 118,731
Cost of service........................... 28,724 26,827 47,226 37,018 --
Operations and maintenance................ 49,410 47,342 93,669 95,152 91,849
General, administrative and development... 250 374 1,502 515 2,005
Depreciation and amortization............. 20,840 20,687 41,583 40,988 40,429
-------- -------- -------- -------- --------
152,970 130,693 265,815 252,093 253,014
-------- -------- -------- -------- --------
OPERATING INCOME............................ 105,938 94,633 186,619 157,600 94,889
OTHER INCOME (EXPENSE):
Interest expense.......................... (32,065) (30,675) (63,255) (61,802) (44,849)
Investment and other income............... 3,645 2,974 12,523 9,687 9,240
Equity in net loss of affiliates, net..... -- -- -- (2,967) (1,190)
-------- -------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS....... 77,518 66,932 135,887 102,518 58,090
MINORITY INTERESTS IN INCOME................ (5,826) (6,482) (14,752) (12,458) (4,672)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS...................................... 71,692 60,450 121,135 90,060 53,418
PROVISION FOR INCOME TAXES.................. (27,816) (24,144) (48,829) (35,844) (20,031)
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS............ 43,876 36,306 72,306 54,216 33,387
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT AND
MINORITY INTEREST......................... -- -- -- (743) (1,502)
-------- -------- -------- -------- --------
NET INCOME.................................. $ 43,876 $ 36,306 $ 72,306 $ 53,473 $ 31,885
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss....... $ 43,876 $ 36,306 $ 72,306 $ 54,216 $ 33,387
Extraordinary loss..................... -- -- -- (743) (1,502)
-------- -------- -------- -------- --------
$ 43,876 $ 36,306 $ 72,306 $ 53,473 $ 31,885
======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 1,000 1,000 1,000 1,000 1,000
======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-37
<PAGE> 148
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
STOCK CAPITAL INCOME DEFICIT INCOME (LOSS) TOTAL
------ ---------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996...................... $1 $178,875 $ -- $ (83,399) $ -- $ 95,477
Comprehensive income
Net income................ -- -- 31,885 31,885 -- --
Other comprehensive
income, net of tax:
Unrealized holding
losses during year... -- -- 26 -- 26 --
-------
Comprehensive
income:........... $31,911 31,911
=======
Capital contributions....... -- 45,194 -- -- 45,194
Dividends paid to Cogentrix
Energy, Inc............... -- -- (53,688) -- (53,688)
-- -------- --------- ------- ---------
Balance, December 31,
1997...................... 1 224,069 (105,202) 26 118,894
Comprehensive income
Net income................ -- -- 53,473 53,473 -- --
Other comprehensive
income, net of tax:
Realized gains included
in net income........ -- -- (26) -- (26) --
Unrealized holding
losses during year... -- -- (15) -- (15) --
-------
Comprehensive
income:........... $53,432 53,432
=======
Capital contributions....... -- 298,312 -- -- 298,312
Dividends paid to Cogentrix
Energy, Inc............... -- -- -- (97,604) -- (97,604)
-- -------- --------- ------- ---------
Balance, December 31,
1998...................... 1 522,381 (149,333) (15) 373,034
Comprehensive income
Net income................ -- -- 72,306 72,306 -- --
Other comprehensive loss,
net of tax:
Unrealized holding
losses during year... -- -- (1,144) -- (1,144) --
Realized gains included
in net income........ -- -- 15 -- 15 --
-------
Comprehensive
income:........... $71,177 71,177
=======
Capital contributions....... -- 88,077 -- -- 88,077
Dividends paid to Cogentrix
Energy, Inc............... -- -- (141,873) -- (141,873)
-- -------- --------- ------- ---------
Balance, December 31,
1999...................... $1 $610,458 $(218,900) $(1,144) $ 390,415
== ======== ========= ======= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-38
<PAGE> 149
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND THE YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------
2000 1999 1999 1998 1997
--------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 43,876 $ 36,306 $ 72,306 $ 53,473 $ 31,885
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization............... 20,840 20,687 41,583 40,988 40,429
Deferred income taxes....................... 13,807 11,943 40,962 11,083 (7,290)
Extraordinary loss on early extinguishments
of debt.................................. -- -- -- 2,145 2,458
Minority interest in income, net of
dividends................................ (807) 3,028 8,461 (14,494) 1,935
Equity in net (income) loss of
unconsolidated affiliates................ (24,383) (10,290) (25,464) (3,507) 126
Dividends received from unconsolidated
affiliates............................... 16,833 13,090 26,647 13,669 15,354
Minimum lease payments received............. 22,590 21,558 43,116 31,500 --
Amortization of unearned lease income....... (22,385) (22,331) (44,697) (33,473) --
(Increase) decrease in accounts
receivable............................... (3,426) (4,495) 3,968 (6,805) (552)
(Increase) decrease in inventories.......... (2,475) 1,321 (627) (1,029) 4,385
Increase (decrease) in accounts payable..... 17,257 (4,111) 6,339 209 (6,771)
Increase (decrease) in accrued
liabilities.............................. (1,671) 10,531 (26,390) 4,294 5,537
Increase (decrease) in other, net........... 1,511 (1,353) (1,884) 8,260 18,622
--------- -------- --------- --------- ---------
Net cash flows provided by operating
activities.................................... 81,567 75,884 144,320 106,313 106,118
--------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions..... (999) (346) (3,754) (5,176) (2,142)
Decrease in marketable securities........... -- -- -- 42,118 1,603
Investments in unconsolidated affiliates.... (1,662) (39,852) (76,827) (180,292) (61,063)
Acquisition of facilities, net of cash
acquired................................. -- -- -- (155,324) --
Construction in progress and project
development costs........................ (133,804) -- (52,318) -- --
Decrease (increase) in restricted cash...... 53,998 (1,075) 12,441 27,771 1,554
--------- -------- --------- --------- ---------
Net cash flows used in investing activities..... (82,467) (41,273) (120,458) (270,903) (60,048)
--------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable and long-term
debt..................................... 126,439 54,280 191,340 100,400 65,171
Repayments of notes payable and long-term
debt..................................... (46,487) (43,223) (122,255) (143,812) (118,778)
Decrease (increase) in note receivable from
Parent, net.............................. (33,487) (55,022) (19,062) (21,239) 15,818
Capital contribution from Parent............ 17,121 49,849 88,077 298,312 45,194
Increase in deferred financing costs........ (4,929) (13) (8,202) (1,645) (1,645)
Common stock dividends paid to Parent....... (52,394) (34,349) (141,873) (97,604) (53,688)
--------- -------- --------- --------- ---------
Net cash flows provided by (used in) financing
activities.................................... 6,263 (28,478) (11,975) 134,412 (47,928)
--------- -------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 5,363 6,133 11,887 (30,178) (1,858)
CASH AND CASH EQUIVALENTS, beginning of period.... 44,914 33,027 33,027 63,205 65,063
--------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 50,277 $ 39,160 $ 44,914 $ 33,027 $ 63,205
========= ======== ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-39
<PAGE> 150
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cogentrix Delaware Holdings, Inc. ("Holdings") is a Delaware holding
company whose subsidiary companies are principally engaged in the business of
acquiring, developing, owning and operating independent power generating
facilities (individually, a "Facility", or collectively, the "Facilities").
Cogentrix Delaware Holdings, Inc. and subsidiary companies are collectively
referred to as the "Company".
Holdings is a wholly-owned subsidiary of Cogentrix Energy, Inc. (the
"Parent") and has guaranteed all of the Parent's existing and future senior
unsecured debt for borrowed money (the "Guarantee"). This Guarantee was given to
the lenders under the Parent's corporate credit facility and terminates, unless
the term of the credit agreement is extended, when the credit agreement for the
corporate credit facility terminates in 2002 (see Note 14). As of December 31,
1999, the Parent had $355 million of senior notes outstanding due 2004 and 2008
and had no borrowings outstanding under the corporate credit facility. The
Guarantee provides that the terms of the Guarantee may be waived, amended,
supplemented or otherwise modified at any time and from time to time by Holdings
and the agent bank for the lenders under the credit agreement. The Guarantee is
not incorporated in the indenture under which the Parent issued its outstanding
senior notes due 2004 and 2008.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In March 1998, Holdings filed a registration statement to register the
Guarantee under the Securities Act of 1933. As a result, Holdings is required by
Section 15(d) of the Securities Exchange Act of 1934 to file with the Commission
periodic reports required to be filed pursuant to Section 13 of the Exchange Act
in respect of a security registered pursuant to Section 12 of the Exchange Act.
The duty to file such reports shall be automatically suspended as to any fiscal
year, other than the current fiscal year, if, at the beginning of such fiscal
year, the securities of each class enjoying the benefit of the Guarantee are
held of record by less than three hundred persons. There are currently fewer
than three hundred holders of record of the outstanding 2004 and 2008 Notes, and
Holdings expects that its duty to file periodic reports under the Exchange Act
will be automatically suspended as of the beginning of the fiscal year ending
December 31, 2000.
Principles of Consolidation and Basis of Presentation -- The accompanying
consolidated financial statements include the accounts of Holdings and its
subsidiary companies. 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 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 Holdings, its
subsidiary companies and its consolidated joint ventures have been eliminated in
the accompanying consolidated financial statements.
Information presented as of June 30, 2000 and for the six months ended June
30, 2000 and 1999 is unaudited. In the opinion of management, however, such
information reflects all adjustments, which consist of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 2000, and the results of operations and cash flows for the six
months ended June 30, 2000 and 1999. 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.
Cash and Cash Equivalents -- Cash and cash equivalents include bank
deposits, commercial paper, government securities and certificates of deposit
that mature within three months of their purchase.
F-40
<PAGE> 151
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts in debt service accounts which might otherwise be considered cash
equivalents are treated as current restricted cash.
Inventories -- Coal inventories consist of the contract purchase price of
coal and all transportation costs incurred to deliver the coal to each Facility.
Gas inventories represent the cost of natural gas purchased as fuel reserves for
a Facility that are forecasted to be consumed during the next fiscal year. Spare
parts inventories consist of major equipment and recurring maintenance supplies
required to be maintained in order to facilitate routine maintenance activities
and minimize unscheduled maintenance outages. As of December 31, 1999 and 1998,
fuel and spare parts inventories are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Coal........................................................ $ 8,469 $ 8,028
Natural gas................................................. 2,875 2,773
Spare parts................................................. 8,138 7,377
Fuel oil.................................................... 655 519
------- -------
$20,137 $18,697
======= =======
</TABLE>
Coal inventories at certain Facilities are recorded at last-in, first-out
("LIFO") cost, with the remaining Facilities' coal inventories recorded at
first-in, first-out ("FIFO") cost. The cost of coal inventories recorded on a
LIFO basis was approximately $374,000 and $305,000 less than the cost of these
inventories on a FIFO basis as of December 31, 1999 and 1998, respectively.
Spare parts inventories are recorded at average cost.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at actual cost. Substantially all property, plant and equipment consists of
cogeneration facilities which are depreciated on a straight-line basis over
their estimated useful lives (ranging from 9 to 30 years). Other property and
equipment is depreciated on a straight-line basis over the estimated economic or
service lives of the respective assets (ranging from 3 to 10 years). Maintenance
and repairs are charged to expense as incurred. Emergency and rotatable spare
parts inventories are included in plant and are depreciated over the useful life
of the related components.
Construction in Progress -- Construction progress payments, engineering
costs, insurance costs, wages, interest and other costs relating to construction
in progress are capitalized. Construction in progress balances are transferred
to property, plant and equipment when the assets are ready for their intended
use. Interest is capitalized on projects during the development and construction
period. For the year ended December 31, 1999, the Company capitalized $262,000
of interest in connection with the development and construction of power plants.
There was no interest capitalized in 1998 or 1997.
Deferred Financing Costs -- Financing costs, consisting primarily of legal
and other direct costs incurred to obtain financing, are deferred and amortized
over the financing term.
Natural Gas Reserves -- Natural gas reserves consist of the cost of natural
gas purchased as long-term fuel reserves for a Facility. These reserves are
recorded at cost.
Investments in Affiliates -- Investments in affiliates include investments
in unconsolidated entities which own or derive revenues from power projects
currently in operation and investments in unconsolidated development joint
venture entities. The Company's share of income or loss from investments in
operating power projects is included in operating revenues in the accompanying
consolidated statements of income. The Company's share of income or loss from
investments in development joint venture entities and investments previously
held in entities which own and operate greenhouses, is included in other income
(expense) in the accompanying consolidated statements of income.
F-41
<PAGE> 152
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Project Development Costs -- The Company capitalizes project development
costs once it is determined that it is probable that such costs will be realized
through the ultimate construction of a power plant. These costs include
professional services, salaries, permits and other costs directly related to the
development of a new project. These costs are generally transferred to
construction in progress when financing is obtained, or expensed when the
Company determines that a particular project will no longer be developed.
Capitalized costs are depreciated over the estimated useful life of the project.
Revenue Recognition -- Revenues from the sale of electricity and steam are
recorded based upon output delivered and capacity provided at rates specified
under contract terms. Significant portions of the Company's revenues have been
derived from certain electric utility customers. Two customers accounted for 47%
and 17% of revenues in the year ended December 31, 1999, 50% and 19% of revenues
in the year ended December 31, 1998 and 64% and 22% of revenues in the year
ended December 31, 1997.
Interest Rate Protection Agreements -- The Company enters into interest
rate protection agreements with major financial institutions to fix or limit the
volatility of interest rates on its long-term debt. The differential paid or
received is recognized as an adjustment to interest expense. Any premiums
associated with interest rate protection agreements are capitalized and
amortized to interest expense over the effective term of the agreement.
Unamortized premiums are included in other assets in the accompanying
consolidated balance sheets.
Income Taxes -- Deferred income tax assets and liabilities are recognized
for the estimated future income tax effects of temporary differences between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets are also established for the estimated future
effect of net operating loss and tax credit carryforwards when it is more likely
than not that such assets will be realized. Deferred taxes are calculated based
on provisions of the enacted tax law.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company has chosen to
disclose Comprehensive Income, which encompasses net income and unrealized
holding losses during the year in the Consolidated Statement of Shareholders'
Equity. Prior years have been restated to conform to the SFAS No. 130
requirements.
New Accounting Pronouncements -- In April 1998, the American Institute of
Certified Public Accounts ("AICPA") issued Statement of Position ("SOP") No.
98-5, "Reporting on the Costs of Start-Up Activities" which is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP No.
98-5 requires costs incurred for start-up activities to be expensed as incurred.
For purposes of this SOP, start-up activities are defined broadly as those
one-time activities related to opening a new facility, conducting business in a
new territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing a new operation.
Start-up activities include activities related to organizing a new entity
(commonly referred to as organization costs). The Company adopted SOP No. 98-5
as of January 1, 1999. The adoption of SOP No. 98-5 did not have a material
impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting
F-42
<PAGE> 153
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheets as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized in
current earnings unless specified hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Investments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 requires the adoption of SFAS No. 133 to be
effective for fiscal years beginning after June 15, 2000. Early adoption is
allowed.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
the consolidated financial statements and has not determined the timing or
method of adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings.
Change of Fiscal Year -- Effective January 1, 1998, the Company changed its
fiscal year to commence on January 1 and conclude on December 31 of each year.
The Company's fiscal year previously commenced each July 1, concluding on June
30 of the following calendar year. The Company has restated its consolidated
financial statements for the 1997 fiscal year to a calendar year basis.
Reclassifications -- Certain amounts included in the accompanying
consolidated financial statements for the fiscal years ended December 31, 1998
and 1997 have been reclassified from their original presentation to conform with
the presentation for the year ended December 31, 1999.
3. ACQUISITIONS
LS Power Acquisition -- In March 1998, the Company acquired from LS Power
Corporation (the "LS Power Acquisition") an approximate 74% ownership interest
in two partnerships which own and operate electric generating facilities located
in Whitewater, Wisconsin (the "Whitewater Facility") and Cottage Grove,
Minnesota (the "Cottage Grove Facility"). Each of the Cottage Grove and
Whitewater Facilities is a 245-megawatt gas-fired, combined-cycle cogeneration
facility. Commercial operations of both of these facilities commenced in the
last half of calendar 1997. The Cottage Grove Facility sells capacity and energy
to Northern States Power Company under a 30-year power sales contract
terminating in 2027. The Whitewater Facility sells capacity and energy to
Wisconsin Electric Power Company under a 25-year power sales contract
terminating in 2022. Each of the power sales contracts has characteristics
similar to a lease in that the agreement gives the purchasing utility the right
to use specific property, plant and equipment. As such, each of the power sales
contracts is accounted for as a "sales-type" capital lease in accordance with
SFAS No. 13, "Accounting for Leases" (see Note 7).
The aggregate acquisition price for the equity interests in the Cottage
Grove and Whitewater Facilities acquired by the Company was approximately $158.0
million. In addition, the Company pre-funded a $16.7 million distribution to the
previous owners, which represented unused construction contingency funds and
cash flows that were accumulated by the Cottage Grove and Whitewater Facilities
prior to January 1, 1998. Cogentrix Energy, Inc. received $15.7 million of this
distribution in April 1998 and received the remaining $1 million in 1999. The
purchase price was ultimately funded with a portion of the net proceeds of the
Parent's 2008 senior notes and corporate cash balances.
The Company accounted for the LS Power Acquisition using the purchase
method of accounting. The purchase price has been allocated to the assets and
liabilities acquired based on their fair market values at the date of
consummation. An adjustment in the amount of $22.2 million was recorded to
reflect the
F-43
<PAGE> 154
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's portion of the excess of the fair value of the Partnerships' fixed
rate debt over its historical carrying value. This fair value adjustment, or
debt premium, will be amortized to income over the life of the debt acquired
using the effective interest method. The historical book values of the remaining
assets and liabilities approximated their fair values at the date of
consummation. The excess of the purchase price over the fair value of the net
assets acquired was approximately $27.7 million. This excess is included in
other assets on the accompanying balance sheets as of December 31, 1999 and
1998, and is being amortized on a straight line basis over the lives of the
power purchase agreements for the two facilities. The minority owner's share of
each partnership's net assets is included in minority interests on the
accompanying consolidated balance sheets as of December 31, 1999 and 1998. The
accompanying consolidated statement of income for the year ended December 31,
1998 includes the results of operations of the acquired facilities for the
period beginning March 20, 1998 (closing date of the LS Power Acquisition) to
December 31, 1998.
During 1999, the Company and the contractor, with the concurrence of the
independent engineer, reached a final agreement regarding the settlement of all
outstanding issues and obligations of the Cottage Grove and Whitewater
facilities and the contractor pursuant to the construction contracts. The final
settlement of the construction contract provided for a payment to the contractor
of approximately $4,030,000 from funds available in Cottage Grove's and
Whitewater's construction retainage accounts. The contractor has also agreed to
extend various warranty periods and perform various repairs and inspections.
Cottage Grove and Whitewater, in turn, acknowledged that final acceptance shall
have been deemed to have occurred. Upon the release of the remaining
construction retainage accounts and settlement of outstanding warranty claims,
the Company recorded a gain of approximately $6,257,000 before minority
interests in income. The gain is included in other income in the accompanying
consolidated statements of income for the year ended December 31, 1999.
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 summer 2000. Electricity generated by the Batesville Facility will
be sold under long-term power purchase agreements with two investment-grade
utilities.
The Batesville acquisition was originally accounted for under the equity
method of accounting, as the Company originally deemed its approximate 52%
interest to be temporary. As of December 31, 1999, the Company has reassessed
its ownership, and has determined that it will maintain an approximate 51%
interest in the project. As such, the Company has consolidated the net assets of
the Batesville Facility in the accompanying consolidated balance sheet at
December 31, 1999. The accompanying consolidated statements of income at
December 31, 1999 and 1998 recognized earnings from the Batesville facility
under the equity method of accounting.
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
"BGCI Acquisition"). The aggregate acquisition price, including acquisition
costs, for the interests in the BGCI assets was approximately $189.7 million.
The Company utilized a portion of the net proceeds from the issuance of $255
million of senior notes due 2008 to fund the BGCI Acquisition.
F-44
<PAGE> 155
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The BGCI Acquisition has been 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
BGCI Acquisition are being amortized over the remaining lives of the facilities
or over the remaining terms of the power purchase agreements. The Company uses
the equity method of accounting to account for its ownership interests in eight
of these facilities and uses the cost method of accounting for its ownership
interests in the other four facilities (see Note 4).
Subsequent to December 31, 1999, the Company purchased an additional 1%
interest in the Logan and Northampton facilities, two of the twelve electric
generating facilities included in the BGCI Acquisition. The Company paid
approximately $1,650,000 for these additional interests. The Company will
continue to account for its 50% interest in the Logan and Northampton facilities
using the equity method.
Indiantown Acquisition -- In June 1999, the Company entered into an
agreement to purchase an additional 40% ownership interest in the Indiantown
cogeneration facility (the "Indiantown Acquisition"), one of the twelve electric
generating facilities included in the BGCI Acquisition, in a three-phase
transaction. The Company paid $39.8 million to acquire a 19.9% interest in the
facility in June 1999, $36.6 million to acquire a 20% interest in the facility
in September 1999 and $0.2 million to acquire a 0.1% interest in the facility in
November 1999. The Company funded the purchase of these interests with proceeds
from credit facilities. These purchases resulted in a premium of approximately
$38,000,000. This premium will be amortized over the remaining term of the power
purchase agreement. The Company currently has a 50% interest in the Indiantown
facility. This investment is accounted for using the equity method of
accounting.
The following unaudited pro forma consolidated results for the Company for
the year ended December 31, 1999 and 1998 give effect to the LS Power
Acquisition, the BGCI Acquisition and the Indiantown Acquisition as if these
transactions had occurred on January 1, 1999 and January 1, 1998, respectively
(dollars in thousands, except per share amount).
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues.................................................... $457,762 $454,566
Net Income.................................................. $ 73,130 $ 54,222
Earnings per Share.......................................... $ 73,130 $ 54,222
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED POWER PROJECTS
BIRCHWOOD POWER PARTNERS, L.P.
The Company owns a 50% interest in Birchwood Power Partners, L.P.
("Birchwood Power"), a partnership which owns a 200-megawatt, coal-fired
cogeneration facility (the "Birchwood Facility") which sells electricity to a
utility and provides thermal energy to a 36-acre greenhouse under long-term
contracts. The Birchwood Facility is operated by an affiliate of The Southern
Company under a long-term operations and maintenance agreement. The Company has
50% representation on Birchwood Power's management committee, which must approve
all material transactions of Birchwood Power. The Company is accounting for its
investment in Birchwood Power under the equity method. The Company's share of
net income of Birchwood Power is recorded net of the amortization of the $36.4
million premium paid to purchase the Company's 50% share interest in Birchwood
Power. This premium is being amortized on a straight-line basis over the
estimated useful life of the Birchwood Facility. The Company recognized
approximately $3,509,000, $3,714,000 and $1,412,000 in income from
unconsolidated investments in power projects, net of premium amortization, in
the accompanying consolidated statements of income for the years ended December
31, 1999, 1998 and 1997, respectively, related to its investment in Birchwood
Power. The
F-45
<PAGE> 156
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
following table presents summarized financial information for Birchwood Power as
of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 48,805 $ 48,416
Noncurrent assets......................................... 333,318 344,374
-------- --------
Total assets........................................... $382,123 $392,790
======== ========
Current liabilities....................................... $ 9,882 $ 7,952
Noncurrent liabilities.................................... 323,598 329,428
Partners' capital......................................... 48,643 55,410
-------- --------
$382,123 $392,790
======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...................................... $75,582 $71,908 $69,275
Operating income........................................ 36,399 36,863 35,087
Net income.............................................. 9,740 9,747 6,451
</TABLE>
BGCI ASSETS
The Company acquired interests in 12 electric generating facilities from
BGCI on October 20, 1998 (the "BGCI assets") (see Note 3). The following table
presents the Company's ownership interests at December 31, 1999, in the BGCI
assets that are accounted for under the equity method:
<TABLE>
<CAPTION>
PERCENT NET
OWNERSHIP EQUITY INTEREST
PLANT INTEREST IN PLANT
PROJECT MEGAWATTS ACQUIRED MEGAWATTS
------- --------- --------- ---------------
<S> <C> <C> <C>
Logan................................................ 218 49.0% 106.8
Northampton.......................................... 110 49.0 53.9
Indiantown........................................... 380 50.0 190.0
Carneys Point........................................ 262 10.0 26.2
Panther Creek........................................ 83 12.2 10.1
Scrubgrass........................................... 85 20.0 17.0
Gilberton............................................ 82 19.6 16.1
Morgantown........................................... 62 15.0 9.3
</TABLE>
The Company recognized approximately $21,954,000 and $2,760,000 in income
from unconsolidated investments in power projects in the accompanying
consolidated statements of income for the year ended December 31, 1999 and for
the period from October 20, 1998 to December 31, 1998 related to its investment
in the projects acquired from BGCI. The following table presents summarized
combined financial data for the unconsolidated power projects acquired from BGCI
being accounted for under the
F-46
<PAGE> 157
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equity method as of December 31, 1999 and 1998 and for the year ended December
31, 1999 and for the period from October 20, 1998 to December 31, 1998 (dollars
in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 157,396 $ 131,178
Noncurrent assets......................................... 2,988,277 2,827,875
---------- ----------
Total assets........................................... $3,145,673 $2,959,053
========== ==========
Current liabilities....................................... $ 205,667 $ 137,205
Noncurrent liabilities.................................... 2,523,826 2,398,944
Equity.................................................... 416,180 422,904
---------- ----------
$3,145,673 $2,959,053
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 20, 1998 TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues................................ $624,010 $96,622
Operating income.................................. 365,429 51,948
Net income........................................ 56,818 15,071
</TABLE>
5. INVESTMENT IN OTHER UNCONSOLIDATED AFFILIATES
The Company makes investments in other joint venture partnerships whose
purpose is to develop power projects. The Company utilizes the equity method of
accounting for those partnerships in which it holds an ownership interest
between 20% and 50%. The Company recognized approximately $208,000, $307,000,
and $471,000 in equity losses for the years ended December 31, 1999, 1998 and
1997, respectively, related to its investments in these partnerships. These
losses are reflected in equity in loss of affiliates in the accompanying
consolidated statements of income.
The Company entered into an agreement with Agro Power Development, Inc. a
developer and operator of greenhouse facilities, ("Agro") to make investments in
partnerships which develop, construct and operate greenhouses which produce
tomatoes. The Company obtained a 50% interest in four limited partnerships which
had a combined 107 acres of production capacity in operation. In December 1998,
the Company entered into an agreement to sell its 50% interest in the
partnerships to EcoScience Corporation ("EcoScience"), the parent of Agro. In
return for its 50% interest, the Company received 1,000,000 shares of common
stock of EcoScience and a note receivable from EcoScience (the "EcoScience
Note") in the amount of approximately $20.6 million. The original note
receivable from EcoScience accrued interest at 11.25% per annum with principal
and interest due on March 15, 1999, (see below), and was secured by a pledge of
all the outstanding stock of Agro. The Company recognized a gain of $2.1 million
related to the fair market value of common stock received. This gain is included
in investment and other income in the accompanying consolidated statements of
income for the year ended December 31, 1998. As of December 31, 1999, the
Company has recorded an unrealized holding loss on the EcoScience common stock
which has been included in the accompanying consolidated financial statements.
On March 15, 1999, the Company agreed to extend the due date for principal
and interest on the EcoScience Note to June 30, 1999. In exchange for this
extension, the Company received an extension fee of $1 million in the form of a
promissory note from EcoScience, which bears the same terms as the original
note. As of December 31, 1999 and 1998, the Company had a recorded investment in
the EcoScience Note of $21,600,000 and $20,600,000, respectively. The Company
has an allowance for credit
F-47
<PAGE> 158
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
losses related to the entire balance of its recorded investment in the
EcoScience Note of approximately $14,400,000 and $11,800,000 at December 31,
1999 and 1998, respectively. Currently, the Company is recording interest income
only as cash is received. The Company recognized and received no interest on
this note for the year ended December 31, 1999. The Company would have
recognized gross interest income of approximately $2,400,000 for the year ended
December 31, 1999 if EcoScience would have been current in their interest
payments.
Subsequent to December 31, 1999, the Company entered into an agreement to
exchange the EcoScience Note and all outstanding interest due for a promissory
note in the amount of $15,900,000. The promissory note bears interest at 5% per
year, and is due in five annual installments of $3,180,000, beginning on
December 1, 2003 until December 1, 2007. In consideration for this exchange,
EcoScience authorized and issued 333,333 shares of Series A Preferred Stock of
EcoScience to the Company.
Prior to the sale of the greenhouse partnerships, the Company accounted for
its investment in these partnerships under the equity method, an recognized
approximately $2,967,000, and $1,067,000 in equity losses in the accompanying
consolidated statements of income for the years ended December 31, 1998 and
1997, respectively.
F-48
<PAGE> 159
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
The following long-term debt was outstanding as of December 31, 1999 and
1998, respectively (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
LONG-TERM DEBT:
HOPEWELL FACILITY:
Note payable to banks.................................. $ 51,000 $ 67,000
PORTSMOUTH FACILITY:
Note payable to banks.................................. 41,649 43,129
ROCKY MOUNT FACILITY:
Note payable to financial institution.................. 120,182 123,422
RINGGOLD FACILITY:
Note payable to banks.................................. 10,995 13,440
RICHMOND FACILITY:
Commercial paper notes payable, net of unamortized
issue discount of $745 and $350, respectively, and
tax-exempt bonds...................................... 171,848 185,814
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
Notes payable to banks................................. 6,824 16,964
ROXBORO AND SOUTHPORT FACILITIES:
Note payable to banks.................................. 52,608 73,400
COTTAGE GROVE AND WHITEWATER FACILITIES:
Bonds payable, due 2010 and 2016, including unamortized
fair market value adjustment related to purchase of
facilities of $20,386 and $21,345..................... 352,386 353,345
BATESVILLE FACILITY:
Bonds payable, due 2014 and 2025....................... 326,000 --
JENKS FACILITY:
Construction note payable to banks..................... 70,531 --
CEA CREDIT FACILITY......................................... 66,400 --
OTHER....................................................... 960 1,139
---------- --------
Total Long-Term Debt........................................ 1,271,383 877,653
Less: Current portion....................................... (90,114) (86,256)
---------- --------
Long-term portion........................................... $1,181,269 $791,397
========== ========
</TABLE>
Information related to each of these borrowings is as follows:
HOPEWELL FACILITY:
The Hopewell Facility's project debt agreement was amended in February 1998
resulting in an extension of the final maturity of the note payable by six
months to December 31, 2002. The amended terms of the loan agreement increased
outstanding borrowings by $34.6 million, the proceeds of which (net of
transaction costs) were paid as a distribution to the partners in that project.
The amended note payable accrues interest at an annual rate equal to the
applicable LIBOR rate, as chosen by the Company, plus an additional margin of
1.00% (7.15% at December 31, 1999). The amended note payable also provides for a
$5 million letter of credit to secure the project's obligation to pay debt
service. Cogentrix Energy, Inc. has indemnified the lenders of the note payable
for any cash deficits the Hopewell Facility could experience as a result of
incurring certain costs, subject to a cap of $10.6 million.
F-49
<PAGE> 160
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An extraordinary loss of $2.4 million was recorded in the first quarter of
1998 related to the write-off of unamortized deferred financing costs from the
original project debt and a swap termination fee on an interest rate swap
agreement hedging the original project debt. The Company's share of this
extraordinary loss of approximately $700,000, net of a tax benefit of
approximately $500,000 and minority interest of $1.2 million, is shown in the
accompanying consolidated statements of income.
PORTSMOUTH FACILITY:
The Portsmouth Facility's project debt agreement was amended in December
1997, resulting in the extension of the final maturity of the loan by three
months to December 31, 2002. The amended terms of the loan agreement also
increased the outstanding credit commitment from the project lenders to $43.5
million in the form of a revolving credit facility. As of December 31, 1999, the
balance outstanding under the credit facility is approximately $41,600,000, of
which $20,400,000 was outstanding under the revolving credit facility. The
amended terms of the loan agreement provide for interest to accrue at an annual
rate equal to the applicable LIBOR rate, as chosen by the Company, plus an
additional margin of 1.0% (7.15% at December 31, 1999). The banks' outstanding
credit commitment under the loan agreement is reduced quarterly, with interest
payable the earlier of the maturity of the applicable LIBOR term or quarterly
through December 2002. The loan agreement also provides for a $6 million letter
of credit to secure the project's obligations to pay debt service. Cogentrix
Energy, Inc. has indemnified the lenders of the senior credit facility for any
cash deficits the Portsmouth Facility could experience as a result of incurring
certain costs, subject to a cap of $30 million.
An extraordinary loss of $2,458,000 was recorded in the year ended December
31, 1997 related to the write-off of unamortized deferred financing costs from
the original senior loan of $1,395,000 and net swap termination fees of
$1,063,000 related to interest rate swap agreements hedging the original project
debt. This extraordinary loss is shown net of a tax benefit of $956,000 in the
accompanying consolidated statement of income.
ROCKY MOUNT FACILITY:
The note payable to financial institution consists of a $120,182,000 senior
loan which accrues interest at a fixed annual rate of 7.58%. Payment of
principal and interest is due quarterly through December 2013.
RINGGOLD FACILITY (SEE NOTE 14):
The note payable to banks consists of a senior loan which accrues interest
at an annual rate equal to the applicable LIBOR rate, as chosen by the Company,
plus 1.35% per annum (7.36% at December 31, 1999). Interest is payable at the
earlier of the maturity of the applicable LIBOR term or quarterly in arrears.
Payments of principal under the senior loan are due semiannually through April
2004.
In January 1998, the Company signed an agreement with Pennsylvania Electric
Company ("Penelec") to terminate its power purchase agreement (the "Penelec
Termination Agreement"). The Penelec Termination Agreement was the result of a
request for proposals from the utility to buy-back or restructure power sales
agreements issued to all major operating independent power producers in
Penelec's territory in April 1997. The Penelec Termination Agreement provides
for a payment to the project subsidiary of approximately $20.4 million, which
will be sufficient to retire all of the project subsidiary's outstanding debt.
The buy-back of the power purchase agreement is subject to the issuance of a
satisfactory final order by the Pennsylvania Public Utility Commission, which is
not subject to appeal, granting Penelec the authority to fully recover from its
customers the consideration paid under the buyout agreement. Management does not
expect the termination of this project subsidiary's power purchase agreement, if
it occurs, this event to have an adverse impact on the Company's consolidated
results of operations or financial position.
F-50
<PAGE> 161
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RICHMOND FACILITY:
Commercial paper notes outstanding are supported by an irrevocable,
direct-pay letter of credit provided by a syndicate of banks (the "Banks"). The
maximum amount of commercial paper notes supported by the letter of credit is
$124,600,000 as of December 31, 1999. The annual interest rate incurred is the
yield on the commercial paper notes plus a 1.25% to 1.50% per annum fee
(weighted average rate of 7.27% at December 31, 1999) paid to the Banks for
providing the letter of credit.
Tax-exempt industrial development bonds (the "Bonds") have been issued to
support the purchase of certain pollution control and solid waste disposal
equipment for the Facility ($48 million outstanding at December 31, 1999 and
1998). Principal and interest payments on the Bonds are supported by an
irrevocable, direct-pay letter of credit provided by the Banks. The annual
interest rate is the yield on the Bonds plus a 1.25% to 1.50% per annum fee
(5.6% at December 31, 1999). The letters of credit described above are part of
one credit facility (the "Credit Facility"). The Credit Facility provides for
commitment reductions through September 2007.
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
The project debt on the Elizabethtown, Lumberton and Kenansville Facilities
consists of a senior note payable that accrues interest at an annual rate equal
to the applicable LIBOR rate, as chosen by the Company, plus 1% (7.21% at
December 31, 1999). Principal is payable quarterly with interest payable at the
earlier of the maturity of the applicable LIBOR term or quarterly through
September 2000. The senior credit facility also provides for a $3.3 million
letter of credit to secure the project's obligations to pay debt service.
ROXBORO AND SOUTHPORT FACILITIES:
The project debt agreement for the Roxboro and Southport Facilities
consists of a senior note payable that accrues interest at an annual rate equal
to the applicable LIBOR rate, as chosen by the Company, plus 1% through
September 2001 and 1.125% thereafter (7.21% at December 31, 1999). Principal is
payable quarterly with interest payable at the earlier of the maturity of the
applicable LIBOR term or quarterly through June 2002. The senior credit facility
also provides for a $6.5 million letter of credit to secure the project's
obligations to pay debt service.
COTTAGE GROVE AND WHITEWATER FACILITIES:
The project debt of the Cottage Grove and Whitewater Facilities consist of
the following senior secured bonds (dollars in thousands):
<TABLE>
<S> <C>
7.19% Senior Secured Bonds due June 30, 2010................ $105,551
8.08% Senior Secured Bonds due December 30, 2016............ 226,449
--------
$332,000
========
</TABLE>
Interest and principal is payable on these bonds semi-annually on June 30
and December 30 of each year. Principal payments commence on June 30, 2000 for
the 2010 Bonds and December 30, 2010 for the 2016 Bonds.
In December 1998, Cogentrix Mid-America, Inc., a wholly-owned subsidiary,
which holds the Company's interest in the Cottage Grove and Whitewater
Facilities entered into a credit agreement with a bank to provide for a $25
million revolving credit facility available in a form of the issuance of letters
of credit to support the debt reserve requirements for the 2010 and 2016 Bonds
which vary from $12.9 million to $28.1 million over the term of the Bonds. The
credit agreement also provides for direct advances
F-51
<PAGE> 162
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
up to the amount of any excess of the $25 million commitment over the then debt
service reserve requirement. As of December 31, 1999, letters of credit
totalling $14.1 million were issued and outstanding under the credit agreement.
BATESVILLE FACILITY:
The project debt of the Batesville Facility consist of the following senior
secured bonds (dollars in thousands):
<TABLE>
<S> <C>
7.16% Senior Secured Bonds due January 15, 2014............. $150,000
8.16% Senior Secured Bonds due June 15, 2025................ 176,000
--------
$326,000
========
</TABLE>
Interest and principal is due on these bonds semi-annually on January 15
and July 15 each year. Principal payments commence on July 15, 2001 for the 2014
Bonds, and July 15, 2014 for the 2025 Bonds.
JENKS FACILITY:
The construction loan agreement for the Jenks facility consists of a
construction note payable up to $350 million to construct an 800 megawatt,
combined cycle, natural gas-fired generating facility. The construction loan
will convert to a term loan, due December 2006, upon commencement of commercial
operations. The loan agreement provides for interest to accrue at an annual rate
equal to the applicable LIBOR rate, as chosen by the Company, plus 1.25% to
2.25% per annum. The loan facility also provides for an $8 million letter of
credit to secure the project's obligation to pay debt service.
In accordance with the terms of the project financing agreements, the
Company is committed to provide an equity contribution to the project subsidiary
of approximately $56.9 million upon the earliest to occur of (a) an event of
default under the project subsidiary's financing agreement, (b) the incurrence
of construction costs after all project financing has been expended or (c) June
24, 2002. The equity contribution commitment will be reduced by approximately
$8.2 million upon the project subsidiary's receipt of a waste water discharge
permit. This equity contribution commitment is supported by a letter of credit,
which is provided under the corporate credit facility. Subsequent to December
31, 1999, the project subsidiary received the waste water discharge permit and
the equity contribution was reduced to $48.7 million.
CEA CREDIT FACILITY:
In September 1999, one of the Company's wholly-owned subsidiaries,
Cogentrix Eastern America, Inc., formed to hold the Company's ownership interest
in twelve electric generating facilities acquired in the BGCI Acquisition,
entered into a $75 million, three-year credit facility. The commitment under
this facility reduces to $67.5 million after one year and to $60 million after
two years. As of December 31, 1999, advances totaling $66.4 million were
outstanding under this facility.
INTEREST RATE PROTECTION AGREEMENTS:
The Company has entered into interest rate cap and interest rate swap
agreements (see Note 11) to manage its interest rate risk on its variable-rate
project financing debt. The notional amounts of debt covered by these agreements
as of December 31, 1999 and 1998 were approximately $263,279,000 and
$343,112,000, respectively. The agreements effectively change the interest rate
on the portion of debt covered by the notional amounts from a weighted average
variable rate of 7.2% at December 31, 1999 to a weighted average effective rate
of 7.1% at December 31, 1999. These agreements expire at various dates through
July 2006.
F-52
<PAGE> 163
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The project financing debt is substantially non-recourse to Holdings. The
project financing agreements of the subsidiaries place limitations on the
payment of dividends, limit additional indebtedness, and restrict the sale of
assets. The project financing agreements also require certain cash to be held
with a trustee as security for future debt service payments. In addition, the
Facilities, as well as the long-term contracts which support them, are pledged
as collateral for the Company's obligations under the project financing
agreements.
The ability of the subsidiaries to pay dividends and management fees
periodically to Holdings is subject to certain limitations in their respective
financing documents. Such limitations generally require that: (i) debt service
payments be current, (ii) debt service coverage ratios be met, (iii) all debt
service and other reserve accounts be funded at required levels, and (iv) there
be no default or event of default under the relevant credit documents.
Dividends, when permitted, are declared and paid immediately to Holdings at the
end of such period.
Future maturities of long-term debt at December 31, 1999, net of
unamortized issue discounts on commercial paper notes, are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
2000........................................................ $ 90,114
2001........................................................ 85,911
2002........................................................ 124,949
2003........................................................ 34,789
2004........................................................ 38,206
Thereafter.................................................. 877,773
----------
$1,251,742
==========
</TABLE>
Cash paid for interest on the Company's long-term debt amounted to
$61,032,000, $66,899,000, and $44,708,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
7. SALES TYPE CAPITAL LEASE
The power purchase agreements acquired by the Company as a result of the LS
Power Acquisition have characteristics similar to leases in that the agreements
confer to the purchasing utility the right to use specific property, plant and
equipment. At the commercial operations date, the partnerships accounted for the
power purchase agreements as "sales-type" capital leases in accordance with SFAS
No. 13, "Accounting for Leases".
The components of the net investment in the leases at December 31, 1999 and
1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Gross Investment in Leases.................................. $1,097,787 $1,140,909
Unearned Income on Leases................................... (597,592) (642,295)
---------- ----------
Net Investment in Leases.................................... $ 500,195 $ 498,614
========== ==========
</TABLE>
Gross investment in leases represents total capacity payments receivable
over the terms of the power purchase agreements, net of executory costs, which
are considered minimum lease payments in accordance with SFAS No. 13.
F-53
<PAGE> 164
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated minimum lease payments over the remaining term of the power
purchase agreements as of December 31, 1999 are as follows (dollars in
thousands):
<TABLE>
<S> <C>
2000........................................................ $ 45,180
2001........................................................ 45,187
2002........................................................ 47,253
2003........................................................ 49,052
2004........................................................ 50,957
Thereafter.................................................. 860,158
----------
Total............................................. $1,097,787
==========
</TABLE>
8. INCOME TAXES
The Company files a consolidated federal tax return with the Parent, but
records its income tax provisions on a separate-entity basis for financial
reporting purposes. Deferred income tax assets and liabilities are recognized
for the estimated future income tax effect of temporary differences between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets are also established for the estimated future
effect of net operating loss and tax credit carryforwards when it is more likely
than not that such assets will be realized. Deferred taxes are calculated based
on provisions of the enacted tax law.
Reconciliations between the federal statutory income tax rate and Holdings'
effective income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of loss carryforwards and federal
tax impact................................................ 4.7 3.4 3.4
Other....................................................... 0.6 1.4 (0.9)
---- ---- ----
Effective tax rate.......................................... 40.3% 39.8% 37.5%
==== ==== ====
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the accompanying consolidated balance sheets as of December 31,
1999 and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Net current deferred tax liability (asset).................. $ 788 $(1,757)
Net noncurrent deferred tax liability....................... 129,193 91,460
-------- -------
Net deferred tax liability.................................. $129,981 $89,703
======== =======
</TABLE>
F-54
<PAGE> 165
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Parent Debt Guaranteed by the Holdings -- Holdings has guaranteed all of
the Parent's existing and future senior unsecured debt for borrowed money. This
guarantee was given to the lenders under the Parent's corporate credit facility
and terminates, unless the term of the credit agreement is extended, when the
credit agreement for the corporate credit facility terminates in 2002 (see Notes
1 and 14). The agreement under which the guarantee was given provides that the
terms or provisions of the guarantee may be waived, amended, supplemented or
otherwise modified at any time and from time to time by Holdings and the agent
bank for the lenders under the Parent's corporate facility. The Parent's senior
unsecured debt is as follows:
SENIOR NOTES (SEE NOTE 14)
On March 15, 1994, the Parent issued $100 million of registered,
unsecured senior notes due 2004 (the "2004 Notes") in a public debt
offering. The 2004 Notes were priced at par to yield 8.10%. The Senior
Notes require annual sinking fund payments beginning in March 2001.
On October 20, 1998, the Parent issued $220 million of registered,
unsecured 8.75% senior notes due 2008 (the "2008 Notes"). These notes were
issued at a discount resulting in an effective rate of approximately 8.82%.
On November 25, 1998, the Company issued an additional $35 million of the
2008 Notes at a premium resulting in an effective rate of approximately
7.95%.
CORPORATE CREDIT FACILITY (SEE NOTE 14)
In May 1997, the Parent entered into a credit agreement with Australia
and New Zealand Banking Group Limited, as agent for a group of lending
banks. In October 1998, the Parent amended and restated the corporate
credit facility to provide for $125 million of revolving credit available
through October 2002 in the form of direct advances or the issuance of
letters of credit (the "Corporate Credit Facility"). As of December 31,
1999, the Parent has used this credit facility to issue approximately $117
million of letters of credit in connection with investments made in
electric-generating plants, and two plants under construction. Subsequent
to December 31, 1999, the Corporate Credit Facility was amended to provide
for $175 million of revolving credit and to modify the covenants. The
revolving credit facility has been extended through October 2002.
Long-Term Contracts -- The Company has several long-term contractual
commitments that comprise a significant portion of its financial obligations.
These contractual commitments with original terms varying in length from 10 to
30 years are the basis for a major portion of the revenue and operating expenses
recognized by the Company and provide for specific services to be provided at
fixed or indexed prices. The major long-term contractual commitments are as
follows:
(i) The Company is required to sell electricity generated by each Facility
to a Utility and the Utility is required to purchase this electricity or
make capacity payments at pre-established or annually escalating prices.
(ii) The Company is required to sell and the Steam Purchaser is required to
purchase a minimum amount of process steam from each Facility for each
contract year. The Steam Purchaser is generally required to purchase its
entire steam requirements from the Company. The purchase price of steam
under these contracts escalates annually or is fixed and determinable
during the term of the contracts.
(iii) The Company is obligated to purchase and fuel suppliers are required
to supply all of the fuel requirements of each Facility. Fuel requirements
include the quality and estimated quantity of fuel required to operate each
Facility. The price of fuel escalates annually for the term of each
contract.
F-55
<PAGE> 166
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company has transportation contracts with various entities
to deliver the fuel to each Facility. These contracts also provide for
annual escalations throughout the term of the contracts.
Effective September 1996, the Company amended the power sales agreements on
its Lumberton, Elizabethtown, Kenansville, Roxboro and Southport Facilities.
These amendments provide the purchasing utility additional rights related to the
dispatch of the Facilities and eliminated the purchase options which the utility
held related to the Roxboro and Southport Facilities.
The Company has also amended the power sales agreement on its Portsmouth
Facility and Hopewell Facility, effective December 1997 and February 1998,
respectively. These amendments provide the purchasing utility additional rights
related to the dispatch of these Facilities. The terms of Portsmouth's amended
power sales agreement also eliminated Portsmouth's accrued obligation to return
previously disallowed capacity payments to the purchasing utility.
Under the terms of certain contracts with electricity purchasers, the
Company is obligated to pay up to $37,350,000 in aggregate liquidated damages to
the respective electricity purchasers if the respective facility does not
demonstrate certain operating and reliability standards. Banks have issued
letters of credit, non-recourse to us and our Parent, in favor of electricity
purchasers which secure the Company's obligations to the electricity purchasers
under this provision of the contracts.
Under certain power sales agreements, the Utility is permitted to reduce
future payments or recover certain payments previously made upon the occurrence
of certain events, which include a state utility commission prohibiting the
Utility from recovering such payments made under such power sales agreement.
However, in most cases, the Utility is prohibited from reducing or recovering
such payments prior to the maturity date of the original project financing debt.
Guarantees -- In connection with its substantially non-recourse project
financings and certain other subsidiary contracts, the Parent and its
subsidiary, Cogentrix, Inc. have expressly undertaken certain limited
obligations and commitments, most of which will only be effective or will be
terminated upon the occurrence of future events. These obligations and
commitments include guarantees by Cogentrix, Inc. of a certain subsidiary's
obligation capped at $1.5 million and certain subsidiaries' performance under
their contracts with one Utility.
Claims and Litigation -- One of the Company's indirect, wholly-owned
subsidiaries is party 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, the Company's 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
the subsidiary in the 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.
In addition to the litigation described above, the Company experiences
other routine litigation in the normal course of business. The Company's
management is of the opinion that none of this routine litigation will have a
material adverse impact on its consolidated financial position or results of
operations.
10. FUNDS HELD BY TRUSTEES
The majority of revenue received by the Company is required by the terms of
various credit agreements to be deposited in accounts administered by certain
banks (the "Trustees"). The Trustees invest funds held in these accounts at the
direction of the Company. These accounts are established for the purpose of
depositing all receipts and monitoring all disbursements of each Facility. In
addition, special
F-56
<PAGE> 167
COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts are established to provide debt service payments and income taxes. The
funds in these accounts are pledged as security under the project financing
agreements of each subsidiary.
Funds held by the Trustees were approximately $110,945,000 and $47,188,000
at December 31, 1999 and 1998, respectively. Debt service account balances are
reflected as restricted cash, whereas all other accounts are classified as cash
and cash equivalents in the accompanying consolidated balance sheets.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The Company invests its temporary cash balances in U.S. government
obligations, corporate obligations and financial instruments of highly-rated
financial institutions. A substantial portion of the Company's accounts
receivable are from two major regulated electric utilities and the associated
credit risks are limited.
The carrying values reflected in the accompanying consolidated balance
sheets at December 31, 1999 and 1998, approximate the fair values for cash and
cash equivalents and variable-rate long-term debt. Investments in certificates
of deposit and restricted investments are included in restricted cash and are
reported at fair market value, which approximates cost, at December 31, 1999 and
1998. The fair value of the Company's fixed-rate borrowings at December 31, 1999
and 1998 is $17,989,000 and $62,613,000 greater than the historical carrying
value of $778,181,000 and $518,035,000, respectively. In making such
calculations, the Company utilized credit reviews, quoted market prices and
discounted cash flow analyses, as appropriate.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to the Company's interest rate protection
agreements (see Note 6). The Company does not obtain collateral or other
security to support such agreements but continually monitors its positions with,
and the credit quality of, the counterparties to such agreements. As of December
31, 1999 and 1998, the net unrealized gain (loss) on the interest rate
protection agreements was $2,325,000 and $(6,086,000), respectively.
12. RELATED PARTY TRANSACTIONS
The Company has had transactions in the normal course of business with
various affiliate corporations including the Parent. The Company had notes
receivable due from Parent of $76,410,000 and $57,348,000 as of December 31,
1999 and 1998, respectively. These notes accrue interest at the prime rate and
principal and interest are due upon demand. The Company also had note payables
due to the Parent of $4,815,000 and $6,010,000 as of December 31, 1999 and 1998,
respectively. These notes consist primarily of working capital loans which
accrue interest at the prime rate. Principal and interest of these notes are due
upon demand.
13. SUBSEQUENT EVENT
RATHDRUM, IDAHO FACILITY
On March 9, 2000, Rathdrum Power, LLC ("Rathdrum Power") entered into a
credit agreement with a bank, as agent for a group of lending banks, and a
financial institution which provides up to $126.0 million in borrowings and a
$5.0 million debt service reserve letter of credit. Proceeds from the credit
agreement will be used to construct an approximate 270 megawatt combined-cycle
natural gas-fired generating facility located in Rathdrum, Idaho. Rathdrum Power
is owned 51% by a wholly-owned project subsidiary of the Company and 49% by
Avista Power, Inc. The Company has committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (a) an event of default under the project subsidiary's financing
agreement, (b) the incurrence of construction costs after all project financing
has been expended, or (c) October 1, 2002. This equity contribution commitment
is supported by a letter of credit, which is provided under the Parent's
corporate
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COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit facility. An indirect, wholly-owned subsidiary of Holdings has entered
into an engineering, procurement and construction contract (the "EPC Contract")
with Rathdrum Power to construct the Rathdrum facility. The Parent has
guaranteed this subsidiary's obligations under the EPC Contract. Holding's
expects the Rathdrum facility, which the Company will operate, to begin
operation in late 2001. Electricity generated by the Rathdrum facility will be
sold under a 25-year power purchase agreement with Avista Turbine Power, Inc.
("Avista Turbine"). In addition, Avista Turbine will supply fuel to the Rathdrum
facility.
The credit agreement provides borrowings up to $49.0 million from the
financial institution and $77.0 million from the banks. The financial
institution loans accrue interest at 8.56% per annum and have a term equal to
the construction period plus 25 years and the bank loans accrue interest at the
applicable LIBOR rate plus an applicable margin ranging from 1.25% to 2.25% and
will have a term equal to the construction period plus periods up to 18 years.
At March 31, 2000, $26.9 million of bank loans were outstanding.
14. SUBSEQUENT EVENTS (UNAUDITED)
STERLINGTON, LOUISIANA FACILITY
On August 17, 2000, Ouachita Power, LLC ("Ouachita"), an indirect,
wholly-owned subsidiary of the Company, entered into a credit agreement with a
bank, as agent for several banks and other financial institutions which provides
up to $460.0 million in borrowings, a credit support letter of credit in the
maximum amount of $30.0 million, and a $10.0 million debt service reserve letter
of credit. The proceeds of the borrowing will be used to construct an 816
megawatt, combined-cycle, natural gas-fired electric generating facility located
near the city of Sterlington, Louisiana. Ouachita is owned 100% by a project
subsidiary of Holdings. The Company has committed to provide an equity
contribution to the project subsidiary of approximately $61.6 million upon the
earliest to occur of (a) an event of default under the project financing
agreements, (b) the incurrence of construction costs after all project financing
has been expended, or (c) June 1, 2002. The equity contribution commitment is
supported by a letter of credit, which is provided under the Parent's corporate
credit facility. Holdings expects the Ouachita facility, which the Company will
operate, to begin operations in mid-2002. Electricity generated by the facility
will be sold under a 15-year power purchase agreement with Dynegy Power
Marketing Inc ("Dynegy"). An affiliate of Dynegy will supply fuel to the
Ouachita facility.
The borrowings under the credit agreement accrue interest per annum at an
annual rate equal to the applicable LIBOR rate plus 1.25% during the
construction period. The construction loans convert to term loans on the
earliest to occur of (a) the commencement of commercial operations, or (b) June
1, 2002. The term loans accrue interest per annum at an annual rate equal to the
applicable LIBOR rate plus 1.30% to 1.63%. The term loans mature 5 years after
the commencement of commercial operations.
RINGGOLD, PENNSYLVANIA FACILITY
On September 1, 2000, the Company received approximately $18.0 million as
consideration for the execution of the Penelec Termination Agreement. A portion
of the proceeds were used to retire the entire amount of the project
subsidiary's outstanding debt. In conjunction with this termination, the Company
discontinued operation of the facility. The Company expects to record a gain of
approximately $13.0 million, net of transaction costs.
PARENT CORPORATE CREDIT FACILITY AMENDMENT
During September 2000, the Corporate Credit Facility was amended to
increase available commitments from $175.0 million to $250.0 million, to modify
certain covenants, to reduce the
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COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment fee to 37.5 basis points per annum when greater than 50% of the
available commitments are utilized and to extend the facility through October
2003.
PARENT 2008 NOTES
On September 22, 2000, the Parent privately placed a total of $100.0
million of additional 2008 Notes. The Parent sold these 2008 Notes at a discount
resulting in an effective rate of approximately 8.86%.
NEW ACCOUNTING PRONOUNCEMENT
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements". In June 2000 the SEC amended SAB 101 to
delay the implementation date until no later than the fourth fiscal quarter of
fiscal year beginning after December 15, 1999. SAB 101, which the Company will
implement by the fourth quarter of 2000, provides the SEC Staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company does not expect the adoption of SAB 101 to have
a material impact on its results of operations, financial position or cash
flows.
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<PAGE> 170
SCHEDULE I
COGENTRIX DELAWARE HOLDINGS, INC.
CONDENSED BALANCE SHEETS OF REGISTRANT
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 580 $ 12,535
Accounts receivable....................................... 8,473 16,216
--------- ---------
Total current assets.............................. 9,053 28,751
INVESTMENT IN SUBSIDIARIES (ON THE EQUITY METHOD)........... 151,303 (63,664)
OTHER ASSETS:
Notes receivable from affiliates.......................... 229,789 412,760
Other..................................................... 23,842 12,638
--------- ---------
Total other assets................................ 253,631 425,398
--------- ---------
Total Assets...................................... $ 413,987 $ 390,485
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... -- 79
--------- ---------
Total current liabilities......................... -- 79
LONG-TERM LIABILITIES:
Deferred income taxes..................................... 23,570 17,372
--------- ---------
Total liabilities................................. 23,570 17,451
--------- ---------
SHAREHOLDER'S EQUITY:
Common stock.............................................. 1 1
Additional paid-in capital................................ 610,458 522,381
Accumulated comprehensive loss............................ (1,144) (15)
Accumulated deficit....................................... (218,898) (149,333)
--------- ---------
Total shareholder's equity........................ 390,417 373,034
--------- ---------
Total liabilities and shareholder's equity.................. $ 413,987 $ 390,485
========= =========
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
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<PAGE> 171
SCHEDULE I
COGENTRIX OF DELAWARE HOLDINGS, INC.
CONDENSED STATEMENTS OF INCOME OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING REVENUE........................................... $ -- $ -- $ --
OPERATING EXPENSES:
General, administrative and development expenses.......... (21) (69) (126)
------- ------- -------
OPERATING LOSS.............................................. (21) (69) (126)
------- ------- -------
OTHER INCOME:
Investment and other income............................... 15,998 22,234 10,472
------- ------- -------
Total other income................................ 15,998 22,234 10,472
------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 15,977 22,165 10,346
INCOME TAX PROVISION........................................ (6,199) (9,056) (4,138)
EQUITY IN EARNINGS OF SUBSIDIARIES.......................... 62,528 40,364 25,677
------- ------- -------
NET INCOME.................................................. $72,306 $53,473 $31,885
======= ======= =======
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
F-61
<PAGE> 172
SCHEDULE I
COGENTRIX DELAWARE HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS OF REGISTRANT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
NET CASH FLOW PROVIDED BY OPERATING
ACTIVITIES................................................ $ 81,198 $ 53,632 $43,380
--------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries............................... (222,330) (526) (10,204)
--------- --------- -------
Net cash used in investing activities.................. (222,330) (526) (10,204)
--------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in notes receivable from affiliates... 182,971 (291,492) (20,800)
Contributed capital from Parent........................... 88,077 298,312 45,194
Dividends paid to Parent.................................. (141,871) (97,604) (53,689)
--------- --------- -------
Net cash flows provided by (used in) financing
activities........................................... 129,177 (90,784) (29,295)
--------- --------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... (11,955) (37,678) 3,881
CASH AND CASH EQUIVALENTS, beginning of period.............. 12,535 50,213 46,332
--------- --------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 580 $ 12,535 $50,213
========= ========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- CASH DIVIDENDS RECEIVED.................... $ 69,890 $ 58,780 $30,648
========= ========= =======
</TABLE>
The accompanying condensed notes to condensed financial statements are
an integral part of this schedule.
F-62
<PAGE> 173
SCHEDULE I
COGENTRIX DELAWARE HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
1. SIGNIFICANT ACCOUNTING POLICIES
These condensed notes should be read in conjunction with the consolidated
financial statements, and accompanying notes.
Accounting for Subsidiaries -- Cogentrix Delaware Holdings, Inc.
("Holdings") has accounted for its investment in and earnings of its
subsidiaries on the equity method in the condensed financial information.
Income Taxes -- The benefit for income taxes has been computed based on the
Company's consolidated effective income tax rate.
Change of Fiscal Year -- Effective January 1, 1998, Cogentrix Energy, Inc.
(the "Parent") changed its fiscal year to commence on January 1 and conclude on
December 31 of each year. Cogentrix Energy, Inc.'s fiscal year previously
commenced each July 1, concluding on June 30 of the following calendar year.
Cogentrix Energy has restated its financial statements for the years ending
December 31, 1997 fiscal year to a calendar year basis.
2. GUARANTEE OF PARENT DEBT
Holdings has guaranteed all of the existing and future senior, unsecured
outstanding indebtedness for borrowed money of the Parent. This guarantee,
provided for in the credit agreement for the Corporate Credit Facility, expires
by its terms in 2002, unless the term of the credit agreement is extended. The
agreement under which the guarantee was given provides that the terms or
provisions of the guarantee may be waived, amended, supplemented or otherwise
modified at any time and from time to time by Holdings and the agent bank for
the lenders under the credit agreement. The Parent's senior, unsecured
outstanding indebtedness is as follows:
SENIOR NOTES
On March 15, 1994, Cogentrix Energy, Inc. issued $100 million of
registered, unsecured senior notes due 2004 (the "2004 Notes") in a public
debt offering. The 2004 Notes were priced at par to yield 8.10%. The 2004
Notes require annual sinking fund payments beginning in March 2001.
On October 20, 1998, Cogentrix Energy, Inc. issued $220 million of
registered, unsecured 8.75% senior notes due 2008 (the "2008 Notes"). These
notes were issued at a discount resulting in an effective rate of
approximately 8.824%. On November 25, 1998, the Company issued an
additional $35 million of the 2008 Notes at a premium resulting in an
effective rate of approximately 7.95%. See Note 14 to the consolidated
financial statements for additional discussion.
CORPORATE CREDIT FACILITY
In May 1997, the Parent entered into a credit agreement with Australia
and New Zealand Banking Group Limited, as agent for a group of lending
banks. In October 1998, the Company amended and restated the corporate
credit facility to provide for $125 million of revolving credit available
through October 2002 in the form of direct advances or the issuance of
letters of credit (the "Corporate Credit Facility"). As of December 31,
1999, the Company has used this credit facility to issue approximately $117
million of letters of credit in connection with investments made in
electric-generating plants, and two plants under construction. Subsequent
to December 31, 1999, the Corporate Credit Facility was amended to provide
for $175 million of revolving credit and to modify the covenants. The
revolving credit facility has been extended through October 2002. See Note
14 to the consolidated financial statements for additional discussion.
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<PAGE> 174
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY COGENTRIX ENERGY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
COGENTRIX ENERGY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
COGENTRIX
ENERGY, INC.
EXCHANGE OFFER
FOR $100,000,000 OUTSTANDING 8.75%
SENIOR NOTES DUE 2008
(COGENTRIX LOGO)
------------
PROSPECTUS
Dated November 8, 2000
------------
EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT
PURSUANT TO THIS EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF THOSE EXCHANGE NOTES. THE LETTER OF
TRANSMITTAL STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. THIS PROSPECTUS AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION
WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OUTSTANDING NOTES WHERE
SUCH EXCHANGE NOTES WERE ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. COGENTRIX ENERGY HAS
AGREED THAT, STARTING ON DECEMBER 8, 2000 AND ENDING ON THE CLOSE OF BUSINESS ON
DECEMBER 8, 2001, IT WILL MAKE THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER
FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE "PLAN OF DISTRIBUTION."
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 175
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Cogentrix Energy, Inc.
Cogentrix Energy is a North Carolina corporation Section 55-2-02 of the
North Carolina Business Corporation Act (the "Business Corporation Act") enables
a corporation in its articles of incorporation to eliminate or limit, with
certain exceptions, the personal liability of a director for monetary damages
for breach of duty as a director. No such provision is effective to eliminate or
limit a director's liability for (i) acts or omissions that the director at the
time of the breach knew or believed to be clearly in conflict with the best
interests of the corporation, (ii) improper distributions described in Section
55-8-33 of the Business Corporation Act, (iii) any transaction from which the
director derived an improper personal benefit or (iv) acts or omissions
occurring prior to the date the exculpatory provision became effective.
Cogentrix Energy's articles of incorporation limit the personal liability of its
directors to the fullest extent permitted by the Business Corporation Act.
Sections 55-8-50 through 55-8-58 of the Business Corporation Act permit a
corporation to indemnify its directors and officers under either or both a
statutory or nonstatutory scheme of indemnification. Under the statutory scheme,
a corporation may, with certain exceptions, indemnify a director or officer of
the corporation who was, is, or is threatened to be made, a party to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative, or investigative, because of the fact that such
person was a director or officer of the corporation, or is or was serving at the
request of such corporation as a director, officer, agent or employee of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses, including
attorneys' fees, incurred in connection with a proceeding; provided that no such
indemnification may be granted unless such director or officer (1) conducted
himself or herself in good faith, (2) reasonably believed that (A) any action
taken in his or her official capacity with the corporation was in the best
interests of the corporation and (B) in all other cases, his or her conduct was
at least not opposed to the corporation's best interests, and (3) in the case of
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. In accordance with Section 55-8-55 of the Business Corporation
Act, the determination of whether a director has met the requisite standard of
conduct for the type of indemnification set forth above is made by the board of
directors, a committee of directors, special legal counsel or the shareholders.
A corporation may not indemnify a director under the statutory scheme in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with a
proceeding in which a director was adjudged liable on the basis of having
received an improper personal benefit.
In addition to, and notwithstanding the conditions of and limitations on
indemnification described above under the statutory scheme, Section 55-8-57 of
the Business Corporation Act permits a corporation in its articles of
incorporation or bylaws or by contract or resolution to indemnify or agree to
indemnify any of its directors or officers against liability and expenses,
including attorneys' fees, in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation.
Pursuant to this nonstatutory scheme, Cogentrix Energy's bylaws provide for
indemnification to the fullest extent permitted by law of (1) any person who at
any time serves or has served as an officer, serving in a capacity of vice
president or any more senior officer, or a director of Cogentrix Energy, (2) any
person who serves or has served in such capacity at the request of Cogentrix
Energy for another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan or
(3) any other persons as the directors of Cogentrix Energy may determine;
provided such persons have not engaged in activities known or believed by the
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<PAGE> 176
person who undertook them to be clearly in conflict with Cogentrix Energy's best
interests when they occurred.
Sections 55-8-52 and 55-8-56 of the Business Corporation Act require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify against reasonable expenses incurred by a director or officer who has
been wholly successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was, or was threatened to be made,
a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification in view of all the relevant circumstances as
provided in Sections 55-8-54 and 55-8-56 of the Business Corporation Act.
In addition, Section 55-8-57 of the Business Corporation Act authorizes a
corporation to purchase and maintain insurance on behalf of an individual who is
or was a director or officer of the corporation against certain liabilities
incurred by such persons, whether or not the corporation is otherwise authorized
by the Business Corporation Act to indemnify such party.
Cogentrix Energy maintains a directors and officers insurance policy which,
subject to certain exceptions, insures the officers and directors of Cogentrix
Energy from any claim arising out of an alleged wrongful act by such persons in
their respective capacities as officers and directors of Cogentrix Energy.
Cogentrix Delaware Holdings, Inc.
Cogentrix Delaware Holdings is a Delaware corporation. Section 145 of the
General Corporation Law of the State of Delaware (the "Delaware Law") permits a
corporation to indemnify its directors and officers against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit or proceeding,
whether criminal or civil, brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which the action or suit was brought shall determine upon application that
the defendant officers or directors are reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
In addition, Section 102 of the Delaware Law provides that a corporation
may include in its certificate of incorporation a provision eliminating or
limiting the personal liability of directors for monetary damages for breach of
fiduciary duty, provided that such provision shall not eliminate or limit the
liability of a director: (1) for any breach of the director's duty of loyalty to
the corporation or its stockholders; (2) for acts or omissions not in good faith
that involve intentional misconduct or a knowing violation of the law; (3)
conduct in violation of Section 174 of the Delaware Law (which section relates
to unlawful distributions); or (4) for any transaction from which the director
derived an improper personal benefit.
Cogentrix Delaware Holdings' certificate of incorporation provides that
each person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of Cogentrix Delaware Holdings or, while serving as a director or
officer of Cogentrix Delaware Holdings, is or was serving at the request of
Cogentrix Delaware Holdings as a director or officer, among others, of another
corporation or of a partnership, joint venture, trust or other enterprise,
including, service with respect to employee benefit plans, whether the basis of
the proceeding is alleged action in an official capacity as a director or
officer of Cogentrix Delaware Holdings or in any other capacity while serving as
a director or officer of Cogentrix
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<PAGE> 177
Delaware Holdings, shall be indemnified and held harmless by Cogentrix Delaware
Holdings to the fullest extent authorized by Delaware Law. Additionally, the
officers and directors of Cogentrix Delaware Holdings are to be indemnified
against all expense, liability and loss (including, without limitation,
attorneys' fees) reasonably incurred or suffered by the person and the
indemnification shall continue as to a person who has ceased to be a director or
officer of Cogentrix Delaware Holdings and shall inure to the benefit of his or
her heirs, executors and administrators. Under its certificate of incorporation,
Cogentrix Delaware Holdings is to indemnify any person seeking indemnification
in connection with a proceeding initiated by the person only if the proceeding
was authorized by the board of directors of Cogentrix Delaware Holdings. The
right to indemnification conferred in Cogentrix Delaware Holdings' certificate
of incorporation is a contract right and includes the right to be paid by
Cogentrix Delaware Holdings the expense incurred in defending any such
proceeding in advance of its final disposition.
Cogentrix Delaware Holdings' bylaws also provide that it shall indemnify to
the fullest extent authorized by Delaware Law and the certificate of
incorporation any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director or officer,
among others, of Cogentrix Delaware Holdings or any of its predecessors or
serves or served any other enterprise as a director or officer, among others, at
the request of Cogentrix Delaware Holdings or any of its predecessors.
Cogentrix Delaware Holdings' certificate of incorporation allows Cogentrix
Delaware Holdings to maintain insurance, at its expense, to protect any director
and officer, among others, against any expense, liability or loss whether or not
Cogentrix Delaware Holdings would have the power to indemnify the person against
the expense, liability or loss under Delaware Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
2.1 Purchase Agreement, dated as of March 6, 1998, between
Cogentrix Energy, Inc. and Bechtel Generating Company, Inc.
(10.2). (*)(13)
2.1(a) Amendment No. 1, dated October 14, 1998, to Purchase
Agreement, dated March 6, 1998, between Cogentrix Energy,
Inc., a North Carolina corporation ("Buyer"), and Bechtel
Generating Company, Inc., a Delaware corporation ("Seller").
(21)
2.2 Securities Purchase Agreement, dated March 6, 1998, by and
among LS Power Corporation, a Delaware corporation, Granite
Power Partners, L.P., a Delaware Limited partnership
(collectively, the "Sellers"), Cogentrix Mid-America, Inc.,
a Delaware corporation, Cogentrix Cottage Grove, LLC, a
Delaware limited liability Company, and Cogentrix
Whitewater, LLC, a Delaware limited liability company
(collectively, the "Purchasers") and Cogentrix Energy, Inc.
(2). (12)
3.1 Articles of Incorporation of Cogentrix Energy, Inc. (3.1).
(1)
3.2 Amended and Restated Bylaws of Cogentrix Energy, Inc., as
amended (3.2). (11)
4.1 Indenture, dated as of March 15, 1994, between Cogentrix
Energy, Inc. and First Union National Bank of North
Carolina, as Trustee, including form of 8.10% 2004 Senior
Note (4.1). (3)
4.2 Indenture, dated as of October 20, 1998, between Cogentrix
Energy, Inc. and First Union National Bank, as Trustee,
including form of 8.75% Senior Note (4.2). (14)
4.3 First Supplemental Indenture, dated as of October 20, 1998,
between Cogentrix Energy, Inc. and First Union National
Bank, as Trustee (4.3). (14)
4.4 Registration Agreement, dated as of September 22, 2000, by
and among Cogentrix Energy, Inc., Salomon Smith Barney Inc.
and CIBC World Markets Corp.+
</TABLE>
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<PAGE> 178
<TABLE>
<CAPTION>
DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
4.5 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). (15)
5.1 Opinion of Moore & Van Allen, PLLC.+
10.1 Power Purchase and Operating Agreement, dated as of July 21,
1986, between Cogentrix of Virginia, Inc. and Virginia
Electric and Power Company, as amended (assigned to and
assumed by Cogentrix Virginia Leasing Corporation)
(Portsmouth Facility) (10.7). (1)
10.1(a) Third Amendment and Restatement of the Power Purchase and
Operating Agreement, dated December 5, 1997, between
Cogentrix Virginia Leasing Corporation and Virginia Electric
and Power Company (Portsmouth Facility) (10.7(a)). (11)
10.2 Power Purchase and Operating Agreement, dated as of January
24, 1989, between Cogentrix of Rocky Mount, Inc. and
Virginia Electric and Power Company, doing business in North
Carolina as North Carolina Power, as amended (Rocky Mount
Facility) (10.8). (1)
10.3 Power Purchase and Operating Agreement, dated as of January
24, 1989, between Cogentrix of Richmond, Inc. (formerly
named Cogentrix of Petersburg, Inc.) and Virginia Electric
and Power Company, as amended. (Richmond Facility, Unit I)
(10.10). (1)
10.4 Power Purchase and Operating Agreement, dated as of January
24, 1989, between WV Hydro, Inc. and Virginia Electric and
Power Company, as amended (assigned to and assumed by
Cogentrix of Richmond, Inc.) (Richmond Facility, Unit II)
(10.11). (1)
10.5 Steam Purchase Agreement, dated as of December 31, 1985,
between Cogentrix Virginia Leasing Corporation and
Hoechst-Celanese Corporation (successor to Virginia
Chemicals Inc.) (Portsmouth Facility) (10.19). (*)(2)
10.6 Steam Purchase Agreement, dated as of November 15, 1988,
between Cogentrix of Rocky Mount, Inc. and Abbott
Laboratories, as amended (Rocky Mount Facility) (10.20).
(*)(2)
10.7 Steam Purchase Agreement, dated as of May 18, 1990, between
Cogentrix of Richmond, Inc. and E.I. du Pont de Nemours and
Company, as amended (Richmond Facility) (10.22). (*)(2)
10.8 Coal Sales Agreement, dated as of December 15, 1986, among
AgipCoal Sales USA, Inc. (formerly named Enoxy Coal Sales,
Inc.), AgipCoal USA, Inc. (formerly named Enoxy Coal, Inc.)
and Cogentrix Virginia Leasing Corporation (Portsmouth
Facility) (10.27). (*)(2)
10.8(a) First Amendment to Coal Sales Agreement, dated September 29,
1995, by and between Arch Coal Sales Company, Inc., and
Cogentrix Virginia Leasing Corporation (Portsmouth Facility)
(10.1). (6)
10.8(b) Second Amendment, dated as of April 20, 1999, to Coal Sales
Agreement, dated as of December 15, 1986, by and between
Cogentrix Virginia Leasing Corporation and Arch Coal Sales
Company (Portsmouth Facility) (10.1). (*)(25)
10.9 Coal Sales Agreement, dated as of October 1, 1989, among
Agip Coal Sales USA, Inc., Laurel Creek Co., Inc. and
Cogentrix of Rocky Mount, Inc., as amended (Rocky Mount
Facility) (10.28). (*)(2)
10.10 Coal Sales Agreement, dated as of February 15, 1990, among
Electric Fuels Corporation, Kentucky May Coal Company, Inc.
and Cogentrix of Richmond, Inc., as amended (Richmond
Facility, Unit I) (10.31). (*)(2)
</TABLE>
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10.10(a) Fourth Amendment to Coal Sales Agreement, dated as of July
1, 1998, among Electric Fuels Corporation, Kentucky May Coal
Company, Inc. and Cogentrix of Richmond, Inc. (Richmond
Facility, Unit I) (10.10(a)). (*)(22)
10.11 Coal Sales Agreement, dated as of January 1, 1990, between
Coastal Coal Sales, Inc., and Cogentrix of Richmond, Inc.,
as amended (Richmond Facility, Unit II) (10.32). (*)(2)
10.12 Railroad Transportation Contract, dated as of December 22,
1986, between Cogentrix Virginia Leasing Corporation, and
Norfolk Southern Railway Company, as amended (Portsmouth
Facility) (10.39). (*)(2)
10.13 Barge Transportation Contract, dated as of December 23,
1986, between Cogentrix Virginia Leasing Corporation and
McAllister Brothers, Inc., as amended (Portsmouth Facility)
(10.40). (1)
10.14 Railroad Transportation Contract, dated as of September 26,
1989, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc., as amended (Rocky Mount Facility)
(10.41). (*)(2)
10.14(a) Fourth Amendment, dated as of August 23, 1995, to the
Railroad Transportation Contract, dated as of September 26,
1989, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc. (Rocky Mount Facility) (10.41(a)). (5)
10.14(b) Fifth Amendment, dated as of January 1, 1996, to the
Railroad Transportation Contract, dated as of September 26,
1989, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc. (Rocky Mount Facility) (10.41(b)). (8)
10.14(c) Amendment No. 6 to Contract CSXT-C-03951, dated as of
January 1, 1997, between Cogentrix of Rocky Mount, Inc. and
CSX Transportation, Inc. (Rocky Mount Facility) (10.9). (9)
10.14(d) Amendment No. 7 to Contract CSXT-C-03951, dated as of July
1, 1997, between Cogentrix of Rocky Mount, Inc. and CSX
Transportation, Inc. (Rocky Mount Facility) (10.47(d)). (10)
10.14(e) Amendment No. 8 to Contract CSXT-C-03951, dated as of
January 1, 1999, between Cogentrix of Rocky Mount, Inc. and
CSX Transportation, Inc. (Rocky Mount Facility) (10.14(e)).
(22)
10.15 Railroad Transportation Contract, dated as of March 1, 1990,
between Cogentrix of Richmond, Inc. and CSX Transportation,
Inc., as amended (Richmond Facility, Unit I) (10.42). (*)(2)
10.15(a) Third Amendment to Railroad Transportation Contract, filed
with the ICC on December 13, 1994, between Cogentrix of
Richmond, Inc. and CSX Transportation, Inc. (Richmond
Facility, Unit I) (10.4). (4)
10.16 Railroad Transportation Contract, dated as of March 1, 1990,
between Cogentrix of Richmond, Inc. and CSX Transportation,
Inc., as amended (Richmond Facility, Unit II) (10.43).
(*)(2)
10.16(a) Fourth Amendment to Railroad Transportation Contract, filed
with the ICC on December 13, 1994, between Cogentrix of
Richmond, Inc. and CSX Transportation, Inc. (Richmond
Facility, Unit II) (10.5). (4)
10.16(b) Fifth Amendment to Railroad Transportation Contract,
effective as of November 16, 1995, between Cogentrix of
Richmond, Inc. and CSX Transportation, Inc. (Richmond
Facility, Unit II) (10.43(b)). (*)(8)
10.16(c) Amendment No. 6 to Railroad Transportation Contract,
effective on June 9, 1998, between Cogentrix of Richmond,
Inc. and CSX Transportation, Inc. (Richmond Facility).
(*)(14)
</TABLE>
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10.17 Third Amended and Restated Loan Agreement, dated as of
December 22, 1997, among Cogentrix Virginia Leasing
Corporation, the lenders party thereto and Credit Lyonnais,
as the Agent, Issuing Bank and a Lender (Portsmouth
Facility) (10.54). (11)
10.17(a) Amendment No. 1 to the Third Amended and Restated Loan
Agreement dated as of December 22, 1997 between Cogentrix
Virginia Leasing Company and several banks and other
financial institutions (Portsmouth Facility) (10.2). (25)
10.18 Amended and Restated Construction and Term Loan Agreement,
dated as of December 1, 1993, among Cogentrix of Rocky
Mount, Inc., the Tranche B Lenders party thereto, and The
Prudential Insurance Company of America, as Credit Facility
Agent (Rocky Mount Facility) (10.52). (1)
10.18(a) First Amendment, dated as of March 31, 1996, to the Amended
and Restated Construction and Term Loan Agreement, dated as
of December 1, 1993, among Cogentrix of Rocky Mount, Inc.,
the Tranche B Lenders party thereto, and The Prudential
Insurance Company of America, as Credit Facility Agent
(Rocky Mount Facility) (10.4). (7)
10.18(b) Second Amendment, dated as of May 31, 1996, to the Amended
and Restated Construction and Term Loan Agreement, dated as
of December 1, 1993, among Cogentrix of Rocky Mount, Inc.,
the Tranche B Lenders party thereto, and The Prudential
Insurance Company of America, as Credit Facility Agent
(Rocky Mount Facility) (10.48(b)). (8)
10.18(c) Third Amendment, dated as of December 1, 1997, to the
Amended and Restated Construction and Term Loan Agreement,
dated as of December 1, 1993, among Cogentrix of Rocky
Mount, Inc, the Tranche B Lenders party thereto, and The
Prudential Insurance Company of America, as Credit Facility
Agent (Rocky Mount Facility) (10.55(c)). (11)
10.19 Amended and Restated Subordinated Note dated April 22, 1994
of Cogentrix of Pennsylvania, Inc. payable to Cogentrix
Delaware Holdings, Inc. (10.57). (11)
10.20 Amended and Restated Reimbursement and Loan Agreement, dated
as of June 28, 2000, by and among Cogentrix of Richmond,
Inc. and BNP Paribas (Richmond Facility) (10.1). (28)
10.21 Indenture of Trust, dated as of December 1, 1990, between
the Industrial Development Authority of the City of
Richmond, Virginia and Sovran Bank, N.A., as Trustee,
including First and Second Supplemental Indentures of Trust
(Richmond Facility) (10.56). (1)
10.22 Sale Agreement, dated as of December 1, 1990, between the
Industrial Development Authority of the City of Richmond,
Virginia and Cogentrix of Richmond, Inc., including First
and Second Supplemental Sale Agreements (Richmond Facility)
(10.57). (1)
10.23 Third Amended and Restated Security Deposit Agreement, dated
as of December 22, 1997, among Cogentrix Virginia Leasing
Corporation, Credit Lyonnais, as Agent and Issuing Bank, and
First Union National Bank, as Security Agent (Portsmouth
Facility) (10.68). (11)
10.24 Amended and Restated Security Deposit Agreement, dated as of
December 1, 1993, among Cogentrix of Rocky Mount, Inc., The
Prudential Insurance Company of America, as Credit Facility
Agent and First Union National Bank of North Carolina, as
Security Agent (Rocky Mount Facility) (10.65). (1)
10.25 Amended and Restated Security Deposit Agreement, dated as of
June 28, 2000, among Cogentrix of Richmond, Inc., BNP
Paribas, as Agent, and First Union National Bank, as
Security Agent and Securities Intermediary (Richmond
Facility) (10.2). (28)
10.26 Third Amended and Restated Pledge Agreement, dated as of
December 22, 1997, made by Cogentrix, Inc., as Pledgor, and
Credit Lyonnais, as Agent (Portsmouth Facility) (10.79).
(11)
</TABLE>
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DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
-------------- ----------------------
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10.27 Ground Lease and Easement, dated as of December 15, 1986,
between Virginia Chemicals, Inc., as Lessor and Cogentrix
Virginia Leasing Corporation, as Lessee (Portsmouth
Facility) (10.94). (1)
10.28 Ground Lease, dated as of December 13, 1990, between
Cogentrix of Richmond, Inc., as Lessee, and E.I. du Pont de
Nemours and Company, as Lessor (Richmond Facility) (10.95).
(1)
10.29 Amended and Restated Land Lease Agreement, dated as of
February 18, 1988, among Arrowpoint Associates Limited
Partnership, as Landlord, and Cogentrix, Inc., CI
Properties, Inc. and Equipment Leasing Partners, as Tenant,
as amended (assigned to and assumed by Equipment Leasing
Partners, with Cogentrix, Inc., as guarantor) (Corporate
Headquarters) (10.96). (1)
10.30 Amended and Restated Lease Agreement, dated as of April 30,
1993, among Equipment Leasing Partners, as Landlord,
Cogentrix, Inc., as Tenant, and CI Properties, Inc., as
amended (Corporate Headquarters) (10.97). (1)
10.31 Letter Agreement, dated May 25, 1989, among Cogentrix, Inc.,
Cogentrix of Richmond, Inc. (formerly named Cogentrix of
Petersburg, Inc.), and WV Hydro, Inc., as amended (Richmond
Facility) (10.98). (1)
10.32 Consulting Agreement, dated as of September 27, 1991,
between Robert W. Lewis and Cogentrix, Inc., as amended
(assigned to and assumed by Cogentrix Energy, Inc.) (10.99).
(1)
10.33 Consulting Agreement, dated as of September 30, 1993,
between Cogentrix, Inc. and W.E. Garrett (assigned to and
assumed by Cogentrix Energy, Inc.) (10.100). (1)
10.34 Consulting Agreement, dated as of March 19, 1998, between
Cogentrix Energy and John A. Tillinghast (10.34). (29)
10.35 Form of Profit-Sharing Plan (I) (10.102). (1)
10.36 Form of Profit-Sharing Plan (II) (10.103). (1)
10.37 Executive Incentive Bonus Plan (10.104). (2)
10.38 Facility Cash Flow Incentive Compensation Agreement with
Robert W. Lewis (10.105). (1)
10.39 Adoption of Stock Transfer Agreement dated as of December
30, 1993 among Cogentrix Energy, Inc., Cogentrix Inc., David
J. Lewis, Robert W. Lewis and James E. Lewis (10.111). (1)
10.40 Employment Agreement, dated as of August 11, 2000, between
David J. Lewis and Cogentrix Energy, Inc.+
10.41 Amended and Restated Employment Agreement, dated as of May
1, 1997 and amended on August 14, 2000, between Mark F.
Miller and Cogentrix Energy, Inc.+
10.42 Employment Agreement, dated as of January 1, 1994, between
Dennis W. Alexander and Cogentrix Energy, Inc. (10.110).
(11)
10.43 Executive Employment Agreement, dated as of January 1, 1999,
Cogentrix Energy, Inc. and James R. Pagano (10.42). (22)
10.44 Supplemental Retirement Savings Plan (10.132). (5)
10.44(a) Amendments to Cogentrix Energy, Inc. Supplemental Retirement
Savings Plan. (10.3) (26)
10.45 Trust Under Supplemental Retirement Savings Plan, dated
April 17, 1995, by and between Cogentrix Energy, Inc. and
Wachovia Bank of North Carolina, N.A. of Winston Salem,
North Carolina, as Trustee (10.133). (5)
</TABLE>
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<TABLE>
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DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
10.46 Third Amended and Restated Credit Agreement among Cogentrix
Energy, Inc. and the Several Lenders from time to time
parties thereto and Australia and New Zealand Banking Group
Limited as Coordinating Lead Arranger, the Bank of Nova
Scotia and CitiBank N.A. as Lead Arrangers, and Australia
and New Zealand Banking Group Limited as Agent and Issuing
Bank, dated as of September 14, 2000.+
10.47 Third Amended and Restated Guarantee, dated as of September
14, 2000, made by Cogentrix Delaware Holdings, Inc., the
Guarantor, in favor of the Borrower Creditors.+
10.48 Amended and Restated Limited Partnership Agreement, dated as
of June 30, 1995, among LSP-Cottage Grove, Inc., Granite
Power Partners, L.P., and TPC Cottage Grove, Inc. (17)
10.48(a) Amendment No. 1 to the Cottage Grove Partnership Agreement.
(18)
10.48(b) Consent, Waiver and Amendment No. 2, dated March 20, 1998,
to the Amended and Restated Limited Partnership Agreement of
LSP-Cottage Grove, L.P. (20)
10.48(c) Third Amendment, dated December 11, 1998, to the Amended and
Restated Limited Partnership Agreement of LSP-Cottage Grove,
L.P. (23)
10.49 Amended and Restated Partnership Agreement, dated as of June
30, 1995, among LSP-Whitewater I, Inc., Granite Power
Partners, L.P. and TPC Whitewater, Inc. (17)
10.49(a) Consent, Waiver and Amendment No. 1, dated March 20, 1998,
to the Amended and Restated Limited Partnership Agreement of
LSP-Whitewater Limited Partnership. (20)
10.49(b) Second Amendment, dated December 11, 1998, to the Amended
and Restated Limited Partnership Agreement of LSP-Whitewater
Limited Partnership. (23)
10.50 Power Purchase Agreement, dated as of May 9, 1994, between
Northern States Power Company and LSP-Cottage Grove, L.P.
(17)
10.51 Power Purchase Agreement, dated as of December 21, 1993,
between Wisconsin Electric Power Company and LSP-Whitewater
Limited Partnership. (17)
10.51(a) Amendment to Power Purchase Agreement, dated as of February
10, 1994, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (17)
10.51(b) Second Amendment to Power Purchase Agreement, dated as of
October 5, 1994, between Wisconsin Electric Power Company
and LSP-Whitewater Limited Partnership. (17)
10.51(c) Third Amendment to Power Purchase Agreement, dated as of May
5, 1995, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (17)
10.51(d) Fourth Amendment to Power Purchase Agreement, dated March
18, 1997, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (19)
10.51(e) Fifth Amendment to Power Purchase Agreement, dated February
26, 1998, between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership. (20)
10.52 Operations 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). (*)(24)
10.53 Operations 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). (*)(24)
10.54 Steam Purchase Contract, effective as of January 1, 1999, by
and between Celanese Chemical, Inc. and Cogentrix Virginia
Leasing Corporation (Portsmouth Facility) (10.3). (*)(25)
10.55 Steam Purchase Contract, effective as of January 1, 1999, by
and between BASF Corporation and Cogentrix Virginia Leasing
Corporation (Portsmouth Facility) (10.4). (*)(25)
</TABLE>
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<TABLE>
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DESIGNATION OF
EXHIBIT DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
10.56 Credit Agreement, dated as of September 8, 1999, between
Cogentrix Eastern America, Inc. and Dresdner Bank, AG, as
administrative agent (10.1). (26)
10.56(a) First Amendment, dated as of December 17, 1999, to the
Credit Agreement, dated as of September 8, 1999, between
Cogentrix Eastern America, Inc. and Dresdner Bank, AG, as
administrative agent. (10.58(a)). (29)
10.57 Pledge Agreement, dated as of September 8, 1999, between
Cogentrix Delaware Holdings, Inc. and Dresdner Bank, AG, as
administrative agent (10.2). (26)
10.58 Consulting Agreement, dated as of January 1, 2000, between
James E. Lewis and Cogentrix Energy, Inc. (10.60). (29)
10.59 Guarantee, dated as of June 30, 1999, between Cogentrix
Energy, Inc. in favor of Rathdrum Power, LLC (10.1). (27)
10.59(a) First Amendment to Guarantee dated as of March 8, 2000
between Cogentrix Energy, Inc. and Rathdrum Power, LLC
(10.1a). (27)
10.60 Guaranty by Cogentrix Energy, Inc. and La Compania de
Electricidad de San Pedro de Macoris, dated as of April 7,
2000 (10.3). (28)
10.61 Cogentrix Contingent Equity Guarantee, dated as of April 7,
2000, by and between Cogentrix Energy, Inc. in favor of La
Compania de Electricidad de San Pedro de Macoris and The
Bank of Nova Scotia Trust Company of New York (10.4). (28)
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.+
21.1 Direct and Indirect Subsidiaries of Cogentrix Energy, Inc.+
23.1 Consent of Moore & Van Allen PLLC (contained in the opinion
filed as Exhibit 5.1)+
23.1(a) Consent of Arthur Andersen LLP, Independent Public
Accountants.+
24.1 Power of Attorney of Directors and Officers of Cogentrix
Energy, Inc. (contained on the signature page of
registration statement).+
24.2 Power of Attorney of Directors and Officers of Cogentrix
Delaware Holdings, Inc. (contained on the signature page of
registration statement).+
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
</TABLE>
---------------
+ previously filed as an exhibit to this registration statement
(*) Certain portions of this exhibit have been omitted pursuant to previously
approved requests for confidential treatment.
(1) Incorporated by reference to Registration Statement on Form S-1 (File No.
33-74254) filed January 19, 1994. The number designating the exhibit on the
exhibit index to such previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(2) Incorporated by reference to Amendment No. 2 to Registration Statement on
Form S-1 (File No. 33-74254) filed March 7, 1994. The number designating
the exhibit on the exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description of the exhibit above.
(3) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
September 28, 1994. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(4) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
February 14, 1995. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
II-9
<PAGE> 184
(5) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
September 28, 1995. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(6) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
November 14, 1995. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(7) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed May 3,
1996. The number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end of the
description of the exhibit above.
(8) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
October 10, 1996. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(9) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
February 14, 1997. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(10) Incorporated by reference to the Form 10-K (File No. 33-74254) filed
September 29, 1997. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
(11) Incorporated by reference to the Form 10-K (File No. 33-74254) filed March
30, 1998. The number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end of the
description of the exhibit above.
(12) Incorporated by reference to the Form 8-K (File No. 33-74254) filed April
6, 1998. The number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end of the
description of the exhibit above.
(13) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed May
15, 1998. The number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end of the
description of the exhibit above.
(14) Incorporated by reference to the Registration Statement on Form S-4 (File
No. 33-67171) filed November 12, 1998. The number designating the exhibit
on the exhibit index to such previously file report is enclosed in
parentheses at the end of the description of the exhibit above.
(15) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-4 (File No. 33-67171) filed January 27, 1999. The number
designating the exhibit on the exhibit index to such previously file report
is enclosed in parentheses at the end of the description of the exhibit
above.
(16) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form S-4 (File No. 33-67171) filed March 15, 1999 by Cogentrix Energy,
Inc. and Cogentrix Delaware Holdings, Inc. The number designating the
exhibit on the exhibit index to such previously file report is enclosed in
parentheses at the end of the description of the exhibit above.
(17) Incorporated by reference to the Registration Statement on Form S-4 (File
No. 33-95928) filed on August 16, 1995, as amended, or to the Form 10-K
filed for the fiscal year ended December 31, 1995 by LS Power Funding
Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited
Partnership.
(18) Incorporated by reference to the Form 10-Q (File No. 33-95928) filed August
12, 1996 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership.
(19) Incorporated by reference to the Form 10-Q (File No. 33-95928) filed May
14, 1997 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership.
(20) Incorporated by reference to the Form 10-K (File No. 33-95928) filed April
15, 1998 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership.
(21) Incorporated by reference to the Form 8-K (File No. 33-74254) filed
November 4, 1998. The number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in parentheses at the end of
the description of the exhibit above.
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<PAGE> 185
(22) Incorporated by reference to the Form 10-K (File No. 33-74254) filed March
31, 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.
(23) Incorporated by reference to the Form 10-K (File No. 33-95928) filed March
31, 1999 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership.
(24) Incorporated by reference to the Form 10-Q (File No. 33-95928) filed May
17, 1999 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership. 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.
(25) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed August
16, 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.
(26) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed
November 15, 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.
(27) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed May
15, 2000. 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.
(28) Incorporated by reference to the Form 10-Q (File No. 33-74254) filed August
14, 2000. 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.
(29) Incorporated by reference to the Form 10-K (File No. 33-74254) filed March
30, 2000. The number designating the exhibit on the exhibit index to such
previously filed report is enclosed in parentheses at the end of the
description of the exhibit above.
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Part II of the
Registration Statement:
None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(1) Each undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
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<PAGE> 186
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) The undersigned registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuers undertake that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(4) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (3) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement, relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(6) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-12
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to its registration statement on Form S-4 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Charlotte, North Carolina, on November 7, 2000.
COGENTRIX ENERGY, INC.
By: /s/ THOMAS F. SCHWARTZ
----------------------------------
Thomas F. Schwartz
Group Senior Vice President --
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE T. LEWIS, JR.* Chairman Emeritus and November 7, 2000
----------------------------------------------------- Director
George T. Lewis, Jr.
/s/ DAVID J. LEWIS* Chairman of the Board, Chief November 7, 2000
----------------------------------------------------- Executive Officer and
David J. Lewis Director
/s/ MARK F. MILLER* President, Chief Operating November 7, 2000
----------------------------------------------------- Officer and Director
Mark F. Miller
Vice Chairman and Director
-----------------------------------------------------
James E. Lewis
/s/ DENNIS W. ALEXANDER* Group Senior Vice President, November 7, 2000
----------------------------------------------------- General Counsel, Secretary
Dennis W. Alexander and Director
Director
-----------------------------------------------------
Betty G. Lewis
/s/ ROBERT W. LEWIS* Director November 7, 2000
-----------------------------------------------------
Robert W. Lewis
/s/ W.E. GARRETT* Director November 7, 2000
-----------------------------------------------------
W.E. Garrett
/s/ JOHN A. TILLINGHAST* Director November 7, 2000
-----------------------------------------------------
John A. Tillinghast
/s/ THOMAS F. SCHWARTZ Group Senior Vice November 7, 2000
----------------------------------------------------- President -- Chief
Thomas F. Schwartz Financial Officer
(Principal Accounting
Officer)
*By: /s/ THOMAS F. SCHWARTZ
------------------------------------------------
Thomas F. Schwartz
Attorney-in-fact
</TABLE>
II-13
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to its registration statement on Form S-4 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Charlotte, North Carolina, on November 7, 2000.
COGENTRIX DELAWARE HOLDINGS, INC.
By: /s/ THOMAS F. SCHWARTZ
------------------------------------
Thomas F. Schwartz
President and Director
(Principal Executive and Accounting
Officer)
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS F. SCHWARTZ President and Director November 7, 2000
----------------------------------------------------- (Principal Executive and
Thomas F. Schwartz Accounting Officer)
/s/ DAVID P. FONTELLO* Director November 7, 2000
-----------------------------------------------------
David P. Fontello
/s/ JOHN W. O'CONNOR* Vice President and Director November 7, 2000
-----------------------------------------------------
John W. O'Connor
*By: /s/ THOMAS F. SCHWARTZ
------------------------------------------------
Thomas F. Schwartz
Attorney-in-fact
</TABLE>
II-14
