SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P.
(Exact name of co-registrant as specified in its charter)
Delaware 52-1722490
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Indiantown Cogeneration Funding Corporation
(Exact name of co-registrant as specified in its charter)
Delaware 52-1889595
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor
Bethesda, Maryland 20814-6161
(Registrants' address of principal executive offices)
(301)-718-6800
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [ X ] Yes [ ] No
<PAGE>
Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements:
Consolidated Balance Sheets as of
June 30, 1999 (Unaudited) and December 31, 1998...........1
Consolidated Statements of Operations for the
Six Months Ended June 30, 1999 (Unaudited)
and June 30, 1998 (Unaudited)..........................3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999
(Unaudited) and June 30, 1998 (Unaudited)...............4
Notes to Consolidated Financial Statements (Unaudited) .....5
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations.......8
PART II OTHER INFORMATION
Item 1 Legal Proceedings..........................................14
Item 5 Other Information..........................................16
Item 6 Exhibits and Reports on Form 8-K...........................18
Signatures.........................................................19
<PAGE>
PART I
FINANCIAL INFORMATION
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
ASSETS 1999 1998
- -------------------------------------------------------------- ------------------- ---------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,019,791 $ 2,419,089
Accounts receivable-trade 13,611,924 12,369,594
Inventories 1,182,230 940,125
Prepaids 1,130,022 736,700
Deposits 44,000 44,000
Investments held by Trustee, including restricted funds
of $2,701,160 and $2,718,549, respectively
3,137,753 2,770,774
-------------------
---------------------
Total current assets 21,125,720 19,280,282
INVESTMENTS HELD BY TRUSTEE,
restricted funds 14,065,700 14,001,428
DEPOSITS 75,000 75,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam generating facilities 697,049,583 695,929,380
Less accumulated depreciation (58,005,530) (50,323,285)
-------------------
---------------------
Net property, plant & equipment 647,626,416 654,188,458
FUEL RESERVE 1,062,459 3,428,403
DEFERRED FINANCING COSTS, net of accumulated amortization of
$43,439,465 and $43,020,796, respectively
16,747,451 17,166,120
------------------- ---------------------
Total assets $ 700,702,746 $708,139,691
=================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
1
<PAGE>
Indiantown Cogeneration, L. P.
Consolidated Balance Sheets
As of June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31, 1998
LIABILITIES AND PARTNERS' CAPITAL 1999
- -------------------------------------------------------------- --------------------- ----------------------
(Unaudited)
CURRENT LIABILITIES:
Accrued payables/liabilities $ 10,065,300 $ 7,405,610
Accrued interest 2,284,576 2,302,048
Current portion - First Mortgage Bonds 10,765,567 9,997,000
Current portion lease payable - railcars 297,597 287,048
--------------------- ----------------------
Total current liabilities 23,413,040 19,991,706
LONG TERM DEBT:
First Mortgage Bonds 460,475,433 466,242,000
Tax Exempt Facility Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,432,216 4,583,699
--------------------- ----------------------
Total long term debt 589,917,649 595,835,699
Reserve-Major Maintenance 716,146 511,756
--------------------- ----------------------
Total liabilities 614,046,835 616,339,161
--------------------- ----------------------
PARTNERS' CAPITAL:
Toyan Enterprises 26,040,103 27,586,061
Palm Power Corporation 8,665,590 9,180,052
TIFD III-Y, Inc. 17,417,838 36,720,212
Indiantown Project Investment Partnership 17,287,854 18,314,205
Thaleia, LLC 17,244,526 0
--------------------- ----------------------
Total partners' capital 86,655,911 91,800,530
--------------------- ----------------------
Total liabilities and partners'
capital $700,702,746 $708,139,691
===================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Six Months Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------------------- -------------------------
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and capacity bonus revenue
$61,792,499 $61,709,982
Electric energy revenue 14,354,858 16,793,931
Steam revenue 61,026 106,143
---------- ----------
Total operating revenues 76,208,383 78,610,056
---------- ----------
Cost of Sales:
Fuel and ash 14,865,879 17,938,553
Operating and maintenance 8,725,799 8,815,208
Depreciation 7,682,245 7,548,096
--------- ---------
Total cost of sales 31,273,923 34,301,857
---------- ----------
Gross Profit 44,934,460 44,308,199
---------- ----------
Other Operating Expenses:
General and administrative 2,076,805 1,405,670
Insurance and taxes 3,316,904 3,361,234
--------- ---------
Total other operating expenses 5,393,709 4,766,904
--------- ---------
Operating Income 39,540,751 39,541,295
---------- ----------
Non-Operating Income (Expenses):
Interest/Other expense (28,847,362) (29,604,677)
Interest/Other income 931,992 1,258,258
------------ ------------
Net non-operating expense (27,915,370) (28,346,419)
------------ ------------
Net Income $11,625,381 $11,194,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
-------------------- ----------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,625,381 $ 11,194,876
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 8,100,914 7,839,403
Increase in accounts receivable (1,242,330) (48,215)
Decrease in inventories and fuel reserves 2,123,839 124,693
(Increase) Decrease in deposits and prepaids (393,322) 299,522
Increase in accounts payable, accrued liabilities and accrued
interest 2,642,218 1,644,742
Increase in major maintenance reserve 204,390 90,905
(Decrease) in lease payable (140,934) (131,120)
-------------------- ----------------------
Net cash provided by operating activities 22,920,156 21,014,806
-------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (1,120,205) (443,690)
(Increase)Decrease in investment held by trustee (431,251) 10,205,092
-------------------- ----------------------
Net cash (used in) provided by investing activities (1,551,454) 9,761,402
-------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bonds (4,998,000) (5,132,000)
Capital distributions (16,770,000) (26,480,000)
-------------------- ----------------------
Net cash used in financing activities (21,768,000) (31,612,000)
-------------------- ----------------------
CHANGE IN CASH AND CASH EQUIVALENTS (399,298) (835,792)
CASH and CASH EQUIVALENTS, beginning of year 2,419,089 3,234,379
-------------------- ----------------------
CASH and CASH EQUIVALENTS, end of period $ 2,019,791 2,398,587
$
=================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements
As of June 30,1999
(Unaudited)
1. ORGANIZATION AND BUSINESS:
Indiantown Cogeneration, L.P. (the "Partnership") is a special purpose
Delaware limited partnership formed on October 4, 1991. The Partnership was
formed to develop, construct, and operate an approximately 330 megawatt (net)
pulverized coal-fired cogeneration facility (the "Facility") located on an
approximately 240 acre site in southwestern Martin County, Florida. The Facility
produces electricity for sale to Florida Power & Light Company ("FPL") and
supplies steam to Caulkins Indiantown Citrus Co.
("Caulkins") for its plant located near the Facility.
The original general partners were Toyan Enterprises ("Toyan"), a
California corporation and a wholly-owned special purpose indirect subsidiary of
PG&E Generating Company, LLC (formerly known as U.S. Generating Company, LLC),
and Palm Power Corporation ("Palm"), a Delaware corporation and a special
purpose indirect subsidiary of Bechtel Enterprises, Inc. ("Bechtel
Enterprises"). The sole limited partner was TIFD III-Y, Inc. ("TIFD"), a special
purpose indirect subsidiary of General Electric Capital Corporation ("GECC").
During 1994, the Partnership formed its sole, wholly owned subsidiary,
Indiantown Cogeneration Funding Corporation ("ICL Funding"), to act as agent
for, and co-issuer with, the Partnership in accordance with the 1994 bond
offering.
In 1998, Toyan consummated transactions with DCC Project Finance Twelve,
Inc. ("PFT"), whereby PFT, through a new partnership (Indiantown Project
Investment, L.P. ("IPILP")) with Toyan, became a new general partner in the
Partnership. Toyan is the sole general partner of IPILP. Prior to the PFT
transaction, Toyan converted some of its general partnership interest into a
limited partnership interest such that Toyan now directly holds only a limited
partnership interest in the Partnership. In addition, Bechtel Generating
Company, Inc. ("Bechtel Generating"), sold all of the stock of Palm to a wholly
owned indirect subsidiary of Cogentrix Energy, Inc. ("Cogentrix"). Palm holds a
10% general partner interest in the Partnership.
On June 4, 1999, Thaleia, LLC ("Thaleia"), a wholly-owned subsidiary of
Palm and indirect wholly-owned subsidiary of Cogentrix, acquired from TIFD a
19.9% limited partner interest in the Partnership. TIFD has retained the
remaining 20.1% limited partner interest and its membership on the Board of
Control. Thaleia has agreed, subject to certain conditions precedent and certain
termination rights of both Thaleia and TIFD, to purchase TIFD's remaining
limited partner interest in the Partnership from TIFD, including TIFD's
membership on the Board of Control.
The net profits and losses of the Partnership are allocated to Toyan,
Palm, TIFD and, if applicable, IPILP and Thaleia (collectively, the "Partners")
based on the following ownership percentages:
5
<PAGE>
As of As of As of As of
September 20, August 21, October 20, June 4,
1997 1998 1998 1999
---- ---- ---- ----
Toyan 50% 30.05% 30.05% 30.05%
Palm 10% 10% 10%* 10%*
IPILP -- 19.95%** 19.95%** 19.95%**
TIFD 40% 40% 40% 20.1%
Thaleia -- -- -- 19.9%*
* Beneficially owned by Cogentrix.
** PFT's beneficial ownership in the
Partnership through IPILP was equal to 10% as of August 21, 1998, and 15%
as of November 23, 1998.
The changes in ownership were the subject of notices of
self-recertification of Qualifying Facility status filed by the Partnership with
the Federal Energy Regulatory Commission on August 20, 1998, November 16, 1998,
and June 4, 1999.
The Partnership is unable to predict the likelihood that the pending
Thaleia-TIFD sale will be consummated.
All distributions other than liquidating distributions will be made
based on the Partners' percentage interest as shown above, in accordance with
the project documents and at such times and in such amounts as the Board of
Control of the Partnership determines.
The Partnership is managed by PG&E Generating Company ("PG&E Gen"),
formerly known as U.S. Generating Company, pursuant to a Management Services
Agreement (the "MSA"). The Facility is operated by U.S. Operating Services
Company ("USOSC), pursuant to an Operation and Maintenance Agreement (the "O&M
Agreement"). PG&E Gen and USOSC are general partnerships originally formed
between affiliates of PG&E Enterprises and Bechtel Enterprises, Inc. On
September 19, 1997, PG&E Gen and USOSC each separately redeemed Bechtel
Enterprises, Inc.'s interests in PG&E Gen and USOSC so that PG&E Generating
Company, LLC now indirectly owns all of the interests in PG&E Gen and USOSC.
This will not affect PG&E Gen's obligations under the MSA or USOSC's obligations
under the O&M Agreement. Also on September 19, 1997, Toyan purchased 16.67% of
Palm's interest in the Partnership, which represents a 2% ownership in the
Partnership.
The Partnership was in the development stage through December 21, 1995
and commenced commercial operations on December 22, 1995 (the "Commercial
Operation Date"). The original partners contributed, pursuant to an equity
commitment agreement, approximately $140,000,000 of equity when commercial
operation of the Facility commenced in December 1995. The Partnership's
continued existence is dependent on the ability of the Partnership to sustain
successful operations. Management of the Partnership is of the opinion that the
assets of the Partnership are realizable at their current carrying value.
2. FINANCIAL STATEMENTS:
The consolidated balance sheets as of June 30, 1999, and the
consolidated statements of operations and cash flows for the six months ended
June 30, 1999 and 1998, have been prepared by
6
<PAGE>
the Partnership, without audit and in accordance with the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, these
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Partnership as of June 30, 1999, and the results of operations and cash flows
for the six months ended June 30, 1999 and 1998.
The financial statements and related notes contained herein should be
read in conjunction with the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1998.
Investments Held by Trustee
The investments held by trustee represent bond and equity proceeds and
revenue funds held by a bond trustee/disbursement agent and are carried at cost,
which approximates market. All funds are invested in either Nations Treasury
Fund-Class A or other permitted investments for longer periods. The Partnership
also maintains restricted investments covering a portion of the Partnership's
debt as required by the financing documents. The proceeds include $12,501,000 of
restricted tax-exempt debt service reserve required by the financing documents
and are classified as a noncurrent asset on the accompanying balance sheets. The
Partnership maintains restricted investments covering a portion of debt
principal and interest payable, as required by the financing documents. These
investments are classified as current assets in the accompanying consolidated
balance sheets. A qualifying facility ("QF") reserve of $1.5 million is also
held in long term assets in the accompanying balance sheets.
Property, Plant and Equipment
Property, plant and equipment, which consist primarily of the Facility,
are recorded at actual cost. The Facility is depreciated on a straight-line
basis over 35 years, with a residual value on the Facility approximating 25
percent of the gross Facility costs.
Other property and equipment are depreciated on a straight-line basis
over the estimated economic or service lives of the respective assets (ranging
from five to seven years). Routine maintenance and repairs are charged to
expense as incurred.
3. DEPOSITS:
In 1991, in accordance with a contract between the Partnership and
Martin County, the Partnership provided Martin County with a security deposit in
the amount of $149,357 to secure installation and maintenance of required
landscaping materials. In January 1998, the Partnership received a refund of
funds in excess of the required deposit as security for the first year
maintenance as set forth in the contract between the Partnership and Martin
County. The remaining deposit in the amount of $39,804 was included in current
assets in the consolidated balance sheet as of December 31, 1997. These funds
were returned in September 1998 when the Partnership submitted a surety bond for
the refund amount. In July 1999, Martin County Growth Management Environmental
Division authorized release of the funds securing the landscaping.
In 1991, in accordance with the Planned Unit Development Zoning
Agreement between the Partnership and Martin County, the Partnership deposited
$1,000,000 in trust with the Board of County Commissioners of Martin County (the
"PUD Trustee"). Income from this trust will be used solely for projects
benefiting the community of Indiantown. On July 23, 2025, the PUD Trustee is
required to return the deposit to the Partnership. As of June 30, 1999 and
December 31, 1998,
7
<PAGE>
estimated present values of this deposit was $75,000. The remaining balance has
been included in property plant, and equipment as part of total construction
expenses.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Partnership and the notes thereto
included elsewhere in this report.
General
The Partnership is primarily engaged in the ownership and operation of a
non-utility electric generating facility. From its inception and until December
21, 1995, the Partnership was in the development stage and had no operating
revenues or expenses. On December 22, 1995 the Facility commenced commercial
operation. As of June 30, 1999, the Partnership had approximately $648 million
of property, plant and equipment (net of accumulated depreciation) consisting
primarily of purchased equipment, construction related labor and materials,
interest during construction, financing cost, and other costs directly
associated with the construction of the Facility. For the six months ended June
30, 1999, the Partnership had total operating revenues of approximately $76.2
million, total operating costs of $36.7 million, and total net interest expenses
of approximately $27.9 million resulting in net income of approximately $11.6
million.
The Partnership is engaged in litigation with FPL, the Partnership's
primary source of revenue. Under certain circumstances, an adverse ruling in the
litigation could have a material adverse effect on the Partnership's business
and financial condition. Please see Part II, Item 1, Legal Proceedings, for a
description of the litigation, and Part II, Item 5, Other Information, for a
description of the Partnership's options to mitigate the risk posed by an
adverse ruling in such litigation.
The Partnership has obtained all material environmental permits and
approvals required as of June 30, 1999, for the operation of the Facility.
Certain of these permits and approvals are subject to periodic renewal. Certain
additional permits and approvals will be required in the future for the
continued operation of the Facility. The Partnership is not presently aware of
any technical circumstances that would prevent the issuance of such permits and
approvals or the renewal of currently existing permits.
The Partnership timely filed its application for a Title V air permit on
May 24, 1996. A final draft permit was issued by the Florida Department of
Environmental Protection for comments by the Federal Environmental Protection
Agency ("EPA"). The EPA has responded with questions to which the Partnership is
preparing answers. Based upon the extent of EPA's inquiries, the Partnership
does not anticipate difficulties in obtaining a final Title V air permit.
Results of Operations
- ---------------------
For the six months ending June 30, 1999 and 1998, the Facility achieved
an average Capacity Billing Factor of 100.94% and 101.17% respectively. This
resulted in earning monthly capacity payments aggregating $56.2 million and
$56.1 million and bonuses aggregating $5.6 million for each of the six months
ended June 30, 1999 and 1998, respectively. The Capacity Billing Factor measures
the overall availability of the Facility, but gives a heavier weighting to
on-peak availability. During
8
<PAGE>
the six months ended June 30, 1999 the Facility was dispatched by FPL and
generated 616,585 megawatt-hours compared to 707,874 megawatt-hours during the
same period in 1998. The decrease was primarily due to mild winter weather and
the refusal of FPL to reconnect the Facility to the distribution grid for
nineteen days in March 1999 (see Legal Proceedings below). The monthly dispatch
rate for the first six months of 1999 ranged from 18% to 67% as compared to a
range of 35% to 74% for the corresponding period in 1998.
Net income for the six months ended June 30,1999, was approximately
$11.6 million compared to the net income of approximately $11.2 million for the
corresponding period in the prior year. The $0.4 million increase is primarily
attributable to lower operations and maintenance costs of $0.8 million due to
lower routine maintenance and material costs and fewer spare parts purchases and
lower net interest expense of $0.3 million. This is offset by higher general and
administrative and other operating costs of $0.7 million for addressing the year
2000 system issues, for operations support, and for legal fees for the FPL
litigation.
Electric Energy Revenues
<TABLE>
<CAPTION>
For the six months ended
<S> <C> <C>
June 30, 1999 June 30, 1998
------------- -------------
Revenues $76.2 million $78.6 million
KWhs 616.5 707.9
Average Capacity Billing Factor 100.94% 101.17%
Average Dispatch Rate 43.15% 53.6%
</TABLE>
For the six months ended June 30, 1999, the Partnership had total
operating revenues of approximately $76.2 million as compared to $78.6 million
for the corresponding period in the prior year. The $2.4 million decrease in
operating revenue is primarily due to lower energy revenue resulting from lower
dispatch by FPL because of mild winter weather and FPL's refusal to reconnect
the facility in March (see Legal Proceedings below).
Costs of revenues for the six months ended June 30, 1999, were
approximately $31.3 million on sales of 616,585 MWhs as compared to $34.3
million on sales of 707,874 MWhs for the corresponding period in the prior year.
This decrease is largely attributable to a $3.0 million decrease in fuel as a
result of lower dispatch and decrease in ash disposal costs resulting from
savings on the ash disposal agreement.
Total other operating expenses for the six months ended June 30, 1999,
were approximately $5.4 million compared to the $4.8 million of total other
operating expenses for the corresponding period in the prior year. The $0.6
million increase is due to higher general and administrative expenses to address
the year 2000 system issues and additional corporate support from operations,
and legal expenses for the FPL litigation.
Net interest expense for the six months ended June 30, 1999, was
approximately $27.9 million compared to $28.3 million of net interest expense
for the same period in the prior year. The $0.4 million decrease was caused by a
decrease in interest expense due to the maturity of Series A-5 and Series A-6 of
the First Mortgage Bonds and from lower fees resulting from the reduction in the
debt service letter of credit.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
On November 22, 1994 the Partnership and ICL Funding issued first
mortgage bonds in an aggregate principal amount of $505 million (the "First
Mortgage Bonds"), $236.6 million of which bear an average interest rate of 9.26%
and $268.4 million of which bear an interest rate of 9.77%. Concurrently with
the Partnership's issuance of its First Mortgage Bonds, the Martin County
Industrial Development Authority issued $113 million of Industrial Development
Refunding Revenue Bonds (Series 1994A) which bear an interest rate of 7.875%
(the "1994A Tax Exempt Bonds"). A second series of tax exempt bonds (Series
1994B) in the approximate amount of $12 million, which bear an interest rate of
8.05%, were issued by the Martin County Industrial Development Authority on
December 20, 1994 (the "1994B Tax Exempt Bonds" and, together with the 1994A Tax
Exempt Bonds, the "1994 Tax Exempt Bonds"). The First Mortgage Bonds and the
1994 Tax Exempt Bonds are hereinafter collectively referred to as the "Bonds."
Certain proceeds from the issuance of the First Mortgage Bonds were used
to repay $421 million of the Partnership's indebtedness and financing fees and
expenses incurred in connection with the development and construction of the
Facility and the balance of the proceeds were deposited in various restricted
funds that are being administered by an independent disbursement agent pursuant
to trust indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These funds together
with other funds available to the Partnership were being used: (i) to finance
completion of construction, testing, and initial operation of the Facility; (ii)
to finance construction interest and contingency; and (iii) to provide for
initial working capital.
The proceeds of the 1994 Tax Exempt Bonds were used to refund $113
million principal amount of Industrial Development Revenue Bonds (Series 1992A
and Series 1992B) previously issued by the Martin County Industrial Development
Authority for the benefit of the Partnership, and to fund, in part, a debt
service reserve account for the benefit of the holders of its tax-exempt bonds
and to complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through June 1999 were
$769 million. The equity loan of $139 million was repaid on December 26, 1995.
As of March 31, 1999, the borrowings included $125 million from the 1994 Tax
Exempt Bonds and all of the available First Mortgage Bond proceeds. The First
Mortgage Bonds have matured as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Series Aggregate Principal Amount Date Matured and Paid
- ------ -------------------------- ---------------------
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
A-6 5,133,000 December 15, 1998
A-7 4,998,000 June 15, 1999
</TABLE>
The weighted average interest rate paid by the Partnership on its debt for the
six months ended June 30, 1999 and 1998, was 9.167% and 9.176%, respectively.
10
<PAGE>
The Partnership, pursuant to certain of the Project Contracts, is
required to post letters of credit which, in the aggregate, will have a face
amount of no more than $65 million. Certain of these letters of credit have been
issued pursuant to a Letter of Credit and Reimbursement Agreement with Credit
Suisse and the remaining letters of credit will be issued when required under
the Project Contracts, subject to conditions contained in such Letter of Credit
and Reimbursement Agreement. As of June 30, 1999, no drawings have been made on
any of these letters of credit. The Letter of Credit and Reimbursement Agreement
has a term of seven years subject to extension at the discretion of the banks
party thereto.
The Partnership entered into a debt service reserve letter of credit and
reimbursement agreement, dated as of November 1, 1994, with Banque Nationale de
Paris pursuant to which a debt service reserve letter of credit in the amount of
approximately $60 million was issued. Such agreement has a rolling term of five
years, subject to extension at the discretion of the banks party thereto.
Drawings on the debt service reserve letter of credit became available on the
Commercial Operation Date of the Facility to pay principal and interest on the
First Mortgage Bonds, the 1994 Tax Exempt Bonds and interest on any loans
created by drawings on such debt service reserve letter of credit. Cash and
other investments held in the debt service reserve account will be drawn on for
the Tax Exempt Bonds prior to any drawings on the debt service reserve letter of
credit. As of June 30, 1999, no drawings have been made on the debt service
reserve letter of credit.
In order to provide for the Partnership's working capital needs, the
Partnership entered into a Revolving Credit Agreement with Credit Suisse dated
as of November 1, 1994. Such Agreement has a term of seven years subject to
extension at the discretion of the banks party thereto. The revolving credit
agreement has a maximum available amount of $15 million and may be drawn on by
the Partnership from time to time. The interest rate is based upon various
short-term indices at the Partnership's option and is determined separately for
each draw. As of June 30, 1999, ten working capital loans had been made to the
Partnership under the working capital loan facility. All working capital loans
were repaid.
Year 2000
- ---------
The Partnership is, with the assistance of USOSC and PG&E Gen,
conducting a review of its computer systems to identify, test where necessary,
and remediate the systems that could be affected by the new millennium. The year
2000 may pose problems in software applications because many computer systems
and applications currently use two-digit date fields to designate a year. As the
century date occurs, date sensitive systems may recognize the year 2000 as 1900
or not at all. This potential inability to recognize or properly treat the year
2000 may cause systems to process financial or operational information
incorrectly. Management has inventoried those systems which it reasonably
believes may be adversely affected and prioritized them based on the extent of
any potential disruption in operations and the resulting potential impact on the
Partnership's ability to generate and deliver electricity or steam.
To date, the Partnership has inventoried ninety-one potentially affected
systems, of which forty-eight have been classified as having the highest
priority based upon likelihood and extent of impact. This highest priority
classification is often referred to as "mission critical." Among these priority
systems is the Facility's Distributed Control System ("DCS"), which is the
primary computerized control system for the Facility. The manufacturer of the
Facility's DCS is Westinghouse Electric Corporation ("Westinghouse").
Westinghouse visited the Facility to determine what remediation would be
required for the DCS to be insulated from disruptions due to the year 2000 and
installed hardware and software code as required to address the year 2000 issue.
11
<PAGE>
On October 17, 1998, the Partnership conducted a year 2000 test on the DCS by,
among other things, manually resetting the internal calendar to experience the
transition from December 31, 1999 to January 1, 2000. The DCS handled this
simulated transition with no significant interruptions in power production or
ordinary operation. Other highest priority systems that demonstrated year 2000
issues during testing have been remediated including the HART communicators and
the Continuous Emissions Monitoring System. In addition, the Partnership is
utilizing a network test environment developed by the Partnership with support
from PG&E Gen to test other information technology systems. This testing is
conducted on an integrated and unit basis. The integrated system test is
intended to replicate the Partnership's typical business processes. The unit
tests supplement the integrated test to evaluate remaining functions which were
not part of the integrated test. The Partnership has either retired or upgraded
all of its computer servers and the computer for the Turbine Vibration Analysis
System has been replaced. Additionally, telephone system was successfully
tested.
Through June 30, 1999, the Partnership spent approximately $415,449 on
year 2000 related projects. The Partnership currently estimates that the
completion of its year 2000 efforts will cost approximately $425,000 (including
amounts spent to date), encompassing remediation and replacement of equipment
(including the DCS described above), the performance of Facility testing,
communication with and evaluation of third party readiness and the development
of required contingency plans. This estimate is based solely upon information
currently available to the Partnership and may be revised as more information
becomes available. The Partnership has no employees and has been utilizing
employees of PG&E Gen provided pursuant to the MSA. The Partnership does not
separately track the costs for year 2000 work by PG&E Gen employees and
independent consultants provided pursuant to the MSA. Such costs are principally
the related payroll costs for PG&E Gen employees and the costs of payments under
independent consulting constracts by PG&E Gen, which are charged to the
Partnership under the MSA.
In addition, the Partnership recognizes that it is dependent upon
numerous third parties in the conduct of its business. A significant
interruption in services or resources provided by such third parties could have
material adverse financial consequences on the Partnership. These third parties
include those supplying fuel and other operating supplies, as well as FPL and
its ability to continue to accept the output of the Facility. Therefore, the
Partnership has sent out 187 inquiries to vendors, suppliers, customers and
other businesses seeking information on the status of such companies' equipment
and year 2000 remediation efforts. The Partnership believes that FPL's
preparedness to perform under the PPA is the most important status of any of
these parties. The Partnership has sent FPL two inquiries with respect to its
year 2000 preparedness but has not yet received a response. The Partnership has
also reviewed FPL's internet and securities filings disclosure on this matter,
which have been insufficient for the Partnership to evaluate FPL's readiness for
the year 2000. However, FPL has reported to the North American Electric
Reliability Council ("NERC") that it meets NERC's Year 2000 Ready criterion as
set forth in NERC's report dated August 3, 1999. To date, the other responses
and disclosures from parties other than FPL have not identified any year 2000
issues of which the Partnership had been unaware. However, the responses and
disclosures have also not been sufficient to ensure that there will be no
impacts on the Partnership as a result of the year 2000 affecting parties doing
business with the Partnership. To the extent that the Partnership is not able to
gain such adequate assurances, the Partnership is completing contingency plans
to mitigate the consequences of potential disruptions.
These contingency plans are also required because testing, by its nature
cannot comprehensively address all future combinations of dates and events. Some
uncertainty will remain after testing as to the ability of code to process
future dates, as well as the ability of remediated
12
<PAGE>
systems to work in an integrated fashion with other systems. In addition, until
the year 2000 occurs, no certainty can be assured with respect to external party
preparedness. The Partnership's contingency plans take into account the
possibility of multiple system failures, both internal and external, due to the
year 2000. These contingency plans build upon existing emergency and business
restoration plans. The events that the Partnership is considering for planning
purposes include increased frequency and duration of interruptions of the power,
computing, financial and communications infrastructure. Due to the inherently
uncertain nature of the contingencies for which plans are being prepared, it is
uncertain whether the Partnership's contingency plans to address failure of
external parties or internal systems will be sufficient to reduce the risk of
material impacts on the Partnership's operations due to year 2000 problems. The
Partnership has completed its risk assessment and contingency planning for its
priority systems. The Partnership will continue to perform work associated with
contingency planning implementation through the end of 1999.
The Partnership is concerned about isolated failures of FPL's
transmission system. FPL is important to the Partnership because it provides the
Partnership with the Partnership's only access to the electric transmission
system. Because FPL has provided insufficient responses to the Partnership's
inquiries, the Partnership is compelled to rely on FPL's report to NERC which
the Partnership cannot independently verify. However, nothing has come to the
attention of the Partnership that would lead the Partnership to conclude that
failures of FPL's transmission system are reasonably likely. While the
Partnership's revenues will not be adversely affected by FPL's inability to
accept the Facility's output, it could be affected if lack of start-up power
from FPL prevented the Partnership from restarting the Facility after an outage.
Therefore, the Partnership has a contingency plan pursuant to which it will rent
a diesel generator to enable the Facility to start without regard to the
availability of power from FPL. The only reasonably likely worst case scenario
identified by the Partnership is localized telephone problems due to congestion.
The Partnership's contingency plans call for availability of two-way radios as
well as additional personnel for face-to-face communication, if required.
Notwithstanding the Partnership's efforts, management of the Partnership
is unable to determine whether or not, as a result of the year 2000, disruptions
will occur or whether such disruptions, if they do occur, will materially impair
the ability of the Partnership to conduct its business.
PART II
OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Dispute with FPL
- ----------------
On March 19, 1999, the Partnership filed a complaint against FPL in the
United States District Court for the Middle District of Florida. The lawsuit
stems from a course of action pursued by FPL since March 10, 1999, in which FPL
has purported to exercise its dispatch and control rights under the Power
Purchase Agreement in a manner which the Partnership believes violates the terms
of the power sales agreement. In its complaint, the Partnership charges that
such conduct is deliberately calculated to cause the Partnership to be unable to
meet the requirements to maintain the Facility's status as a Qualifying Facility
under the Public Utility Regulatory Policies Act of 1978.
13
<PAGE>
The complaint alleges that FPL has taken the position that if the
Facility is off-line for any reason, then FPL is under no obligation to allow
the Facility to reconnect to FPL's system. The complaint asserts, however, that
the Partnership specifically and successfully negotiated for a contractual right
to operate the Facility at 100 MW ("Minimum Load") in order to enable it to
cogenerate sufficient steam to maintain its Qualifying Facility status. While
FPL has not disputed that the Partnership may maintain Minimum Load operations
if the Facility is delivering power when FPL requests the Partnership to
decommit the Facility, the complaint states that, if the Facility is off-line
for any reason, FPL has claimed absolute discretion to deny the Partnership
permission to reconnect the Facility with FPL's system.
Because the loss of Qualifying Facility status may result in an event of
default under the Power Purchase Agreement, the Partnership must take action to
address this matter. The Partnership is investigating various alternatives to
mitigate its QF risk.
These are described under "QF Mitigation Options" in Item 5 below.
The complaint asserts causes of action for (i) FPL's breach of the Power
Purchase Agreement, (ii) FPL's anticipatory repudiation of the Power Purchase
Agreement, (iii) breach of the implied covenant of good faith, fair dealing and
commercial reasonableness and (iv) a declaratory judgment by the court of the
rights of the parties under the Power Purchase Agreement. The Partnership seeks
(a) a declaratory ruling that FPL's actions constitute a breach of the terms of
the Power Purchase Agreement and that the Partnership has the absolute right to
operate the Facility at Minimum Load (except for reasons of safety or system
security) at the rates provided for in the Power Purchase Agreement, (b)
injunctive relief preventing FPL from further violating the Power Purchase
Agreement, (c) compensatory damages and (d) other relief as the court may deem
appropriate.
Subsequent to the filing of the complaint, FPL reconnected the Facility
to FPL's system on Sunday, March 28, 1999. On April 14, 1999, FPL filed a
responsive pleading to the complaint including a motion to dismiss two of the
four counts raised in the complaint, raising certain affirmative defenses and
seeking declaration that FPL has unfettered dispatch rights under the Power
Purchase Agreement. On April 23, 1999, FPL filed an answer to the counts which
were not challenged in the motion to dismiss. On May 13, 1999, the Partnership
filed its response to FPL's motion to dismiss and request for declaratory
judgement. On May 18, 1999, the Court denied FPL's Motion to Dismiss in its
entirety. The Partnership filed an amended complaint which was accepted on June
17, 1999. The amended complaint simply consolidated the Partnership's claims for
breach of contract and breach of the implied obligation of good faith and fair
dealing which was, in part, in response to a recent federal court decision. FPL
has moved to dismiss the entire amended complaint and the Partnership filed its
opposition papers on August 2, 1999. The Court has also ordered a mediation
session. In addition, a trial period has been established by the Court in March
2001.
This summary of the Partnership's complaint against FPL is qualified in
its entirety by the complaint, which was filed with the court in docket
99-317-CIV-ORL-19C. This summary does not, nor does it purport to, include all
of the material statements and claims made in the complaint, and has been
provided solely for the reader's convenience. This summary is not intended to be
relied upon for any purpose without reference to the complaint.
14
<PAGE>
Item 5 OTHER INFORMATION
QF Mitigation Options
- ---------------------
If the court rules against the Partnership in the litigation with FPL,
the Facility could lose its QF status, unless the Partnership is able to
implement mitigating action. Loss of QF status would result in an event of
default under the Power Purchase Agreement and the indenture for the Bonds.
Unless cured, such events of default would have a material adverse effect on the
Partnership's business, results of operation and financial condition.
To mitigate the risk of a possible adverse ruling by the court, the
Partnership is analyzing the feasibility of various options. The analyses, which
are in the preliminary stage, include the following:
o providing steam to Caulkins for refrigeration
o constructing a liquid carbon dioxide production facility to which the
Facility would supply steam
o installing distilled water production equipment to which the Facility would
supply steam
o providing steam for a facility to dry chicken manure at a nearby farm for
use as a fertilizer
o providing steam to Caulkins to dry orange peels for use in cattle feed
o providing steam to Caulkins for wash-water cooling
o providing steam or chilled water for water temperature control at a nearby
fish farm
o constructing a cold storage food distribution center to which the Facility
would supply chilled water
o providing chilled water to a nearby hen house for cooling
o constructing a lumber kiln to dry wood using steam provided by the Facility
o providing chilled water to a nearby flour mill for temperature control
The options being analyzed are subject to further analysis and completion.
This includes an evaluation as to whether or not the steam usage for these
alternatives would qualify for QF purposes and inclusion on this list does not
imply that an affirmative conclusion on this matter has been reached. Other
options may be considered in addition to the foregoing. Before the Partnership
can determine whether or not to implement an option, if any option is to be
implemented, the Partnership needs to determine each option's feasibility -
whether the option can increase steam production on a schedule, which may
include regulatory approval, that would assure maintenance of QF status at an
acceptable cost to the Partnership. The Partnership may defer a decision whether
or not to implement any option until a judgment is made in the litigation with
FPL. If any option is implemented, the Partnership expects, subject to the terms
of the indenture for the Bonds, to finance such option with senior secured debt
ranking pari passu with the Bonds.
No assurance can be given that the analysis will be completed, that the
completion of the analysis will result in the implementation of any option, that
any option under consideration or any other option will be determined to be
feasible or that, even if one or more options are determined to be feasible,
that such option(s) will be implemented or will result in assuring the
maintenance of QF status.
15
<PAGE>
Governmental Approvals
- ----------------------
The Partnership has obtained all material environmental permits and
approvals required, as of June 30, 1999, in order to continue commercial
operation of the Facility. Certain of these permits and approvals are subject to
periodic renewal. Certain additional permits and approvals will be required in
the future for the continued operation of the Facility. The Partnership is not
aware of any technical circumstances that would prevent the issuance of such
permits and approvals or the renewal of currently issued permits. The
Partnership timely filed its application for a Title V air permit on May 24,
1996. A draft permit was issued by the Florida Department of Environmental
Protection for comments by Federal Environmental Protection Agency. The EPA has
responded with questions to which the Partnership is preparing answers. Based
upon the extent of EPA's inquiries, the Partnership does not anticipate
difficulties in obtaining a final Title V air permit.
Energy Prices
- -------------
In September 1997, FPL filed with the Florida Public Service Commission
its projections for its 1997-1999 "as available" energy costs (in this context,
"as available" energy costs reflect actual energy production costs avoided by
FPL resulting from the purchase of energy from the Facility and other Qualifying
Facilities). The projections filed by FPL are lower for certain periods than the
energy prices specified in the Power Purchase Agreement for energy actually
delivered by the Facility. At other times, the projections exceed the energy
prices specified in the Power Purchase Agreement. Should FPL's "as available"
energy cost projections prove to reflect actual rates, FPL may elect, pursuant
to its dispatch and control rights over the Facility set forth in the Power
Purchase Agreement, to run the Facility less frequently or at lower loads than
if the Facility's energy prices were lower than the cost of other energy sources
available to FPL. Because capacity payments under the Power Purchase Agreement
are not affected by FPL's dispatch of the Facility and because capacity payments
are expected by the Partnership to cover all of the Partnership's fixed costs,
including debt service, the Partnership currently expects that, if the filed
projections prove to reflect actual rates, such rates and the resulting dispatch
of the Facility will not have a material adverse effect on the Partnership's
ability to service its debt. To the extent the Facility is not operated by FPL
during Caulkins' processing season (November to June), the Partnership may elect
to run the Facility at a minimum load or shut down the Facility and run
auxiliary boilers to produce steam for Caulkins in amounts required under the
Partnership's steam agreement with Caulkins. The Partnership has filed a
complaint against FPL with respect to the interpretation of a provision of the
Power Purchase Agreement related to this matter. Please see "Legal
Proceedings"above. Such operations may result in decreased net operating income
for such periods. The Partnership expects that the decrease, if any, will not be
material. For the six months ended June 30, 1999, FPL requested the Partnership
to decommit the Facility numerous times and the Partnership typically exercised
its rights to operate at minimum load (100MW) during such decommit requests. The
Partnership's election to operate at minimum load has not had a material impact
on the Partnership or its financial condition although energy delivered during
such operations is sold at reduced prices. Based upon FPL's projections, the
Partnership does not expect that, if the filed projections prove to reflect
actual rates, its dispatch rate will change materially during the period covered
by such projections.
Debt Service Reserve Account
- ----------------------------
As permitted by the Partnership's financing arrangements, on August 19,
1998, the Partnership requested that the balance in the Debt Service Reserve
Account be reduced to the Debt Service Reserve Account Required Balance by
reducing the Debt Service Reserve Letter of Credit. On
16
<PAGE>
January 11, 1999, the reduction was approved. The Debt Service Reserve Account
now contains the $29,609,840 Debt Service Reserve Letter of Credit and
$12,500,000 of cash (available only as a debt service reserve for the Tax Exempt
Bonds).
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K:
The Partnership filed Reports on Form 8-K on March 22, March 29,
and June 11, 1999 regarding the FPL litigation and changes in
ownership.
b) Exhibits:
Exhibit
No. Description
-------- -----------
3.6 Dana Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.
3.7 Cogentrix Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.
3.8 Third Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: August 16, 1999 ______________________________
John R. Cooper
Vice President and
Chief Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: August 16, 1999 ______________________________
John R. Cooper
Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000927632
<NAME> INDIANTOWN COGENERATION, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 5,157,544
<SECURITIES> 0
<RECEIVABLES> 13,611,924
<ALLOWANCES> 0
<INVENTORY> 1,182,230
<CURRENT-ASSETS> 21,125,720
<PP&E> 647,626,416
<DEPRECIATION> 58,005,530
<TOTAL-ASSETS> 700,702,746
<CURRENT-LIABILITIES> 23,413,040
<BONDS> 589,917,649
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 700,702,746
<SALES> 76,208,383
<TOTAL-REVENUES> 76,208,383
<CGS> 31,273,923
<TOTAL-COSTS> 36,667,632
<OTHER-EXPENSES> 5,393,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,847,362
<INCOME-PRETAX> 11,625,381
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,625,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,625,381
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
DANA AMENDMENT TO AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF INDIANTOWN COGENERATION, L.P.
This AMENDMENT TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this
"Amendment"), is made and entered into effective as of August 10, 1998, by and
among PALM POWER CORPORATION, a Delaware corporation ("Palm"), TOYAN
ENTERPRISES, a California corporation ("Toyan"), TIFD III-Y INC., a Delaware
corporation ("TIFD," and collectively with Palm and Toyan, the "Existing
Partners") and INDIANTOWN PROJECT INVESTMENT PARTNERSHIP, L.P., a Delaware
limited partnership (the "New Partner", and together with the Existing Partners,
the "Partners").
WHEREAS, the Existing Partners are parties to that certain
Amended and Restated Limited Partnership Agreement dated as of September 30,
1992 (the "Partnership Agreement"); and
WHEREAS, the Existing Partners are
partners in a Delaware limited partnership known as INDIANTOWN COGENERATION,
L.P. (the "Partnership") formed under the Partnership Agreement for the purposes
described therein; and
WHEREAS, Bechtel Generating Company, Inc. ("BGCI") owns
all of the capital stock of Palm; and WHEREAS, pursuant to that certain Purchase
Agreement dated as of March 6, 1998 (the "Purchase Agreement"), by and between
BGCI and Cogentrix Energy, Inc. ("Cogentrix"), BGCI has agreed to sell, and
Cogentrix has agreed to purchase and accept through an indirect wholly owned
subsidiary that has not yet been formed, all of the capital stock of Palm
subject to the terms and conditions set forth in the Purchase Agreement (such
sale, the "Proposed Cogentrix Sale"); and
WHEREAS, in connection with the
Proposed Cogentrix Sale, Palm, Toyan and TIFD contemporaneously herewith are
entering into that certain Cogentrix Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P., dated as of even date
herewith (the "Cogentrix Amendment"), certain amendatory paragraphs of which are
effective only as of the time the Proposed Cogentrix Sale shall have closed; and
WHEREAS, Toyan intends to create a new Delaware corporation as a wholly-owned
subsidiary of Toyan (the "New Subsidiary") and to transfer (as an equity
contribution) a ten percent (10%) Interest in the Partnership (the "New
Subsidiary Interest") to the New Subsidiary (the "Toyan to New Subsidiary
Transfer"); and
WHEREAS, Toyan intends to, and intends to cause New Subsidiary to, form New
Partner in which Toyan would hold an approximately forty-nine and eight hundred
seventy-five thousandths percent (49.875 %) general partner interest and the New
Subsidiary would hold an approximately fifty and one hundred twenty-five
thousandths percent (50.125%) limited partner interest; and
WHEREAS, Toyan then intends to transfer a nine and ninety-five hundredths
percent (9.95%) Interest in the Partnership and its BOC Partner Rights to the
New Partner (the "Toyan to New Partner Transfer"); and WHEREAS, Toyan then
intends to cause the New Subsidiary to transfer the New Subsidiary Interest to
the New Partner (the "New Subsidiary to New Partner Transfer"); and
<PAGE>
WHEREAS, Toyan then intends to cause the New Subsidiary to sell its interest in
the New Partner to DCC Project Finance Twelve, Inc. ("DCC XII"), a wholly-owned
subsidiary of Dana Commercial Credit Corporation (the "New Subsidiary to DCC XII
Transfer," and collectively with the Toyan to New Partner Transfer, the Toyan to
New Subsidiary Transfer and the New Subsidiary to New Partner Transfer, the
"Proposed Transfers"); and WHEREAS, the Partners desire to amend the Partnership
Agreement in certain respects and take other actions in connection with the
Proposed Transfers as of the time when the Proposed Transfers shall have closed,
and without regard to whether any portion of the Cogentrix Amendment is then
effective or ever will become effective (it being the Partners' intention that
if any portion of the Cogentrix Amendment and the amendments set forth in this
Amendment both become effective, then such portions of the Cogentrix Amendment
and the amendments set forth in this Amendment all shall be and remain effective
concurrently) (such date, the "Effective Date"); NOW THEREFORE in consideration
of the premises and of the mutual covenants and agreements herein, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Partners intending to be legally bound, hereby agree as
follows:
Admission as Partner. As of the Effective Date, the New Partner shall be
admitted as a general partner in the Partnership and the New Partner shall
succeed to thirty-nine and nine-tenths percent (39.9%) of the capital account
balance, and to thirty-nine and nine-tenths percent (39.9%) of the Sharing
Percentage, of Toyan as of the time when the Proposed Transfers shall have
occurred.
Designation of Board of Control Authority. As of the Effective Date, in
accordance with Section 7.1(c) of the Partnership Agreement, Toyan hereby
designates that New Partner shall succeed to all of Toyan's BOC Partner Rights
at the time when the Proposed Transfers shall have occurred and the New
Partner's initial members of the Board of Control under Section 6.1(b) of the
Partnership Agreement shall be P. Chrisman Iribe and M. Richard Smith.
Affiliate Status. As of the Effective Date, the New Partner shall be deemed to
be an affiliate of Toyan, including for the purposes of Section 6.9(c) of the
Partnership Agreement.
Amendments to the Partnership Agreement. As of the Effective Date, the
Partnership Agreement shall be amended as follows:
a. The definition of BOC Partner set forth in Section 1.7 of the
Partnership Agreement shall be amended and restated in its entirety as follows:
""BOC Partner" means (i) each of Palm, TIFD and Indiantown
Project Investment Partnership, in each case for so long as such
Partner retains its BOC Partner Rights, (ii) any successor to the
Interest of Palm, TIFD or Indiantown Project Investment
Partnership to whom BOC Partner Rights are transferred pursuant
to Section 7.1(c), or (iii) any other General Partner to whom BOC
Partner Rights are granted by the Board of Control."
b. The definition of General Partners set forth in Section 1.7 of the
Partnership Agreement shall be amended and restated in its entirety as follows:
""General Partners" means Palm and Indiantown Project Investment
Partnership and/or any Person who, at the time of the reference
thereto, has been admitted to the Partnership as a successor to
the duties or interest of either such Person, or as a replacement
or additional general partner as provided herein, and any other
Person admitted to the Partnership as a general partner in any
such Person's capacity as a
<PAGE>
general partner, in any case, so long as such Person has not
ceased to be a general partner hereunder."
c. The definition of Limited Partners set forth in Section 1.7 of the
Partnership Agreement shall be amended and restated in its entirety as follows:
""Limited Partners" means TIFD, Toyan and/or any Person who, at
the time of reference thereto, has been admitted to the
Partnership as a limited partner in accordance with the terms of
this Agreement, in such person's capacity as a limited partner
for so long as such Person has not ceased to be a Limited Partner
hereunder."
d. Section 1.7 of the Partnership Agreement is hereby amended to include
the following term:
""Indiantown Project Investment Partnership" means Indiantown
Project Investment Partnership, L.P., a Delaware limited
partnership."
e. Section 11.4 of the Partnership Agreement shall be amended to include
the notice address of New Partner as follows:
Indiantown Project Investment Partnership
c/o U.S. Generating Company
7500 Old Georgetown Road, 13th Floor
Bethesda, MD 20814
<PAGE>
Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the state of Delaware, without regard to any other
applicable conflict of law provisions.
Amendments. This Amendment may not be amended, altered, modified or revoked
without the prior written consent of both parties.
Headings. All headings in this Amendment are included only for convenience
and ease of reference and shall not be considered in the construction and
interpretation of any provision hereof.
Further Obligations. Each of the parties hereto agrees to execute all other
agreements, instruments and documents and to perform all further acts which may
be necessary to consummate the transactions contemplated herein.
Binding Nature and Benefit. This Amendment shall be binding upon and inure
to the benefit of each party hereto and their respective successors and
assignors.
Counterparts. This Amendment may be executed in multiple counterparts, each
of which shall be deemed an original for all purposes, but all of which together
shall constitute one and the same instrument.
Defined Terms. Capitalized terms used herein without definition shall have
the meanings specified in the Partnership Agreement.
Effectiveness. Subject to paragraphs 1, 2, 3, and 4 with respect to the
date on which certain amendatory provisions set forth herein became effective,
the Amendment shall be effective as among the Existing Partners as of the date
first above written and shall be effective as among the Existing Partners and
the New Partner as of the date this Amendment is executed by the New Partner.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
and delivered.
TOYAN ENTERPRISES, a California
corporation
Dated: ___________________ By: ____________________________
Name: ___________________________
Title: __________________________
TIFD III-Y INC., a Delaware
corporation
Dated: ___________________ By:______________________________
<PAGE>
Name: ___________________________
Title: __________________________
PALM POWER CORPORATION, a Delaware
corporation
Dated: ___________________ By:______________________________
Name: ___________________________
Title: __________________________
INDIANTOWN PROJECT INVESTMENT
PARTNERSHIP, L.P., a Delaware
limited partnership
Dated: ___________________ By: Toyan Enterprises, a
California corporation,
its general partner
By: ____________________________
Name: ___________________________
Title: __________________________
COGENTRIX AMENDMENT TO AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT OF INDIANTOWN COGENERATION, L.P.
This AMENDMENT TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT dated as of
August 10, 1998 (this "Amendment"), is made and entered into by and among PALM
POWER CORPORATION, a Delaware corporation ("Palm"), TOYAN ENTERPRISES, a
California corporation ("Toyan"), and TIFD III-Y INC., a Delaware corporation
("TIFD," and collectively with Palm and Toyan, the "Partners").
WHEREAS, the Partners are parties to that certain Amended and Restated Limited
Partnership Agreement dated as of September 30, 1992 (the "Partnership
Agreement"); and
WHEREAS, the Partners are partners in a Delaware limited partnership known as
INDIANTOWN COGENERATION, L.P. (the "Partnership") formed under the Partnership
Agreement for the purposes described therein; and
WHEREAS, Bechtel Generating Company, Inc. ("BGCI") owns all of the capital stock
of Palm; and WHEREAS, pursuant to that certain Purchase Agreement dated as of
March 6, 1998 by and between BGCI and Cogentrix Energy, Inc. ("Cogentrix"), as
amended (the "Purchase Agreement"), BGCI has agreed to sell, and Cogentrix has
agreed to purchase and accept through an indirect wholly owned subsidiary that
has not yet been formed, all of the capital stock of Palm subject to the terms
and conditions set forth in the Purchase Agreement (such sale, the "Proposed
Sale"); and
WHEREAS, Toyan intends, through a series of related transfers, to transfer its
BOC Partner Rights and a portion of its Interest in the Partnership (together,
the "DCC XII Transfer") to a new partnership (the "Indiantown Project Investment
Partnership") that will initially have Toyan as its sole general partner and DCC
Project Finance Twelve, Inc., a wholly-owned subsidiary of Dana Commercial
Credit Corporation, as its sole limited partner; and
WHEREAS, in connection with the DCC XII Transfer, the Partners may enter into an
amendment to the Partnership Agreement (the "DCC XII Amendment"), portions of
which shall be effective only upon the formation of the Indiantown Project
Investment Partnership, the execution of the DCC XII Amendment and the closing
of the DCC XII Transfer, all as and to the extent set forth in the DCC XII
Amendment; and
WHEREAS, the Partners desire to amend the Partnership Agreement in certain
respects in connection with the Proposed Sale;
NOW THEREFORE in consideration of the premises and of the mutual covenants and
agreements herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners intending to be
legally bound, hereby agree as follows:
Amendments to the Partnership Agreement. Effective as of the time when the
Proposed Sale shall have closed, and without regard to whether any portion of
the DCC XII Amendment is then effective or ever will become effective, the
Partnership Agreement shall be amended as follows: Section 1.7 is hereby amended
to include the following terms:
""PG&E Corp." means (i) PG&E Corporation, a California
corporation, (ii) any corporation that succeeds to substantially all
the assets and liabilities of PG&E Corporation and (iii) any Person
who directly or indirectly owns at least 80% of the voting stock of a
corporation described in clause (i) or (ii).""
<PAGE>
""Cogentrix" means (i) Cogentrix Energy, Inc., a North Carolina
corporation, (ii) any corporation that succeeds to substantially all
the assets and liabilities of Cogentrix Energy, Inc. and (iii) any
Person who directly or indirectly owns at least 80% of the voting
stock of a corporation described in clause (i) or (ii).""
""PG&E Corp.-Cogentrix Affiliate" means (i) any partnership in
which Persons directly or indirectly wholly owned by PG&E Corp.,
Cogentrix or both are general partners with the unrestricted
collective voting power sufficient in and of itself to direct the
management and policies of such partnership (other than specified
matters for which the approval of other partners may be required),
(ii) any corporation more than 50% of the voting stock of which is
owned collectively or individually by Persons directly or indirectly
wholly owned by PG&E Corp., Cogentrix or both, which Persons have the
unrestricted collective voting power sufficient in and of itself to
direct the management and policies of such corporation (other than
specified matters for which the approval of other shareholders may be
required), or (iii) any Person directly or indirectly wholly owned by
a Person described in clause (i) or (ii)."
Section 6.1(b) shall be amended to delete the names Joseph P. Kearney and John
R. Cooper, and to reflect that Palm's representatives on the Board of Control
shall be Thomas J. Bonner and Thomas F. Schwartz.
Section 6.9(a) shall be amended and restated in its entirety as follows:
"6.9 Dispute Resolution. (a) The "Dispute Resolution Committee"
shall consist of the persons holding the following offices: (i) the
president of Cogentrix; (ii) the president of U.S. Gen. Power Group
LLC; and (iii) the president of GE Capital Services Structured Finance
Group, Inc. Any entity represented on the Dispute Resolution Committee
may substitute a person having authority greater than or equal to the
authority of the persons holding the offices designated in this
Section 6.9(a). Any member of the Dispute Resolution Committee may
bring one or more colleagues knowledgeable about the Project to any
meeting of the Dispute Resolution Committee, but no such colleague may
serve or vote as a member of the Dispute Resolution Committee unless
such colleague's authority is greater than or equal to the authority
of the person holding the office designated in this Section 6.9(a)."
Section 7.1(a)(1) shall be amended and restated in its entirety as follows:
"(1) in whole or in part, to (A) a corporation at least 80% of
the voting stock of which is owned by such Partner, (B) a corporation
which owns at least 80% of the voting stock of such Partner, (C) a
corporation at least 80% of the voting stock of which is owned
directly or indirectly by Persons which collectively own, directly or
indirectly, 80% of the voting stock of such Partner, (D) a corporation
into which such Partner shall merge or with which it shall consolidate
or to which it shall sell all or substantially all of its assets, if
after such merger, consolidation or sale, at least 80% of the voting
stock of such continuing corporation is
<PAGE>
owned directly or indirectly by Persons which held (immediately prior
to such transaction), directly or indirectly, at least 80% of the
voting stock of such Partner or (E) a PG&E Corp.-Cogentrix Affiliate."
Section 7.1(a)(3) shall be amended and restated in its entirety as follows:
"(3) in whole or in part to a limited partnership in which such
Partner, a corporation having a relationship to such Partner described
in Section 7.1 (a) (2) above or a PG&E Corp.-Cogentrix Affiliate is
the sole general partner; but only if (A) the sale or other
disposition of limited partnership interests and admission of limited
partners in such partnership prior to or at the time of such Transfer
shall have complied with the conditions and restrictions set forth in
Section 9.1 (whether or not such partnership was a Partner at the time
of such disposition), (B) the partnership agreement for such
partnership complies with Section 9.2 and (C) the limited partners in
such partnership do not have the right to participate in the
appointment or removal of, or in the formulation of instructions given
to, such partnership's representatives, if any, on the Board of
Control."
Section 8.3(b)(1) shall be amended and restated in its entirety as follows:
"(1) Assignments by Limited Partners. A Limited Partner may
Assign all or a portion of its Limited Partner Interest only (x) to
(A) a corporation at least 80% of the voting stock of which is owned
by the Limited Partner, (B) a corporation which owns at least 80% of
the voting stock of such Limited Partner, (C) a corporation at least
80% of the voting stock of which is owned by Persons which
collectively own, directly or indirectly, at least 80% of the voting
stock of such Limited Partner, (D) a corporation into which such
Limited Partner shall merge or with which it shall consolidate or to
which it shall sell all or substantially all of its assets, if after
such merger, consolidation or sale, at least 80% of the voting stock
of such continuing corporation is owned directly or indirectly by
Persons which collectively owned (immediately prior to such
transaction), directly or indirectly, at least 80% of the voting stock
of such Limited Partner, or (E) a PG&E Corp.-Cogentrix Affiliate, or
(y) to a transferee whose identity has been approved by the Board of
Control, which approval shall not be unreasonably withheld; provided,
however, that such approval may be in the form of a list of permitted
transferees pre-approved from time to time by action of the Board of
Control, such list to be kept with the records of the Partnership; and
in each case only if:"
Section 9.1(b) shall be amended and restated in its entirety as follows:
"(b) A Second Tier Owner may Transfer all or a portion of its
Second Tier Interest only to (x) (1) a corporation at least 80% of the
voting stock of which is owned by the Second Tier Owner, (2) a
corporation which owns at least 80% of the voting stock of such Second
Tier Owner, (3) a corporation at least 80% of the voting stock of
which is owned by Persons which collectively own, directly or
indirectly, at least 80% of the voting stock of such Second Tier
Owner, (4) a corporation
<PAGE>
into which such Second Tier owner shall merge or with which it shall
consolidate or to which it shall sell all or substantially all of its
assets, if after such merger, consolidation or sale, at least 80% of
the voting stock of such continuing corporation is owned directly or
indirectly by Persons which collectively owned (immediately prior to
such transaction), directly or indirectly, at least 80% of the voting
stock of such Second Tier Owner, or (5) a PG&E Corp.-Cogentrix
Affiliate, or (y) any Person whose identity has been approved in
advance by the Board of Control, which approval shall not be
unreasonably withheld; provided, however, that such approval may be in
the form of a list of permitted transferees pre-approved from time to
time by action of the Board of Control, such list to be kept with the
records of the Partnership; and in each case only if,"
Section 11.4 shall be amended to delete the notice address of U.S. Generating
Company and to reflect that copies of notices sent to Palm shall be sent to:
Palm Power Corporation
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Blvd.
Charlotte, NC 28273
Attn: Senior Vice President - Finance and Treasurer
with a copy to:
Cogentrix Energy, Inc.
9405 Arrowpoint Blvd.
Charlotte, NC 28273
Attn: General Counsel
<PAGE>
Board of Control Consent. The Board of Control of the Partnership shall be
deemed to have consented to the sale of the capital stock of Palm to Buyer and
the other transactions contemplated by the Purchase Agreement.
Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to any other
applicable conflict of law provisions.
Amendments. This Amendment may not be amended, altered, modified or revoked
without the prior written consent of both parties.
Headings. All headings in this Amendment are included only for convenience
and ease of reference and shall not be considered in the construction and
interpretation of any provision hereof.
Further Obligations. Each of the parties hereto agrees to execute all other
agreements, instruments and documents and to perform all further acts which may
be necessary to consummate the transactions contemplated herein.
Binding Nature and Benefit. This Amendment shall be binding upon and inure
to the benefit of each party hereto and their respective successors and
assignors.
Counterparts. This Amendment may be executed in multiple counterparts, each
of which shall be deemed an original for all purposes, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
and delivered as of the day and year first above written.
TOYAN ENTERPRISES, a California
corporation
By: _______________________________
Name: _______________________________
Title: _______________________________
TIFD III-Y INC., a Delaware corporation
By: _______________________________
Name: _______________________________
Title: _______________________________
<PAGE>
PALM POWER CORPORATION, a Delaware
corporation
By: _______________________________
Name: _______________________________
Title: _______________________________
THIRD AMENDMENT TO THE
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
INDIANTOWN COGENERATION, L.P.
THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF INDIANTOWN COGENERATION, L.P. (this "Third Amendment") dated as of
the 4th day of June, 1999 by and among PALM POWER CORPORATION, a Delaware
corporation ("Palm"), TOYAN ENTERPRISES, a California corporation ("Toyan"),
INDIANTOWN PROJECT INVESTMENT PARTNERSHIP, L.P., a Delaware limited partnership
("IPIP"), TIFD III-Y INC., a Delaware corporation ("TIFD") and THALEIA, LLC, a
Delaware limited liability company ("Thaleia" and together with Palm, IPIP,
Toyan and TIFD, the "Partners").
STATEMENT OF PURPOSE
WHEREAS, Partners are parties to that certain Amended and Restated
Limited Partnership Agreement of Indiantown Cogeneration, L.P. (the
"Partnership") dated September 30, 1992 (as amended by the First Amendment
thereto, dated as of November 1, 1994, the Cogentrix Amendment thereto dated
August 10, 1998 and the Dana Amendment thereto dated August 10, 1998, the
"Agreement").
WHEREAS, TIFD is the owner of a 40% limited partner interest (the
"Partnership Interest") in the Partnership, which limited partnership interest
includes BOC Partner Rights.
WHEREAS, pursuant to that certain Purchase Agreement dated as of June 3,
1999 by and between Thaleia and TIFD (the "Purchase Agreement"), TIFD has agreed
to sell, and Thaleia has agreed to purchase the Partnership Interest, including
the BOC Partner Rights, in three installments as follows: at the First Closing
(as defined in the Purchase Agreement), Thaleia shall purchase a 19.9% interest
in the Partnership, at the Second Closing (as defined in the Purchase
Agreement), Thaleia shall purchase a 20.0% interest in the Partnership
(including the BOC Partner Rights held by TIFD), and at the Third Closing (as
defined in the Purchase Agreement), Thaleia shall purchase a 0.1% interest in
the Partnership, in each case, subject to the terms and conditions set forth in
the Purchase Agreement (such sale, the "Proposed Sale").
WHEREAS, Thaleia is a wholly-owned indirect subsidiary of Cogentrix
Energy, Inc. and, as such, qualifies as a PGE Corp.-Cogentrix Affiliate under
the Agreement.
WHEREAS, the Partners desire to amend the Agreement in certain respects
in connection with the Proposed Sale.
<PAGE>
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners intending to be
legally bound, hereby agree as follows:
1. Certain Terms. All capitalized terms used herein without definition
shall have the meanings assigned thereto in the Agreement.
2. Effective Date. This Agreement shall be effective as of the date hereof
except for the provisions set forth in Sections 3(a), (c), (d), (e), (f), (g),
(h) and (j), which shall become effective as of the Second Closing (as defined
in the Purchase Agreement).
3. Amendments to Agreement.
(a) The definition of "BOC Partner" in Section 1.7 of the Agreement is
hereby amended by deleting the name "TIFD" in subsections (i) and (ii) thereof
and adding Thaleia in lieu thereof.
(b) Section 1.7 of the Agreement is hereby amended to include the
following term: "Thaleia" means Thaleia LLC, a Delaware limited liability
company.
(c) Section 6.1(b) of the Agreement is hereby amended by deleting the
phrase "TIFD Representatives: Robert E. Maxwell and Michael Tzougrakis"
therefrom and adding the phrase "Thaleia Representatives: Thomas J. Bonner and
Thomas F. Schwartz" in lieu thereof.
(d) Section 6.9(a) of the Agreement is hereby amended by deleting the
semicolon at the end of subparagraph (i) thereof and adding the word "and" in
lieu thereof.
(e) Section 6.9(a) of the Agreement is hereby further amended by
deleting the phrase "; and (iii) the president of GE Capital Services Structured
Finance Group, Inc." therefrom and adding a period in lieu thereof.
(f) Section 6.9(c) of the Agreement is hereby deleted in its entirety.
(g) Section 6.10(a) of the Agreement is hereby amended by deleting the
name "TIFD" in the third and eighth lines thereof and adding "Thaleia" in lieu
thereof.
(h) Section 6.10(b) of the Agreement is hereby amended by deleting the
name "TIFD" in the third line thereof and adding "Thaleia" in lieu thereof.
(i) Section 11.4 of the Agreement is hereby amended by adding the
following after the notice address of TIFD therein:
"Thaleia Thaleia, LLC
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
<PAGE>
Charlotte, North Carolina 28273
Attn: Senior Vice President-Finance and Treasurer
with a copy to: Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attn: General Counsel"
(j) Section 11.4 of the Agreement is hereby amended by deleting the
notice address of TIFD therefrom.
4. Admission and Withdrawal of Partners. Effective at the time the First
Closing shall have been consummated, Thaleia is admitted as a Partner and agrees
to be bound by the terms and conditions of the Agreement. Effective at the time
the Third Closing shall have been consummated, TIFD withdraws as a Partner.
5. Board of Control Consent. The Board of Control of the Partnership
shall be deemed to have consented to the sale of the Partnership Interest to
Thaleia and the other transactions contemplated by the Purchase Agreement.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to any other
applicable conflict of law provisions.
7. Amendments. This Amendment may not be amended, altered, modified or
revoked without the prior written consent of all parties hereto.
8. Headings. All headings in this Amendment are included only for
convenience and ease of reference and shall not be considered in the
construction and interpretation of any provision hereof.
9. Further Obligations. Each of the parties hereto agrees to execute all
other agreements, instruments and documents and to perform all further acts
which may be necessary to consummate the transactions contemplated herein.
10. Binding Nature and Benefit. This Amendment shall be binding upon and
inure to the benefit of each party hereto and their respective successors and
assignors.
11. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes, but
all of which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
PALM:
PALM POWER CORPORATION
By:________________________________
Name:
Title:
TOYAN:
TOYAN ENTERPRISES
By:________________________________
Name:
Title:
TIFD:
TIFD III-Y INC.
By:________________________________
Name:
Title:
THALEIA:
THALEIA, LLC
By:________________________________
Name:
Title:
INDIANTOWN PROJECT INVESTMENT
PARTNERSHIP, L.P.:
By:________________________________
Name:
Title:
