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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year-Ended December 31, 1997
Commission File Number 33-95928
LS POWER FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0502366
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 North Market Street, Suite 1108, Wilmington, DE 19801, (302)427-8494
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 81-0493289
Delaware 81-0493287
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273, (704)525-3800
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273, (704)525-3800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
7.19% Senior Secured Bonds Due 2010, Series A of LS Power Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A of LS Power Funding Corporation
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P.
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P.
7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership
8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FORM 10-K INDEX
<TABLE>
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Page
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PART I
<S> <C> <C>
Item 1. Business 4
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4 Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 29
Financial Statement Index F-1
Exhibits Index E-1
</TABLE>
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PART I/ITEM 1. BUSINESS
ORGANIZATION
COTTAGE GROVE
LSP-Cottage Grove, L.P. ("Cottage Grove") is a single purpose Delaware
limited partnership formed on December 14, 1993 to develop, finance, construct
and own a gas-fired cogeneration facility located in Cottage Grove, Minnesota
(the "Cottage Grove Facility"). The general partner of Cottage Grove is
LSP-Cottage Grove, Inc., a Delaware corporation which, until March 20, 1998, was
a wholly-owned subsidiary of Granite Power Partners, L.P., a Delaware limited
partnership ("Granite"). See discussion below under "Change in Control." The
general partner of Granite is LS Power Corporation, a Delaware corporation ("LS
Power"). LSP-Cottage Grove, Inc. is a 1% general partner of Cottage Grove. An
indirect subsidiary of Cogentrix Energy, Inc., a North Carolina corporation
("Cogentrix Energy"), identified in the discussion under "Change in Control"
below, and TPC Cottage Grove, Inc., a Delaware corporation ("TPC Cottage
Grove"), are the sole limited partners of Cottage Grove, owning approximately
72% and 27% limited partnership interests, respectively, although such
percentages remain subject to adjustment under certain circumstances to provide
a particular rate of return on the equity contribution of TPC Cottage Grove as
set forth in Cottage Grove's partnership agreement.
WHITEWATER
LSP-Whitewater Limited Partnership ("Whitewater", and collectively with
Cottage Grove, the "Partnerships") is a single purpose Delaware limited
partnership formed on December 14, 1993 to develop, finance, construct and own a
gas-fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility", and collectively with the Cottage Grove Facility, the
"Facilities" or "Projects"). The general partner of Whitewater is LSP-Whitewater
I, Inc., a Delaware corporation (along with LSP-Cottage Grove, Inc., the
"General Partners", and each individually a "General Partner") which, until
March 20, 1998, was a wholly-owned subsidiary of Granite. See discussion below
under "Change in Control." LSP-Whitewater I, Inc. is a 1% general partner of
Whitewater. An indirect subsidiary of Cogentrix Energy, identified in the
discussion under "Change in Control" below, and TPC Whitewater, Inc., a Delaware
corporation ("TPC Whitewater"), are the sole limited partners of Whitewater,
owning approximately 73% and 26% limited partnership interests, respectively,
although such percentages remain subject to adjustment under certain
circumstances to provide a particular rate of return on the equity contribution
of TPC Whitewater as set forth in Whitewater's partnership agreement.
FUNDING
LS Power Funding Corporation ("Funding") was organized on June 23, 1995
as a special purpose Delaware corporation to issue debt securities in connection
with financing the construction of the Facilities. Funding's sole business
activities are limited to maintaining its organization and activities necessary
pursuant to the offering of the Senior Secured Bonds (defined below) and its
acquisition of the First Mortgage Bonds (defined below) from the Partnerships.
The Senior Secured Bonds are the following:
7.19% Senior Secured Bonds Due 2010, Series A of LS Power
Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A of LS Power
Funding Corporation
The First Mortgage Bonds are the following:
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2010
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2016
7.19% First Mortgage Bonds of LSP-Whitewater Limited
Partnership Due 2010
8.08% First Mortgage Bonds of LSP-Whitewater Limited
Partnership Due 2016
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Cottage Grove and Whitewater each own 50% of the outstanding stock of
Funding.
CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid-America, Inc., a Delaware corporation, and its
wholly-owned subsidiaries Cogentrix Cottage Grove, LLC, a Delaware limited
liability company, and Cogentrix Whitewater, LLC, a Delaware limited liability
company (collectively, the "Purchasers") and Cogentrix Energy which controls
each of the Purchasers, as wholly-owned indirect subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the capital stock of FloriCulture, Inc., a Delaware
corporation ("FloriCulture"), LSP-Cottage Grove, Inc., and LSP-Whitewater I,
Inc., and all of the Sellers' limited partnership interests in Cottage Grove and
Whitewater to the Purchasers. As a result, Cogentrix Mid-America, Inc. now owns
all of the capital stock of FloriCulture. Cogentrix Cottage Grove, LLC now owns
all of the capital stock of LSP-Cottage Grove, Inc., the general partner of
Cottage Grove, as well as a 72.22% limited partnership interest in Cottage Grove
for a combined total ownership interest of 73.22% in Cottage Grove. Cogentrix
Whitewater, LLC now owns all of the capital stock of LSP-Whitewater I, Inc., the
general partner of Whitewater, as well as a 73.17% limited partnership interest
in Whitewater for a combined total ownership interest of 74.17% in Whitewater.
On the same date that the Purchasers acquired their ownership interests
in Cottage Grove and Whitewater, Cogentrix Energy and LS Power entered into an
Assignment and Assumption Agreement, pursuant to which LS Power assigned, and
Cogentrix Energy assumed, all of the rights and obligations of LS Power under
certain management services agreements between LS Power and each of LSP-Cottage
Grove, Inc., Cottage Grove, LSP-Whitewater, Inc. and Whitewater. A description
of these agreements is included in Part III/Item 13 - "Certain Relationships and
Related Transactions" of this annual report on Form 10-K.
THE POWER PLANTS
THE COTTAGE GROVE FACILITY
The Cottage Grove Facility is a dispatchable, combined-cycle natural
gas-fired (with fuel oil back-up) cogeneration facility designed to generate
approximately 245 megawatts of electrical capacity measured at summer
conditions, and 262 megawatts of electrical capacity measured at winter
conditions, with a maximum of 190,000 pounds per hour of steam. The Cottage
Grove Facility is a "topping-cycle cogeneration facility", which means that when
the power plant is operated in a combined-cycle mode, it uses natural gas or
fuel oil to produce electricity, and the reject heat from power production is
then used to provide steam to its steam purchaser. The Cottage Grove Facility
commenced commercial operation on October 1, 1997 (the "Cottage Grove Commercial
Operations Date"). The Facility consists of a single combustion
turbine-generator unit, a heat recovery steam generator, a steam
turbine-generator unit, auxiliary boilers, and all required buildings and
accessory equipment. The auxiliary boilers are used to provide steam to the
Minnesota Mining and Manufacturing Company's ("3M") Cottage Grove facility,
Cottage Grove's steam purchaser, when the Cottage Grove Facility is off-line.
All of the electric capacity and energy generated by the Cottage Grove
Facility is sold to Northern States Power Company ("NSP" or, as the context
requires, the "Power Purchaser") under a 30-year power purchase agreement (the
"Cottage Grove Power Purchase Agreement"). The thermal energy generated by the
Cottage Grove Facility is sold in the form of steam to 3M under a 30-year steam
supply agreement. Natural gas for the Cottage Grove Facility is purchased
pursuant to 20-year contracts with Natural Gas Clearinghouse ("NGC") and Aquila
Energy Marketing
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Corporation ("Aquila"), a subsidiary of UtiliCorp United Inc. ("UtiliCorp").
Interstate gas transportation is provided by Northern Natural Gas Company
("Northern Natural"), and local gas transportation is provided by Peoples
Natural Gas Company ("Peoples"), a division of UtiliCorp, each pursuant to a
20-year contract subject to a 10-year renewal option. Additionally, Northern
Natural provides gas storage services pursuant to a 20-year contract subject to
a 10-year renewal option. The Cottage Grove Facility is designed to operate as a
Qualifying Facility ("QF") under the Public Utility Regulatory Policies Act of
1978 ("PURPA") and the regulations promulgated thereunder.
THE WHITEWATER FACILITY
The Whitewater Facility is a dispatchable, combined-cycle natural
gas-fired (with fuel oil back-up) cogeneration facility designed to generate
approximately 245 megawatts of electrical capacity measured at summer conditions
and 262 megawatts of electrical capacity measured at winter conditions, with a
maximum of 190,000 pounds per hour of steam. The Whitewater Facility is a
"topping-cycle cogeneration facility". The Whitewater Facility commenced
commercial operation on September 18, 1997 (the "Whitewater Commercial
Operations Date"). The Facility consists of a single combustion
turbine-generator unit, a heat recovery steam generator, a steam
turbine-generator unit, auxiliary boilers, and all required buildings and
accessory equipment. The auxiliary boilers are used to provide thermal energy to
Whitewater's thermal energy purchasers when the Whitewater Facility is off-line.
Whitewater sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Whitewater Facility to Wisconsin Electric
Power Company ("WEPCO" or, as the context requires, the "Power Purchaser")
pursuant to a 25 year power purchase agreement, as amended (the "Whitewater
Power Purchase Agreement" and, collectively with the Cottage Grove Power
Purchase Agreement, the "Power Purchase Agreements"). Whitewater may also sell
to third parties up to 12 megawatts of electric capacity and any energy which is
not dispatched by WEPCO. The thermal energy generated by the Whitewater Facility
is provided in the form of steam to the University of Wisconsin-Whitewater
("UWW") under a steam supply agreement expiring on June 30, 2005 and in the form
of hot water to a greenhouse owned by Whitewater and located adjacent to the
Whitewater Facility (the "Greenhouse"). Natural gas for the Whitewater Facility
is purchased pursuant to 20-year contracts with NGC and Aquila. Interstate gas
transportation is provided by Northern Natural pursuant to a 20-year contract
subject to a 10-year renewal option, and local gas transportation is provided by
Wisconsin Natural Gas Company ("WNG") pursuant to a 25-year contract with two
five-year renewal options. Additionally, Northern Natural provides gas storage
services pursuant to a 20-year contract subject to a 10-year renewal option. The
Whitewater Facility is designed to operate as a QF under PURPA and the
regulations promulgated thereunder.
CONSTRUCTION
THE COTTAGE GROVE FACILITY
The Cottage Grove Facility was constructed by Westinghouse Electric
Corporation ("Westinghouse Electric" or the "Contractor") pursuant to a turnkey
construction contract (the "Cottage Grove Construction Contract"). Westinghouse
began construction of the Cottage Grove Facility on June 30, 1995. Westinghouse
Electric had agreed to complete the construction and start-up of the Facility to
specified performance levels by May 31, 1997 and is required under the Cottage
Grove Construction Contract to reimburse the Partnership for extension fees paid
under the Cottage Grove Power Purchase Agreement, and certain liquidated damages
in the event of a delay. During 1997, Westinghouse Electric paid $1,333,000 and
$5,073,000 of reimbursable extension fees and delay liquidated damages,
respectively, to Cottage Grove. In order to demonstrate that construction of the
Facility was substantially complete, the Contractor was required to demonstrate,
with the concurrence of Cottage Grove and R.W. Beck, the independent engineer,
that: (i) the Facility was mechanically and electrically sound and free from
known defects or deficiencies that could affect the safety and reliability of
the Facility, (ii) the Facility met
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performance and emission guarantees, (iii) the Facility successfully completed
testing designed to demonstrate the Facility's reliability, and (iv) the
Facility successfully completed testing required by the Cottage Grove Power
Purchase Agreement.
Effective September 30, 1997, the Partnership and the Contractor, with
the concurrence of R.W. Beck, agreed to a Construction Contract change order.
Under the change order, certain non-material modifications were made to the
Cottage Grove Construction Contract and certain guarantees were deferred until
final completion, which allowed the Contractor to achieve substantial completion
and the Partnership to commence commercial operation. In addition, the
Contractor committed to certain future modifications in the Facility's
construction, extension of certain warranty periods and certain financial
concessions. The construction and start-up of the Cottage Grove Facility was
substantially complete and commercial operation commenced on October 1, 1997.
THE WHITEWATER FACILITY
The Whitewater Facility was constructed by Westinghouse Electric
pursuant to a turnkey construction contract (the "Whitewater Construction
Contract"). Westinghouse Electric began construction of the Whitewater Facility
on June 30, 1995. Westinghouse Electric had agreed to complete the construction
and start-up of the Facility to specified performance levels by May 31, 1997 and
is required under the Whitewater Construction Contract to reimburse the
Partnership for extension fees paid under the Whitewater Power Purchase
Agreement, and certain liquidated damages in the event of a delay. During 1997,
Westinghouse Electric paid $110,000 and $4,539,000 of reimbursable extension
fees and delay liquidated damages, respectively, to Whitewater. In order to
demonstrate that construction of the Facility was substantially complete, the
Contractor was required to demonstrate, with the concurrence of Whitewater and
R.W. Beck, the independent engineer, that: (i) the Facility was mechanically and
electrically sound and free from known defects or deficiencies that could affect
the safety and reliability of the Facility, (ii) the Facility met performance
and emission guarantees, (iii) the Facility successfully completed testing
designed to demonstrate the Facility's reliability, and (iv) the Facility
successfully completed testing required by the Whitewater Power Purchase
Agreement.
Effective September 18, 1997, the Partnership and the Contractor, with
the concurrence of R.W. Beck, agreed to a Construction Contract change order.
Under the change order, certain non-material modifications were made to the
Whitewater Construction Contract and certain guarantees were deferred until
final completion, which allowed the Contractor to achieve substantial completion
and the Partnership to commence commercial operation. In addition, the
Contractor committed to certain future modifications in the Facility's
construction, extension of certain warranty periods and certain financial
concessions. The construction and start-up of the Whitewater Facility was
substantially complete and commercial operation commenced on September 18, 1997.
GREENHOUSE
Whitewater entered into a construction contract (the "Dominion
Construction Contract") with Dominion Growers/Whitewater L.C. ("Dominion") under
which Dominion was required to design, engineer, procure, interconnect,
construct and start-up the Greenhouse, as well as perform certain other
obligations. The Dominion Construction Contract established a 19-month
construction schedule for the Greenhouse. Dominion began procurement and
construction on July 11, 1995. The Greenhouse was substantially complete on June
2, 1997.
PROJECT MANAGEMENT
LS Power provided certain management and administration services to the
Partnerships, including supervision of the Contractor and Westinghouse Operating
Services Company, Inc., as operator of the Facilities, pursuant to management
services agreements (collectively, the "MSAs") with the Partnerships and the
General Partners. On March 20, 1998, LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under each of these
agreements. See Part I, Item 1 - "Change in Control" and Part III, Item 13 -
"Certain Relationships and
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Related Transactions".
OPERATIONS AND MAINTENANCE
OPERATIONS AND MAINTENANCE AGREEMENTS
Each of the Cottage Grove and Whitewater Facilities is operated by
Westinghouse Operating Services Company, Inc. ("Westinghouse Services") pursuant
to a seven-year operations and maintenance agreement (an "O&M Agreement" and
collectively, the "O&M Agreements" ). Under each O&M Agreement, Westinghouse
Services was required to provide certain services during the pre-operational
phase of the related Facility as well as services following commercial
operation. As compensation for its services, Westinghouse Services is reimbursed
under each O&M Agreement on a monthly basis for certain approved costs incurred
in connection with operating the related Facility. In addition, Westinghouse
Services (i) received a fixed monthly fee during the pre-operational phase of
such Facility and (ii) will receive an annual management fee of $350,000 during
the operational years of such Facility. The Partnerships contract directly with
certain subcontractors for materials and services which are outside the scope of
Westinghouse Service's obligations under the O&M Agreements, including major
maintenance of the Facilities. Westinghouse Services is also subject to an
annual performance bonus or penalty payment depending on each Facility's
availability relative to certain performance criteria reflecting aspects of
similar criteria contained in such Facility's Power Purchase Agreement.
Furthermore, Westinghouse Services is subject to a penalty payment depending
upon each Facility's ability to produce an uninterrupted supply of thermal
energy.
PARTS AGREEMENTS
Cottage Grove and Whitewater each has a parts agreement (a "Parts
Agreement" and collectively, the "Parts Agreements") with Westinghouse Electric.
Under each Parts Agreement, Westinghouse Electric provides a spare set of
certain major combustion turbine parts (including combustors, fuel nozzles,
transitions, turbine blades and vanes and various other items), and repairs or
replaces specified parts during certain scheduled and unscheduled outages of the
related Facility. Pursuant to each Parts Agreement, which expires at the earlier
of (i) completion of the first scheduled major inspection of the applicable
Facility and (ii) 15 years after provisional acceptance of the related Facility,
Westinghouse Electric is paid an annual fee of $976,833 (subject to adjustment
each year on specified indices published by the United States Bureau of Labor
Statistics) for 12 years. In addition, Westinghouse Electric provides certain
Westinghouse Electric parts at a discount from the list price for the life of
the related Facility and repairs certain parts at cost plus a certain percentage
markup for the duration of the financing of such Facility.
GREENHOUSE
Whitewater previously entered into a lease agreement (the "Dominion
Lease") with Dominion. Under the Dominion Lease, Whitewater agreed to lease to
Dominion the Greenhouse and an approximate 38-acre parcel of land upon which the
Greenhouse was constructed.
In 1997, Whitewater and Dominion terminated the Dominion Lease and the
related hot water supply agreement with Dominion. To replace these Dominion
arrangements, Whitewater entered into an operational services agreement (the
"Greenhouse Operational Services Agreement") with FloriCulture, an affiliate of
Whitewater, which operates the Greenhouse for the benefit of Whitewater.
Under the terms of the Greenhouse Operational Services Agreement,
FloriCulture is required to provide all the services necessary to produce,
market, and sell horticultural products and to operate and maintain the
Greenhouse. As compensation for its services, FloriCulture is reimbursed on a
monthly basis for its approved costs in connection with conducting the
Greenhouse business and operating the Greenhouse, and will receive an annual
management fee equal to 12% of Whitewater's net profit from the operation of the
Greenhouse. The term of the Greenhouse Operational Services Agreement will
expire on May 31, 2022.
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SALE OF CAPACITY AND ELECTRICITY
COTTAGE GROVE
Cottage Grove, as seller, and NSP, as purchaser, have entered into the
Cottage Grove Power Purchase Agreement. Under and subject to the terms of the
Cottage Grove Power Purchase Agreement, NSP is obligated to purchase all
electric capacity made available to it and all associated energy which NSP
chooses to dispatch from the Cottage Grove Facility beginning on the Cottage
Grove Commercial Operations Date and extending for 30 years thereafter.
Payments by NSP to Cottage Grove under the Cottage Grove Power Purchase
Agreement consist of (i) capacity payments and (ii) energy payments. The
capacity payments made by NSP are based on the Facility's tested capacity and
availability, and have three components: one rate component based on a fixed
schedule and two rate components that escalate in accordance with changes in
published indices. NSP is required to make capacity payments to Cottage Grove on
a monthly basis for electric capacity made available to NSP, regardless of the
level of dispatch. Capacity payments from NSP are subject to adjustment on the
basis of performance-based factors which reflect the Cottage Grove Facility's
semi-annually tested capacity and its rolling 12-month average for availability
and on-peak availability. Capacity payments are also adjusted for transmission
losses or gains relative to a reference plant (the "Capacity Loss Factor").
Under the Cottage Grove Power Purchase Agreement, NSP has full dispatch
discretion over energy delivered by the Cottage Grove Facility subject to
certain agreed dispatch parameters. This offers NSP the flexibility to call upon
the Cottage Grove Facility to deliver energy when it is the lowest cost unused
variable energy source available to NSP. There is no contractual minimum amount
of energy that NSP must purchase from Cottage Grove.
Energy payments for energy delivered by the Cottage Grove Facility vary
in accordance with a published monthly spot natural gas index or, in case of
dispatch in excess of 16 hours per day, with the Cottage Grove Facility's actual
fuel costs. The prices that Cottage Grove pays for natural gas pursuant to its
gas supply contracts vary in accordance with the same monthly spot natural gas
index as the related variable energy rate contained in the Cottage Grove Power
Purchase Agreement or, in some circumstances, in accordance with daily spot
prices for natural gas. While the gas pricing and gas transportation escalation
rates under Cottage Grove's gas supply and transportation agreements are
designed to generally track corresponding revenues derived under the Cottage
Grove Power Purchase Agreement, there can be no assurance that such pricing
components will match corresponding revenue streams under all operating and
escalation environments.
Following the 10th anniversary of the Cottage Grove Commercial Operations
Date, if NSP fails to obtain or is denied authorization by any governmental
authority having jurisdiction over NSP's retail rates and charges, granting it
the right to recover from its customers any payments made to Cottage Grove under
the Cottage Grove Power Purchase Agreement, any such disallowance will be
monitored in a tracking account and the unpaid balance in the tracking account
shall accrue interest at 8.7% per annum. Within 30 days after Cottage Grove's
First Mortgage Bonds have been fully retired, NSP may begin reducing payments to
Cottage Grove to (i) ensure the payments are in-line with Minnesota Public
Utility Commission rates and (ii) begin amortizing the balance in the tracking
account. Should NSP exercise its right to reduce payments, the maximum reduction
is 75% of the capacity payment otherwise due for the period.
WHITEWATER
Whitewater, as seller, and WEPCO, as Power Purchaser, have entered into
the Whitewater Power Purchase Agreement. Under and subject to the terms of the
Whitewater Power Purchase Agreement, WEPCO is obligated to purchase the electric
capacity made available to it up to 236.5 megawatts and associated energy which
WEPCO chooses to dispatch from the Whitewater Facility beginning on the
Whitewater
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Commercial Operations Date and extending for 25 years thereafter.
Payments by WEPCO to Whitewater under the Whitewater Power Purchase
Agreement consist of (i) capacity payments and (ii) energy payments. The
capacity payments made by WEPCO are based on the Whitewater Facility's tested
capacity and availability and have three rate components: a rate component based
on a fixed schedule, a fixed operation and maintenance rate component escalating
in accordance with changes in a published index, and a fixed gas transport rate
component escalating in a similar manner. WEPCO is required to make capacity
payments to Whitewater on a monthly basis for electric generating capacity made
available to WEPCO, regardless of the amount of electric energy actually
dispatched. Capacity payments from WEPCO are subject to adjustment on the basis
of performance-based factors which reflect the Whitewater Facility's
semi-annually tested capacity, and average and peak availability factors for the
preceding contract year.
Under the Whitewater Power Purchase Agreement, WEPCO has full dispatch
discretion over energy to be delivered by the Whitewater Facility subject to
certain agreed dispatch parameters. This offers WEPCO the flexibility to call
upon the Whitewater Facility to deliver energy when it is the lowest cost unused
variable energy source available to WEPCO. There is no contractual minimum
amount of energy that WEPCO must purchase from Whitewater.
Energy payments for energy delivered by the Whitewater Facility vary in
accordance with a published monthly spot natural gas index or with the
Whitewater Facility's actual fuel costs. The prices that Whitewater pays for
natural gas pursuant to its gas supply contracts vary in accordance with the
same monthly spot natural gas index as the related variable energy rate
contained in the Whitewater Power Purchase Agreement or, in some circumstances,
in accordance with daily spot prices for natural gas. While the gas pricing and
gas transportation escalation rates under Whitewater's gas supply and
transportation agreements are designed to generally track corresponding revenues
derived under the Whitewater Power Purchase Agreement, there can be no assurance
that such pricing components will match corresponding revenue streams under all
operating and escalation environments.
The Partnership and WEPCO disagreed on the interpretation of certain
provisions in the Whitewater Power Purchase Agreement with respect to the
methodology to be used to determine Committed Capacity of the Whitewater
Facility, as defined. Effective on February 26, 1998, the Partnership and WEPCO
entered into a settlement letter and the Fifth Amendment to the Power Purchase
Agreement to resolve various differences in interpretation of the Whitewater
Power Purchase Agreement to their mutual satisfaction. Whitewater does not
believe that the settlement will have a material impact on the Partnership's
results of operations or financial position.
Subject to certain limitations, the capacity payments from WEPCO may be
reduced to the extent that WEPCO's senior debt instruments are downgraded by any
two of Standard & Poor's Corporation, Moody's Investors Services, Inc. and Duff
& Phelps as a result of WEPCO's long term power purchase obligations under the
Whitewater Power Purchase Agreement. So long as Whitewater's First Mortgage
Bonds are outstanding, the reduction may not exceed the level necessary to cause
Whitewater's debt service coverage ratio to be less than 1.4 in any month, with
such ratio calculated on a rolling average of the four fiscal quarters
immediately preceding the proposed adjustment. After Whitewater's First Mortgage
Bonds have been repaid, the reduction may not exceed 50% of the Whitewater's
revenues minus expenses. The amount of the reductions precluded by application
of the above limitations will be monitored in a tracking account and the unpaid
balance in the tracking account shall accrue interest at the base or prime
lending rate set from time to time by The Chase Manhattan Bank, N.A. or its
successor. Accrued tracking account obligations are to be repaid when possible,
subject to the limitations described above, or may be applied to WEPCO's
purchase of the Whitewater Facility at the expiration of the Whitewater Power
Purchase Agreement.
In the event that at any time WEPCO is denied rate recovery from its
customers of any payment to be made to Whitewater under the Whitewater Power
Purchase Agreement by an applicable regulatory authority, WEPCO's payments to
Whitewater may be correspondingly reduced, subject to certain limitations. While
Whitewater's First Mortgage Bonds are outstanding, the capacity payments may be
reduced by the annual regulatory disallowance provided that the reduction may
not cause Whitewater's debt service coverage ratio to be less than 1.4 in any
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month calculated on a rolling average of the four fiscal quarters preceding the
proposed adjustment. After Whitewater's First Mortgage Bonds are repaid,
reductions may not exceed 50% of Whitewater's revenues minus expenses. The
amount of the reductions precluded by these restrictions is monitored in a
tracking account with repayment subject to the same provisions as for bond
downgrading adjustments discussed above.
QUALIFYING FACILITY STATUS
The Cottage Grove Facility and the Whitewater Facility are each certified
as a QF under PURPA and the regulations of the Federal Energy Regulatory
Commission ("FERC") promulgated thereunder. While loss of QF status does not
result in a default under either Power Purchase Agreement, it can result in a
reduction in payments under the Cottage Grove Power Purchase Agreement to the
lower of FERC approved rates or the contract rates, or under the Whitewater
Power Purchase Agreement to the lower of FERC approved rates or rates reflecting
a five percent discount from the capacity component of the contract rates. Under
its respective Power Purchase Agreement, each Partnership may regain full
contract rates if it regains QF status that has been lost. In addition, a loss
of QF status will cause the rates and certain organizational and financial
affairs of the affected Partnership to become subject to regulation by the FERC,
possibly result in both Partnerships to become regulated under the Public
Utility Holding Company Act of 1935, as amended ("PUHCA"), and to the extent not
preempted by the Federal Power Act, as amended ("FPA"), to become subject to the
jurisdiction of the applicable state public utility commission.
THERMAL ENERGY SALES
COTTAGE GROVE
Cottage Grove has a steam supply agreement, as amended, with 3M (the "3M
Thermal Energy Agreement"), which provides for Cottage Grove to supply the steam
requirements of 3M's manufacturing plant in Cottage Grove, Minnesota. The
Cottage Grove Facility is capable of delivering up to 190,000 pounds of steam
per hour through its cogeneration process and, alternatively, up to 160,000
pounds of steam per hour in the aggregate through two auxiliary steam generators
(the "Auxiliary Boilers") which are used when NSP has not dispatched the
Facility or when the cogeneration process is otherwise unavailable. The term of
the 3M Thermal Energy Agreement extends for an initial period of 30 years from
the date upon which the first deliveries of steam were made, which term may be
extended upon terms and conditions mutually satisfactory to Cottage Grove and
3M.
The 3M Thermal Energy Agreement obligates Cottage Grove to supply all of
3M's steam requirements up to a maximum of 664 million pounds of steam annually
at a rate not to exceed 190,000 pounds per hour when the Cottage Grove
Facility's cogeneration process is operating and 160,000 pounds per hour when
the steam is generated by the Auxiliary Boilers (the "Maximum 3M Purchase
Amount"). For the first ten years after Cottage Grove commences steam delivery
to 3M, 3M must take and use, at a minimum, the amount of steam necessary to
maintain the Cottage Grove Facility's status as a QF (the "Minimum 3M Purchase
Amount"). Thereafter, if 3M takes less than the Minimum 3M Purchase Amount,
Cottage Grove may reduce the Maximum 3M Purchase Amount and sell steam in excess
of such reduction to other steam purchasers. In the event Cottage Grove delivers
steam which does not conform to the specifications in the 3M Thermal Energy
Agreement, Cottage Grove must discontinue such delivery (unless otherwise
requested by 3M) and, at its own expense, take prompt action to correct such
non-conformance. The 3M Thermal Energy Agreement also provides that 3M is
obligated to return the condensate to the Cottage Grove Facility, supply a
quantity of cooling and potable water sufficient to satisfy the requirements of
the Cottage Grove Facility and, to the extent consistent with certain
governmental permits and regulations, accept the Cottage Grove Facility's
wastewater and sanitary wastewater into 3M's existing discharge systems. 3M has
the right to reduce the water supply to the Facility in the event that it cannot
satisfy both its own and Cottage Grove's requirements; however, Cottage Grove
has drilled a back-up well as a reserve in the event of any shortfalls in water
supply from 3M.
Cottage Grove is obligated to supply steam to 3M on a non-interruptible
basis, except during periods of
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force majeure, emergency conditions affecting the Cottage Grove Facility and
periods when 3M is unable to accept steam due to repair or maintenance of its
manufacturing plant. In the event of any failure to supply steam to 3M, other
than as a result of force majeure or the acts or omissions of 3M, Cottage Grove
must reimburse 3M for its incremental costs.
WHITEWATER
University of Wisconsin-Whitewater
Whitewater has a steam supply agreement with the Department of
Administration of the State of Wisconsin ("DOA"), which provides for Whitewater
to supply the steam requirements of UWW (the "UWW Thermal Energy Agreement").
The initial term of the UWW Thermal Energy Agreement expires June 30, 2005 (the
"UWW Initial Term"). The DOA has the option to extend the UWW Initial Term for
up to four extension periods of four years each.
The UWW Thermal Energy Agreement obligates Whitewater to supply all of
UWW's steam requirements up to a maximum of 350 million pounds of steam annually
at a rate not to exceed 100,000 pounds per hour (the "Maximum UWW Purchase
Amount"). DOA may also request, and Whitewater must use reasonable efforts to
supply, steam in excess of the Maximum UWW Purchase Amount. DOA is not obligated
to take any minimum annual or hourly quantity of steam. In the event Whitewater
delivers steam that does not conform to the specifications set forth in the UWW
Thermal Energy Agreement, Whitewater must discontinue such delivery (unless
otherwise requested by DOA) and, at its own cost, take prompt action to correct
such non-conformance.
Whitewater has agreed to reimburse DOA for costs up to $500,000 incurred
to repair and recondition one of UWW's existing steam boilers for use as a
back-up boiler and to modify the operations of the UWW heating plant where its
boilers are located. As of December 31, 1997, Whitewater has reimbursed DOA
approximately $280,000 for the repair of UWW's steam boiler. Whitewater has also
agreed to pay the annual costs to maintain the back up boiler in a standby mode.
Whitewater is obligated to supply steam to UWW on a non-interruptible
basis, except during periods of force majeure, emergency conditions affecting
the Whitewater Facility and periods when UWW is unable to accept steam due to
necessary repair or maintenance to the UWW steam piping system. In the event of
any failure to supply UWW, other than as a result of force majeure or the acts
or omissions of UWW, Whitewater must reimburse UWW for its incremental costs.
Greenhouse
Under the terms of the Greenhouse Operational Services Agreement with
FloriCulture, Whitewater will supply the hot water requirements of the
Greenhouse. See "Operations and Maintenance; Greenhouse".
GAS SUPPLY
Each of Cottage Grove and Whitewater has entered into gas supply
contracts with substantially identical terms, with the exception of the volume
of gas required to be delivered under the contracts. This difference is
primarily a result of varying contractual requirements in the Power Purchase
Agreements. Specifically, each Partnership has entered into (i) a gas sales
contract with NGC, as amended (the "NGC Gas Supply Contracts"), and (ii) a gas
sales contract with Aquila, as amended (the "Aquila Gas Supply Contracts," and
together with the NGC Gas Supply Contracts, the "Gas Supply Contracts") to
collectively service 100% of the expected gas requirements of its Facility.
The Aquila Gas Supply Contracts and the NGC Gas Supply Contracts each
provide for the sale of up to 17,060 MMBtu per day of gas to Cottage Grove and
up to 11,855 MMBtu per day of gas to Whitewater. Under the Gas Supply Contracts,
except during periods of force majeure or default by a Partnership, NGC and
Aquila (together, the "Gas Suppliers") are required to supply on a firm basis to
the point of demarcation between the field
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zone and the market zone of Northern Natural (the "Demarcation Point"), all gas
properly nominated by each Partnership. If a Gas Supplier fails to deliver
properly nominated gas to the Demarcation Point for any reason other than force
majeure or a Partnership's failure to pay for past deliveries, Cottage Grove or
Whitewater, as the case may be, has the right to buy replacement gas (or fuel
oil) from other sources and charge the applicable Gas Supplier for the direct
increased cost (including transportation charges), if any, of using such gas or
fuel oil.
Under the Gas Supply Contracts, there are three categories of gas, Tier I
Gas, Tier II Gas, and Tier III Gas. Tier I Gas is "baseload" gas, nominated
prior to the commencement of each month at a set volume for such month. Tier II
Gas is "TOK-swing" gas, nominated prior to the commencement of each month at a
set volume with the ability to reduce daily volumes to reflect daily swings in
gas needs at the Facilities. Tier III Gas is "spot-swing" gas, nominated on a
monthly basis (in the case of Aquila) and daily basis (in the case of both NGC
and Aquila) to fulfill daily swings in Facility requirements not met by Tier I
Gas and/or Tier II Gas.
The price for Tier I Gas is equal to a published price for
first-of-the-month spot natural gas delivered to Northern Natural in Texas,
Oklahoma and Kansas (the "TOK Price"), plus a percentage fee. The price for Tier
II Gas is equal to the TOK Price plus a reservation fee payable on all Tier II
volumes nominated, regardless of whether such volumes are actually purchased by
such Partnership. The price for Tier III Gas is calculated on a daily cost basis
which could vary above or below the first-of-the-month TOK Price. The TOK Price,
or, in some circumstances, actual fuel cost is used as the basis for the price
payable for variable energy under the Power Purchase Agreements.
Under the Gas Supply Contracts, the Partnerships are subject to an
annual minimum take requirement for Tier I Gas equal to 40% of the annualized
maximum quantity. Under the NGC Gas Supply Contracts, one-half of Tier II Gas
quantities delivered may be applied to reduce the minimum take requirement. The
Partnerships may satisfy the minimum take requirements by delivering gas to the
Facilities, taking gas into storage or by remarketing gas to third parties. In
the event of two consecutive annual minimum take shortfalls, Aquila has the
right to reduce the volumes deliverable under the applicable Aquila Gas Supply
Contract. On a monthly basis, Whitewater and Cottage Grove are required to take
all Tier I Gas nominated for such month, make other arrangements for the
disposition thereof, or pay certain penalties.
The primary term of each Gas Supply Contract is 20 years beginning with
the Commercial Operations Date of the respective Facility. Following the end of
the primary term, the NGC Gas Supply Contracts may be extended at the applicable
Partnership's option for an additional five-year term. The Aquila Gas Supply
Contracts extend beyond the primary term on a year-to-year basis, unless
affirmatively terminated by one of the parties thereto.
The Gas Supply Contracts may be terminated prior to expiration in the
event the corresponding Power Purchase Agreement is terminated without
replacement or upon the occurrence of certain events of default. Events of
default include bankruptcy or insolvency proceedings, legal process against the
contract itself, false representations or warranties, unexcused failure to
deliver gas, continued failure to pay for gas after suspension of deliveries by
the applicable Gas Supplier or any other continued material breach.
GAS TRANSPORTATION
COTTAGE GROVE
Cottage Grove has various gas transportation agreements with Northern
Natural (collectively, the "Cottage Grove Northern Transportation Agreements")
pursuant to an agreement among Cottage Grove, Northern Natural and Peoples (the
"Cottage Grove Letter Agreement"). The Cottage Grove Letter Agreement and the
Cottage Grove Northern Transportation Agreements (the "Cottage Grove Northern
Agreements") have a term of 20 years, subject to a 10-year option to renew by
Cottage Grove, and set forth the terms and conditions under which Northern
Natural agrees to transport on both a firm and interruptible basis the gas
purchased by Cottage Grove pursuant to the Cottage Grove Gas Supply Contracts.
Under the Cottage Grove Northern Agreements, gas is
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transported from Northern Natural's field zone to the Demarcation Point on an
interruptible basis, and from the Demarcation Point to the interconnection of
the facilities of Northern Natural and Peoples (the "Cottage Grove TBS") on a
firm basis. Subject to certain restrictions (including minimum and maximum
injection and withdrawal rates), the Cottage Grove Northern Agreements also
provide firm storage service at Northern Natural's gas storage facility in the
market zone of an aggregate volume of gas sufficient to supply the Cottage Grove
Facility for approximately 29 days.
Cottage Grove also has an agreement with Peoples that provides for the
transportation from the Cottage Grove TBS to the Cottage Grove Facility of
29,120 MMBtu per day on a firm basis and excess gas required by the Cottage
Grove Facility on an interruptible basis (the "Peoples Agreement", and together
with the Cottage Grove Northern Agreements, the "Cottage Grove Transportation
Agreements").
Under the Cottage Grove Letter Agreement, Peoples has agreed to release
to Cottage Grove 34,120 MMBtu/day of firm capacity it currently holds on
Northern Natural's system for gas transportation under the Cottage Grove
Transportation Agreements from the Demarcation Point to the Cottage Grove TBS.
Northern Natural has agreed to construct, maintain and own at its expense the
Cottage Grove TBS and other facilities necessary to effectuate the services
described above. In order to secure its payment obligations under the Cottage
Grove Letter Agreement, if the rating on the Senior Secured Boards falls below
investment grade, Cottage Grove will be required to obtain a guarantee or a
letter of credit from an investment grade entity.
The Peoples Agreement provided for the construction of an approximately
one mile long pipeline at Peoples' expense from the Cottage Grove TBS to the
Cottage Grove Facility. The agreement designates Peoples as Cottage Grove's
agent with respect to nominations on Northern Natural's system and requires
Peoples to sell gas, if available, to Cottage Grove in case of a failure of any
of Cottage Grove's supplies under the Cottage Grove Gas Supply Contracts. In
addition, the Peoples Agreement provides various balancing services which
augment the balancing rights held by Cottage Grove under the Cottage Grove
Northern Agreements. For up to 20 days of each "heating period" (i.e., an
interval beginning December 1 and extending to the end of the following
February) Peoples has the option to retain the gas destined for the Cottage
Grove Facility for its own use, subject to proper notice and the reimbursement
of Cottage Grove for replacement fuel costs. In consideration for such option,
Cottage Grove receives a monthly payment of $116,480 during the heating period.
In addition, on any day during each heating period on which Cottage Grove
nominates a quantity of gas and transportation from the Gas Suppliers and
Northern Natural less than 29,120 MMBtu, Peoples may require Cottage Grove to
nominate and deliver to Peoples the difference between the quantities actually
nominated and 29,120 MMBtu, subject to compliance with Northern Natural's
tariffs, agreement between Peoples and NSP and payment to Cottage Grove of its
actual cost of gas and gas transportation with respect to such differential
quantities.
WHITEWATER
Whitewater has various gas transportation agreements with Northern
Natural (collectively, the "Whitewater Northern Agreements"). The Whitewater
Northern Agreements have a term of 20 years, with a 10-year option to renew by
Whitewater, and set forth the terms and conditions under which Northern Natural
agrees to transport, on both a firm and interruptible basis, the gas purchased
by Whitewater pursuant to the Whitewater Gas Supply Contracts. Under the
Whitewater Northern Agreements, gas will be transported from Northern Natural's
field zone to the Demarcation Point on an interruptible basis, and from the
Demarcation Point to the interconnection of the facilities of Northern Natural
and WNG (the "Whitewater TBS") on a firm basis. Subject to certain restrictions
(including the minimum and maximum injection and withdrawal rates), the
Whitewater Northern Agreements also provide for firm storage service at Northern
Natural's gas storage facility in the market zone of an aggregate volume of gas
sufficient to supply the Whitewater Facility for approximately 21 days. Finally,
the Whitewater Northern Agreements provide for interruptible storage service at
Northern Natural's gas storage facility in the market area, subject to its
availability.
Under the Whitewater Northern Agreements, Northern Natural agrees to
provide 30,400 MMBtu/day of firm capacity for the transportation of gas from the
Demarcation Point to the Whitewater TBS. Northern Natural
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has also agreed to construct, maintain and own the Whitewater TBS and other
facilities necessary to effectuate the services described above. As a
contribution toward the cost of these facilities, Whitewater has made a payment
to Northern Natural of $2,500,000. In order to secure its payment obligations
under the Whitewater Northern Agreements, if the rating on the Senior Secured
Bonds falls below investment grade, Whitewater will be required to obtain a
guarantee or a letter of credit from an investment grade entity.
Whitewater also has an agreement with WNG which provides for the
transportation of all gas required by the Whitewater Facility from the
Whitewater TBS to the Whitewater Facility (the "WNG Agreement", and together
with the Whitewater Northern Agreements, the "Whitewater Transportation
Agreements"). The WNG Agreement provided for the construction of an
approximately five mile long pipeline from the Whitewater TBS to the Whitewater
site. Whitewater paid approximately $1,328,000 for the construction of the
pipeline. The WNG Agreement extends for an initial term of 25 years (with two
optional five-year extensions), and provides for the firm transport of the daily
and hourly gas requirements of the Whitewater Facility.
Whitewater has an agreement, as amended, with Wisconsin Power & Light
Company ("WP&L") which provides WP&L with the ability to purchase a portion of
Whitewater's daily gas supply and interstate transportation capacity in return
for the payment of a monthly fee to Whitewater and reimbursement of Whitewater's
incremental costs (the "WP&L Agreement"). The WP&L Agreement permits WP&L to
purchase from Whitewater up to 15,000 MMBtu/day of gas and up to 10,400
MMBtu/day of interstate transportation capacity, not to exceed in the aggregate
508,000 MMBtu/year of combined gas and transportation capacity. In consideration
therefor, WP&L pays Whitewater a monthly fee of $58,500 and the incremental
costs incurred for replacement gas or fuel oil, including transportation. The
term of the WP&L Agreement commenced in 1997 and continues for three years, with
an option in favor of WP&L to extend the term for an additional three years.
DEPENDENCE ON THIRD PARTIES
Each Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its respective Facility, a single
operator to perform the operation and maintenance of its respective Facility
and, in the case of the Cottage Grove Facility, a single steam purchaser for
purchases of thermal energy. In addition, each Partnership has contracted with
only two gas companies, Aquila and NGC, to supply the gas requirements of the
Facilities, and has contracted with a single interstate gas transporter,
Northern Natural, to transport gas. Any material breach by any one of these
parties of their respective obligations to either Partnership could affect the
ability of the applicable Partnership to make payments under its First Mortgage
Bonds and consequently Funding's ability to make payments on the Senior Secured
Bonds. In addition, bankruptcy or insolvency of certain other parties or
defaults by such parties relative to their contractual or regulatory obligations
could adversely affect the ability of a Partnership to make payments to Funding
with respect to such Partnership's First Mortgage Bonds and consequently
Funding's ability to make payments on the Senior Secured Bonds. If a project
agreement were to be terminated due to a breach of such project agreement, the
affected Partnership's ability to enter into a substitute agreement having
substantially equivalent terms and conditions, or with an equally creditworthy
third party, is uncertain.
THE INDEPENDENT POWER MARKET
Utilities in the United States have been the predominant producers of
electric power intended primarily for sale to third parties since the early
1900s; however, the enactment of PURPA removed certain regulatory constraints
relating to the production and sale of electric energy by certain non-utility
power producers and required electric utilities to buy electricity from certain
types of non-utility power producers under certain conditions, thereby
encouraging companies other than electric utilities to enter the electric power
production market. As a result, a market for electric power produced by
independent power producers unaffiliated with utilities such as the Partnerships
has developed in the United States since the enactment of PURPA.
The Energy Policy Act of 1992 (the "Policy Act") expands certain
exemptions previously available only under PURPA and provides for the ability of
independent power producers to compete in a non-regulated fashion
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without having to qualify as QFs under PURPA. In addition, over the last several
years, various state utility commissions have opened the electrical generation
and sales market to competition not only from QFs but to non-QF independent
power producers and competitive proposals from other utilities and power
marketers. These developments have generally required that independent power
projects must now be viewed as "least-cost" with such a showing being
demonstrated through a competitive procurement process, such as those which
resulted in the selection of the Cottage Grove Facility and Whitewater Facility.
REGULATION
GENERAL
The Partnerships are required to comply with numerous Federal, state and
local statutory and regulatory standards and obtain and maintain numerous
permits and approvals relating to energy, the environment and other laws
required for the operation of the Facilities. The permits and regulatory
approvals that have been issued to the Partnerships contain certain conditions.
There can be no assurance that either Facility will continue to operate in
accordance with the conditions established by the permits or approvals or that
the Partnerships or third parties will be able to obtain any outstanding permits
required for the operation of the Facilities. Laws and regulations affecting
Funding, the Partnerships and the Facilities may change during the period in
which the Senior Secured Bonds are scheduled to be outstanding, and such changes
could adversely affect Funding or the Partnerships. For example, changes in laws
or regulations (including but not limited to environmental laws and regulations)
could impose more stringent or comprehensive requirements on the operation or
maintenance of the Facilities, resulting in increased compliance costs or the
reduction of certain benefits currently available to the Partnerships, or could
expose Funding or the Partnerships to liabilities for previous actions taken in
compliance with all laws in effect at the time or for actions taken by or
conditions caused by unrelated third parties.
PURPA
PURPA and the regulations promulgated thereunder by FERC provide an
electric generating facility with rate and regulatory incentives if the facility
is a QF. Under PURPA, a topping-cycle cogeneration facility is a QF if (i) the
facility sequentially produces both electricity and a useful thermal energy
output during any calendar year (and the first 12 months of operation) which
constitutes at least five percent of its total energy output and which is used
for industrial commercial, heating or cooling purposes, (ii) during any calendar
year (and the first 12 months of operation) the sum of the useful power output
of the facility plus one-half of its useful thermal energy output equals or
exceeds 42.5 percent of the total energy input of natural gas and oil, or, in
the event that the facility's useful thermal energy output is less than 15
percent of the facility's total energy output, such sum equals or exceeds 45
percent of such total energy input and (iii) the facility is not owned by a
person primarily engaged in the generation or sale of electric energy (other
than from QFs, other types of exempt facilities and power marketers) or more
than 50 percent owned by an electric utility, electric utility holding company,
or a wholly or partially owned subsidiary of an electric utility or an electric
utility holding company. PURPA and the regulations promulgated thereunder exempt
QFs from PUHCA, most provisions of the FPA and certain state laws relating to
rates, and the financial and organizational regulation of electric utilities.
The Partnerships expect the Facilities to continue to meet all of the
criteria required for designation as QFs under PURPA. If either Facility were to
fail to meet such criteria, the related Partnership may become subject to
regulation under PUHCA, the FPA and state utility laws. Furthermore, as a result
of the loss of QF status on one Facility, and the possible creation of a holding
company, the other Facility may lose its QF status due to a violation of PURPA's
ownership restrictions.
PUHCA
PUHCA provides that any corporation, partnership or other entity, or
organized group of persons which
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owns, controls or holds with power to vote 10 percent or more of the outstanding
voting securities, or controlling influence over the management, of a "public
utility company" or a company which is a "holding company" of a "public utility
company" is subject to registration with the United States Securities and
Exchange Commission (the "Commission") and regulation under PUHCA, unless
eligible for an exemption or unless a Commission order declaring it not to be a
holding company is issued. PUHCA requires registration for a holding company of
a public utility company, and requires a public utility holding company to limit
its utility operations to a single integrated utility system and to divest any
other operations not functionally related to the operation of the utility
system. In addition, a public utility company which is a subsidiary of a
registered holding company under PUHCA is subject to financial, organizational
and rate regulation, including approval by the Commission of its financing
transactions.
The Policy Act contains amendments to PUHCA which may allow the
Partnerships to operate their businesses without becoming subject to PUHCA in
the event that either Facility loses its status as a QF. Under the Policy Act, a
company engaged exclusively in the business of owning and/or operating one or
more facilities used for the generation of electric energy exclusively for sale
at wholesale may be exempted from PUHCA. In order to qualify for such an
exemption, a company must apply to the FERC for a determination of eligibility,
pursuant to implementing rules promulgated by the FERC. Both Whitewater and
Cottage Grove were granted exempt wholesale generator status by the FERC on
October 17, 1996. Notwithstanding this exemption, in the event that QF status is
revoked, the applicable Partnership would be subject to regulation under the FPA
and the capacity and energy rates, as described below, would have to be approved
by FERC.
FPA
Under the FPA, the FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
rates may be based on a cost-of-service approach or a market-based approach. If
a Facility were to lose its QF status, the rates set forth in each of the Power
Purchase Agreements would have to be filed with FERC and would be subject to
review and acceptance by the FERC under the FPA. The Whitewater Power Purchase
Agreement provides for a reduction in capacity payment rates in such event to
the lower of a five percent discount from the contract rates, or FERC approved
rates. The Cottage Grove Power Purchase Agreement provides for Cottage Grove to
receive the lower of FERC approved rates or the contract rates.
The FPA, and the FERC's authority thereunder, also subject public
utilities to various other requirements, including accounting and record-keeping
requirements, FERC approval requirements applicable to activities such as
selling, leasing or otherwise disposing of certain facilities, FERC approval
requirements for mergers, consolidations, acquisitions, the issuance of
securities and assumption of liabilities, and certain restrictions regarding
interlocking directorates. Upon a loss of QF status, the affected Partnership
would become subject to such requirements and although it could make application
for specific waivers, there is no assurance such application would be approved.
STATE REGULATION
If the Whitewater Facility loses its QF status, it would, absent a
successful request for exemption, become subject to a wide range of Wisconsin
statutes and regulations applicable to Wisconsin public utilities, including the
requirement of the approval by the Wisconsin Public Service Commission (the
"Wisconsin PSC") for the issuance of securities and the need to file periodic
detailed information on financial and organizational matters.
The rates charged to Whitewater under the WNG Agreement are subject to
approval by the Wisconsin PSC. The criteria for approval by the Wisconsin PSC is
related to its determination that such rates are compensatory. If the rates are
determined by the Wisconsin PSC to be non-compensatory, and the Wisconsin PSC
requires WNG to increase the rates, Whitewater shall be subject to such
increased rates.
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Wisconsin law prohibits the granting or transfer of any licenses, permits
and franchises to own or operate equipment to produce light, heat or power to
any foreign corporation. Local counsel does not believe that the Wisconsin law
applies to Whitewater. However, if it is determined that this prohibition does
apply, Whitewater's Certificate of Public Convenience and Necessity ("CPCN")
could be determined to be invalid. If this were to occur, Whitewater's ability
to repay the Whitewater First Mortgage Bonds, and Funding's ability to repay the
Senior Secured Bonds, could be materially delayed or impaired.
GAS SUPPLY AND TRANSPORTATION
The gas transportation agreements serving each Facility are subject in
various respects to the regulatory authority of governmental entities having
jurisdiction, including but not limited to (i) for Cottage Grove, the Minnesota
Environmental Quality Board ("MEQB"), the Minnesota Department of Natural
Resources, the Minnesota Public Utilities Commission and the FERC and (ii) for
Whitewater, the Wisconsin Department of Natural Resources, the Wisconsin PSC and
the FERC.
There can be no assurance that changes in regulatory rules or oversight
by such agencies would not adversely affect the economics of Cottage Grove and
Whitewater or their access to gas supplies. Similarly, modifications to tariff
provisions could result in a disallowance of any price discounts existing under
the transportation agreements.
ENVIRONMENTAL MATTERS
As with any facility similar to the Facilities, the Partnerships are
required to comply with a number of statutes and regulations relating to
protection of the environment and the public and the safety and health of the
personnel operating the Facilities during the construction and operation of the
Facilities. Such statutes and regulations include: (i) regulation of hazardous
materials associated with each Facility, (ii) regulation of noise emissions from
the Facilities, (iii) safety and health standards related to Facility
construction and operation, (iv) regulations requiring certain practices and
procedures applicable to the operation of the Facilities, including permitting
requirements that apply to air emissions, process wastewater and stormwater
discharges and (v) other environmental protection requirements including,
without limitation, emission and discharge standards relating to air and water
pollutants, land use regulations, wild life conservation and fuel storage.
While the Partnerships believe that the use of natural gas provides
comparative environmental advantages over other fossil fuel-fired power
production technologies, there can be no assurance that environmental or other
laws and regulations adopted in the future will not impose significant
constraints and increased costs on the Facilities' operations. In addition, the
Partnerships may be liable for the investigation and removal of hazardous
materials on the Facilities' sites even if the Partnerships are not the source
of such hazardous materials. Specifically, the Whitewater site boundary is
situated approximately one quarter of a mile away from a landfill under which
groundwater contamination has been discovered. To the extent that such
contamination has reached or reaches the Whitewater Facility site, there is a
possibility that Whitewater would be responsible for the costs of remediating
such contamination from off-site sources that is subsequently identified at the
site. There can be no assurance that such remediation costs payable by
Whitewater, if any, in connection with such contamination will not have a
material adverse effect on the ability of Whitewater to make payments on its
First Mortgage Bonds.
The Partnerships must also comply with certain environmental conditions
described in the approval orders issued by the appropriate state and Federal
agencies for the Facilities. Failure to comply with any such statutes,
regulations or approvals could have an adverse effect on the Facilities,
including civil or criminal liability, the imposition of cleanup liens, fines,
penalties and expenditures of funds to bring the Facilities into compliance or
the loss of authorization to continue to operate.
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COMPETITION
The demand for power in the United States traditionally has been met by
utility construction of large-scale electric generation projects under rate-base
regulation. PURPA removed certain regulatory constraints relating to the
production and sale of electric energy by eligible non-utilities and required
electric utilities to buy electricity from various types of non-utility power
producers under certain conditions, thereby encouraging companies other than
electric utilities to enter the electric power production market. Concurrently,
there has been a decline in the construction of large generating plants by
electric utilities. In addition to independent power producers, subsidiaries of
fuel supply companies, engineering companies, equipment manufacturers and other
industrial companies, as well as subsidiaries of a number of regulated
utilities, have entered the power market. Because the Partnerships have
long-term contracts to sell electric generating capacity and energy from the
Facilities, it is not expected that competitive forces will have a significant
effect on the businesses of the Partnerships. Nevertheless, each of the Power
Purchase Agreements permits the purchasing utility to schedule the respective
Facility for dispatch on an economic basis, which takes into account the
variable cost of electricity to be delivered by the Facility compared to the
variable cost of electricity available to the purchasing utility from other
sources. Accordingly, competitive forces may have some effect on the dispatch
levels of the Facilities.
The FERC and numerous state utility regulatory commissions have continued
to pursue proceedings to deregulate the generation and sale of electricity. In
several states, including Wisconsin and Minnesota, commissions have initiated
proceedings to examine or develop methods for making the retail sale of
electricity competitive. These proceedings remain at early stages in Wisconsin
and Minnesota, and the potential impact of these proceedings on the Partnerships
is unknown at this time.
EMPLOYEES
Funding and the Partnerships have no employees and do not anticipate
having any employees in the future. Each Partnership and each General Partner
has a management services agreement which provided for LS Power to perform
management services for each Partnership and each General Partner. On March 20,
1998, LS Power assigned, and Cogentrix Energy assumed, all of the rights and
obligations of LS Power under each of these agreements. See Part I, Item 1 -
"Change in Control" and Part III, Item 13 - "Certain Relationships and Related
Transactions". In addition, each of the Cottage Grove and Whitewater Facilities
is operated by Westinghouse Services pursuant to the O&M Agreements. See Part I,
Item 1 - "Operations and Maintenance".
PART I/ITEM 2. PROPERTIES
COTTAGE GROVE
Cottage Grove owns a 13 acre tract of land located in the City of Cottage
Grove, Washington County, Minnesota, on which the Cottage Grove Facility was
constructed.
WHITEWATER
Whitewater owns a 35 acre tract of land located in the City of
Whitewater, Wisconsin on which the Whitewater Facility and the substation for
the Facility were constructed (the "Whitewater Site"). Whitewater also owns a 93
acre tract of land, adjacent to the Whitewater Site and located in the City of
Whitewater, Wisconsin, on which the Greenhouse was constructed.
PART I/ITEM 3. LEGAL PROCEEDINGS
Funding, Whitewater and Cottage Grove experience routine litigation in
the normal course of business. Management is of the opinion that none of this
routine litigation will have a material adverse impact on the
19
<PAGE> 20
financial position or results of operations of Funding, Whitewater or Cottage
Grove.
PART I/ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II/ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public market for Funding's common stock. Funding
has 100 issued and outstanding shares of common stock, $0.01 par value per
share, 50 of which shares are owned by each Partnership. All of the equity
interests in the Partnerships are held by the partners of the Partnerships and,
therefore, there is no established public market for the equity interests in the
Partnerships.
PART II/ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been taken from the audited
financial statements of Funding, Cottage Grove and Whitewater. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under Part II, Item 7
and the financial statements and related notes included under Part II, Item 8.
Funding was organized on June 23, 1995, and the Partnerships were formed
on December 14, 1993. Since their formation in 1993 through September 18, 1997
and October 1, 1997 for Whitewater and Cottage Grove, respectively, the
Partnerships were developing and constructing their respective Facilities and
had recognized no operating revenues and expenses. Accordingly, only balance
sheet data is presented for the Partnerships for the years ended December 31,
1996, 1995, 1994 and 1993.
20
<PAGE> 21
STATEMENT OF INCOME DATA (dollars in thousands):
<TABLE>
<CAPTION>
For the Period from
For the Year Ended For the Year Ended June 23, 1995 (Inception)
December 31, 1997 December 31, 1996 to December 31, 1995
----------------- ----------------- -------------------------
<S> <C> <C> <C>
Funding:
Interest income $25,886 $25,886 $12,943
Interest expense 25,886 25,886 12,943
------- ------- -------
Net income $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Period from
For the Year Ended December 31, December 14, 1993
------------------------------- (Inception) to
1997 1996 1995 1994 December 31, 1993
---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
Cottage Grove:
Operating revenues $10,738 N/A N/A N/A N/A
Operating expenses 5,851 N/A N/A N/A N/A
Operating income 4,887 N/A N/A N/A N/A
Gain on sales-type capital lease 87,056 N/A N/A N/A N/A
Interest expense, net 2,725 N/A N/A N/A N/A
Net income 89,218 N/A N/A N/A N/A
Whitewater:
Operating revenues $13,348 N/A N/A N/A N/A
Operating expenses 7,747 N/A N/A N/A N/A
Operating income 5,601 N/A N/A N/A N/A
Gain on sales-type capital lease 97,042 N/A N/A N/A N/A
Interest expense, net 3,641 N/A N/A N/A N/A
Net income 99,002 N/A N/A N/A N/A
</TABLE>
21
<PAGE> 22
BALANCE SHEET DATA (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Funding:
Current assets $ 1 $ 1 $ 1 N/A N/A
Total assets 332,001 332,001 332,001 N/A N/A
Current liabilities 0 0 0 N/A N/A
Total long-term debt 332,000 332,000 332,000 N/A N/A
Stockholders' equity 1 1 1 N/A N/A
Cottage Grove:
Current assets $ 18,791 $ 103 $ 68 $1 $1
Restricted investments 11,475 28,108 111,304 0 0
Net investment in lease 234,034 0 0 0 0
Construction in process 0 125,597 42,720 0 0
Total assets 270,818 160,583 160,951 1 1
Current liabilities 8,432 5,582 5,950 0 0
Total long-term debt 155,000 155,000 155,000 0 0
Partners' capital 107,386 1 1 1 1
Whitewater:
Current assets $ 17,402 $ 102 $ 72 $1 $1
Restricted investments 13,752 34,415 126,688 0 0
Net investment in lease 262,072 0 0 0 0
Construction in process 0 149,232 49,531 0 0
Total assets 308,115 190,618 183,251 1 1
Current liabilities 11,556 13,617 6,250 0 0
Total long-term debt 177,000 177,000 177,000 0 0
Partners' capital 119,559 1 1 1 1
</TABLE>
PART II/ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Whitewater Facility commenced commercial operations on September
18, 1997, and the Cottage Grove Facility commenced commercial operations on
October 1, 1997. The Whitewater and Cottage Grove Power Purchase Agreements
described in Part I/Item 1 - "Sale of Capacity and Electricity" meet the
criteria of a "sales-type" capital lease as described in Statement of Financial
Accounting Standards (SFAS) No. 13, "Accounting for Leases". Cottage Grove and
Whitewater each recognized a gain on sales-type capital lease for the difference
between the estimated fair market value and the historical cost of the
Facilities as of the commencement of the respective Power Purchase Agreement
terms (commencement of commercial operations). The Partnerships each recorded a
net investment in lease which reflects the present value of future minimum lease
payments. Future minimum lease payments represent the amount of capacity
payments due from the utilities under the Power Purchase Agreements in excess of
fixed operating costs
22
<PAGE> 23
(i.e. executory costs). The difference between the undiscounted future minimum
lease payments due from the utilities and the net investment in lease represents
unearned income. This unearned income will be recognized as lease revenue over
the term of the Power Purchase Agreements using the effective interest rate
method. The Partnerships will also recognize service revenue related to the
reimbursement of costs incurred in operating the Facilities and providing
electricity and thermal energy. The amount of service revenue recognized by
each Partnership will be directly related to the level of dispatch of the
Facilities by the utility and to a lesser extent the level of thermal energy
required by the steam hosts.
RESULTS OF OPERATIONS - 1997
WHITEWATER
The Whitewater Power Purchase Agreement term commenced September 18,
1997. Prior to September 18, 1997, Whitewater recognized no revenues or
expenses.
Revenues for the year ended December 31, 1997 were approximately $13.3
million. Revenues consisted primarily of lease revenue of approximately $6.6
million and service revenue of approximately $5.9 million.
Operating expenses were approximately $7.7 million for the year ended
December 31, 1997. Operating expenses consisted primarily of cost of services
related to operating the Facility during the period September 18, 1997 through
December 31, 1997 of approximately $6.9 million. Operating expenses also
included approximately $.8 million of expense related to operating the
Greenhouse.
Whitewater recognized a gain on sales-type capital lease described
above of approximately $97.0 million on September 18, 1997. This gain represents
the difference between the estimated fair market value of the Facility of
approximately $261.7 million and the historical cost of the Facility of
approximately $164.7 million.
Interest expense of approximately $4.0 million for the year ended
December 31, 1997 consisted primarily of interest expense on the First Mortgage
Bonds. Interest incurred during the construction phase of the Whitewater
Facility as well as amortization of deferred financing costs were capitalized as
part of construction in process.
Interest income of approximately $.4 million for the year ended
December 31, 1997 consisted primarily of interest earned on investments held by
the trustee under the trust indenture for the First Mortgage Bonds. Interest
income earned during the construction phase of the Whitewater Facility was
netted against construction in process. The trust indenture restricts the
investment of available funds to high quality, short-term financial investments.
COTTAGE GROVE
The Cottage Grove Power Purchase Agreement term commenced October 1,
1997. Prior to October 1, 1997, Cottage Grove recognized no revenues or
expenses.
Revenues for the year ended December 31, 1997 were approximately $10.7
million. Revenues consisted primarily of lease revenue of approximately $5.3
million and service revenue of approximately $4.9 million.
Operating expenses were approximately $5.9 million for the year ended
December 31, 1997. Operating expenses consisted of cost of services related to
operating the Facility during the period October 1, 1997 through December 31,
1997.
Cottage Grove recognized a gain on sales-type capital lease described
above of approximately $87.1 million on October 1, 1997. This gain represents
the difference between the estimated fair market value of the Facility of
approximately $233.6 million and the historical cost of the Facility of
approximately $146.5 million.
Interest expense of approximately $3.1 million for the year ended
December 31, 1997 consisted primarily of interest expense on the First Mortgage
Bonds. Interest incurred during the construction phase of the Cottage Grove
Facility as well as amortization of deferred financing costs were capitalized as
part of construction in process.
23
<PAGE> 24
Interest income of approximately $.4 million for the year ended
December 31, 1997 consisted primarily of interest earned on investments held by
the trustee under the trust indenture for the First Mortgage Bonds. Interest
income earned during the construction phase of the Cottage Grove Facility was
netted against construction in process. The trust indenture restricts the
investment of available funds to high quality, short-term financial investments.
FACILITY CONSTRUCTION
COTTAGE GROVE
The Partnership has a $107 million turnkey construction contract
(inclusive of executed change orders) with Westinghouse Electric. Westinghouse
Electric had committed to complete the construction and start-up of the Cottage
Grove Facility to specified performance levels by May 31, 1997 and is required
under the contract to reimburse the Partnership for extension fees paid under
the Cottage Grove Power Purchase Agreement, and to pay certain liquidated
damages in the event of a delay. During 1997, Westinghouse Electric was required
to pay $1,333,000 and $5,073,000 of reimbursable extension fees and delay
liquidated damages, respectively, to Cottage Grove. The Partnership has recorded
receivables from Westinghouse Electric of $3,012,000 at December 31, 1997, which
is comprised of reimbursable extension fees of $267,000 and delay liquidated
damages of $2,745,000. Subsequent to December 31, 1997, these receivables have
been satisfied. The construction and start-up of the Cottage Grove Facility were
substantially complete and commercial operation commenced on October 1, 1997.
Effective September 30, 1997, the Partnership and, the Contractor, with
the concurrence of R.W. Beck, the independent engineer, agreed to a Construction
Contract change order. Under the change order, certain nonmaterial modifications
were made to the Cottage Grove Construction Contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and the Partnership to commence commercial operation. In
addition, the Contractor committed to certain future modifications in the
Facility's construction, extension of certain warranty periods and certain
financial concessions. As of December 31, 1997, the Partnership had retained
construction contract payments (in the form of cash and an irrevocable letter of
credit) totaling approximately $10,886,000.
WHITEWATER
The Partnership has a $115 million turnkey construction contract
(inclusive of executed change orders) with Westinghouse Electric. Westinghouse
Electric had committed to complete the construction and start-up of the
Whitewater Facility to specified performance levels by May 31, 1997 and is
required under the contract to reimburse the Partnership for extension fees paid
under the Whitewater Power Purchase Agreement, and to pay certain liquidated
damages in the event of a delay. During 1997, Westinghouse Electric was required
to pay $110,000 and $4,539,000 of reimbursable extension fees and delay
liquidated damages, respectively, to Whitewater. The Partnership has recorded a
receivable from Westinghouse Electric of $2,195,000 at December 31, 1997, which
is comprised of reimbursable extension fees of $35,000 and delay liquidated
damages of $2,160,000. Subsequent to December 31, 1997, this receivable was
satisfied. The construction and start-up of the Whitewater Facility were
substantially complete and commercial operations commenced on September 18,
1997.
Effective September 18, 1997, the Partnership and the Contractor, with
the concurrence of R.W. Beck, the independent engineer, agreed to a Construction
Contract change order. Under the change order, certain nonmaterial modifications
were made to the Whitewater Construction Contract and certain guarantees were
deferred until final completion,
24
<PAGE> 25
which allowed the Contractor to achieve substantial completion and the
Partnership to commence commercial operation. In addition, the Contractor
committed to certain future modifications in the Facility's construction,
extension of certain warranty periods and certain financial concessions. As of
December 31, 1997, the Partnership had retained construction contract payments
(in the form of cash and an irrevocable letter of credit) totaling approximately
$11,174,000.
LIQUIDITY AND CAPITAL RESOURCES
The $332,000,000 of proceeds received by Funding from the sale of the
Senior Secured Bonds were used by Funding to acquire (i) $155,000,000 of Cottage
Grove First Mortgage Bonds and (ii) $177,000,000 of Whitewater First Mortgage
Bonds. In addition to the proceeds of the First Mortgage Bonds, each Partnership
received equity contributions from each of TPC Cottage Grove and TPC Whitewater
in 1997, in the respective amounts of $18,167,000 for Cottage Grove and
$20,556,000 for Whitewater (the "Equity Contribution Amounts"). The net proceeds
from the sale of each Partnership's First Mortgage Bonds and the Equity
Contribution Amounts together with other sources of funds available to such
Partnership were used to: (i) finance the development, design, engineering,
construction, testing, inspection and start-up of its Facility (ii) pay interest
on each Partnership's First Mortgage Bonds during construction and (iii)
maintain a debt service reserve fund as required by certain financing documents,
currently equal to $6,043,000 and $6,900,000 for Cottage Grove and Whitewater,
respectively.
As required by the financing documents, both Cottage Grove and Whitewater
have set aside certain funds to pay for project cost overruns, including change
orders to the Construction Contracts and any other reasonable contingencies,
during construction and through final completion of the Facilities (the
"Contingency Fund"). At December 31, 1997, the balances of the Contingency Fund
accounts were $1,426,000 for Cottage Grove and $339,000 for Whitewater.
In addition to funds received through the acquisition of the First
Mortgage Bonds by Funding and through the Equity Contribution Amount, each
Partnership may receive on its behalf certain letters of credit to be issued
pursuant to a letter of credit facility. Each letter of credit facility provides
for letters of credit in a face amount not to exceed $5,000,000 for Whitewater
and $5,500,000 for Cottage Grove which may be drawn on by the respective
Partnership from time to time. Such letters of credit will satisfy certain
requirements of the Partnerships under various project agreements. Effective
October 31, 1997, a $500,000 letter of credit was issued under the Cottage Grove
letter of credit facility to secure certain obligations of Cottage Grove under
the Cottage Grove Power Purchase Agreement.
In order to provide for the Partnerships' working capital needs, each
Partnership has also entered into a working capital facility. Each working
capital facility will provide for working capital loans in an aggregate
principal amount not to exceed $3,000,000 for each Partnership. At December 31,
1997, no loans were outstanding under the working capital facilities.
25
<PAGE> 26
The Partnerships expect that payments from the utilities under the Power
Purchase Agreements will provide the substantial majority of the revenues of
each of the Partnerships. Under and subject to the terms of the Power Purchase
Agreements, each utility is obligated to purchase electric capacity made
available to it and energy which it requests from the related Partnership. For
additional information regarding NSP and WEPCO, reference is made to the
respective Annual Reports filed on Form 10-K, the Quarterly Reports filed on
Form 10-Q, proxy, and any other filings made by NSP and WEPCO with the
Securities and Exchange Commission (the "Commission").
The Power Purchase Agreements are dispatchable contracts which provide
the utilities the ability to suspend or reduce purchases of electricity from the
Facilities. The Power Purchase Agreements are structured such that the
Partnership will continue to receive capacity payments during any period of
dispatch. Each Partnership is dependent on capacity payments under its Power
Purchase Agreement to meet its fixed obligations, including the payment of debt
service under each Partnership's First Mortgage Bonds (which will be Funding's
sole source of revenues for payment of debt service under the Senior Secured
Bonds). Capacity payments by each of NSP and WEPCO are based on the tested
capacity and availability of the Facilities and are unaffected by levels of
dispatch. Each Facility's capacity is subject to semi-annual verification
through testing. Capacity payments are subject to reduction if a Facility is
operating at reduced or degraded capacity at the time of such test, although
each Facility is permitted a retest subject to certain retest limitations. Also,
capacity payments for each Facility are subject to rebate or reduction if the
respective Facility does not maintain certain minimum levels of availability.
Under the Cottage Grove Power Purchase Agreement capacity payments are further
adjusted by, among other things, the capacity loss factor which is determined in
accordance with procedures jointly agreed to by Cottage Grove and NSP. The
Partnerships expect to achieve the minimum capacity and availability levels;
however, any material shortfall in tested capacity or availability over a
significant period could result in a shortage of funds to the Partnerships.
Each Partnership presently believes that funds available from cash and
investments on hand, restricted funds, operations and letter of credit and
working capital facilities will be more than sufficient to liquidate each
partnership's obligations as they come due, pay 1998 project debt service and
make required contributions to project reserve accounts.
As with any power generation facility, operation of the Facilities will
involve certain risks, including the performance of a Facility below expected
levels of output or efficiency, interruptions in fuel supply, pipeline
disruptions, disruptions in the supply of thermal or electrical energy, power
shut-downs due to the breakdown or failure of equipment or processes, violation
of permit requirements (whether through operation, or change in law), operator
error, labor disputes or catastrophic events such as fires, earthquakes,
explosions, floods or other similar occurrences affecting a Facility or its
power purchasers, thermal energy purchasers, fuel suppliers or fuel
transporters. The occurrence of any of these events could significantly reduce
or eliminate revenues generated by a Facility or significantly increase the
expenses of that Facility, thereby impacting the ability of a Partnership to
make payments of the amounts necessary to fund principal of and interest on its
First Mortgage Bonds, and consequently Funding's ability to make payments of
principal of and interest on the Senior Secured Bonds. Not all risks are insured
and the proceeds of such insurance applicable to covered risks may not be
adequate to cover a Facility's lost revenues or increased expenses. In addition,
extended unavailability under the Power Purchase Agreements, which may result
from one or more of such events, may entitle the respective Power Purchaser to
terminate its Power Purchase Agreement.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
The Partnerships have attempted to mitigate the risk of increases in fuel
and transportation costs by providing contractually for matching increases in
the energy payments the Partnerships receive from the utilities purchasing
electricity generated by the Facilities. In addition, the Partnerships have
hedged against the risk of fluctuations in interest rates by arranging fixed
rate financing.
26
<PAGE> 27
PART II/ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements commencing at F-1.
PART II/ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The registrant has previously reported the information required by this
item in a report on Form 8-K filed on March 31, 1998.
PART III/ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNERS
Each Partnership Agreement provides that all management functions of the
respective Partnership are the responsibility of the General Partner, subject to
certain conditions and limitations. All of the stock of each General Partner is
owned by an indirect wholly-owned subsidiary of Cogentrix Energy. Certain
officers of Cogentrix Energy concurrently serve as officers of the General
Partner.
The following table sets forth the names and positions of the directors
and executive officers of each General Partner. With the exception of Mr.
Taiano, each of these individuals was elected or appointed to his position on
March 20, 1998 when the change in control event described in Part I, Item 1 -
"ORGANIZATION - Change in Control" occurred. Directors are elected annually and
each elected director holds office until a successor is elected. Officers are
chosen from time to time by vote of the board of directors.
<TABLE>
<CAPTION>
Name Age Officer Position
---- --- ----------------
<S> <C> <C>
Mark F. Miller (Director) 43 Managing Director
James R. Pagano (Director) 38 Managing Director and Treasurer
James E. Lewis 34 Vice President
Dennis W. Alexander 51 Vice President and Secretary
Richard L. Taiano (Director) 32 ---
</TABLE>
Mark F. Miller is the President, Chief Operating Officer and a Director of
Cogentrix Energy. Prior to joining Cogentrix Energy in May 1997, 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 his move to Cogentrix Energy. From 1980 to 1982, he was an associate with
the law firm of Dolack, Hansler.
James R. Pagano has been Group Senior Vice President - Chief Financial
Officer of Cogentrix Energy since May 1997, prior to which he was Senior Vice
President - Project Finance since February 1995 and Vice President Project
Finance 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 Energy. Prior to joining Cogentrix
Energy, 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.
James E. Lewis has been Executive Vice President and a Director of
Cogentrix Energy since November 1992 and a Director of Cogentrix Energy since
1988. From 1991 to 1992, he was Senior Vice President of Operations responsible
for the daily operations of Cogentrix Energy's facilities. From 1989 to 1991,
Mr. Lewis was Vice President - Utility Operations. Mr. Lewis joined Cogentrix
Energy in 1986. Mr. Lewis beneficially owns 45,120, or 16%, of the issued and
outstanding shares of Cogentrix Energy.
Dennis W. Alexander has been Group Senior Vice President, General Counsel,
Secretary and a Director of Cogentrix Energy since 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
27
<PAGE> 28
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.
Richard L. Taiano serves as an independent director of each General
Partner. Prior to his appointment, Mr. Taiano had no relationship to either
General Partner or its affiliates. Mr. Taiano is an Assistant Vice President of
Lord Securities and is responsible for daily cash management and accounting for
the special purpose companies managed by the firm. Prior to joining Lord
Securities in 1992, Mr. Taiano was with Goldman, Sachs & Co. where he started in
1987 and was an associate in the Controllers Department from 1987 to February,
1995, serving in the London, Tokyo, Hong Kong, and New York offices of the firm.
DIRECTORS AND EXECUTIVE OFFICERS OF FUNDING
The following table sets forth the names and positions of the individuals
who are the directors and executive officers of Funding. Directors are elected
annually and each elected director holds office until a successor is elected.
Officers will be chosen from time to time by vote of the board of directors.
<TABLE>
<CAPTION>
Name Age Officer Position
---- --- ----------------
<S> <C> <C>
Mark F. Miller (Director) 43 Managing Director
James R. Pagano (Director) 38 Managing Director and Treasurer
Dennis W. Alexander 51 Vice President and Secretary
Peter H. Sorensen (Director) 38 ---
</TABLE>
Peter H. Sorensen serves as an independent director of Funding. Prior to
his appointment, Mr. Sorensen had no relationship to Funding or its affiliates.
Mr. Sorensen started with Lord Securities in April, 1986 and currently
supervises the administration of the special purpose financing companies managed
by the firm. As President of Lord Securities, he assists in the structuring of
the related finance programs, oversees all legal and rating agency matters and
works on the development of new business. Mr. Sorensen holds a B.S. in Business
Administration from Barrington College, R.I.
For biographical information on each of the above listed persons other
than Mr. Sorensen, see "-Directors and Executive Officers of the General
Partners" above.
PART III/ITEM 11. EXECUTIVE COMPENSATION
None of the officers or directors of Funding or the General Partners has
received or, it is anticipated, will receive compensation for their services
from Funding or from the General Partners except that Lord Securities is paid a
fee for providing the services of Mr. Taiano and Mr. Sorensen. The directors and
executive officers of Cogentrix Energy are compensated by Cogentrix Energy and
are not entitled to any direct compensation from the Partnerships. However,
Cogentrix Energy is paid a management fee and is reimbursed for certain expenses
by the Partnerships as described under Part III/Item 13 - "Certain Relationships
and Related Transactions".
PART III/ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following information is given with respect to the partnership
interests in LSP-Cottage Grove, L.P. held by persons who are beneficial owners
of more than 5% of such interests.
28
<PAGE> 29
<TABLE>
<CAPTION>
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
-------- ------------------- --------- --------
<S> <C> <C> <C>
General Partnership Interest LSP-Cottage Grove, Inc. General Partner 1.0%
Limited Partnership Interest Cogentrix Cottage Grove, LLC Limited Partner 72.22
Limited Partnership Interest TPC Cottage Grove, Inc. Limited Partner 26.78
------
100.00%
======
</TABLE>
The following information is given with respect to the partnership
interests in LSP-Whitewater Limited Partnership held by persons who are
beneficial owners of more than 5% of such interests.
<TABLE>
<CAPTION>
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
-------- ------------------- --------- --------
<S> <C> <C> <C>
General Partnership Interest LSP-Whitewater I, Inc. General Partner 1.0%
Limited Partnership Interest Cogentrix Whitewater, LLC Limited Partner 73.17
Limited Partnership Interest TPC Whitewater, Inc. Limited Partner 25.83
------
100.00%
======
</TABLE>
- ----------
Except as specifically provided or required by law, the limited partners
of Cottage Grove and Whitewater may not participate in the management or control
of the respective Partnerships. Thus, although each General Partner has a 1%
interest in its Partnership, it has sole responsibility for the management of
such Partnership. All of the outstanding capital stock of each of the General
Partners is owned by an indirect subsidiary of Cogentrix Energy. See Part I/Item
1 - "ORGANIZATION - Change in Control" and Part III/Item 13 - "Certain
Relationships and Related Transactions".
The following information is given with respect to the beneficial
ownership of the outstanding capital stock of Funding.
<TABLE>
<CAPTION>
Title Name and Address Nature of Percentage
of Class of Beneficial Owner Ownership Interest
-------- ------------------- --------- --------
<S> <C> <C> <C>
Common Stock LSP-Cottage Grove, L.P. 50 shares 50%
Common Stock LSP-Whitewater Limited Partnership 50 shares 50%
------
100.00%
======
</TABLE>
PART III/ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The transactions described below occurred prior to the change in control
event that is described in Part I, Item 1 - "ORGANIZATION - Change in Control."
As part of the change in control event, Cogentrix Energy assumed all of the
rights and obligations of LS Power under the management services agreements that
are described below.
Each Partnership believes that, taking into consideration all of their
terms and conditions, the transactions with the persons, who at the time the
transactions that are described below occurred, were related parties were at
least as favorable to it as those which could have been obtained from unrelated
parties in arms-length transactions.
LS Power. LS Power was the developer of the Facilities and until March 20,
1998 (See Part I/Item 1. Business, Organization - Change in Control) provided
certain management services to each Partnership and each General Partner
pursuant to the MSAs. Under the MSAs, LS Power managed the business affairs of
each Partnership during construction and operation of the related Facility and
was responsible for supervising each Partnership's, and monitoring each
counterparty's, compliance with all contracts to which each Partnership is a
party. Under the MSAs, each Partnership paid LS Power as compensation for its
services a monthly management fee of $60,000 during construction, and $50,000
during operation (both in 1995 dollars) which fees were escalated annually
beginning on January 1, 1996 pursuant to a rate of change in a consumer-price
related index. LS Power was also reimbursed for its reasonable and necessary
expenses incurred in performing its services, including the salaries of its
personnel to the extent
29
<PAGE> 30
related to services required under the MSAs. The amounts payable by each
Partnership to LS Power under the MSAs are designated as operating expenses
under the depository agreements and therefore were paid prior to interest and
principal on such Partnership's First Mortgage Bonds. For the years ended
December 31, 1997 and 1996, LS Power received payments pursuant to the MSAs of
approximately $1,302,000 and $1,391,000 and $1,424,000 and $1,392,000 from
Cottage Grove and Whitewater, respectively.
FloriCulture. FloriCulture is a single purpose corporation formed to
operate the Greenhouse for the benefit of Whitewater and until March 20, 1998
was a wholly-owned subsidiary of LS Power (See Part I/Item 1. Business,
Organization - Change in Control). Whitewater and FloriCulture entered into the
Greenhouse Operational Services Agreement in 1997, whereby FloriCulture is
required to provide all the services necessary to produce, market, and sell
horticultural products and to operate and maintain the Greenhouse. As
compensation for its services, FloriCulture is reimbursed on a monthly basis for
its approved costs in connection with conducting the Greenhouse business and
operating the Greenhouse, and will receive an annual management fee equal to 12%
of Whitewater's net profit from the operation of the Greenhouse. The term of the
Greenhouse Operational Services Agreement will expire on May 31, 2022. For the
year ended December 31, 1997, FloriCulture received payments pursuant to the
Greenhouse Operational Services Agreement of approximately $669,000.
Granite. Granite, a limited partnership among LS Power, Chase Manhattan
Capital Corporation and a trust (the "Cogen Trust"), provided the development
financing for the Facilities through June 30, 1995. Granite's costs to develop
the Facilities were financed through loans from Tomen Power Corporation, a
California corporation ("Tomen"). These loans were repaid from amounts received
by Granite from Cottage Grove and Whitewater on June 30, 1995. On June 30, 1995,
Granite received payments for development fees and reimbursement of certain
development costs totaling $11,730,000 and $12,020,000 from Cottage Grove and
Whitewater, respectively. Also, Whitewater reimbursed $140,000 to Granite for
purchase of its project site.
LSP-Cottage Grove, Inc. LSP-Cottage Grove, Inc. is the general partner of
Cottage Grove and until March 20, 1998 was a wholly-owned subsidiary of Granite
(See Part I/Item 1., Business, Organizations - Change in Control). LSP-Cottage
Grove, Inc. has no assets other than its general partnership interest in Cottage
Grove. The officers of LSP-Cottage Grove, Inc. concurrently served as officers
of LS Power but did not receive compensation in the former capacity. LSP-Cottage
Grove, Inc. was a party to an MSA with LS Power.
LSP-Whitewater I, Inc. LSP-Whitewater I, Inc. is the general partner of
Whitewater and until March 20, 1998 was a wholly-owned subsidiary of Granite
(See Part I/Item 1., Business, Organizations - Change in Control).
LSP-Whitewater I, Inc. has no assets other than its general partnership interest
in Whitewater. The officers of LSP-Whitewater I, Inc. concurrently served as
officers of LS Power but did not receive compensation in the former capacity.
LSP-Whitewater I, Inc. was a party to an MSA with LS Power.
TPC Cottage Grove & TPC Whitewater. TPC Cottage Grove and TPC Whitewater
are both wholly-owned subsidiaries of Tomen and were formed for the sole purpose
of holding a limited partnership interest in the related Partnership. During
1997, TPC Cottage Grove and TPC Whitewater made capital contributions of
$18,167,000 and $20,556,000 to Cottage Grove and Whitewater, respectively.
RELATIONSHIP OF FUNDING AND THE PARTNERSHIPS
Each Partnership owns 50% of the capital stock of Funding. Each
Partnership has designated Funding as its agent for certain purposes including
issuing the Senior Secured Bonds. Each Partnership has indemnified Funding
against all claims arising in connection with Funding's performance of its
obligations.
30
<PAGE> 31
PART IV/ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1.
(a) (2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted since the information is not required or
because such information is included in the financial statements and notes
thereto.
(a) (3) EXHIBITS
The exhibits listed on the accompanying Exhibits Index are filed as part
of this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
<PAGE> 32
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf of the undersigned, thereunto duly authorized.
LS POWER FUNDING CORPORATION
By:/s/ Mark F. Miller
-------------------------------
Name: Mark F. Miller
Title: Managing Director
Date: April 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Mark F. Miller Managing Director and Director
- ----------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ---------------------------------- and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ----------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ---------------------------------- (Principal Accounting Officer)
Thomas F. Schwartz
32
<PAGE> 33
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf of the undersigned, thereunto duly authorized.
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By:/s/ Mark F. Miller
-------------------------------
Name: Mark F. Miller
Title: Managing Director
Date: April 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Mark F. Miller Managing Director and Director
- ----------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ---------------------------------- and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ----------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ---------------------------------- (Principal Accounting Officer)
Thomas F. Schwartz
<PAGE> 34
SIGNATURES: Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf of the undersigned, thereunto duly authorized.
LSP-Whitewater Limited Partership
By: LSP-Whitewater I, Inc.
Its: General Partner
By:/s/ Mark F. Miller
-------------------------------
Name: Mark F. Miller
Title: Managing Director
Date: April 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Mark F. Miller Managing Director and Director
- ----------------------------------
Mark F. Miller
/s/ James R. Pagano Managing Director, Treasurer
- ---------------------------------- and Director (Principal Financial Officer)
James R. Pagano
/s/ Dennis W. Alexander Vice President and Secretary
- ----------------------------------
Dennis W. Alexander
/s/ Thomas F. Schwartz Assistant Treasurer
- ---------------------------------- (Principal Accounting Officer)
Thomas F. Schwartz
<PAGE> 35
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
LS POWER FUNDING CORPORATION
Reports of Independent Public Accountants.............................................................F-2
Balance Sheets as of December 31, 1997 and 1996.......................................................F-4
Statements of Income for the Years Ended December 31, 1997 and 1996
and for the Period from Inception (June 23, 1995) to December 31, 1995.............................F-5
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997 and 1996
and for the Period from Inception (June 23, 1995) to December 31, 1995.............................F-6
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
and for the Period from Inception (June 23, 1995) to December 31, 1995.............................F-7
Notes to Financial Statements.........................................................................F-8
LSP-COTTAGE GROVE, L.P.
Reports of Independent Public Accountants............................................................F-11
Balance Sheets as of December 31, 1997 and 1996......................................................F-13
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-14
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-15
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-16
Notes to Financial Statements........................................................................F-17
LSP-WHITEWATER LIMITED PARTNERSHIP
Reports of Independent Public Accountants............................................................F-27
Balance Sheets as of December 31, 1997 and 1996......................................................F-29
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-30
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-32
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995..................................................................F-31
Notes to Financial Statements........................................................................F-33
</TABLE>
F-1
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the accompanying balance sheet of LS Power Funding
Corporation as of December 31, 1997 and the related statements of income,
changes in stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 LS Power Funding Corporation
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
F-2
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the accompanying balance sheet of LS Power Funding
Corporation as of December 31, 1996 and the related statements of income,
changes in stockholders' equity, and cash flows for the year ended December 31,
1996 and for the period from inception (June 23, 1995) to December 31, 1995.
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 generally accepted auditing
standards. 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 LS Power Funding Corporation
as of December 31, 1996, and the results of its operations and its cash flows
for the year ended December 31, 1996 and the period from inception (June 23,
1995) to December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-3
<PAGE> 38
LS POWER FUNDING CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSET - Cash $ 1 $ 1
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
-------- --------
Total Assets $332,001 $332,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITY - Senior Secured Bonds Payable $332,000 $332,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding 0 0
Additional paid-in capital 1 1
-------- --------
Total Stockholders' Equity 1 1
-------- --------
Total Liabilities and Stockholders' Equity $332,001 $332,001
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-4
<PAGE> 39
LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 23, 1995)
TO DECEMBER 31,
1997 1996 1995
------- ------- ---------------
<S> <C> <C> <C>
Interest Income $25,886 $25,886 $12,943
Interest Expense 25,886 25,886 12,943
------- ------- -------
Net Income $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 40
LS POWER FUNDING CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL STOCKHOLDERS'
STOCK PAID-IN CAPITAL EQUITY
------ --------------- -------------
<S> <C> <C> <C>
Sale of Common Stock at Inception (June 23, 1995) $0 $1 $1
-- -- --
Balance, December 31, 1997, 1996 and 1995 $0 $1 $1
== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 41
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 23, 1995)
TO DECEMBER 31,
1997 1996 1995
---- ---- ---------------
<S> <C> <C> <C>
Cash flows from Investing Activities:
Cash paid for investment in First Mortgage Bonds $0 $0 $(332,000)
-- -- ---------
Cash used in investing activities 0 0 (332,000)
-- -- ---------
Cash flows from Financing Activities:
Proceeds from Senior Secured Bonds 0 0 332,000
Proceeds from sale of common stock 0 0 1
-- -- ---------
Cash provided by financing activities 0 0 332,001
-- -- ---------
Increase in cash 0 0 1
Cash, beginning of period 1 1 0
-- -- ---------
Cash, end of period $1 $1 $ 1
== == =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE> 42
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
LS Power Funding Corporation ("Funding") was established on June 23, 1995 as
a special purpose funding corporation to issue debt securities in connection
with financing construction of two gas fired cogeneration facilities, one
located in Cottage Grove, Minnesota and the other located in Whitewater,
Wisconsin. LSP-Cottage Grove, L.P.("Cottage Grove") and LSP-Whitewater Limited
Partnership ("Whitewater") are single purpose Delaware limited partnerships
established to develop, finance, construct and own the facilities at Cottage
Grove and Whitewater, respectively. Cottage Grove and Whitewater each own 50% of
the outstanding stock of Funding. Funding's sole business activities are limited
to maintaining its organization, the offering of the Senior Secured Bonds, and
its acquisition of the First Mortgage Bonds issued by Cottage Grove and
Whitewater.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash includes short-term
investments with original maturities of three months or less.
INCOME TAXES
Funding does not record a tax provision as it has no reportable book or
taxable income and there is no difference between Funding's book bases and tax
bases of its existing assets and liabilities. Due to the nature of Funding's
structure as a single purpose funding corporation, Funding is not expected to
produce book or taxable income in future periods.
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 reported period. Actual
results could differ from those estimates.
3. INVESTMENT IN FIRST MORTGAGE BONDS
Investment in First Mortgage Bonds consists of the following at December 31,
1997 and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% Cottage Grove First Mortgage Bonds
due June 30, 2010 $ 49,278
8.08% Cottage Grove First Mortgage Bonds
due December 30, 2016 105,722
7.19% Whitewater First Mortgage Bonds
due June 30, 2010 56,273
8.08% Whitewater First Mortgage Bonds
due December 30, 2016 120,727
--------
$332,000
========
</TABLE>
The First Mortgage Bonds issued by Cottage Grove and Whitewater are secured
by substantially all of the assets of the respective partnership. The collateral
securing the obligations of one partnership does not secure the obligations of
the other partnership. The fair value of Funding's investment in the First
Mortgage Bonds at December 31, 1997 is $30,375,000 higher than the historical
carrying value of $332,000,000. At December 31, 1996, the fair value of
Funding's investment in First Mortgage Bonds approximated carrying value.
F-8
<PAGE> 43
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following are summarized balance sheets and statements of income of
Cottage Grove and Whitewater as of and for the year ended December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Cottage Grove Whitewater
------------- ----------
<S> <C> <C>
BALANCE SHEETS:
Current assets $ 18,791 $ 17,402
Restricted investments 11,475 13,752
Net investment in lease 234,034 262,072
Greenhouse facility, net 0 8,281
Debt issuance and financing costs 6,517 6,607
Other non-current assets 1 1
--------- ---------
Total Assets $ 270,818 $ 308,115
========= =========
Current liabilities $ 8,432 $ 11,556
First Mortgage Bonds payable 155,000 177,000
Partners' capital 107,386 119,559
--------- ---------
Total Liabilities and Partners' Capital $ 270,818 $ 308,115
========= =========
STATEMENTS OF INCOME:
Operating revenues $ 10,738 $ 13,348
Operating expenses 5,851 7,747
--------- ---------
Operating income 4,887 5,601
Gain on sales-type capital lease 87,056 97,042
Interest expense (3,087) (4,024)
Interest income 362 383
--------- ---------
Net Income $ 89,218 $ 99,002
========= =========
</TABLE>
4. SENIOR SECURED BONDS PAYABLE
Senior Secured Bonds Payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% Senior Secured Bonds due
June 30, 2010 ("2010 Bonds") $105,551
8.08% Senior Secured Bonds due
December 30, 2016 ("2016 Bonds") 226,449
--------
$332,000
========
</TABLE>
On June 30, 1995, Funding issued and sold $332,000,000 of Senior Secured
Bonds. All of the First Mortgage Bonds issued by Cottage Grove and Whitewater
were purchased with the entire proceeds from the Senior Secured Bonds. The
repayment terms of the First Mortgage Bonds collectively coincide with those of
the Senior Secured Bonds. Interest is payable semi-annually on June 30 and
December 30 of each year, commencing December 30, 1995. Principal on the bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
F-9
<PAGE> 44
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Collective future maturities of the Senior Secured Bonds as of December 31,
1997 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 2,323
2001 3,314
2002 4,559
Thereafter 321,804
--------
$332,000
========
</TABLE>
The Senior Secured Bonds are secured primarily by a pledge of Funding's
investment in the First Mortgage Bonds. Since Funding is a special purpose
corporation formed to issue the Senior Secured Bonds, Funding's ability to make
payments of principal and interest on the Senior Secured Bonds is entirely
dependent on Cottage Grove's and Whitewater's performance of its obligations
under its First Mortgage Bonds. The obligations of Cottage Grove and Whitewater
under their First Mortgage Bonds are obligations solely of the respective
partnerships.
F-10
<PAGE> 45
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
The trust indenture for the Senior Secured Bonds contains certain covenants
including, among others, limitations or restrictions relating to the use of the
proceeds of the Senior Secured Bonds, actions with respect to the First Mortgage
Bonds, and additional debt other than the Senior Secured Bonds. The trust
indenture also describes events of default of the Senior Secured Bonds which
include, among others, events involving bankruptcy of Funding and the failure of
Cottage Grove and Whitewater to own 100 percent of the capital stock of Funding.
The fair value of Funding's Senior Secured Bonds at December 31, 1997, is
$30,375,000 higher than the historical carrying value of $332,000,000. At
December 31, 1996, the fair value of Funding's Senior Secured Bonds approximated
carrying value.
F-11
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P. (a
Delaware limited partnership) as of December 31, 1997 and the related statements
of income, changes in partners' capital, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
F-12
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P.
as of December 31, 1996, and the related statements of income, changes in
partners' capital and cash flows for each of the years in the two-year period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 LSP-Cottage Grove, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-13
<PAGE> 48
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,816 $ 103
Accounts receivable - trade 4,598 0
Accounts receivable - other 3,012 0
Fuel inventories 1,869 0
Spare parts inventories 443 0
Other current assets 53 0
-------- --------
Total current assets 18,791 103
-------- --------
Restricted investments 11,475 28,108
Net investment in lease (Notes 2 and 6) 234,034 0
Construction in process 0 125,597
Debt issuance and financing costs, net of accumulated
amortization of $605 in 1997 and $348 in 1996 6,517 6,774
Investment in unconsolidated affiliate 1 1
-------- --------
Total assets $270,818 $160,583
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 8,360 $ 5,582
Accrued expenses 72 0
-------- --------
Total current liabilities 8,432 5,582
First Mortgage Bonds payable 155,000 155,000
-------- --------
Total liabilities 163,432 160,582
Commitments and contingencies (Note 11)
Partners' capital 107,386 1
-------- --------
Total liabilities and partners' capital $270,818 $160,583
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-14
<PAGE> 49
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---- ----
<S> <C> <C> <C>
Operating revenues:
Lease revenue $ 5,265 $0 $0
Service revenue 4,879 0 0
Other 594 0 0
-------- -- --
10,738 0 0
-------- -- --
Operating expenses:
Cost of services 5,851 0 0
-------- -- --
Operating income 4,887 0 0
Non-operating income (expense):
Gain on sales-type capital lease 87,056 0 0
Interest expense (3,087) 0 0
Interest income 362 0 0
-------- -- --
Net income $ 89,218 $0 $0
======== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-15
<PAGE> 50
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL
---------------- PARTNER
TPC COTTAGE GRANITE POWER LSP-COTTAGE
GROVE, INC. PARTNERS, L.P. GROVE, INC. TOTAL
----------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Capital contributions at inception $ 0 $ 1 $ 0 $ 1
------- ------- ---- --------
Balance, December 31, 1995 and 1996 0 1 0 1
Capital contributions 18,167 0 0 18,167
Net income 23,893 64,433 892 89,218
------- ------- ---- --------
Balance, December 31, 1997 $42,060 $64,434 $892 $107,386
======= ======= ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE> 51
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 89,218 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease (87,056) 0 0
Amortization of unearned lease income (5,265) 0 0
Amortization of debt issuance and financing costs 66 0 0
Minimum lease payments received 4,866 0 0
Increase in accounts receivable - trade (4,598) 0 0
Increase in fuel inventories (1,648) 0 0
Increase in spare parts inventories (134) 0 0
Increase in other current assets (53) 0 0
Increase in accounts payable 2,032 0 0
Increase in accrued expenses 72 0 0
--------- -------- ---------
Cash used in operating activities (2,500) 0 0
--------- -------- ---------
Cash Flows from Investing Activities:
Acquisition of land and improvements 0 0 (97)
Payments on construction in process (24,771) (87,157) (40,289)
Investments held by Trustee (18,167) 0 (155,000)
Investments drawn 35,984 87,358 47,410
Investment in Funding 0 0 (1)
--------- -------- ---------
Cash provided by (used in) investing activities (6,954) 201 (147,977)
--------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs 0 (153) (6,969)
Proceeds from First Mortgage Bonds 0 0 155,000
Capital contributions 18,167 0 0
--------- -------- ---------
Cash provided by (used in) financing activities 18,167 (153) 148,031
--------- -------- ---------
Increase in cash and cash equivalents 8,713 48 54
Cash and cash equivalents, beginning of period 103 55 1
--------- -------- ---------
Cash and cash equivalents, end of period $ 8,816 $ 103 $ 55
========= ======== =========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ 125,499 $(82,877) $ (42,622)
Construction in process sold in lease transaction (146,481) 0 0
Amortization of debt issuance and financing costs 191 239 109
Interest income on investments held by Trustee (1,184) (4,163) (3,713)
Increase in accounts receivable-other (3,012) 0 0
Decrease (increase) in other current assets 0 13 (13)
Increase in fuel inventories (221) 0 0
Increase in spare parts inventories (309) 0 0
Increase (decrease) in accounts payable 746 (369) 5,950
--------- -------- ---------
Payments on construction in process $ (24,771) $(87,157) $ (40,289)
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 12,085 $ 12,085 $ 6,043
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-17
<PAGE> 52
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Cottage Grove, L.P. (the "Partnership") is a Delaware limited partnership
that was formed on December 14, 1993 to develop, finance, construct and own a
gas fired cogeneration facility with a design capacity of approximately 245
megawatts located in Cottage Grove, Minnesota (the "Facility"). Construction and
start-up of the Facility was substantially completed and commercial operation
commenced October 1, 1997 (the "Commercial Operations Date"). As of December 31,
1997, the 1% general partner of the Partnership was LSP-Cottage Grove, Inc., a
wholly owned subsidiary of Granite Power Partners, L.P., a Delaware limited
partnership ("Granite"). Granite and TPC Cottage Grove, Inc., a Delaware
corporation ("TPC"), were the sole limited partners of the Partnership, owning
approximately 72% and 27% limited partnership interests, respectively. The
general partner of Granite is LS Power Corporation ("LS Power"), a Delaware
corporation. See Note 15 for discussion of a change in ownership which occurred
on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose funding corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $155 million of First Mortgage Bonds issued simultaneously by the
Partnership.
All of the electric capacity and energy generated by the Facility is
sold to Northern States Power Company ("NSP" or, as the context requires, the
"Utility") under a 30-year power purchase agreement (the "Power Purchase
Agreement"). The thermal energy generated by the Facility is sold in the form of
steam to Minnesota Mining and Manufacturing Company ("3M" or, as the context
requires, the "Steam Purchaser") under a 30-year thermal energy sales agreement
(the "Steam Supply Agreement").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted Investments represent overnight repurchase obligations secured by
U.S. Treasury notes. These investments are carried at cost, which approximated
market at December 31, 1997 and 1996. Amounts held by the trustee under the
trust indenture for the First Mortgage Bonds (the "Trustee") in accounts
designated for debt service, major maintenance and construction, which might
otherwise be considered cash equivalents, are treated as restricted investments.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 11 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
"sales-type" capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
F-18
<PAGE> 53
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs were included in the historical cost basis of the
Facility. All interest costs subsequent to the Commercial Operations Date have
been charged to expense. As of December 31, 1996, capitalized interest including
amortization of debt issuance and financing costs was $10,600,000, ($10,251,000,
before amortization).
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and other financing costs are deferred and amortized over the
term of the related debt. Amortization of deferred financing costs was
capitalized as part of construction in process prior to commercial operations
and is included in interest expense subsequent to commercial operations in the
accompanying financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $6,328,000 and $5,582,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs incurred
to operate the Facility and to provide variable electric energy to the Utility
and thermal energy to the Steam Purchaser.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchaser.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
F-19
<PAGE> 54
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This pronouncement establishes
standards for reporting information about operating segments in annual and
interim financial statements. SFAS No. 131 will be adopted by the Partnership
effective January 1, 1998. The Partnership believes this pronouncement will not
have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE - OTHER
Accounts Receivable-Other represents amounts due from Westinghouse
Electric Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility by May 31, 1997. Such liquidated damages and extension fees were
capitalized as a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Natural Gas $1,490 $0
Fuel Oil 379 0
------ --
$1,869 $0
====== ==
</TABLE>
Natural Gas is stated at weighted average cost and fuel oil is stated at
cost based on the first-in first-out method.
F-20
<PAGE> 55
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Overnight repurchase obligations $ 19,908 $28,108
Less: Unrestricted accounts (8,433) 0
-------- -------
Restricted accounts $ 11,475 $28,108
======== =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
F-21
<PAGE> 56
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease $ 567,415
Unearned Income on Lease (333,381)
---------
Net Investment in Lease $ 234,034
=========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998 $ 19,609
1999 20,175
2000 21,140
2001 21,058
2002 22,109
Thereafter 463,324
--------
Total $567,415
========
</TABLE>
7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended Inception (June 23, 1995)
December 31, December 31, to December 31,
1997 1996 1995
------------------ ------------------ -------------------------
<S> <C> <C> <C>
Interest income $25,886 $25,886 $12,943
Interest expense 25,886 25,886 12,943
------- ------- -------
Net income $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
F-22
<PAGE> 57
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
1997 and 1996
-------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
--------
Total assets $332,001
========
Senior Secured Bonds payable $332,000
Stockholders' equity 1
--------
Total liabilities and stockholders' equity $332,001
========
</TABLE>
8. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 49,278
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 105,722
--------
$155,000
========
</TABLE>
On June 30, 1995, the Partnership issued and sold $155,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets of
the Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
Collective future maturities of the First Mortgage Bonds as of December 31,
1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 1,084
2001 1,547
2002 2,129
Thereafter 150,240
--------
$155,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
F-23
<PAGE> 58
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
9. CREDIT AGREEMENT
The Partnership has a Credit Agreement which provides for working capital
loans of up to $3,000,000 and letter of credit commitments of up to $5,500,000.
The interest rate for loans made under the Credit Agreement is based upon
various short-term indices at the Partnership's option and is determined
separately for each draw. These commitments expire on June 30, 2000. The Credit
Agreement includes commitment fees, payable quarterly in arrears, ranging from
.25% to .375% on the daily average unused amount of the commitment until the
Credit Agreement is terminated. For all periods through December 31, 1997, no
working capital loans had been issued under the Credit Agreement. In October
1997, a $500,000 letter of credit, in favor of NSP pursuant to the Power
Purchase Agreement, was issued under the Credit Agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (NSP) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments held by Trustee, accounts payable and
accrued expenses approximate fair value. The fair value of the Partnership's
First Mortgage Bonds at December 31, 1997, is $14,181,000 higher than the
historical carrying value of $155,000,000. At December 31, 1996, the fair value
of the Partnership's First Mortgage Bonds approximated carrying value.
11. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $107 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under the Power Purchase
Agreement with NSP, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $1,333,000 and
$5,073,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $3,012,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $267,000 and delay liquidated damages of $2,745,000 (see Note
3).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase all of the electric capacity made available to it and
all associated energy which the Utility chooses to dispatch from the Facility
beginning on the Commercial Operations Date. Payments by the Utility to the
Partnership under the Power Purchase Agreement consist of capacity payments and
energy payments which fluctuate based upon published indices and/or a fixed
schedule.
F-24
<PAGE> 59
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
THERMAL ENERGY SALES
The Steam Supply Agreement obligates the Partnership to supply all of
the Steam Purchaser's steam requirements up to a maximum of 664 million pounds
of steam annually at a rate not to exceed 190,000 pounds per hour when the
Facility's cogeneration process is operating and 160,000 pounds per hour when
the steam is generated by the Facility's auxiliary boilers.
GAS SUPPLY
The Partnership has 20-year gas supply contracts with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts each provide for the sale of up to 17,060 MMBtu per day of gas to the
Partnership. The price paid by the Partnership under the gas supply contracts
fluctuates based upon published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has various gas transportation agreements with fuel
transportation companies which provide for delivery of gas to the Facility. The
price paid by the Partnership under the gas transportation contracts fluctuate
based on published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and
maintenance agreement with Westinghouse Operating Services Company, Inc.
("Westinghouse Services"). Under the terms of the operations and maintenance
agreement, the Partnership is required to pay Westinghouse Services an annual
management fee of $350,000 as well as reimbursement of payroll, fringe benefits,
insurance and certain subcontractor costs and a bonus based on a targeted plant
performance. If targeted plant performance is not attained, Westinghouse
Services is required to pay a performance penalty to the Partnership. The
management fee is adjusted annually based on certain published indices. The term
of the operations and maintenance agreement extends for an initial period of
seven years (through October, 2004). The Partnership has the option to extend
the term of the agreement for two additional seven-year terms, provided that the
Partnership and Westinghouse Services mutually agree in writing as to the terms
of such extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based on published indices) payable for 12 years.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation will
have a material adverse effect on the financial position or results of
operations of the Partnership.
12. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, a single operator to
perform the operation and maintenance of its Facility, and a single steam
purchaser for purchases of thermal energy. In addition, the Partnership has
contracted with two gas companies to supply the gas requirements of the
Facility,
F-25
<PAGE> 60
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
and has contracted with a single interstate gas transporter to transport gas.
Any material breach by any one of these parties of their respective obligations
to the Partnership could affect the ability of the Partnership to make payments
under its First Mortgage Bonds. In addition, bankruptcy or insolvency of certain
other parties or defaults by such parties relative to their contractual or
regulatory obligations could adversely affect the ability of the Partnership to
make payments under its First Mortgage Bonds. If an agreement were to be
terminated due to a breach of such agreement, the Partnership's ability to enter
into a substitute agreement having substantially equivalent terms and
conditions, or with an equally creditworthy third party, is uncertain.
13. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally of
site development costs, engineering fees, legal fees, permitting costs, interest
and LS Power employee costs, were incurred by Granite. At June 30, 1995, the
Partnership paid development fees and reimbursed certain costs totaling
approximately $11,730,000 to Granite. These payments were capitalized and
included in construction in process.
LS Power provided certain management services to the Partnership pursuant to
management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Cottage Grove Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,406,000,
$1,391,000 and $515,000 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Partnership recorded
accounts payable to LS Power of approximately $231,000 and $57,000,
respectively. See Note 15 for discussion of assignment of the management
services agreements which occurred on March 20, 1998.
14. PARTNERS' CAPITAL
In 1997, TPC contributed $18,167,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 27% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
F-26
<PAGE> 61
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
15. SUBSEQUENT EVENT - CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid America, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly - owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of LSP Cottage Grove, Inc., and
all of the Sellers' limited partnership interest in the Partnership to the
Purchasers. As a result, Cogentrix Cottage Grove, LLC, a wholly-owned subsidiary
of CMA, acquired all of the capital stock of LSP-Cottage Grove, Inc., the 1%
general partner of the Partnership, as well as a 72.22% limited partnership
interest in the Partnership for a combined total ownership interest of 73.22%
in the Partnership.
On the same date that the wholly-owned indirect subsidiaries of Cogentrix
Energy identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
services agreements between LS Power and each of LSP-Cottage Grove, Inc. and the
Partnership.
F-27
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership (a Delaware limited partnership) as of December 31, 1997 and the
related statements of income, changes in partners' capital, and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 LSP-Whitewater Limited
Partnership as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
F-28
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership as of December 31, 1996 and the related statements of income,
changes in partners' capital and cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 LSP-Whitewater Limited
Partnership as of December 31, 1996 and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
F-29
<PAGE> 64
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,749 $ 101
Accounts receivable - trade 4,983 0
Accounts receivable - other 2,195 0
Fuel inventories 1,361 0
Spare parts inventories 432 0
Other current assets 682 1
-------- --------
Total current assets 17,402 102
======== ========
Restricted investments 13,752 34,415
Net investment in lease (Notes 2 and 6) 262,072 0
Construction in process 0 149,232
Greenhouse facility, net 8,281 0
Debt issuance and finance costs, net of accumulated
amortization of $616 in 1997 and $355 in 1996 6,607 6,868
Investment in unconsolidated affiliate 1 1
-------- --------
Total assets $308,115 $190,618
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 11,492 $ 13,617
Accrued expenses 64 0
-------- --------
Total current liabilities 11,556 13,617
First Mortgage Bonds payable 177,000 177,000
-------- --------
Total liabilities 188,556 190,617
Commitments and contingencies (Note 12)
Partners' capital 119,559 1
-------- --------
Total liabilities and partners' capital $308,115 $190,618
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-30
<PAGE> 65
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Lease revenue $ 6,579 $0 $0
Service revenue 5,944 0 0
Other 825 0 0
-------- -- --
13,348 0 0
-------- -- --
Operating expenses:
Cost of services 6,948 0 0
Greenhouse operating expenses 799 0 0
-------- -- --
7,747 0 0
-------- -- --
Operating income 5,601 0 0
Non-operating income (expense):
Gain on sales-type capital lease 97,042 0 0
Interest expense (4,024) 0 0
Interest income 383 0 0
-------- -- --
Net income $ 99,002 $0 $0
======== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE> 66
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
GENERAL
PARTNER
LIMITED PARTNERS -------
---------------- LSP-
TPC GRANITE POWER WHITEWATER I,
WHITEWATER, INC. PARTNERS, L.P. INC. TOTAL
---------------- -------------- ---- -----
<S> <C> <C> <C> <C>
Capital contributions at inception $ 0 $ 1 $ 0 $ 1
------- ------- ---- --------
Balance, December 31, 1995 and 1996 0 1 0 1
Capital contributions 20,556 0 0 20,556
Net income 25,572 72,440 990 99,002
------- ------- ---- --------
Balance, December 31, 1997 $46,128 $72,441 $990 $119,559
======= ======= ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE> 67
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 99,002 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease (97,042) 0 0
Amortization of unearned lease income (6,579) 0 0
Amortization of debt issuance and finance costs 76 0 0
Minimum lease payments received 6,247 0 0
Depreciation 112 0 0
Increase in accounts payable - trade (4,983) 0 0
Increase in fuel inventories (984) 0 0
Increase in spare parts inventories (136) 0 0
Increase in other current assets (682) 0 0
Increase in accounts payable 2,865 0 0
Increase in accrued expenses 64 0 0
--------- -------- ---------
Net cash used in operating activities (2,040) 0 0
--------- -------- ---------
Cash Flows from Investing Activities:
Sales (acquisition) of land and improvements 939 (146) (3,394)
Payments on construction in process (33,847) (96,746) (43,983)
Investments held by Trustee (20,556) 0 (177,000)
Investments drawn 42,596 97,075 54,518
Investment in Funding 0 0 (1)
--------- -------- ---------
Net cash provided by (used in) investing activities (10,868) 183 (169,860)
--------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs 0 (153) (7,070)
Proceeds from First Mortgage Bonds 0 0 177,000
Capital contributions 20,556 0 0
--------- -------- ---------
Net cash provided by (used in) financing activities 20,556 (153) 169,930
--------- -------- ---------
Net increase in cash and cash equivalents 7,648 30 70
Cash and cash equivalents, beginning of year 101 71 1
--------- -------- ---------
Cash and cash equivalents, end of year $ 7,749 $ 101 $ 71
========= ======== =========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ 145,694 $(99,555) $ (46,139)
Construction in process sold in lease transaction (170,493) 0 0
Amortization of debt issuance and financing costs 185 244 111
Increase in accounts receivable-other (2,195) 0 0
Interest income on investments held by Trustee (1,375) (4,802) (4,206)
Increase in fuel inventories (378) 0 0
Increase in spare parts inventories (296) 0 0
Decrease in other current assets 1 0 1
Increase (decrease) in accounts payable (4,990) 7,367 6,250
--------- -------- ---------
Payments on construction in process $ (33,847) $(96,746) $ (43,983)
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 13,801 $ 13,801 $ 6,900
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-33
<PAGE> 68
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Whitewater Limited Partnership (the "Partnership") is a Delaware
limited partnership that was formed on December 14, 1993 to develop, finance,
construct and own a gas-fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Whitewater, Wisconsin (the "Facility ").
Construction and start-up of the Facility was substantially completed and
commercial operation commenced September 18, 1997 (the "Commercial Operations
Date"). As of December 31, 1997, the 1% general partner of the Partnership was
LSP-Whitewater I, Inc., a wholly owned subsidiary of Granite Power Partners,
L.P., a Delaware limited partnership ("Granite"). Granite and TPC Whitewater,
Inc., a Delaware corporation ("TPC"), were the sole limited partners of the
Partnership, owning approximately 73% and 26% limited partnership interests,
respectively. The general partner of Granite is LS Power Corporation ("LS
Power"), a Delaware corporation. See Note 16 for discussion of a change in
ownership which occurred on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose Delaware corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas-fired cogeneration facility located in Cottage Grove, Minnesota (the
"Cottage Grove Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $177 million of First Mortgage Bonds issued simultaneously by the
Partnership.
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
which is not dispatched by WEPCO. The thermal energy generated by the Facility
is provided in the form of steam to the University of Wisconsin - Whitewater
under a steam supply agreement expiring on June 30, 2005 and in the form of hot
water to a greenhouse (the "Greenhouse") owned by the Partnership (collectively,
the "Steam Purchasers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted investments represent overnight repurchase obligations secured by
U.S. Treasury notes. These investments are carried at cost, which approximated
market at December 31, 1997 and 1996. Amounts held by the trustee under the
trust indenture for the First Mortgage Bonds (the "Trustee") in accounts
designated for debt service, major maintenance and construction, which might
otherwise be considered cash equivalents, are treated as restricted investments.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 12 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
sales type capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
F-34
<PAGE> 69
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs related to the Facility were included in the
historical cost basis of the Facility. All interest costs subsequent to the
Commercial Operations Date have been charged to expense. As of December 31,
1996, capitalized interest including amortization of debt issuance and financing
costs was $12,048,000 ($11,694,000, before amortization).
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is computed
using the straight-line method over 25 years and 10 years, respectively (see
Note 7).
F-35
<PAGE> 70
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and financing costs are deferred and amortized over the term
of the related debt. Amortization of deferred financing costs was capitalized as
part of construction in process prior to commercial operations and is included
in interest expense subsequent to commercial operations in the accompanying
financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $8,632,000 and $13,617,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs incurred
to operate the Facility and to provide variable electric energy to the Utility
and thermal energy to the Steam Purchasers.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties, as well
as sales of horticultural products produced by the Partnership's Greenhouse
Facility.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchasers.
GREENHOUSE OPERATING EXPENSES
Greenhouse operating expenses include all operating costs specifically
related to greenhouse activities including depreciation on the Greenhouse
Facility.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
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.
F-36
<PAGE> 71
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This pronouncement establishes
standards for reporting information about operating segments in annual and
interim financial statements. SFAS No. 131 will be adopted by the Partnership
effective January 1, 1998. The Partnership believes this pronouncement will not
have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE - OTHER
Accounts Receivable-Other represents amounts due from Westinghouse Electric
Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility by May 31, 1997. Such liquidated damages and extension fees were
capitalized as a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Natural Gas $ 983 $ 0
Fuel Oil 378 0
------ ------
$1,361 $ 0
====== ======
</TABLE>
Natural gas inventory is stated at weighted average cost and fuel oil
inventory is stated at cost based on the first-in first-out method.
F-37
<PAGE> 72
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31 December 31
1997 1996
---- ----
<S> <C> <C>
Overnight repurchase obligations $21,070 $34,415
Less: Unrestricted accounts (7,318) 0
------- -------
Restricted accounts $13,752 $34,415
======= =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sale-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 9.79%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease $ 615,489
Unearned Income on Lease (353,417)
---------
Net Investment in Lease $ 262,072
=========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998 $ 22,392
1999 22,944
2000 24,036
2001 24,132
2002 25,140
Thereafter 496,845
--------
Total $615,489
========
</TABLE>
F-38
<PAGE> 73
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
7. GREENHOUSE FACILITY
Greenhouse Facility consists of (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Building $7,488
Equipment 905
------
8,393
Less: Accumulated Depreciation (112)
------
$8,281
======
</TABLE>
Building and equipment comprise the cost of the Greenhouse under a
turnkey construction contract inclusive of change orders and interest
capitalized during the construction period.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
For the Year For the Year Inception
Ended Ended (June 23, 1995)
December 31, December 31, to December 31,
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Interest income $ 25,886 $ 25,886 $ 12,943
Interest expense 25,886 25,886 12,943
-------- -------- --------
Net income $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
1997 and 1996
-------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
---------
Total assets $ 332,001
=========
Senior Secured Bonds payable $ 332,000
Stockholders' equity 1
---------
Total liabilities and stockholders' equity $ 332,001
=========
</TABLE>
9. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997 and
1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 56,273
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 120,727
--------
$177,000
========
</TABLE>
F-39
<PAGE> 74
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
On June 30, 1995, the Partnership issued and sold $177,000,000 of First Mortgage
Bonds to Funding. The bonds are secured by substantially all assets of the
Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
Collective future maturities of the First Mortgage Bonds as of December 31,
1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 1,239
2001 1,767
2002 2,430
Thereafter 171,564
--------
$177,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
10. CREDIT AGREEMENT
The Partnership has entered into a Credit Agreement which provides for
working capital loans of up to $3,000,000 and letter of credit commitments of up
to $5,000,000. The interest rate for loans made under the Credit Agreement is
based upon various short-term indices at the Partnership's option and is
determined separately for each draw. These commitments expire on June 30, 2000.
The Credit Agreement includes commitment fees, payable quarterly in arrears,
ranging from .25% to .375% on the daily average unused amount of the commitment
until the Credit Agreement is terminated. There were no letters of credit
outstanding under the Credit Agreement at December 31, 1997 and 1996. For all
periods through December 31, 1997, no working capital loans had been made to the
Partnership under the Credit Agreement.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (WEPCO) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments, accounts payable and accrued expenses
approximate fair value. The fair value of the Partnership's First Mortgage Bonds
at December 31, 1997, is $16,194,000 higher than the historical carrying value
of $177,000,000. At December 31, 1996, the fair value of the Partnership's First
Mortgage Bonds approximated carrying value.
F-40
<PAGE> 75
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $115 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under its Power Purchase
Agreement with WEPCO, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $110,000 and
$4,539,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $2,195,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $35,000 and delay liquidated damages of $2,160,000 (see Note
3).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase the electric capacity made available to it up to 236.5
megawatts and associated energy which the Utility chooses to dispatch from the
Facility beginning on the Commercial Operations Date. Payments by the Utility to
the Partnership under the Power Purchase Agreement consist of capacity payments
and energy payments which fluctuate based upon published indices and/or a fixed
schedule.
In accordance with the Power Purchase Agreement, the Partnership was
responsible for reimbursing the Utility for the actual increased costs of
capacity and energy acquired to replace the capacity and energy, which were to
be provided by the Facility. The Partnership's obligation to reimburse the
Utility for these "Replacement Power" costs began on June 23, 1997 and continued
through September 17, 1997. The Partnership had an obligation for Replacement
Power costs if the Utility's actual costs of capacity and energy exceeded the
amounts, which would have been paid to the Partnership under the Power Purchase
Agreement. For the period from June 23, 1997 through September 17, 1997, the
Partnership was required to pay the Utility approximately $3,300,000 for
Replacement Power costs. The Partnership has recorded remaining accounts payable
to the Utility of $2,060,000 at December 31, 1997 for Replacement Power in the
accompanying balance sheet.
F-41
<PAGE> 76
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
THERMAL ENERGY SALES
The Partnership has a thermal energy sales agreement with the Department of
Administration of the State of Wisconsin ("DOA") which provides for the
Partnership to supply the steam requirements of UWW (the "Thermal Energy
Agreement"). The initial term of the agreement runs through June 30, 2005. The
DOA has the option to extend the agreement for up to four extension periods of
four years each. The Thermal Energy Agreement obligates the Partnership to
supply all of UWW's steam requirements up to a maximum of 350 million pounds of
steam annually at a rate not to exceed 100,000 pounds per hour.
GAS SUPPLY
The Partnership has 20-year gas supply agreements with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts provide for the sale of up to 11,855 MMBtu per day of gas to the
Partnership. The price paid by the Partnership to the fuel suppliers under the
gas supply contracts fluctuate based on published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has entered into various gas transportation agreements
with fuel transportation companies which provide for delivery of gas to the
Facility. The price paid by the Partnership under the gas transportation
contracts fluctuate based upon published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and
maintenance agreement with Westinghouse Operating Services Company, Inc.
("Westinghouse Services"). Under the terms of the operations and maintenance
agreement, the Partnership is required to pay Westinghouse Services an annual
management fee of $350,000, reimbursement of payroll, fringe benefits,
insurance, and certain subcontractor costs and a bonus based on target plant
performance. If targeted plant performance is not attained, Westinghouse
Services is required to pay a performance penalty to the Partnership. The
management fee is adjusted annually based on certain published indices. The term
of the operations and maintenance agreement extends for an initial period of
seven years (through September, 2004). The Partnership has the option to extend
the term of the agreement for two additional seven-year terms, provided that the
Partnership and Westinghouse Services mutually agree in writing as to the terms
of such extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based upon published indices) payable for 12 years.
F-42
<PAGE> 77
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
GREENHOUSE
Construction of the Greenhouse was substantially complete on June 2, 1997.
The Partnership has an operational services agreement with Floriculture, Inc.
("Floriculture"), an affiliate of the Partnership, which operates the
Greenhouse for the benefit of the Partnership. Under the terms of the
operational services agreement, Floriculture is required to provide all the
services to produce, market, and sell horticulture products and maintain the
Greenhouse. As compensation for its services Floriculture is reimbursed on a
monthly basis for its approved costs in connection with conducting the
Greenhouse business and operating the Greenhouse, and will receive an annual
management fee equal to 12% of the Partnership's net profit from the operation
of the Greenhouse. The term of the operational services agreement will expire
on May 31, 2002. For the year ended December 31, 1997, Floriculture received
payments pursuant to the operations services agreement of approximately
$669,000. The Partnership has recorded accounts payable to Floriculture of
approximately $197,000 at December 31, 1997.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation
will have a material adverse effect on the financial position or results of
operations of the Partnership.
13. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, and a single
operator to perform the operation and maintenance of its Facility. In addition,
the Partnership has contracted with two gas companies to supply the gas
requirements of the Facility, and has contracted with a single interstate gas
transporter to transport gas. Any material breach by any one of these parties
of their respective obligations to the Partnership could affect the ability of
the Partnership to make payments under its First Mortgage Bonds. In addition,
bankruptcy or insolvency of certain other parties or defaults by such parties
relative to their contractual or regulatory obligations could adversely affect
the ability of the Partnership to make payments under its First Mortgage Bonds.
If an agreement were to be terminated due to a breach of such agreement, the
Partnership's ability to enter into a substitute agreement having substantially
equivalent terms and conditions, or with an equally creditworthy third party,
is uncertain.
14. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally
of site acquisition and development costs, engineering fees, legal fees,
permitting costs, interest and LS Power employee and office costs, were
incurred by Granite. At June 30, 1995, the Partnership paid development fees
and reimbursed certain costs totaling approximately $12,160,000 to Granite.
These payments were capitalized and included in construction in process.
LS Power provided certain management services to the Partnership pursuant to
management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Whitewater Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,534,000,
$1,392,000 and $544,000 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Partnership recorded
accounts payable to LS Power of
F-43
<PAGE> 78
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
approximately $235,000 and $53,000, respectively. See Note 16 for discussion of
assignment of the management services agreements which occurred on March 20,
1998.
15. PARTNERS' CAPITAL
In 1997, TPC, contributed $20,556,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 26% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
16. SUBSEQUENT EVENT - CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid American, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly-owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of Floriculture, Inc.
("Floriculture") and LSP-Whitewater I, Inc., as well as all of the Sellers'
limited partnership interest in the Partnership to the Purchasers. As a result,
CMA acquired all of the capital stock of Floriculture, and Cogentrix Whitewater,
LLC, a wholly-owned subsidiary of CMA, acquired all of the capital stock of
LSP-Whitewater I, Inc., the 1% general partner of the Partnership, as well as a
73.17% limited partnership interest in the Partnership for a combined total
ownership interest of 74.17% in the Partnership.
On the same date that the indirect subsidiaries of Cogentrix Energy
identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
service agreements between LS Power and LSP-Whitewater, Inc. and the
Partnership.
F-44
<PAGE> 79
LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*3.1. -----Certificate of Incorporation of LS Power Funding Corporation.
*3.2. -----Bylaws of LS Power Funding Corporation.
*3.3. -----Certificate of Limited Partnership of LSP-Cottage Grove, L.P.
*3.4. -----Amended and Restated Partnership Agreement dated as of June
30, 1995 among LSP-Cottage Grove, Inc., Granite Power
Partners, L.P. and TPC Cottage Grove, Inc.
***3.4.1 -----Amendment #1 to the Cottage Grove Partnership Agreement
3.4.2 -----Consent, Waiver and Amendment No. 2 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of
LSP-Cottage Grove, L.P.
*3.5. -----Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership.
*3.6. -----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.
3.6.1. -----Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of
LSP-Whitewater Limited Partnership
*4.1. -----Trust Indenture dated as of May 1, 1995 by and among LS Power
Funding Corporation and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the Senior Secured Bonds (as
supplemented by the First Supplemental Indenture dated as of
May 1, 1995 by and among LS Power Funding Corporation and IBJ
Schroder Bank & Trust Company, as Trustee).
*4.2. -----Trust Indenture dated as of May 1, 1995 by and among
LSP-Cottage Grove, L.P. and IBJ Schroder Bank & Trust Company,
as Trustee, with respect to the Cottage Grove First Mortgage
Bonds (as supplemented by the First Supplemental Indenture
dated as of May 1, 1995 by and among LSP-Cottage Grove, L.P.
and IBJ Schroder Bank & Trust Company, as Trustee).
*4.3. -----Trust Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank &
Trust Company, as Trustee, with respect to the Whitewater
First Mortgage Bonds (as supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank &
Trust Company, as Trustee).
*4.4. -----Registration Rights Agreement dated as of June 30, 1995 by and
among Chase Securities, Inc., Morgan Stanley & Co.
Incorporated, LS Power Funding Corporation, LSP-Cottage Grove,
L.P. and LSP-Whitewater Limited Partnership.
*4.5. -----Form of Senior Secured Bond (included in Exhibit 4.1).
*4.6. -----Form of Cottage Grove First Mortgage Bond (included in Exhibit
4.2).
*4.7. -----Form of Whitewater First Mortgage Bond (included in Exhibit 4.3).
</TABLE>
E-1
<PAGE> 80
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
LS POWER FUNDING CORPORATION AGREEMENTS
*10.20. -----Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Cottage Grove, L.P.
*10.21. -----Agency Agreement dated May 1, 1995 between LS Power Funding
Corporation and LSP-Whitewater Limited Partnership.
*10.22. -----Security Agreement (related to Cottage Grove) dated as of May 1,
1995 between LS Power Funding Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.
*10.23. -----Security Agreement (related to Whitewater) dated as of May 1,
1995 between LS Power Funding Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.
LSP-COTTAGE GROVE, L.P. AGREEMENTS
*10.24. -----Equity Contribution Agreement dated June 30, 1995 among
LSP-Cottage Grove, L.P., TPC Cottage Grove, Inc. and The Chase
Manhattan Bank (National Association), as depositary agent.
*10.25. -----Collateral Agency and Intercreditor Agreement dated as of
May 1, 1995 among LSP-Cottage Grove, L.P., the L/C Facility
Agent (as defined therein), the Working Capital Agent (as
defined therein), each Permitted Counterparty under any
Interest Rate Protection Agreement (as defined therein), each
Additional Permitted Debt Agent (as defined therein), IBJ
Schroder Bank & Trust Company, as trustee, the Other
Representatives (as defined therein) and The Chase Manhattan
Bank (National Association), as depositary agent, and as
collateral agent.
*10.26. -----Deposit and Disbursement Agreement dated as of May 1, 1995 among
LSP-Cottage Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent, and as depositary agent.
*10.27. -----Credit Agreement dated as of May 1, 1995 among LSP-Cottage Grove,
L.P., the lenders party thereto and The Chase Manhattan Bank
(National Association), as agent.
*10.27.1 -----Instrument of Assignment, Resignation, Appointment, Acceptance
and Designation dated as of December 31, 1995 among The Chase
Manhattan Bank (National Association), Dresdner Bank AG, New
York and Grand Cayman Branches, and LSP-Cottage Grove, L.P.
*10.27.2 -----Amendment No. 1 to Credit Agreement dated as of December 31, 1995
among LSP-Cottage Grove, L.P. and Dresdner Bank AG, New York
Branch, as agent.
*10.28. -----Assignment and Security Agreement dated as of May 1, 1995 between
LSP-Cottage Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.29. -----Pledge Agreement dated as of May 1, 1995 between LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as trustee.
*10.30. -----Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Cottage Grove, L.P.
and The Chase Manhattan Bank (National Association), as
collateral agent, for the benefit of IBJ Schroder Bank & Trust
Company, as trustee.
</TABLE>
E-2
<PAGE> 81
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.31. -----Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Cottage Grove, L.P.
and The Chase Manhattan Bank (National Association), as
collateral agent, for the benefit of The Chase Manhattan Bank
(National Association), as agent under the Credit Agreement.
*10.32. -----Subordinated Mortgage, Assignment of Rents, Security Assignment
and Fixture Filing dated as of May 1, 1995 by LSP-Cottage
Grove, L.P., as mortgagor, and Northern States Power Company,
as mortgagee.
*10.33. -----Subordinated Assignment and Security Agreement dated as of May 1,
1995 between LSP-Cottage Grove, L.P. and Northern States Power
Company.
*10.34. -----Power Purchase Agreement dated as of May 9, 1994 between Northern
States Power Company and LSP-Cottage Grove, L.P.
*10.35. -----Letter Agreement dated December 16, 1994 between Northern States
Power Company and LSP-Cottage Grove, L.P.
*10.36. -----Letter Agreement dated June 1, 1995 between Northern States Power
Company and LSP-Cottage Grove, L.P.
*10.37. -----Letter Agreement dated June 8, 1995 between Northern States Power
Company and LSP-Cottage Grove, L.P.
*10.38. -----Letter Agreement dated June 12, 1995 between Northern States
Power Company and LSP-Cottage Grove, L.P.
*10.39. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Cottage Grove, L.P.
**10.40. -----Second Amended and Restated Turnkey Construction Agreement dated
as of April 11, 1995 between Westinghouse Electric Corporation
and LSP-Cottage Grove, L.P.
**10.41. -----Amended and Restated Operation and Maintenance Agreement dated as
of April 11, 1995 between Westinghouse Operating Services
Company, Inc. and LSP-Cottage Grove, L.P.
**10.42. -----Parts Agreement dated as of April 11, 1995 between Westinghouse
Electric Corporation and LSP-Cottage Grove, L.P.
*10.43. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Cottage Grove, L.P.
*10.44. -----Second Amended and Restated Steam Supply Agreement dated as of
June 19, 1995 between the Minnesota Mining and Manufacturing
Company and LSP-Cottage Grove, L.P.
*10.45. -----Purchase and Sale Agreement dated September 30, 1994 between the
Minnesota Mining and Manufacturing Company and LSP-Cottage
Grove, L.P.
*10.46. -----Letter Agreement (land and easement) dated September 30, 1994
between the Minnesota Mining and Manufacturing Company and
LSP-Cottage Grove, L.P.
</TABLE>
E-3
<PAGE> 82
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.47. -----Letter Agreement (side letter to steam agreement) dated September
30, 1994 between the Minnesota Mining and Manufacturing
Company and LSP-Cottage Grove, L.P.
*10.48. -----Gas Sales Contract dated as of December 22, 1994 between Natural
Gas Clearinghouse and LSP-Cottage Grove, L.P.
*10.49. -----First Amendment to Gas Sales Contract dated as of April 18, 1995
between Natural Gas Clearinghouse and LSP-Cottage Grove, L.P.
*10.50. -----Gas Sales Contract dated as of February 16, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc. and
LSP-Cottage Grove, L.P.
*10.51. -----First Amendment to Gas Sales Contract dated as of April 26, 1995
among Aquila Energy Marketing Corporation, UtiliCorp United,
Inc. and LSP-Cottage Grove, L.P.
*10.52. -----Amended and Restated Gas Supply Transportation Agreement dated as
of May 8, 1995 between Peoples Natural Gas Company and
LSP-Cottage Grove, L.P.
*10.53. -----Amended and Restated Cottage Grove Letter Agreement dated as of
April 10, 1995 between Northern Natural Gas Company, Peoples
Natural Gas Company and LSP-Cottage Grove, L.P.
*10.54. -----Firm Throughput Service Agreement (Northern Contract #24042)
dated April 25, 1995 between Northern Natural Gas Company and
LSP-Cottage Grove, L.P.
*10.55. -----Interruptible Throughput Service Agreement (Northern Contract
# 24198) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P.
*10.56. -----Interruptible Throughput Service Agreement (Northern Contract
#24199) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Cottage Grove, L.P.
*10.57. -----Firm Deferred Delivery Service Agreement (Northern Contract
#23281) dated as of April 25, 1995 between Northern Natural
Gas Company and LSP-Cottage Grove, L.P.
*10.58. -----Interruptible Deferred Delivery Service Agreement (Northern
Contract #24203) dated as of April 25, 1995 between Northern
Natural Gas Company and LSP-Cottage Grove, L.P.
*10.59. -----Letter Agreement dated as of April 21, 1995 between Northern
Natural Gas Company and LSP-Cottage Grove, L.P.
*10.60. -----Limited Warranty Deed granted by Minnesota Mining and
Manufacturing Company to LSP-Cottage Grove, L.P. dated June 1,
1995.
*10.61. -----Consent and Agreement dated as of May 1, 1995 among Northern
States Power Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.62. -----Consent and Agreement dated as of May 1, 1995 among Westinghouse
Electric Corporation, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
</TABLE>
E-4
<PAGE> 83
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.63. -----Consent and Agreement dated as of May 1, 1995 among Westinghouse
Operating Services Company, Inc., LSP-Cottage Grove, L.P. and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.64. -----Consent and Agreement dated as of May 1, 1995 among Minnesota
Mining and Manufacturing Company, LSP-Cottage Grove, L.P. and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.65. -----Consent and Agreement dated as of May 1, 1995 among Natural Gas
Clearinghouse, LSP-Cottage Grove, L.P. and The Chase Manhattan
Bank (National Association), as collateral agent.
*10.66. -----Consent and Agreement dated as of May 1, 1995 among Aquila Energy
Marketing Corporation, UtiliCorp United, Inc., LSP-Cottage
Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.67. -----Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, Peoples Natural Gas Company, LSP-Cottage
Grove, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.68. -----Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.69. -----Consent and Agreement dated as of May 1, 1995 among Peoples
Natural Gas Company, LSP-Cottage Grove, L.P. and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.70. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Westinghouse Electric Corporation.
*10.71. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Westinghouse Operating Services Company, Inc.
*10.72. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Aquila Energy Marketing Corporation.
*10.73. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Natural Gas Clearinghouse.
*10.74. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Northern Natural Gas Company.
*10.75. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company, Northern Natural Gas Company and Peoples Natural Gas
Company.
*10.76. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Peoples Natural Gas Company.
</TABLE>
E-5
<PAGE> 84
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.77. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Cottage Grove, L.P., Northern States Power
Company and Minnesota Mining and Manufacturing Company.
*10.78. -----Grants of Easement by Minnesota Mining and Manufacturing Company
to LSP-Cottage Grove, L.P., each dated May 30, 1994, for the
following: (i) Easterly Utilities, (ii) Westerly Utilities,
(iii) New Well, and (iv) Well Lines.
*10.79. -----Temporary Construction Easement granted by Minnesota Mining and
Manufacturing Company to LSP-Cottage Grove, L.P.
*10.80. -----Easements from Soo Line Railroad Company to LSP-Cottage Grove,
L.P., for Easterly and Westerly Railroad Crossroads, each
dated June 27, 1995.
*10.81. -----Assignments of Rights and Privileges dated June 12, 1995 by and
between Minnesota Mining and Manufacturing Company and
LSP-Cottage Grove, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP AGREEMENTS
*10.82. -----Equity Contribution Agreement dated as of May 1, 1995 among
LSP-Whitewater Limited Partnership, TPC Whitewater, Inc. and
The Chase Manhattan Bank (National Association), as depositary
agent.
*10.83. -----Collateral Agency and Intercreditor Agreement dated as of
May 1, 1995 among LSP-Whitewater Limited Partnership, the L/C
Facility Agent (as defined therein), the Working Capital Agent
(as defined therein), each Permitted Counterparty under any
Interest Rate Protection Agreement (as defined therein), each
Additional Permitted Debt Agent (as defined therein), IBJ
Schroder Bank & Trust Company, as trustee, the Other
Representatives (as defined therein) and The Chase Manhattan
Bank (National Association), as depositary agent, and as
collateral agent.
*10.84. -----Deposit and Disbursement Agreement dated as of May 1, 1995
among LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent, and
as depositary agent.
*10.85. -----Credit Agreement dated as of May 1, 1995 among LSP-Whitewater
Limited Partnership, the lenders party thereto and The Chase
Manhattan Bank (National Association), as agent.
*10.85.1 -----Instrument of Assignment, Resignation, Appointment, Acceptance
and Designation dated as of December 31, 1995 among The Chase
Manhattan Bank (National Association), Dresdner Bank AG, New
York and Grand Cayman Branches, and LSP-Whitewater Limited
Partnership
*10.85.2 -----Amendment No. 1 to Credit Agreement dated as of December 31, 1995
among LSP-Whitewater Limited Partnership and Dresdner Bank AG,
New York Branch, as agent.
*10.86. -----Assignment and Security Agreement dated as of May 1, 1995
between LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.87. -----Pledge Agreement dated as of May 1, 1995 between LSP-Whitewater
Limited Partnership and IBJ Schroder Bank & Trust Company, as
trustee.
</TABLE>
E-6
<PAGE> 85
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.88. -----Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent, for the benefit of IBJ
Schroder Bank & Trust Company, as trustee.
*10.89. -----Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing dated as of May 1, 1995 between LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent, for the benefit of the
Chase Manhattan Bank (National Association), as agent under
the Credit Agreement.
*10.90. -----Subordinated Mortgage, Assignment of Rents, Security Assignment
and Fixture Filing dated as of May 1, 1995 by LSP-Whitewater
Limited Partnership, as mortgagor, and Wisconsin Electric
Power Company, as mortgagee.
*10.91. -----Subordinated Assignment and Security Agreement dated as of May 1,
1995 between LSP-Whitewater Limited Partnership and Wisconsin
Electric Power Company.
*10.92. -----Development Agreement dated as of November 23, 1994 between City
of Whitewater and LSP-Whitewater Limited Partnership.
*10.93. -----Power Purchase Agreement dated as of December 21, 1993 between
Wisconsin Electric Power Company and LSP-Whitewater Limited
Partnership.
*10.94. -----Amendment to Power Purchase Agreement dated as of February 10,
1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.95. -----Second Amendment to Power Purchase Agreement dated as of October
5, 1994 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.96. -----Third Amendment to Power Purchase Agreement dated as of May 5,
1995 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
****10.96.1----Fourth Amendment to Power Purchase Agreement dated March 18, 1997
between Wisconsin Electric Power Company and LSP-Whitewater
Limited Partnership.
10.96.2 ----Fifth Amendment to Power Purchase Agreement dated February 26,
1998 between Wisconsin Electric Power Company and
LSP-Whitewater Limited Partnership.
*10.97. -----Interconnection Agreement dated as of May 12, 1995 between
Wisconsin Electric Power Company and LSP-Whitewater Limited
Partnership.
10.98. -----Intentionally Omitted.
*10.99. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Whitewater Limited Partnership.
**10.100 -----Second Amended and Restated Turnkey Construction Agreement
dated as of April 11, 1995 between Westinghouse Electric
Corporation and LSP-Whitewater Limited Partnership.
**10.101.-----Amended and Restated Operation and Maintenance Agreement dated as
of April 11, 1995 between Westinghouse Operating Services
Company, Inc. and LSP-Whitewater Limited Partnership.
**10.102.-----Parts Agreement dated as of April 10, 1995 between Westinghouse
Electric Corporation and LSP-Whitewater Limited Partnership.
*10.103. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Whitewater Limited Partnership.
</TABLE>
E-7
<PAGE> 86
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.104. -----Steam Supply Agreement dated as of July 25, 1994 between the
Department of Administration of the State of Wisconsin and
LSP-Whitewater Limited Partnership.
*10.105. -----Greenhouse Hot Water Supply Agreement dated as of May 1, 1995
between Dominion Growers/Whitewater, L.C. and LSP-Whitewater
Limited Partnership.
*10.106. -----Construction Contract dated as of May 1, 1995 between Dominion
Growers/Whitewater, L.C. and LSP-Whitewater Limited
Partnership.
*****10.106.1--Addendum to Construction Contract dated as of June 6, 1997
between Dominion Growers/Whitewater, L.C. and LSP-Whitewater
Limited Partnership.
*10.107. -----Deed of Lease dated as of May 1, 1995 between Dominion
Growers/Whitewater, L.C. and LSP-Whitewater Limited
Partnership.
*****10.107.1--Settlement Agreement dated as of May 27, 1997 between Dominion
Growers/Whitewater, L.C. and LSP- Whitewater Limited
Partnership.
*****10.107.2--Greenhouse Operational Services Agreement dated as of May 27,
1997 between FloriCulture, Inc. and LSP-Whitewater Limited
Partnership.
*10.108. -----Letter Agreement dated May 12, 1995 between Dominion Growers,
Inc. and LSP-Whitewater Limited Partnership.
*10.109. -----Gas Sales Contract dated as of December 22, 1994 between Natural
Gas Clearinghouse and LSP-Whitewater Limited Partnership.
*10.110. -----First Amendment to Gas Sales Contract dated as of April 18, 1995
between Natural Gas Clearinghouse and LSP-Whitewater Limited
Partnership.
*10.111. -----Gas Sales Contract dated as of February 16, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc. and
LSP-Whitewater Limited Partnership.
*10.112. -----First Amendment to Gas Sales Contract dated as of April 26, 1995
among Aquila Energy Marketing Corporation, UtiliCorp United,
Inc. and LSP-Whitewater Limited Partnership.
*10.113. -----Letter Agreement dated April 21, 1995 between Northern Natural
Gas Company and LSP-Whitewater Limited Partnership.
*10.114. -----Amended and Restated Letter Agreement dated as of April 10, 1995
between Northern Natural Gas Company and LSP-Whitewater
Limited Partnership.
*10.115. -----Gas Transportation Agreement dated March 9, 1995 between
Wisconsin Natural Gas Company and LSP-Whitewater Limited
Partnership.
*10.116. -----Capacity Release and Gas Sales Agreement dated as of April 27,
1995 between Wisconsin Power and Light Company and
LSP-Whitewater Limited Partnership.
*10.117. -----First Amendment to Capacity Release and Gas Sales Agreement dated
as of June 2, 1995 between Wisconsin Power and Light Company
and LSP-Whitewater Limited Partnership.
*10.118. -----Firm Throughput Service Agreement (Northern Contract #23479)
dated April 25, 1995 between Northern Natural Gas Company and
LSP-Whitewater Limited Partnership.
*10.119. -----Interruptible Throughput Service Agreement (Northern Contract
#24200) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership.
</TABLE>
E-8
<PAGE> 87
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.120. -----Interruptible Throughput Service Agreement (Northern Contract
#24201) dated April 25, 1995 between Northern Natural Gas
Company and LSP-Whitewater Limited Partnership.
*10.121. -----Firm Deferred Delivery Service Agreement (Northern Contract
#23282) dated as of April 25, 1995 between Northern Natural
Gas Company and LSP-Whitewater Limited Partnership.
*10.122. -----Interruptible Deferred Delivery Service Agreement (Northern
Contract #24202) dated as of April 25, 1995 between Northern
Natural Gas Company and LSP-Whitewater Limited Partnership.
*10.123. -----Consent and Agreement dated as of May 1, 1995 between City
of Whitewater, LSP-Whitewater Limited Partnership and The Chase
Manhattan Bank (National Association), as collateral agent.
*10.124. -----Consent and Agreement dated as of May 1, 1995 among Wisconsin
Electric Power Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.125. -----Consent and Agreement dated as of May 1, 1995 among Westinghouse
Electric Corporation, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.126. -----Consent and Agreement dated as of May 1, 1995 among Westinghouse
Operating Services Company, Inc., LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.127. -----Consent and Agreement dated as of May 1, 1995 among State
of Wisconsin, acting through the Department of Administration,
LSP-Whitewater Limited Partnership and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.128. -----Consent and Agreement dated as of May 1, 1995 between
Dominion Growers/Whitewater, L.C., LSP-Whitewater Limited
Partnership and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.129. -----Consent and Agreement dated as of May 1, 1995 among Natural Gas
Clearinghouse, LSP-Whitewater Limited Partnership and The
Chase Manhattan Bank (National Association), as collateral
agent.
*10.130. -----Consent and Agreement dated as of May 1, 1995 among Aquila
Energy Marketing Corporation, UtiliCorp United, Inc.,
LSP-Whitewater Limited Partnership and The Chase Manhattan Bank
(National Association), as collateral agent.
*10.131. -----Consent and Agreement dated as of May 1, 1995 among Wisconsin
Natural Gas Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.132. -----Consent and Agreement dated as of May 1, 1995 among Northern
Natural Gas Company, LSP-Whitewater Limited Partnership and
The Chase Manhattan Bank (National Association), as collateral
agent.
*10.133. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Westinghouse Electric Corporation.
</TABLE>
E-9
<PAGE> 88
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.134. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Westinghouse Operating Services
Company, Inc.
*10.135. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Aquila Energy Marketing
Corporation.
*10.136. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Natural Gas Clearinghouse.
*10.137. -----Subordinated Creditor Consent and Agreement dated as of May 1,
1995 among LSP-Whitewater Limited Partnership, Wisconsin
Electric Power Company and Northern Natural Gas Company.
*10.138. -----Easement dated May 11, 1995 granted by the University of
Wisconsin-Whitewater to LSP-Whitewater Limited Partnership.
*10.139. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership.
*10.140. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership.
*10.141. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership.
*10.142. -----Easement dated March 22, 1995 granted by the City of Whitewater
to LSP-Whitewater Limited Partnership.
*10.143. -----Easement dated June 2, 1995 granted by Joe C. Pattermann and
June M. Pattermann to LSP-Whitewater Limited Partnership.
*10.144. -----Easement dated September 10, 1994 granted by Joe C. Pattermann
and June M. Pattermann to LSP-Whitewater Limited Partnership.
*10.145. -----Easement dated May 25, 1995 granted by John P. Hill and Rosalee
K. Hill to LSP-Whitewater Limited Partnership.
*10.146. -----Easement dated June 1, 1994 granted by Mark D. Hoffmann to
LSP-Whitewater Limited Partnership.
*10.147. -----Easement dated May 31, 1995 granted by Daniel L. Schwertfeger and
Jeanne M. Schwertfeger to LSP-Whitewater Limited Partnership.
*10.148. -----Easement dated June 2, 1995 granted by Jerry C. Kollwelter and
Donna L. Kollwelter to LSP-Whitewater Limited Partnership.
*10.149. -----Easement dated June 1, 1995 granted by Lowell C. Hagen and Thu T.
Hagen to LSP-Whitewater Limited Partnership.
*10.150. -----Easement dated June 1, 1995 granted by Dean A. Cox and Maybell
Cox to LSP-Whitewater Limited Partnership.
</TABLE>
E-10
<PAGE> 89
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
*10.151. -----Easement dated June 5, 1995 granted by John's Disposal Service,
Inc. to LSP-Whitewater Limited Partnership.
*10.152. -----Easement dated June 12, 1995 granted by Greg Lurvey and Mark
Lurvey to LSP-Whitewater Limited Partnership.
*10.153. -----Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.154. -----Easement dated October 24, 1994 granted by Perry Moyer and
Dorothy Moyer to LSP-Whitewater Limited Partnership.
*10.155. -----Easement dated May 30, 1995 granted by Perry Moyer and Dorothy
Moyer to LSP-Whitewater Limited Partnership.
*10.156. -----Easement dated May 30, 1995 granted by Perry Moyer and Dorothy
Moyer to LSP-Whitewater Limited Partnership.
*10.157. -----Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership.
*10.158. -----Easement dated June 5, 1995 granted by Robert J. Wagner to
LSP-Whitewater Limited Partnership.
GRANITE POWER PARTNERS, L.P. AGREEMENTS
*10.159. -----Pledge Agreement dated as of May 1, 1995 between Granite Power
Partners, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.160. -----Pledge Agreement dated as of May 1, 1995 between Granite Power
Partners, L.P. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.161. -----Assignment dated as of November 23, 1994 between Granite Power
Partners, L.P. and LSP-Cottage Grove, L.P.
*10.162. -----Assignment dated as of November 23, 1994 between Granite Power
Partners L.P. and LSP-Whitewater Limited Partnership.
*10.163. -----Acknowledgment and Consent dated June 30, 1995 among Wisconsin
Electric Power Company, LSP-Whitewater I, Inc., Granite Power
Partners, L.P. and TPC Whitewater, Inc.
*10.164. -----Amendment to Participation Agreement dated as of June 29, 1995
between Tomen Power Corporation and Granite Power Partners,
L.P.
LSP-COTTAGE GROVE, INC. AGREEMENTS
*10.165. -----Security Agreement dated as of May 1, 1995 between LSP-Cottage
Grove, Inc. and The Chase Manhattan Bank (National
Association), as collateral agent.
*10.166. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Cottage Grove, Inc.
</TABLE>
E-11
<PAGE> 90
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
LSP-WHITEWATER I, INC. AGREEMENTS
*10.167. -----Security Agreement dated as of May 1, 1995 between LSP-Whitewater
I, Inc. and The Chase Manhattan Bank (National Association),
as collateral agent.
*10.168. -----Management Services Agreement dated as of May 1, 1995 between LS
Power Corporation and LSP-Whitewater I, Inc.
*10.169. -----Acknowledgment and Consent dated June 30, 1995 among Wisconsin
Electric Power Company, LSP-Whitewater I, Inc., Granite Power
Partners, L.P. and TPC Whitewater, Inc.
LS POWER CORPORATION AGREEMENTS
*10.170. -----Amended and Restated Limited Partnership Agreement of Granite
Power Partners, L.P. dated January 16, 1992 among LS Power
Corporation, Chase Manhattan Capital Corporation and Joseph
Cogen.
*10.171. -----First Amendment to Amended and Restated Limited Partnership
Agreement of Granite Power Partners, L.P. dated December 30,
1993 among LS Power Corporation, Chase Manhattan Capital
Corporation and Joseph Cogen.
CHANGE IN CONTROL EVENT AGREEMENTS
10.172 -----Assignment and Assumption Agreement dated as of March 20, 1998
between Cogentrix Energy, Inc. and LS Power Corporation.
10.173 -----Pledge Agreement dated March 20, 1998 between Cogentrix Cottage
Grove LLC and The Chase Manhattan Bank as Collateral Agent.
10.174 -----Pledge Agreement dated March 20, 1998 between Cogentrix
Whitewater LLC and The Chase Manhattan Bank as Collateral
Agent.
27.1 -----Financial Data Schedule - LS Power Funding Corporation.
27.2 -----Financial Data Schedule - LSP-Cottage Grove, L.P.
27.3 -----Financial Data Schedule - LSP-Whitewater Limited Partnership.
- ---------------------
* Incorporated herein by reference from the Registration Statement on
Form S-4, File No. 33-95928 filed with the Securities and Exchange
Commission by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and
LSP-Whitewater Limited Partnership on August 16, 1995, as amended, or
from the Annual Report on Form 10-K for the fiscal year ended December
31, 1995, filed with the Securities and Exchange Commission by LS Power
Funding Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited
Partnership.
** In addition to the note for "*" above, confidential treatment has been
granted for certain portions of the noted document.
*** Incorporated herein by reference form the Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996, File No. 33-95928 filed
with the Securities and Exchange Commission by the Registrants.
**** Incorporated herein by reference from the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, file No. 33-95928 filed
with the Securities and Exchange Commission by the Registrants.
***** Incorporated herein by reference from the Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997, File No. 33-95928 filed
with the Securities and Exchange Commission by the Registrants.
</TABLE>
E-12
<PAGE> 1
EXHIBIT 3.4.2
CONSENT, WAIVER AND AMENDMENT NO. 2
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
LSP-Cottage Grove, L.P.
This CONSENT, WAIVER AND AMENDMENT NO. 2 dated March 20, 1998 (this
"Agreement") to that certain AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT dated as of June 30, 1995 by and among LSP-Cottage Grove, Inc.
("LSP-CG"), a Delaware corporation, as the general partner, and Granite
Power Partners, L.P. ("Granite"), a Delaware limited partnership and TPC
Cottage Grove, Inc. ("TPC"), a Delaware corporation as the limited partners
(as amended by Amendment No. 1 dated as of June 18, 1996, the "Partnership
Agreement"), is made by each of LSP-CG, Granite, TPC and Cogentrix Cottage
Grove, LLC ("Cogentrix CG"), a Delaware limited liability company.
Capitalized terms used herein and not defined shall have the meaning set
forth for such terms in the Partnership Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement dated
as of March 20, 1998 by and among Granite, LS Power Corporation, Cogentrix
Mid-America, Inc., Cogentrix CG and Cogentrix Whitewater, LLC, Granite
desires to sell to Cogentrix CG all of the capital stock of LSP-CG and all
of its Interest in the Partnership (such transaction, the "Sale");
WHEREAS, TPC Funding LLC, a Delaware limited liability company and an
affiliate of TPC ("TPC Funding"), intends to enter into a bridge loan and
subsequent Rule 144A financing transaction which will require that, among
other things, TPC pledge its Interest in the Partnership as collateral
security to one or more financial institutions as agent(s) or collateral
agent(s) for the benefit of such institutions and one or more creditors
(such transaction, the "Tomen Financing");
<PAGE> 2
WHEREAS, the terms and conditions of the Partnership Agreement provide
for certain consents and approvals in connection with transactions such as
the Sale and the Tomen Financing; and
WHEREAS, the parties hereto desire to grant certain consents, waivers
and amendments in order (i) to permit the Sale and to admit Cogentrix CG as
a Partner upon consummation of the Sale and (ii) to permit TPC's pledge in
connection with the Tomen Financing;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree, effective
as of the date first written above, as follows:
ARTICLE I
WAIVERS AND CONSENTS
Section 1.1 Right of First Offer. Notwithstanding Section 7.8 of
the Partnership Agreement, each of TPC, LSP-CG and Granite hereby
unconditionally and irrevocably waives its respective right of first offer
with respect only to the Sale as described herein and consents to the Sale.
Section 1.2 Transfers of Partnership Interests--the Sale.
Pursuant to, and notwithstanding the terms of, Article VII of the Partnership
Agreement, including without limitation, Sections 7.1(b), 7.1(c)(iv), 7.2
and 7.7 thereof, LSP-CG, Granite and TPC each hereby waive any prohibitions
to the Sale contained therein and hereby consent to the Sale in all respects,
including without limitation (i) the admission of Cogentrix CG as a Limited
Partner and substitution of Cogentrix CG for Granite for all purposes of the
Partnership Agreement on identical terms and conditions as Granite and
(ii) the fact that Cogentrix CG, pursuant to the Sale, shall own 100% of the
capital stock of the General Partner. In connection therewith, the General
Partner hereby acknowledges that it has received adequate assurances, and
Cogentrix CG hereby renders assurance to the General Partner and to TPC that,
as required under the Partnership Agreement, Cogentrix CG, by virtue of and
as of the date of execution of this Agreement, agrees to be bound by all of
the terms and conditions of the Partnership Agreement.
Section 1.3 Transfers of Partners Interests--the Tomen Financing.
Pursuant to, and notwithstanding the terms of, Article VII of the
2
<PAGE> 3
Partnership Agreement, including without limitation Section 7.1 thereof,
as of the date of execution of this Agreement, LSP-CG and Cogentrix CG each
hereby waive any prohibitions to the Tomen Financing contained therein and
hereby consent to the pledge of all or any portion of the Interest by TPC
pursuant to the Tomen Financing including but not limited to a collateral
assignment of TPC's rights to receive distributions relating to the TPC
Interest from the Partnership from time to time and an irrevocable direction
by TPC instructing the General Partner to pay over all such distributions to
one or more financial institutions as agent(s) or collateral agent(s) for the
benefit of such institutions and one or more creditors; provided, however,
that notwithstanding any provision of this Agreement, no pledge, assignment,
direction or other action by TPC of or relating to its Interest under this
Section 1.3 shall violate or result in a violation of Section 7.1(c) of the
Partnership Agreement. TPC acknowledges and agrees that LS Power is
assigning the Management Services Agreement to Cogentrix Energy, Inc.
Section 1.4 Cooperation in Tomen Financing. Each of LSP-CG,
Granite and Cogentrix CG, for itself and as agent on behalf of its
Affiliate, Cogentrix Mid-America, Inc., acknowledges and agrees that it
will provide such reasonable cooperation, assistance and information to TPC
as TPC may reasonably request from time to time in connection with the Tomen
Financing.
Section 1.5 Name Change. Each of Granite and TPC acknowledge,
agree and consent to the change of the name of the Partnership and LSP-CG to
"Cogentrix-Cottage Grove, L.P." and "Cogentrix-CG, Inc." respectively
(or other similar derivations thereof) which shall occur on or before 180
days after the closing of the Sale. TPC, for itself and as agent on behalf
of its Affiliate, TPC Funding, acknowledges and agrees that it will provide
such reasonable cooperation, assistance and information to Cogentrix CG as
Cogentrix CG may reasonably request from time to time in connection with the
name change contemplated by this Section 1.5.
Section 1.6 Community Contributions. Cogentrix CG agrees that it
shall cause the General Partner of the Partnership in good faith to work to
establish a program whereby the Partnership shall apply funds representing
the annual difference between (i) $500,000 and (ii) the (x) real estate
taxes, (y) personal property taxes and (z) sales taxes which may be levied
upon any construction equipment purchased under the Second Amended and
Restated Turnkey Construction Agreement dated as of April 11, 1995 between
the Partnership and Westinghouse Electric Corporation, as amended (all as
may be due and payable by the Partnership), towards certain expenditures or
projects which inure to the good of the local Cottage Grove community. TPC
hereby acknowledges and agrees that the establishment of such a program is
within the authority of the General Partner of the Partnership, does not
require any consent of TPC under the Partnership Agreement and TPC does not
have, and hereby waives, the right to make any objections or require consent
in the future with respect thereto.
3
<PAGE> 4
ARTICLE II
AMENDMENTS
Section 2.1 Exhibit A. Exhibit A (Partners' Percentage Interest)
to the Partnership Agreement is hereby deleted in its entirety and replaced
with Exhibit A attached hereto.
Section 2.2 Section 2.1(c)(i)--Conversion to Achievement of a
14.0 Percent Return. The parties hereto agree that no adjustment to the TPC
Cottage Grove, Inc. Partnership Interest is necessary and that no such
adjustment has been or shall be made.
Section 2.3 Section 2.1(c)(iii)--Following Achievement of a
Fourteen Percent (14.0%) Return. Section 2.1(c)(iii) of the Partnership
Agreement is hereby amended by deleting "or" in the next to last line of
such section and inserting "and (iii) if a Refinancing shall have occurred,"
in lieu thereof.
Section 2.4 Notices. Section 10.1 of the Partnership Agreement
is hereby amended by deleting the notice address for the Partnership and
LSP-CG in the second paragraph and inserting the following in lieu thereof:
LSP-Cottage Grove, Inc.
c/o Cogentrix Cottage Grove, LLC
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273
Attention: General Counsel
Telephone: (704) 525-3800
Fax: (704) 529-1006
Section 2.5 Confidentiality. Section 10.22 of the Partnership
Agreement is hereby deleted in its entirety and replaced by the following:
Confidentiality. Each Partner agrees to treat in a confidential manner
all information it receives from the Partnership concerning the Partnership
and shall not disclose such information to any Person other than (i) to
4
<PAGE> 5
its employees, attorneys or agents and then only to the extent such
disclosure, in the good faith determination of such Partner, is necessary
for the performance of the duties or responsibilities of such Persons,
(ii) in connection with any action, litigation or proceeding arising out of
or in connection with the Partnership Agreement or the other documents
delivered hereunder or the enforcement hereof or thereof (provided, however,
no information concerning the Partnership received by such Partner hereunder
may be used or furnished in connection with any other contemplated
litigation, proceeding or any governmental investigation, except as
permitted by subsections (iii) and (iv) of this Section 10.22), (iii) to
any banking, governmental or regulatory body having jurisdiction over it,
(iv) as may be required by law, applicable regulation or subpoena, in which
case such Partner, to the extent practicable and permitted by law, shall
notify promptly the Partnership of such disclosure (other than disclosure
made by any Partner pursuant to subsection (iii) above), (v) to the extent
any such information is in or becomes part of the public domain otherwise,
or (vi) as may be reasonably necessary in connection with a financing
transaction to be entered into by a Partner or any Affiliate thereof.
ARTICLE III
MISCELLANEOUS
Section 3.1 Entire Agreement. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject hereof.
Section 3.1 Modification. This Agreement may be modified only upon
the prior written consent of each party hereto.
Section 3.2 Severability. If any provision of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 3.4 Further Assurances. Each party shall execute such
deeds, assignments, endorsements, evidences of Transfer and other
instruments and documents and shall give such further assurances as shall
be reasonably necessary to perform its obligations hereunder.
5
<PAGE> 6
Section 3.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Delaware
and without reference to any conflict of law or choice of law principles of
the State of Delaware that might apply the law of another jurisdiction.
Section 3.6 Counterparts. This Agreement may be executed in any
number of counterparts or with counterpart signature pages, each of which
shall be deemed an original, but all of which shall constitute one and the
same instrument.
Section 3.7 Limitation on Rights of Others. No Person other than
a Partner and its successors and permitted assigns is, nor is it intended
that any such other Person be treated as, a direct, indirect, intended or
incidental third party beneficiary of this Agreement for any purpose
whatsoever, nor shall any other Person have any legal or equitable right,
remedy or claim under or in respect of this Agreement.
Section 3.8 Gender; Number. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular or plural number,
shall be deemed to be or include the other genders or number, as the case
may be, whenever the context so indicates or requires.
Section 3.9 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 3.10 Exhibits. All exhibits referenced in this Agreement
shall be incorporated herein by such reference and shall be deemed to be a
integral part hereof.
Section 3.11 Certain Remedies. Each Partner and the Partnership
shall be entitled to all remedies at law and equity for breach of this
Agreement. Each Partner further acknowledges that specific performance is
an appropriate remedy for breach of any obligation hereunder.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GENERAL PARTNER:
LSP-COTTAGE GROVE, INC.
By: /s/ Michael Liebelson
---------------------
Name: Michael Liebelson
Title: Managing Director
LIMITED PARTNERS:
GRANITE POWER PARTNERS, L.P.
by its general partner
LS POWER CORPORATION
By: /s/ Michael Liebelson
----------------------
Name: Michael Liebelson
Title: Managing Director
TPC COTTAGE GROVE, INC.
By: /s/ Masahiro Ishii
--------------------
Name: Masahiro Ishii
Title: Executive Vice President
COGENTRIX COTTAGE GROVE, LLC
By: /s/ James R. Pagano
-----------------------
Name: James R. Pagano
Title: President
7
<PAGE> 8
EXHIBIT A
PARTNERS' PERCENTAGE INTEREST
Percentage
Partner Interest
------- ----------
General Partner
---------------
LSP-Cottage Grove, Inc. 1%
Limited Partners
----------------
Cogentrix Cottage Grove, LLC 72.22%
TPC Cottage Grove, Inc. 26.78%
-------
Total 100.00%
8
<PAGE> 1
EXHIBIT 3.6.1
CONSENT, WAIVER AND AMENDMENT NO. 1
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
LSP-Whitewater Limited Partnership
This CONSENT, WAIVER AND AMENDMENT NO. 1 dated March 20, 1998
(this "Agreement") to that certain AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT dated as of June 30, 1995 by and among LSP-Whitewater I, Inc.
("LSP-WW"), a Delaware corporation, as the general partner, and Granite
Power Partners, L.P. ("Granite"), a Delaware limited partnership and TPC
Whitewater, Inc. ("TPC"), a Delaware corporation as the limited partners, is
made by each of LSP-WW, Granite, TPC and Cogentrix Whitewater, LLC
("Cogentrix WW"), a Delaware limited liability company. Capitalized terms
used herein and not defined shall have the meaning set forth for such terms
in the Partnership Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement
dated as of March 20, 1998 by and among Granite, LS Power Corporation,
Cogentrix Mid-America, Inc., Cogentrix WW and Cogentrix Cottage Grove, LLC,
Granite desires to sell to Cogentrix WW all of the capital stock of LSP-WW
and all of its Interest in the Partnership (such transaction, the "Sale");
WHEREAS, TPC Funding LLC, a Delaware limited liability company and
an affiliate of TPC ("TPC Funding"), intends to enter into a bridge loan and
subsequent Rule 144A financing transaction which will require that, among
other things, TPC pledge its Interest in the Partnership as collateral
security to one or more financial institutions as agent(s) or collateral
agent(s) for the benefit of such institutions and one or more creditors
(such transaction, the "Tomen Financing");
<PAGE> 2
WHEREAS, the terms and conditions of the Partnership Agreement
provide for certain consents and approvals in connection with transactions
such as the Sale and the Tomen Financing; and
WHEREAS, the parties hereto desire to grant certain consents,
waivers and amendments in order (i) to permit the Sale and to admit
Cogentrix WW as a Partner upon consummation of the Sale and (ii) to permit
TPC's pledge in connection with the Tomen Financing;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
agree, effective as of the date first written above, as follows:
ARTICLE I
WAIVERS AND CONSENTS
Section 1.1 Right of First Offer. Notwithstanding Section 7.8 of
the Partnership Agreement, each of TPC, LSP-WW and Granite hereby
unconditionally and irrevocably waives its respective right of first offer
with respect only to the Sale as described herein and consents to the Sale.
Section 1.2 Transfers of Partnership Interests--the Sale.
Pursuant to, and notwithstanding the terms of, Article VII of the Partnership
Agreement, including without limitation, Sections 7.1(b), 7.1(c)(iv), 7.2
and 7.7 thereof, LSP-WW, Granite and TPC each hereby waive any prohibitions
to the Sale contained therein and hereby consent to the Sale in all respects,
including without limitation (i) the admission of Cogentrix WW as a Limited
Partner and substitution of Cogentrix WW for Granite for all purposes of the
Partnership Agreement on identical terms and conditions as Granite and
(ii) the fact that Cogentrix WW, pursuant to the Sale, shall own 100% of the
capital stock of the General Partner. In connection therewith, the General
Partner hereby acknowledges that it has received adequate assurances, and
Cogentrix WW hereby renders assurance to the General Partner and to TPC that,
as required under the Partnership Agreement, Cogentrix WW, by virtue of and as
of the date of execution of this Agreement, agrees to be bound by all of the
terms and conditions of the Partnership Agreement.
Section 1.3 Transfers of Partners Interests--the Tomen Financing.
Pursuant to, and notwithstanding the terms of, Article VII of the Partnership
2
<PAGE> 3
Agreement, including without limitation Section 7.1 thereof, as of the date
of execution of this Agreement, LSP-WW and Cogentrix WW each hereby waive any
prohibitions to the Tomen Financing contained therein and hereby consent to
the pledge of all or any portion of the Interest by TPC pursuant to the Tomen
Financing including but not limited to a collateral assignment of TPC's
rights to receive distributions relating to the TPC Interest from the
Partnership from time to time and an irrevocable direction by TPC instructing
the General Partner to pay over all such distributions to one or more
financial institutions as agent(s) or collateral agent(s) for the benefit of
such institutions and one or more creditors; provided, however, that
notwithstanding any provision of this Agreement, no pledge, assignment,
direction or other action by TPC of or relating to its Interest under this
Section 1.3 shall violate or result in a violation of Section 7.1(c) of the
Partnership Agreement. TPC acknowledges and agrees that LS Power is
assigning the Management Services Agreement to Cogentrix Energy, Inc.
Section 1.4 Cooperation in Tomen Financing. Each of LSP-WW,
Granite and Cogentrix WW, for itself and as agent on behalf of its Affiliate,
Cogentrix Mid-America, Inc., acknowledges and agrees that it will provide
such reasonable cooperation, assistance and information to TPC as TPC may
reasonably request from time to time in connection with the Tomen Financing.
Section 1.5 Name Change. Each of Granite and TPC acknowledge,
agree and consent to the change of the name of the Partnership and LSP-WW to
"Cogentrix-Whitewater, L.P." and "Cogentrix-WW, Inc." respectively (or other
similar derivations thereof) which shall occur on or before 180 days after
the closing of the Sale. TPC, for itself and as agent on behalf of its
Affiliate, TPC Funding, acknowledges and agrees that it will provide such
reasonable cooperation, assistance and information to Cogentrix WW as
Cogentrix WW may reasonably request from time to time in connection with the
name change contemplated by this Section 1.5.
ARTICLE II
AMENDMENTS
Section 2.1 Exhibit A. Exhibit A (Partners' Percentage Interest)
to the Partnership Agreement is hereby deleted in its entirety and replaced
with Exhibit A attached hereto.
3
<PAGE> 4
Section 2.2 Section 2.1(c)(i)--Conversion to Achievement of a
14.0 Percent Return. The parties hereto agree that no adjustment to the TPC
Whitewater, Inc. Partnership Interest is necessary and that no such
adjustment has been or shall be made.
Section 2.3 Section 2.1(c)(iii)--Following Achievement of a
Fourteen Percent (14.0%) Return. Section 2.1(c)(iii) of the Partnership
Agreement is hereby amended by deleting "or" in the next to last line of
such section and inserting "and (iii) if a Refinancing shall have occurred,"
in lieu thereof.
Section 2.4 Notices. Section 10.1 of the Partnership Agreement
is hereby amended by deleting the notice address for the Partnership and
LSP-WW in the second paragraph and inserting the following in lieu thereof:
LSP-Whitewater, Inc.
c/o Cogentrix Whitewater, LLC
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273
Attention: General Counsel
Telephone: (704) 525-3800
Fax: (704) 529-1006
Section 2.5 Confidentiality. Section 10.22 of the Partnership
Agreement is hereby deleted in its entirety and replaced by the following:
Confidentiality. Each Partner agrees to treat in a confidential manner
all information it receives from the Partnership concerning the Partnership
and shall not disclose such information to any Person other than (i) to
its employees, attorneys or agents and then only to the extent such
disclosure, in the good faith determination of such Partner, is necessary
for the performance of the duties or responsibilities of such Persons,
(ii) in connection with any action, litigation or proceeding arising out of
or in connection with the Partnership Agreement or the other documents
delivered hereunder or the enforcement hereof or thereof (provided, however,
no information concerning the Partnership received by such Partner hereunder
may be used or furnished in connection with any other contemplated
litigation, proceeding or any governmental investigation, except as
permitted by subsections (iii) and (iv) of this Section 10.22), (iii) to
any banking, governmental or regulatory body having jurisdiction over it,
4
<PAGE> 5
(iv) as may be required by law, applicable regulation or subpoena, in which
case such Partner, to the extent practicable and permitted by law, shall
notify promptly the Partnership of such disclosure (other than disclosure
made by any Partner pursuant to subsection (iii) above), (v) to the extent
any such information is in or becomes part of the public domain otherwise,
or (vi) as may be reasonably necessary in connection with a financing
transaction to be entered into by a Partner or any Affiliate thereof.
ARTICLE III
MISCELLANEOUS
Section 3.1 Entire Agreement. This Agreement supersedes all
prior agreements and understandings among the parties hereto with respect
to the subject hereof.
Section 3.2 Modification. This Agreement may be modified only
upon the prior written consent of each party hereto.
Section 3.3 Severability. If any provision of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 3.4 Further Assurances. Each party shall execute such
deeds, assignments, endorsements, evidences of Transfer and other
instruments and documents and shall give such further assurances as shall
be reasonably necessary to perform its obligations hereunder.
Section 3.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Delaware
and without reference to any conflict of law or choice of law principles of
the State of Delaware that might apply the law of another jurisdiction.
Section 3.6 Counterparts. This Agreement may be executed in any
number of counterparts or with counterpart signature pages, each of which
shall be deemed an original, but all of which shall constitute one and the
same instrument.
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Section 3.7 Limitation on Rights of Others. No Person other than
a Partner and its successors and permitted assigns is, nor is it intended
that any such other Person be treated as, a direct, indirect, intended or
incidental third party beneficiary of this Agreement for any purpose
whatsoever, nor shall any other Person have any legal or equitable right,
remedy or claim under or in respect of this Agreement.
Section 3.8 Gender; Number. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular or plural number,
shall be deemed to be or include the other genders or number, as the case may
be, whenever the context so indicates or requires.
Section 3.9 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 3.10 Exhibits. All exhibits referenced in this Agreement
shall be incorporated herein by such reference and shall be deemed to be a
integral part hereof.
Section 3.11 Certain Remedies. Each Partner and the Partnership
shall be entitled to all remedies at law and equity for breach of this
Agreement. Each Partner further acknowledges that specific performance is
an appropriate remedy for breach of any obligation hereunder.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GENERAL PARTNER:
LSP-WHITEWATER I, INC.
By: /s/ Michael Liebelson
-----------------------
Name: Michael Liebelson
Title: Managing Director
LIMITED PARTNERS:
GRANITE POWER PARTNERS, L.P.
by its general partner
LS POWER CORPORATION
By: /s/ Michael Liebelson
------------------------
Name: Michael Liebelson
Title: Michael Liebelson
TPC WHITEWATER, INC.
By: /s/ Masahiro Ishii
-----------------------
Name: Masahiro Ishii
Title: Executive Vice President
COGENTRIX WHITEWATER, LLC
By: /s/ James R. Pagano
------------------------
Name: James R. Pagano
Title: President
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EXHIBIT A
PARTNERS' PERCENTAGE INTEREST
Percentage
Partner Interest
------- ----------
General Partner
---------------
LSP-Whitewater I, Inc. 1%
Limited Partners
----------------
Cogentrix Whitewater, LLC 73.17%
TPC Whitewater, Inc. 25.83%
-------
Total 100.00%
8
<PAGE> 1
EXHIBIT 10.96.2
FIFTH AMENDMENT
TO
POWER PURCHASE AGREEMENT
This Fifth Amendment is made as of February 26, 1998, to the Power
Purchase Agreement between LSP-Whitewater Limited Partnership ("Seller") and
Wisconsin Electric Power Company ("Buyer") dated as of December 21, 1993, as
amended as of February 10, 1994; October 5, 1994; May 5, 1995 and March 18, 1997
("the Agreement").
WHEREAS, the parties have determined to amend the Agreement as
provided herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties agree to and hereby do amend the
Agreement as set forth herein.
1. Article 1 of the Agreement shall be amended by adding the
following definition of "Additional Equipment" after the definition of "AAA":
"Additional Equipment shall have the meaning set forth in Appendix 3
(Part One)."
2. Article 1 of the Agreement shall be amended by adding the
following definition of "Base Condition Maximum Output (BCMO)" after the
definition of "Available Capacity":
"Base Condition Maximum Output ("BCMO") shall have the meaning as set
forth in Appendix 9, Section(h)."
<PAGE> 2
3. Article 1 of the Agreement shall be amended by adding the
following definition of "Existing Augmentation Equipment" after the definition
of "Event of Default":
"Existing Augmentation Equipment" shall have the meaning set forth in
Appendix 3 (Part One)."
4. Article 1 of the Agreement shall be amended by adding the following
definition of "Gas Day" after the definition of Force Majeure:
"Gas Day" shall mean a period of 24 consecutive hours as defined in
Northern Natural's applicable FERC gas tariff, currently 9 a.m. to 9
a.m."
5. Article 1 of the Agreement shall be amended by adding the
following definition of "Gas Test" after the definition of "Gas Report":
"Gas Test" shall have the meaning set forth in Appendix 9, Section
(d)(i)."
6. Article 1 of the Agreement shall be amended by adding the
following definition of "Minimum Automatic Dispatch Level" after the definition
of "Milestone":
"Minimum Automatic Dispatch Level" shall mean seventy percent (70%) of
the Committed Capacity as adjusted for ambient temperature and humidity
in accordance with Appendix 9, Table A for all temperatures at or above
20 degrees F and shall mean seventy percent (70%) of the Committed
Capacity adjusted to 20 degrees F and fifty percent (50%) relative
humidity for ambient temperatures below 20 degrees F."
7. Article 1 of the Agreement shall be amended by adding the
following definition of "Northern Natural" after the definition of
"Non-Operating Party":
"Northern Natural" shall have the meaning Northern Natural Gas Company
and its successors and assigns.
8. Article 1 of the Agreement shall be amended by adding the
following definition of "Oil Test" after the definition of "O&M Option":
"Oil Test" shall have the meaning set forth in Appendix 9, Section
(d)(i)."
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<PAGE> 3
9. Article 1 of the Agreement shall be amended by adding the definition of
"Post Commercial Operation Test Energy" after the definition of "Post
Construction Milestone":
"Post Commercial Operation Test Energy" shall have the meaning set forth in
Article 5, Section 5.6."
10. Article 1 of the Agreement shall be amended by adding the definition
of "Startup Payment" after the definition of "Sole Arbitrator Deadline":
"Startup Payment" shall have the meaning set forth in Section K of Appendix
2."
11. Article 1 of the Agreement shall be amended by adding the definition
of "Threshold Capacity" after the definition of "Thermal Hosts":
"Threshold Capacity" shall have the meaning set forth in Appendix 2,
Section f."
12. Article 1 of the Agreement shall be amended by adding the definition
of "VR-1 Adjustment Range" after the definition of "Variable O&M Rate":
"VR-1 Adjustment Range" shall have the meaning set forth in Appendix 2,
Section f. (ii)."
13. Article 5, Section 5.1 (d)(iv) of the Agreement is amended by deleting
the subsection in its entirety and replacing it with the following:
"(iv) For non-firm energy sales under Section 5.1(d)(iii), Seller must
offer such energy to Buyer no later than 9:00 a.m. of the immediately
preceding day for daily sales and no later than thirty (30) minutes prior
to the proposed hour of sale for hourly sales and under the same terms as
it offers such sales to third parties. Buyer's acceptance shall have
precedence over third party acceptance of such non-firm energy sales
provided Buyer's acceptance is made no later than 11:00 a.m. of the
immediately preceding day for daily sales and fifteen (15) minutes prior to
the start of the proposed hour of sale for hourly sales. The above notice
and acceptance deadlines are based on the custom and practice for bulk
wholesale power sales in the region as of the date of the Fifth Amendment
to this Agreement and the parties agree to negotiate in good faith such
changes as may be necessary to retain a comparable decision period for
Buyer and a comparable
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<PAGE> 4
period to enable Seller to make such sales in response to subsequent
changes in such customs and practice. Unless otherwise agreed by the
parties, delivery of non-firm energy shall commence at the beginning of an
hour. For third party sales of non-firm energy at a price equal to or
higher than the product of (A) the sum of the applicable Variable Energy
Rate (VR-1, VR-2 or VR-3) plus the variable O&M Rate multiplied by (B) the
Transmission Energy Loss Factor, Seller may offer such sales to a third
party without offering them to Buyer. For short-term (under one month)
capacity and energy sales under Section 5.1(d)(ii), Buyer shall have the
opportunity to accept an offer within one business day of submittal by
Seller. For long-term (one month and over) capacity and energy sales under
Section 5.1(d)(ii), Buyer shall have the opportunity to accept an offer
within three business days. If any offer is not accepted by Buyer, Seller
shall be able to complete a sale to third parties within two weeks after
Buyer's rejection under terms no more favorable to such third party than
those offered to Buyer. Seller shall be responsible for any necessary
transmission services for such third party sales.
14. Article 5, Section 5.1 of the Agreement is amended by adding a new
subsection "(e)" as follows:
"Seller may install up to 6 MW of stand alone generation capability at the
Project, provided that such stand alone generating capacity shall not
result in any adverse effect on the price or quantity of power available to
Buyer from the Project under this Agreement (but without regard to any
power available to Buyer pursuant to Section 5.1(d)(i)(A) hereof) or the
natural gas required to be available for the Project under Appendix 2,
Section f, from Seller's existing Northern Natural transportation contracts
or any replacements thereof, and shall not have an adverse effect on
Seller's ability to meet its obligations to Buyer under this Agreement and
shall not be used to increase the Committed Capacity above what it would be
without the stand alone generation capability. Buyer agrees that the third
party sale of power from such stand alone generation shall not be subject
to the 12 megawatt third-party sales limitation as set forth in Section
5.1(d). Seller agrees to provide Buyer with a first right of offer on the
sale of energy and/or capacity from such stand alone generation. Seller
further agrees that any sales to third parties in Wisconsin or Michigan
shall only be wholesale sales until open retail access is permitted in
Wisconsin or Michigan, respectively, and that Seller will obtain and pay
for transmission service required for such third party sales in accordance
with Buyer's FERC filed tariff as may be in effect or any such successor
transmission tariff."
4
<PAGE> 5
15. Article 5 of the Agreement is amended by adding a new section, "5.6
Post Commercial Operation Test Energy" as follows:
"5.6 Post Commercial Operation Test Energy. The parties recognize that
following commercial operations the Project will experience scheduled and
unscheduled outages and other periodic requirements for testing which may
cause the Seller to need to operate the Project and produce energy prior to
making the Project available for dispatch to Buyer. The energy produced by
the Project during such testing periods ("Post Commercial Operation Test
Energy") shall be made available to and shall be purchased by Buyer at a
price equal to seventy-five percent (75%) of Buyer's contemporaneous hourly
economy "A" purchase price following the procedures set forth below. Seller
shall notify Buyer as far in advance as practical when it intends to test
the Project and produce energy, such notice not to be given less than two
hours before the start of the production of Post Commercial Operation Test
Energy at the Project. Buyer shall purchase such Post Commercial Operation
Test Energy unless (a) Seller has failed to give Buyer notice or (b)
conditions on Buyer's system are, or are projected to be during the time
such Post Commercial Operation Test Energy will likely be supplied, such
that Buyer's system operation, including operation of its generating
facilities and firm purchase power contracts, would be significantly
disrupted by Buyer's accepting Post Commercial Operation Test Energy."
16. Section 6.1 is amended by adding the following new sentence at the
end of such Section:
"For the first year following the commercial operations date, the annual
information required by this Section 6.1 shall cover the period of and be
provided on or before the sixtieth (60th) day following the end of a twelve
(12) month period beginning on the date of the Project's first generation
of electrical energy."
17. Article 7 of the Agreement is amended by adding a new subsection
"7.6.1" between Sections 7.6 and 7.7 as follows:
"7.6.1 Start-up Payment. The Start-up Payment shall be as determined as set
forth in Appendix 2, Section k."
18. Section 7.1 of the Agreement is amended by deleting the word "and" in
the second sentence thereof and adding the following to the end of such
sentence:
"and (vi) a Start Up Payment."
5
<PAGE> 6
19. Section 13.1(a) of the Agreement is amended by revising the last
sentence thereof after the phrase "shall not exceed" to read as follows:
"the lesser of (i) thirty-two (32) days; and (ii)(A) for the period through
the sixth calendar year after the Commercial Operations Date an aggregate
of 108 days; and (B) for each calendar year thereafter, the value that
would yield an annual rolling average for such calendar year and the
immediately preceding five (5) calendar years of eighteen (18) days per
year."
20. Appendix 2, Section f.(i) is deleted in its entirety and the
following shall be substituted therefor:
"(i) Subject to Section f(v) of this Appendix, the Variable Energy Rate for
the first twenty (20) Contract Years shall be comprised of two tiers, Rates
VR-1 and VR-2, which shall apply depending on the amount of Net Electrical
Energy produced by the Project in any Gas Day. The VR-1 rate shall be
charged for energy delivered up to 3,500 MWH per Gas Day from November 1
through April 30, and up to 3,600 MWH per Gas Day from May 1 through
October 31 (the "VR-1 Output Level"). For energy delivered in excess of the
VR-1 Output Level, the VR-2 rate shall apply. No later than three (3) hours
before the deadline for Seller's daily nomination under its firm
transportation agreement with Northern Natural or any replacement thereof,
Buyer shall notify Seller whether or not it will require more than 2,600
MWH for such Gas Day. If the nomination is incorrect, Buyer shall reimburse
Seller for any gas or transportation related imbalance penalties actually
incurred by Seller as a result of Buyer's incorrect energy nomination.
Seller will use its reasonable efforts to mitigate such penalties.
Subject to Section f(v) of this Appendix, the Variable Energy Rate for the
twenty-first through the twenty-fifth Contract Years shall consist of one
tier, "VR-2", which shall apply to all energy delivered by the Project
during such period."
21. Appendix 2, Section f.(ii) is amended by adding the following to the
end thereof.
"For any period where the Project is capable of operating at a level above
the Minimum Automatic Dispatch Level, but Buyer dispatches the Project
above its Minimum Net Electrical Output Level and below the Minimum
Automatic Dispatch Level (the "VR-1 Adjustment Range"), the VR-1 rate for
all energy delivered by the Project while operating in the VR-1 Adjustment
Range shall be increased by ten percent (10%); provided the Project is not
operating at or above the Minimum Automatic Dispatch Level. Notwithstanding
the foregoing, the VR-1 Rate shall not be increased pursuant to the
immediately preceding sentence for
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<PAGE> 7
any operation of the Project within the VR-1 Adjustment Range resulting
from Seller's incorrect setting of the AGC low operating bandwidth to a
value less than the Minimum Automatic Dispatch Level."
22. Appendix 2, Section f.(iii) is amended by adding the following to the
end of the definition of "E".
"For the first twenty (20) Contract Years, if Seller has available
transportation under its existing Northern Natural contracts, or any
replacement contracts thereto, after taking into account the gas utilized
to deliver the VR-1 Output Level and any other gas needs of the Project, it
shall first make available such transportation for gas needed to deliver
VR-2 energy. The charge to Buyer for such additional use of such available
existing Seller transportation shall be only the variable, commodity based
charges. No fixed charges, including reservation fees and demand charges
for such transportation will be charged to Buyer."
23. Appendix 2, Section f.(iv) is amended by adding the following at the
end of the list of correction curves:
"The heat rate correction curves approved by Buyer pursuant to this Section
(f)(iv) are attached hereto as Exhibit 1 to this Appendix 2 and for the
purposes of such curves the references to percent load shall refer to
Project output as a percent of Committed Capacity."
24. Appendix 2, Section f. is amended by adding a new subsection "(v)" as
follows:
"(v) The Committed Capacity multiplied by the appropriate factor in
Appendix 9, Table A shall be used to determine the level of capacity at
given ambient conditions (the "Threshold Capacity") at which the associated
Net Electrical Energy shall be charged at the Variable Energy Rates VR-1 or
VR-2, as applicable. The Variable Energy Rate for energy associated with
capacity delivered in excess of the Threshold Capacity but not exceeding
the Maximum Net Electric Output Level shall consist of a new variable
energy rate, VR-3. Rate VR-3 shall be equal to 1.45 times whichever of the
rates VR-1 or VR-2, would have been applicable but for this Section f(v)."
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<PAGE> 8
25. Appendix 2 is amended by adding at the end a new section "k." as
follows:
"k. During the first twenty Contract Years, when Net Electrical Energy in
excess of 2,600,000 kWH is provided to Buyer during a Gas Day, Buyer shall
pay Seller a start-up fuel charge (the "Startup Payment") equal to 750
MMBtus multiplied by the NNG Index Price for such Gas Day. For any Contract
Year thereafter, Buyer shall pay Seller a Startup Payment equal to 750
MMBtus multiplied by the applicable value of "E" for the period, as
determined pursuant to Section f.(iii) of this Appendix and the part load
heat rate correction to Rate VR-2 for energy delivered to Buyer for Project
output below the Minimum Electric Output Level during a start up will be
based on the part load heat rate correction factor for the Minimum Electric
Output Level."
26. Appendix 3 (Part One) shall be amended by adding the following at the
end of the list of major equipment:
"Without limiting the foregoing, the Project may include evaporative
chillers, duct burners and equipment for steam injection and related
ancillary equipment as installed at the Project as of the Commercial
Operations Date as the same may be improved or replaced pursuant to this
Agreement ("Existing Augmentation Equipment") and there may be added to the
Project, such other equipment for augmenting or enhancing the Project
capacity or efficiency ("Additional Equipment") as may be acceptable for
use in combustion turbine based, or combined cycle facilities in accordance
with Good Utility Practice, provided that neither any improvement, repair,
modification or replacement of Existing Augmentation Equipment nor any
Additional Equipment shall result directly or indirectly in an adverse
effect on the price or quantity of power available to Buyer from the
Project, an increase in the Committed Capacity of the Project above 236.5
MW or an adverse effect on Seller's ability to meet its obligations to
Buyer under this Agreement. For purposes of a noninclusive example of this
paragraph of Appendix 3 only and without prejudice to the rights of either
party under any other provisions of this Agreement, each of the following
would constitute an adverse effect on Seller's ability to meet its
obligations to Buyer under this Agreement: a decrease in Project loading or
unloading ramp rate, a decrease in Project dispatchability or increase in
Project minimum load or an increase in Project emissions of pollutants
above permitted levels. Committed Capacity and related energy may include
the capacity and energy produced by operating the Project with Existing
Augmentation Equipment and/or Additional Equipment.
Committed Capacity may not include capacity and energy produced by
generating equipment other than Existing Augmentation Equipment, Additional
Equipment and such other generating equipment of the type installed at the
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<PAGE> 9
Project on January 1, 1998. For purposes of a non-inclusive example,
Committed Capacity may not include capacity and energy produced by a
standby gas or oil fueled generator.
For operation on both gas and oil, for normal operations and for Committed
Capacity tests, the Project's duct burners may be operated on natural gas,
whether or not they are capable of operation on any other fuel, as long as
the natural gas required for the duct burners is provided from a firm
supply pursuant to the Project's existing gas supply contracts and is
transported via firm transportation on the Northern Natural system or from
an equivalent firm supply and transportation arrangement via another
pipeline system. Interruptible transportation can be utilized on Northern
Natural's system upstream of the storage field receipt point as long as the
Project maintains an FDD storage account with Northern Natural in an amount
equal to at least 6,000 MMBtu's. Seller may satisfy the requirements of
this paragraph by installing such equipment as required to enable the
Project's duct burners to operate on oil or propane as a fuel, provided
that Seller reasonably demonstrates oil or propane fuel storage capacity,
as appropriate, and burner tip delivery system at the Project Site of at
least 6,000 MMBtus."
27. Appendix 8 is amended as follows:
a) The second paragraph is deleted in its entirety and replaced with the
following:
"The Maximum Net Electrical Output Level dispatched by the Buyer shall be
determined as set forth in Appendix 9, Section (h)."
b) The third paragraph is deleted and replaced in its entirety with
the following:
"The Minimum Net Electrical Output Level dispatched by the Buyer shall
equal sixty percent (60%) of the Committed Capacity as adjusted for ambient
temperature and humidity in accordance with Appendix 9, Table A."
c) The third paragraph from the end of Appendix 8 is amended by adding
the following new sentence to the end of such paragraph:
"For any period that the Project is capable of operating at a level above
the Minimum Automatic Dispatch Level and the Project's generation level is
controlled by Buyer's AGC system, the Buyer will not dispatch the Project
below the Minimum Automatic Dispatch Level and the Seller shall adjust the
AGC low
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<PAGE> 10
operating bandwidth point to the Minimum Automatic Dispatch Level. Buyer
may dispatch the Project at below the Minimum Automatic Dispatch Level and
at or above the Minimum Net Electrical Output Level if the Project is not
being controlled by Buyer's AGC system."
28. Appendix 8 is amended by adding the following new paragraph at the
end of the Appendix:
"Buyer will not issue two or more Dispatch Orders to conduct a Project
startup (Start Order) in a single calendar day as a routine dispatch and
operating practice. Buyer may issue more than one Start Order in a calendar
day if the Project ceases to deliver Net Electrical Energy for causes other
than a Dispatch Order to conduct a Project shutdown (Shutdown Order) or, if
after Buyer issues a Shutdown Order, a material unexpected event or
circumstance occurs which impacts supply resources in M.A.I.N., or a
successor reliability organization. Buyer will not, after having issued a
Start Order and having dispatched the Project for a portion of a day, issue
a Shutdown Order, and then order a second Start Order in the same day for
the purpose of avoiding a Start-up Payment. If, however, Seller starts up
the Project without a Start Order to sell energy or capacity to a third
party and Buyer subsequently purchases Net Electrical Energy from the
Project prior to a Project shutdown, Buyer's issuance of a Shutdown Order
for such period shall not be counted for the purposes of this paragraph.
29. Appendix 9, Section (a) is amended by adding the following to the end
of the second paragraph:
"If the Seller's scheduled maintenance outages exceed a six (6) year
rolling average of sixteen days for a Contract Year, and the Performance
Factor for that Contract Year is greater than 0.97, then the Performance
Factor for that Contract Year shall be redetermined by assuming that the
Project was unavailable by reason of an unscheduled outage during the last
two (2) scheduled maintenance days of such Contract Year. For the purpose
of the determination of Seller's scheduled maintenance, any scheduled
maintenance day during which the Project is restored to availability
between 12:00 a.m. and 12:00 p.m. of such day shall be considered a half
day of scheduled maintenance and any scheduled maintenance day during which
the Project is restored to availability after 12:00 p.m. of such day shall
be considered a full day of scheduled maintenance."
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<PAGE> 11
30. Appendix 9, Section (d)(i) shall be amended as follows:
a) The first sentence shall be amended in the entirety to read as
follows:
"Every summer period (June 15 to September 15), a capacity test using
natural gas as the fuel for the Project (the "Gas Test") and a capacity
test using oil as the fuel for the Project's combustion turbines and
natural gas for the Project's duct burners (the "Oil Test") shall be
conducted, both in accordance with the requirements of the Mid-American
Interpool Network ("MAIN") Guide No. 3, Procedures for the Uniform Rating
of Generating Equipment (the "Summer Capacity Test").
b) The second sentence shall be amended by adding "capacity for each of
the Gas Test and Oil Test respectively for purposes of determining" between the
words "Project's" and "Committed"; deleting the words "for payment purposes"
and adding the words "using Table A attached hereto and made a part of this
Appendix 9" between "50%" and "."
c) The following new sentence shall be added:
"Committed Capacity shall be the lower of the capacity determined pursuant
to the Gas Test and the capacity calculated by adding 60 percent of the Gas
Test capacity and 40 percent of the Oil Test capacity."
d) The following new sentence shall be added to the end of the Section:
"If oil or propane fueled duct burners are installed in accordance with the
provisions of Appendix 3 (Part One), the Oil Test shall be conducted using
oil or propane, as applicable, as the fuel for the duct burners."
31. Appendix 9, Section (d)(iv) is amended by adding the words "consisting
of a Gas Test and an Oil Test" between the words "test" and "shall" in the
first sentence; deleting the second sentence in its entirety and replacing it
with the following:
"Committed Capacity shall be the lower of the capacity determined pursuant
to the Gas Test and the capacity calculated by adding 60 percent of the Gas
Test capacity and 40 percent of the Oil Test capacity."
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<PAGE> 12
32. Section (d) of Appendix 9 shall be amended by adding the following
new Section (v) as follows:
"(v) All Committed Capacity tests may be conducted with the use of any
Existing Augmentation Equipment or Additional Equipment permitted by
Appendix 3 (Part One)."
33. Appendix 9 is amended by adding a new Section "(h)" which shall read
as follows:
"Each year prior to March 15, a test will be conducted to determine the
Maximum Net Electric Output Level at varying ambient conditions until the
next such test is conducted. This test will be conducted on natural gas at
an ambient temperature at or above 20 degrees F. with the Project
combustion turbine at full load, 141 MMBtu (HHV) of duct burning and
without the use of steam injection or evaporative coolers. This test shall
be conducted following the same scheduling and other test procedures as the
Gas Test described in Appendix 9, Section (d). The ambient adjustment
factors from Appendix 9, Table A shall be used to adjust the tested
capacity to the 20 degrees F./50% relative humidity condition (Base
Condition Maximum Output or "BCMO"). Below 20 degrees F., Maximum Net
Electric Output Level is equal to the BCMO. For temperatures above 20
degrees F., and at 50% relative humidity, a straight line connecting the
BCMO with the Committed Capacity level at 90 degrees F, 50% relative
humidity, shall be used to determine the Maximum Net Electrical Output
Level at varying temperatures. Humidity adjustment factors derived from
Appendix 9, Table A shall be used to adjust the Maximum Net Electrical
Output Level relative to the 50% relative humidity condition. This test
shall not be used to establish Committed Capacity. The Maximum Net
Electrical Output Level at any ambient condition shall not be less than the
Committed Capacity adjusted for such ambient conditions pursuant to
Appendix 9, Table A."
34. Section (g) of Appendix 9 shall be amended by revising such Section
to read as follows:
"(g) If at the time of any test to be performed under paragraphs (d)(i),
(d)(iv) or (h) of this Appendix 9 (a "Scheduled Test") or any retest for
such Scheduled Test permitted under this Section (g) (a "Retest"), the
Project is not operable, or its output is materially affected by any
condition which can be remedied by maintenance, repair or reconstruction,
which can be accomplished before the next Scheduled Test, a Retest shall be
scheduled by Buyer as promptly as practicable but not to exceed 7 days
after Seller notifies Buyer that the condition has been corrected. Any
Retest shall be performed in accordance with the
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requirements (other than the requirement to test within the applicable
summer or winter period and scheduling) for the Scheduled Test for which
such Retest is performed. Upon completion in accordance with its
requirements the results of a Retest shall be substituted for the results
of the Scheduled Test for which such Retest is performed."
35. Appendix 9, Section (h) shall be redesignated Appendix 9, Section
(i) and shall be amended by replacing the word "and" between "(d)(i)" and
"(d)(iv)" with "," and adding "and (h)" between "(d)(iv)" and the word "above"
in the first sentence.
36. Except as expressly amended hereby, all of the terms and provisions
of the Agreement are and shall remain in full force and effect.
37. This Fifth Amendment may be executed in any number of counterparts
by the parties hereto, each of which counterparts when so executed shall be
an original, but all the counterparts shall together constitute one and the
same instrument.
38. This Fifth Amendment and the rights and obligations of the parties
hereunder shall be governed by, and construed in accordance with, the laws of
the State of Wisconsin.
39. Each party represents to the other party that, as of the date
hereof:
(a) It is duly organized, validly existing and in good standing under
the laws of the state in which it is formed as set forth in the first paragraph
of this Fifth Amendment;
(b) It has the power and authority to execute, deliver and carry out
the terms and provisions of this Fifth Amendment;
(c) All necessary action has been taken to authorize its execution,
delivery and performance of this Fifth Amendment and this Fifth Amendment
constitutes the
13
<PAGE> 14
valid, legal and binding obligation of such party enforceable against it in
accordance with the terms hereof; and
(d) No approval, authorization, order or consent of or declaration,
registration or filing with any governmental authority is required for the
valid execution, delivery and performance under this Fifth Amendment by such
party.
40. This Fifth Amendment shall be effective as of February 1, 1998 upon
execution by both parties and the receipt by Wisconsin Electric of Settlement
Payment (as defined in the Settlement Agreement between the parties dated as of
February 26, 1998).
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first set forth above.
WITNESSED BY: LSP-WHITEWATER
LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
/s/ Kimberly S. Bonnell /s/ Michael S. Liebelson
- -------------------------------- By: ---------------------------
Michael S. Liebelson
Managing Director
WITNESSED BY: WISCONSIN ELECTRIC POWER
COMPANY:
- --------------------------------- By: ---------------------------
Gerald A. Abood
Director, Fossil Operations
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first set forth above.
WITNESSED BY: LSP-WHITEWATER
LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
- -------------------------------- By: ---------------------------
Michael S. Liebelson
Managing Director
WITNESSED BY: WISCONSIN ELECTRIC POWER
COMPANY:
/s/ Gerald A. Abood
- --------------------------------- By: ---------------------------
Gerald A. Abood
Director, Fossil Operations
<PAGE> 1
EXHIBIT 10.172
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of March 20, 1998
(this "Agreement"), is made by and between LS POWER CORPORATION, a Delaware
corporation (the "Assignor"), and COGENTRIX ENERGY, INC., a Delaware
corporation (the "Assignee") (unless otherwise defined herein, all
capitalized terms used herein shall have the meanings given them in the
Securities Purchase Agreement referenced below).
W I T N E S S E T H:
WHEREAS, the Assignor, Granite Power Partners, L.P., a Delaware
limited partnership ("Granite"), the Assignee, 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, have entered into that certain Securities Purchase
Agreement dated as of March 6, 1998 (the "Securities Purchase Agreement"),
which provides for the sale by the Sellers, and the purchase by the
Purchasers, of all of the Securities in the Acquired Companies (the
"Acquisition");
WHEREAS, the Assignor is a party to certain management service
agreements with certain of the Acquired Companies listed on Exhibit A
hereto (the "Management Agreements");
WHEREAS, in connection with the Acquisition, the Assignor desires to
assign, and the Assignee desires to assume, all of the Assignor's right,
title and interest in the Management Agreements (the "Assignment"); and
WHEREAS, the Assignor and the Assignee have agreed that certain
management and personnel of the Assignor will be available to provide
services to the Assignee after the date hereof, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Assignor and Assignee, the Assignor hereby assigns,
transfers and sets over to the Assignee all of the Assignor's rights and
interests in and to the Management Agreements, and Assignee hereby expressly
accepts such assignment and agrees to, and does hereby assume, and agrees
hereafter, to timely pay, perform or discharge each and every of the
obligations and liabilities of the Assignor under the Management Agreements.
The Assignee further agrees to indemnify and hold the Assignor harmless from
any claim or liability arising under or as a result of any obligations and
liabilities to be paid, performed or discharged pursuant to the Management
Agreements after the date hereof.
The Assignor further covenants and agrees that, at the reasonable
request of the Assignee and without further consideration, but at no
additional cost to the Assignor, the Assignor will execute such other
instruments of conveyance, transfer and assignment and take such further
action as may be reasonably required in order to grant, bargain, sell, assign,
<PAGE> 2
transfer, set over or deliver to Assignee, its successors and assigns, the
Management Agreements transferred hereunder.
This Agreement shall be binding upon, and shall inure to the benefit of,
the Assignee, the Assignor, and each of their successors and assigns, and
shall be subject to the terms and conditions of the Securities Purchase
Agreement.
From the date hereof through April 30, 1998 (the "Initial Period"), the
Assignor shall cause the appropriate members of its management to provide
Purchasers with reasonable assistance and cooperation to effect (i) the
timely and efficient transfer of management, records, files and other
documents and (ii) the preparation of required reports and filings for the
Acquired Companies. The assistance provided during the Initial Period shall
be at no cost to Purchasers other than reimbursement of reasonable
out-of-pocket expenses incurred by Assignor in providing such assistance.
In addition to the assistance provided under the preceding sentence, for the
11-month period following April 30, 1998 (the "Annual Period"), the Assignor
shall (i) cause its Principals (as defined below) to be available to provide
assistance and consulting to the Purchasers for no more than 10 hours per
month at no cost, other than reasonable out-of-pocket expenses to Purchasers
and (ii) cause its Management (as defined below) to reasonably consult with
representatives of the Purchasers concerning the management and operation of
the Acquired Companies and their respective businesses on and prior to
Closing, including without limitation with respect to (a) pending litigation,
claims and related matters, (b) supplier, manager, customer, personnel and
other business relationships, (c) regulatory, environmental, tax and other
governmental matters, (d) the EPC Contracts with Westinghouse Electric
Corporation and (e) the Operation and Maintenance Agreements with
Westinghouse Operating Services Company, Inc. The Assignee shall pay for
the assistance and consulting provided during the Annual Period by the
Management on an hourly basis at the commercially reasonable rates described
on Exhibit B hereto, and the Assignee agrees to reimburse the Assignor for
all reasonable out-of-pocket expenses incurred by the Assignor. For
purposes of this Agreement, the term "Principals" shall collectively mean
Mikhail Segal and Michael Liebelson, and the term "Management" shall
collectively mean Frank Hardenbergh, Mark Brennan and Kimberly Bonnell.
Upon no less than four days' advance notice, the Assignee will permit
representatives of the Assignor and its affiliates and a reasonable number
of guests to visit the respective properties of the Acquired Companies during
normal business hours; provided, however, that the Assignor agrees to, and
agrees to cause its guests to, hold all information regarding the properties
and their operations confidential.
Assignor represents and warrants to the Assignee that no Management
Fees (as defined in the Management Agreements) have been paid to the
Assignor pursuant to any of the Management Agreements for the period
beginning April 1, 1998, and that no Management Expenses (as defined in the
Management Agreements) and Reimbursable Management Costs (as defined in the
Management Agreements) have been paid to the Assignor pursuant to any of the
Management Agreements for the period beginning February 1, 1998. The
Assignor and the Assignee agree that all Management Fees payable to the
Assignor for services performed after April 1, 1998 and all Management
Expenses and Reimbursable Management Costs incurred by Assignor after
2
<PAGE> 3
February 1, 1998 shall be paid to the Assignee.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES (OTHER
THAN THE PROVISIONS OF SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE
STATE OF NEW YORK).
The Assignee agrees that none of the Principals or Management shall
have any liability for any assistance or consulting provided in good faith
under this Agreement or otherwise in respect of any claim, demand, action,
suit or proceeding arising hereunder.
All notices, consents, calls, approvals, reports, designations,
requests, waivers, elections and other communications (collectively,
"Notices") authorized or required to be given pursuant to this Agreement
shall be given in writing and (i) personally served on the party to whom it
is given, (ii) mailed by registered or certified mail, postage prepaid or
(iii) sent by courier guaranteeing overnight delivery, in each case to the
addresses set forth in the Securities Purchase Agreement.
All Notices shall be deemed given when delivered. Any party may change
its address and/or telephone number for the receipt of Notices at any time
by giving Notice thereof to the parties hereto.
This Agreement shall become effective when it shall have been executed
by the parties hereto and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
The term of this Agreement shall be the period commencing as of the date
hereof and ending the date 13 months thereafter. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute but one
contract.
Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by all of the parties hereto. Neither this Agreement nor any provision
hereof may be transferred or assigned to any other Person without the written
consent of the other party; provided, however, the Assignee shall have the
right to assign its obligations hereunder to any of its Affiliates.
This Agreement constitutes the entire contract between the parties
relative to the subject matter hereof. Any previous agreement between the
parties with respect to the subject matter hereof is superseded by this
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person other than the parties hereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
3
<PAGE> 4
WITH THIS AGREEMENT. Each party hereto (a) certifies that no representative,
agent or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to enforce
the foregoing waiver and (b) acknowledges that it and the other parties
hereto have been induced to enter into this Agreement and the transactions
contemplated hereby, as applicable, by, among other things, the mutual
waivers and certifications in this paragraph.
In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
[Remainder of page intentionally left blank.]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, effective as of the day and year
first above written.
ASSIGNOR:
LS POWER CORPORATION
By: /s/ Frank E. Hardenbergh
---------------------------
Name: Frank E. Hardenbergh
Title: Vice President, General
Counsel and Secretary
ASSIGNEE:
COGENTRIX ENERGY, INC.
By: /s/ James R. Pagano
-------------------------
Name: James R. Pagano
Title: Group Senior Vice President
Chief Financial Officer
5
<PAGE> 6
EXHIBIT A
Management Agreements
---------------------
1. Management Services Agreement between LS Power Corporation
and LSP-Whitewater Limited Partnership dated May 1, 1995.
2. Management Services Agreement between LS Power Corporation
and LSP-Cottage Grove, L.P. dated May 1, 1995.
3. Management Services Agreement between LS Power Corporation
and LSP-Whitewater I, Inc. dated May 1, 1995.
4. Management Services Agreement between LS Power Corporation
and LSP-Cottage Grove, Inc. dated May 1, 1995.
6
<PAGE> 7
EXHIBIT B
Management Rates
----------------
1. Frank Hardenbergh - $175/hour
2. Mark Brennan - $125/hour
3. Kimberly Bonnell (Administrative Assistant) - $40/hour
7
<PAGE> 1
EXHIBIT 10.173
***********************************************************
PLEDGE AGREEMENT
Dated as of March 20, 1998
between
COGENTRIX COTTAGE GROVE, LLC
and
THE CHASE MANHATTAN BANK
as Collateral Agent
***********************************************************
<PAGE> 2
PLEDGE AGREEMENT (this "Agreement") dated as of March 20, 1998 between
COGENTRIX COTTAGE GROVE, LLC, a limited liability company duly formed and
validly existing under the laws of the State of Delaware (the "Pledgor") and THE
CHASE MANHATTAN BANK, as agent for the Secured Parties under the Intercreditor
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, LSP-Cottage Grove, L.P., a limited partnership duly organized
and validly existing under the laws of the State of Delaware (the "Partnership")
owns and operates a dispatchable, intermediate load, combined-cycle natural
gas-fired cogeneration facility designed to generate approximately 245 megawatts
of electrical capacity and a maximum of 190,000 pounds per hour of steam and
related property and facilities (collectively the "Project");
WHEREAS, the Partnership has financed the acquisition, construction
and equipping of the Project through, among other things, a private placement by
LS Power Funding Corporation (the "Funding Corporation") of bonds, the proceeds
of which have been used to purchase the Initial Bonds of the Partnership;
WHEREAS, the Partnership has duly authorized the creation and issuance
of bonds (the "Bonds") pursuant to the Trust Indenture dated as of May 1, 1995
(as amended, supplemented or modified and in effect from time to time, the
"Trust Indenture") between the Partnership and IBJ Schroder Bank & Trust
Company, as Trustee (in such capacity together with its successors in such
capacity, the "Trustee");
WHEREAS, in order to satisfy certain requirements of the Partnership
under the Project Agreements, the Partnership may incur indebtedness as
permitted under the Trust Indenture and the other Financing Documents in
connection with the issuance of letters of credit by the Credit Banks pursuant
to the Credit Bank Reimbursement Agreement;
WHEREAS, in order to pay Operating Expenses, the Partnership may incur
indebtedness as permitted under the Trust Indenture and the other Financing
Documents in the form of revolving working capital loans made by the Credit
Banks under the Credit Bank Working Capital Agreement;
WHEREAS, the Partnership may, in accordance with the Trust Indenture
and the other Financing Documents, incur
<PAGE> 3
-2-
additional indebtedness, including, without limitation, bonds, debentures,
promissory notes or other evidences of such indebtedness, as permitted under the
Trust Indenture and the other Financing Documents to finance certain
modifications and enhancements to the Project in the future;
WHEREAS, the Partnership, The Chase Manhattan Bank (National
Association), as Depositary Agent (in such capacity, together with its
successors in such capacity, the "Depositary Agent") and the Collateral Agent
have entered into the Deposit and Disbursement Agreement dated as of May 1, 1995
(as amended, supplemented or modified and in effect from time to time, the
"Depositary Agreement" ) in order to, among other things, appoint the Depositary
Agent to hold and administer the proceeds of the issuance of the Bonds, the
proceeds of the revolving working capital loans made by the Credit Banks under
the Credit Bank Working Capital Agreement, the proceeds of capital contributions
to the Partnership and the proceeds of insurance and revenues generated by the
Project;
WHEREAS, all obligations of the Partnership under the Credit
Bank Reimbursement Agreement, the Credit Bank Working Capital Agreement, the
Trust Indenture, the Interest Rate Protection Agreements and the Additional
Permitted Debt Documents have been secured as set forth in the Security
Documents;
WHEREAS, the Partnership, the Depositary Agent, the Collateral
Agent and certain other parties referred to therein have entered into the
Collateral Agency and Intercreditor Agreement dated as of May 1, 1995 (as
amended, supplemented or modified and in effect from time to time, the
"Intercreditor Agreement") in order to set forth their mutual understanding with
respect to (a) the exercise of certain rights, remedies and options by the
respective parties thereto under the above described documents, (b) the priority
of their respective security interests created by the Security Documents and (c)
the appointment of, and the rights and obligations of, the Collateral Agent;
WHEREAS, Granite Power Partners, L.P. ("Granite") has
previously executed and delivered a Pledge Agreement, dated as of May 1, 1995,
between Granite and the Collateral Agent, by the terms of which Granite has
pledged the shares of capital stock of the Issuer owned by Granite at that time;
WHEREAS, pursuant to a certain Securities Purchase
<PAGE> 4
-3-
Agreement, dated as of March 6, 1998, between LS Power Corporation, Granite,
Cogentrix Mid-America, Inc., Cogentrix Whitewater, LLC, Cogentrix Energy, Inc.
and the Pledgor, the Pledgor has acquired all of the capital stock of the Issuer
from Granite;
WHEREAS, as of the date hereof, the Pledgor owns 100% of the
issued and outstanding capital stock of the Issuer;
WHEREAS, the terms of the Trust Indenture require, in order to
better secure the benefits of the other collateral subject of the Security
Documents, that the Pledgor pledge the shares of issued and outstanding capital
stock of the Issuer owned by the Pledgor from time to time; and
WHEREAS, the Pledgor is not guaranteeing or otherwise
furnishing support for the Secured Obligations;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and for other good and valuable consideration, the receipt and
the adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. Capitalized terms that are defined
herein shall have the meanings herein specified and such definitions shall be
equally applicable to the singular and plural forms of the terms defined.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in, and the interpretations applicable thereto under, the Intercreditor
Agreement, the Trust Indenture as in existence on the date hereof and the
Depositary Agreement. All terms used herein which are not defined herein or in
the Trust Indenture, the Intercreditor Agreement or the Depository Agreement and
are defined in the Uniform Commercial Code shall have the meanings therein
stated. Unless otherwise stated, any agreement, contract or document defined or
referred to herein shall mean such agreement, contract or document and all
schedules, exhibits and attachments thereto as in effect as of the date hereof,
as the same may thereafter be amended, supplemented or modified and in effect
from time to time and shall include any agreement, contract or document in
substitution or replacement of any of the foregoing. Any reference to any Person
shall include its permitted successors and assigns, and in the case of any
Governmental Authority, any Persons succeeding to its functions and capacities.
The words "herein", "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section or
other subdivision.
"Collateral" shall have the meaning assigned to such term in
Section 3 hereof.
<PAGE> 5
-4-
"Good Faith Contest" shall mean the contest of an item if (i)
the item is diligently contested in good faith by appropriate
proceedings timely instituted, (ii) adequate reserves are established
in accordance with GAAP with respect to the contested item and held in
cash or Permitted Investments, if the contested item individually or
when taken together with all other contested items for which reserves
are not at the time being held in cash or Permitted Investments would
reasonably be expected to result in liability of the Pledgor in excess
of $1,000,000, (iii) during the period of such contest, the enforcement
of any contested item is effectively stayed, unless such enforcement
would not reasonably be expected to result in a Material Adverse
Change, (iv) any Lien filed in connection therewith shall have been
removed from the record by bonding arrangements by a reputable surety
company, or cash deposits are otherwise provided to assure the
discharge of the Pledgor's obligation in connection therewith and of
any additional charge, penalty or expense arising from or incurred as a
result of such contest, (v) such payment in respect of any Tax, Lien or
claim shall have been made as is necessary to prevent the recordation
of a tax deed or other similar instrument conveying the property of the
Pledgor or any portion thereof, (vi) the failure to pay or comply with
the contested item during the period of such Good Faith Contest would
not reasonably be expected to result in a Material Adverse Change and
(vii) the Pledgor has no knowledge of any actual or proposed deficiency
or additional assessment in connection therewith not otherwise
satisfying the requirements of clauses (i) through (vi).
"Issuer" shall mean LSP-Cottage Grove, Inc., a corporation
duly organized and validly existing under the laws of the State of
Delaware and a general partner of the Partnership.
"Material Adverse Change" shall mean a material change in the
business, operations, properties or financial condition of the Pledgor
or any event or occurrence of whatever nature which would materially
adversely affect (i) the ability of the Pledgor to perform its
obligations under any Financing Document to which the Pledgor is a
party or (ii) the Liens under any Collateral Document to which the
Pledgor is a party.
"Pledgor Permitted Liens" shall mean (a) Liens imposed by any
Governmental Authority for Taxes which are not yet due or which are
being contested in a Good Faith Contest and (b) Liens created pursuant
to this Agreement.
"Pledged Stock" shall have the meaning assigned to such term
in Section 3(a) hereof.
<PAGE> 6
-5-
"Records" shall have the meaning assigned to such term in
Section 2(a) hereof.
"Secured Obligations" shall mean, as at any date, all
indebtedness, liabilities and obligations of the Partnership, of
whatsoever nature and however evidenced (including, but not limited to,
principal, interest, fees, reimbursement obligations, penalties,
indemnities and legal and other expenses, whether due after
acceleration or otherwise), to the Secured Parties under or pursuant to
the Trust Indenture, the Bonds, the Credit Bank Working Capital
Agreement, the Credit Bank Reimbursement Agreement, any Additional
Permitted Debt Documents, any Interest Rate Protection Agreements, the
Security Documents or any other Financing Document, to the extent
arising on or prior to the Debt Termination Date, in each case, direct
or indirect, primary or secondary, fixed or contingent, now or
hereafter arising out of or relating to any such agreements.
"Secured Parties" shall mean the Trustee (as trustee for and
representative of the Holders of the Bonds), the L/C Facility Agent (as
agent for and representative of the Credit Banks party to the Credit
Bank Reimbursement Agreement), the Working Capital Agent (as agent for
and representative of the Credit Banks party to the Credit Bank Working
Capital Agreement), each Additional Permitted Debt Agent (as agent for
and representative of the holders of Additional Permitted Debt) and
each Other Representative (as agent for and representative of the
holders of debt under the related financing documents), in each case to
the extent the same is, or by operation of Section 14(a) of the
Intercreditor Agreement becomes, a party thereto.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. Representations and Warranties. The Pledgor
represents and warrants to the Secured Parties that:
(a) The chief place of business and chief executive office of
the Pledgor and the office where the Pledgor keeps its records
concerning the Collateral, including the registration book in which all
shares of capital stock of the Issuer and pledges and transfers thereof
are recorded (hereinafter, collectively called the "Records") is
located at 1105 N. Market Street, Suite 1108, Wilmington, Delaware
19801.
<PAGE> 7
-6-
(b) The Pledgor is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business and is in good standing
in the State of Delaware and in all other places where necessary in
light of the transactions contemplated by this Agreement except where
the failure to so qualify would not reasonably be expected to result in
a Material Adverse Change.
(c) The Pledgor has the full power, authority and legal right
to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance by the Pledgor of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary member and limited liability
company action. This Agreement has been duly executed and delivered by
the Pledgor, is in full force and effect and is the legal, valid and
binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether enforcement thereof
is sought in a proceeding at law or in equity).
(d) The execution, delivery and performance by the Pledgor of
this Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not (i) require any consent or
approval of the members of the Pledgor or any other Person that has not
been duly obtained and each such consent or approval that has been
obtained is in full force and effect, (ii) violate any provision of any
of the certificate of limited liability company or the limited
liability company agreement of the Pledgor or any Law or Governmental
Approval applicable to the Pledgor, (iii) conflict with, result in a
breach of or constitute a default under any of the certificate of
limited liability company or the limited liability company agreement of
the Pledgor or any indenture or loan or credit agreement or other
agreement, lease or instrument to which the Pledgor is a party or by
which it or any of its property may be bound or affected except any
such conflict, breach or default that would not reasonably be expected
to result in a Material Adverse Change or (iv) result in, or require
the creation or imposition of, any Lien (other than Pledgor Permitted
Liens), upon or with respect to any of the properties now owned or
hereafter acquired by the Pledgor.
(e) This Agreement creates in favor of the Collateral Agent
for the equal and ratable benefit of the Secured Parties, a valid Lien
on and security interest in all of the Collateral, subject to no Lien
other than Pledgor Permitted Liens, securing the payment and
performance of the Secured Obligations, and all filings and other
actions necessary or desirable to create, preserve, validate,
<PAGE> 8
-7-
perfect and protect such Lien and the priority thereof have been duly
made or taken.
(f) No Governmental Approval by, and no filing with, any
Governmental Authority is required to be obtained by the Pledgor in
connection with this Agreement and the transactions contemplated hereby
and thereby (except for such Governmental Approvals and such filings
heretofore obtained or made and in full force and effect and for the
filing of financing statements in the relevant jurisdictions).
(g) The Pledgor is the sole legal and beneficial owner of the
Collateral in which it purports to grant a security interest pursuant
to Section 3 hereof, and no Lien exists or will exist upon the
Collateral at any time (and, with respect to the Collateral, no right
or option to acquire the same exists in favor of any other Person),
except for Pledgor Permitted Liens and except for the pledge and
security interest in favor of the Collateral Agent for the benefit of
the Secured Parties created or provided for herein.
(h) There is no action, suit or proceeding at law or in equity
or by or before any Governmental Authority, arbitral tribunal or other
body now pending, or to the knowledge of the Pledgor, threatened,
against or affecting the Pledgor or any of the Collateral which would
reasonably be expected to result in a Material Adverse Change with
respect to the Pledgor.
(i) The Pledgor has filed, or caused to be filed, all tax and
information returns that are required to have been filed by it in any
jurisdiction, and has paid (prior to their delinquency dates) all Taxes
shown to be due and payable on such returns and all other Taxes payable
by it, to the extent that the same have become due and payable, except
to the extent there is a Good Faith Contest thereof by the Pledgor.
(j) The Pledged Stock evidenced by the certificates identified
in Annex 1 hereto is, and all other Pledged Stock in which the Pledgor
shall hereafter grant a security interest pursuant to Section 3 hereof
will be, duly authorized, validly existing, fully paid and
non-assessable and none of such Pledged Stock is or will be subject to
any contractual restriction, or any restriction under the charter or
by-laws of the Issuer of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained herein).
(k) The Pledged Stock evidenced by the certificates identified
in Annex 1 hereto constitutes all of the issued and outstanding shares
of capital stock of any class of the Issuer beneficially owned by the
Pledgor on the date hereof
<PAGE> 9
-8-
(whether or not registered in the name of the Pledgor) and said Annex 1
correctly identifies, as at the date hereof, the Issuer of such Pledged
Stock, the respective class and par value of the shares comprising such
Pledged Stock and the respective number of shares (and registered
owners thereof) evidenced by each such certificate.
(l) The Pledgor owns 100% of the issued and outstanding
capital stock of the Issuer as of the date hereof.
Section 3. The Pledge. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Pledgor hereby pledges, assigns,
hypothecates transfers, delivers and grants to the Collateral Agent for the
equal and ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent for the equal and ratable benefit of the Secured Parties a lien
on and security interest in, all of the Pledgor's right, title and interest in,
to and under the following, whether now owned by the Pledgor or hereafter
acquired and whether now existing or hereafter coming into existence and
wherever located (all being collectively referred to herein as "Collateral"):
(a) the shares of capital stock of the Issuer evidenced by the
certificates identified in Annex 1 hereto and all other shares of
capital stock of whatever class of the Issuer, now or hereafter owned
by the Pledgor, in each case together with the certificates evidencing
the same (collectively, the "Pledged Stock");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of the Pledgor, the
Issuer or the Partnership under any provision prohibiting such action
hereunder or under the Intercreditor Agreement, in the event of any
consolidation or merger in which the Issuer is not the surviving
corporation, all shares owned by the Pledgor of each class of the
capital stock of the successor corporation formed by or resulting from
such consolidation or merger;
(d) all proceeds of and to any of the property of the Pledgor
described in the preceding clauses of this Section 3 and, to the extent
related to
<PAGE> 10
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any property described in said clauses or such proceeds, all books,
correspondence, credit files, records, invoices and other papers; and
(e) to the extent not included in the foregoing, all products,
offspring, rents, revenues, issues, profits, royalties, income,
benefits, accessions, additions, substitutions and replacements of and
to any and all of the foregoing.
Section 4. Covenants. The Pledgor covenants and agrees that,
until the Debt Termination Date:
(a) The Pledgor shall preserve and maintain its legal
existence and form and all of its rights, privileges and franchises
that are necessary for the maintenance of its existence and the
performance of all of its obligations under this Agreement.
(b) The Pledgor shall not create, incur, assume or suffer to
exist any Lien upon any of the Collateral other than Pledgor Permitted
Liens.
(c) The Pledgor shall promptly but in no case later than five
Business Days upon obtaining knowledge of any action, suit or
proceeding at law or in equity by or before any Governmental Authority,
arbitral tribunal or other body pending or threatened against the
Pledgor which would reasonably be expected to result in a Material
Adverse Change, furnish to the Collateral Agent a notice of such event
describing the same in reasonable detail and, together with such notice
or as soon thereafter as possible, a description of the action that the
Pledgor has taken and proposes to take with respect thereto.
(d) The Pledgor shall not sell, assign, transfer or otherwise
dispose of all or any part of the Collateral, or consent to the
issuance of any capital stock of any class by the Issuer in a manner so
as to cause the occurrence of an Event of Default under Section 8.1(c)
(but solely as the same relates to Section 6.21(a) of the Trust
Indenture), 8.1(p), 8.1(q) or 8.1(r) of the Trust Indenture (or the
occurrence of an Event of Default (as defined in the Intercreditor
Agreement) under the correlative provisions of any other Financing
Document).
Section 5. Further Assurances; Remedies. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Pledgor hereby agrees with the Secured Parties as follows:
5.1 Delivery and Other Perfection. The Pledgor shall:
<PAGE> 11
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(a) if any of the certificates, warrants, shares, securities,
moneys, rights, options or other property required to be pledged by the
Pledgor under Section 3 hereof are received by the Pledgor, forthwith
(i) transfer and deliver to the Collateral Agent such certificates,
warrants, shares, securities, moneys, rights, options or other property
so received by the Pledgor (together with the certificates for any such
shares and securities duly endorsed in blank or accompanied by undated
stock powers duly executed in blank), all of which thereafter shall be
held by the Collateral Agent, pursuant to the terms of this Agreement,
as part of the Collateral and/or (ii) take such other action as the
Collateral Agent shall deem necessary or appropriate to duly record the
Lien created hereunder in such certificates, warrants, shares,
securities, moneys, rights, options or other property;
(b) give, execute, deliver, file and/or record any financing
statement, continuation statement, notice, instrument, document,
agreement or other papers that may be reasonably required to create,
preserve, perfect or validate the security interest granted pursuant
hereto or to enable the Collateral Agent to exercise and enforce its
rights hereunder with respect to such pledge and security interest,
including, without limitation, causing any or all of the Collateral to
be transferred of record into the name of the Collateral Agent or its
nominee (and the Collateral Agent agrees that if any Collateral is
transferred into its name or the name of its nominee, the Collateral
Agent shall thereafter promptly give to the Pledgor copies of any
notices and communications received by it with respect to the
Collateral). Without limiting the generality of the foregoing, the
Pledgor shall, if any Collateral shall be evidenced by a promissory
note or other instrument, deliver and pledge to the Collateral Agent
for the equal and ratable benefit of the Secured Parties such note or
instrument duly endorsed or accompanied by duly executed instruments of
transfer or assignment, all in such form and substance as will allow
the Collateral Agent to realize upon the Collateral pursuant to Section
5.5 hereof;
(c) maintain, hold and preserve full and accurate Records, and
stamp or otherwise mark such Records in such manner as may be
reasonably required in order to reflect the security interests granted
by this Agreement; and
(d) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its Records.
5.2 Other Financing Statements and Liens. Without the prior
consent of the Collateral Agent (granted with the written authorization of the
Secured Parties), the Pledgor shall not file or suffer to be on file, or
authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with
<PAGE> 12
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respect to the Collateral in which the Collateral Agent is not named as the sole
secured party for the benefit of the Secured Parties.
5.3 Preservation of Rights. The Collateral Agent shall not be
required to take steps necessary to preserve any rights against prior parties to
any of the Collateral.
5.4 Collateral.
(a) The Pledgor shall cause the Collateral to constitute at
all times 100% of the total number of shares of each class of capital stock of
the Issuer then outstanding owned by the Pledgor.
(b) So long as no Trigger Event shall have occurred and be
continuing, the Pledgor shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Collateral for all purposes not
inconsistent with the terms of this Agreement, any other Project Document or any
other Financing Documents; and the Collateral Agent shall execute and deliver to
the Pledgor or cause to be executed and delivered to the Pledgor all such
proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the rights and powers which it is
entitled to exercise pursuant to this Section 5.4(b).
(c) Unless and until a Trigger Event has occurred and is
continuing, the Pledgor shall be entitled to receive, retain and distribute as
dividends or otherwise any dividends on the Collateral paid in cash out of
earned surplus.
(d) If any Trigger Event shall have occurred and be
continuing, and whether or not the Collateral Agent or any other Secured Party
exercises any available right to declare any Secured Obligation due and payable
or seeks or pursues any other relief or remedy available to it under applicable
law or under this Agreement or any other Project Document, all dividends and
other distributions on the Collateral to which the Pledgor is entitled shall be
paid directly to the Collateral Agent and retained by it as part of the
Collateral, subject to the terms of this Agreement, and, if the Collateral Agent
shall so request, the Pledgor agrees to execute and deliver to the Collateral
Agent appropriate additional dividend, distribution and other orders and
documents to that end, provided that if such Trigger Event is waived or cured,
any such dividend or distribution theretofore paid to the Collateral Agent
shall, upon request of the Pledgor (except to the extent theretofore applied to
the Secured Obligations), be returned by the Collateral Agent to the Pledgor.
5.5 Trigger Events. If any Trigger Event shall have occurred
and be continuing:
<PAGE> 13
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(a) the Collateral Agent shall have the rights and the
obligations with respect to this Agreement as more particularly
provided in the Intercreditor Agreement;
(b) the Pledgor shall, at the request of the Collateral Agent,
assemble the Collateral owned by it at such place or places, reasonably
convenient to both the Collateral Agent and the Pledgor, designated in
its request;
(c) the Collateral Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by applicable law, to exercise
all voting, consensual and other powers of ownership pertaining to the
Collateral as if the Collateral Agent were the sole and absolute owner
thereof (and the Pledgor agrees to take all such action as may be
appropriate to give effect to such right);
(d) the Collateral Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms, of any of the Collateral;
(e) the Collateral Agent may, in its name or in the name of
the Pledgor or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to
do so; and
(f) the Collateral Agent may, upon ten Business Days' prior
notice to the Pledgor of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall thereafter
come into the possession, custody or control of the Collateral Agent,
the other Secured Parties or any of their respective agents, sell,
lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Collateral Agent deems best,
and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of
the time or place thereof (except such notice as is required above or
by applicable statute and cannot be waived), and the Collateral Agent
or any other Secured Party or anyone else may be the purchaser, lessee,
assignee or
<PAGE> 14
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recipient of any or all of the Collateral so disposed of at any public
sale (or, to the maximum extent permitted by applicable law, at any
private sale) and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Pledgor, any such demand,
notice and right or equity being hereby expressly waived and released
to the maximum extent permitted by applicable law. The Collateral Agent
may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at
the time and place fixed for the sale, and such sale may be made at any
time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.5 shall be applied in accordance with Section 5.8 hereof.
The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Collateral Agent may be compelled, with respect to any sale
of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sale may be at prices and on terms
less favorable to the Collateral Agent than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Collateral Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any Collateral for
the period of time necessary to permit the respective issuer thereof to register
it for public sale.
5.6 Removals, Etc. Without at least 30 days' prior notice to
the Collateral Agent, the Pledgor shall not (a) maintain any of its Records at
any office or maintain its principal place of business at any place other than
at the address for notices set forth on the signature pages hereto or (b) change
its corporate name, or the name under which it does business, from the name
shown on the signature pages hereto.
5.7 Private Sale. The Collateral Agent and the other Secured
Parties shall incur no liability as a result of the sale of the Collateral, or
any part thereof, at any private sale pursuant to Section 5.5 hereof conducted
in a commercially reasonable manner. The Pledgor hereby waives, to the maximum
extent permitted by applicable law, any claims against the Collateral Agent or
any other Secured Party arising by reason of the fact that the price at which
the Collateral may have been sold at such a commercially reasonable private sale
was less than the price which might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations, even if, to the
extent that it is commercially reasonable to do so, the Collateral Agent accepts
the first
<PAGE> 15
-14-
offer received and does not offer the Collateral to more than one offeree.
5.8 Application of Proceeds.
(a) Except as otherwise herein expressly provided, the
proceeds of any collection, sale or other realization of all or any
part of the Collateral pursuant hereto shall be remitted to the
Depositary Agent in the form received with all necessary endorsements
and, to the maximum extent permitted by applicable law, be applied in
accordance with the Depositary Agreement and the Intercreditor
Agreement.
(b) No sale or other disposition of all or any part of the
Collateral pursuant to Section 5.2 shall be deemed to relieve the
General Partner of its obligations under any Project Documents to which
it is party except to the extent the proceeds thereof are applied to
the payment of such obligations.
5.9 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Collateral Agent while no Trigger Event has
occurred and is continuing, upon the occurrence and during the continuance of
any Trigger Event the Collateral Agent is hereby appointed the attorney-in-fact
of the Pledgor for the purpose of carrying out the provisions of this Section 5
and taking any action and executing any instruments which may be reasonably
required to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Collateral Agent shall be
entitled under this Section 5 to make collections in respect of the Collateral,
the Collateral Agent shall have the right and power to receive, endorse and
collect all checks made payable to the order of the Pledgor representing any
dividend, payment or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same.
5.10 Perfection. Concurrently with the execution of this
Agreement, the Pledgor shall deliver to the Collateral Agent all certificates
identified in Annex 1 hereto, accompanied by undated stock powers duly executed
in blank. The Pledgor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Pledgor where permitted
by applicable law. Copies of any such statement or amendment thereto shall
promptly be delivered to the Pledgor. Prior to or within 10 days after the date
of this Agreement, the Pledgor shall file such financing statements and other
documents in such offices as the Collateral Agent may request to perfect the
security interests granted by Section 3 of this Agreement. The Pledgor hereby
authorizes the Collateral Agent to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of the Pledgor where permitted by applicable
law. Copies of any such statement or
<PAGE> 16
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amendment thereto shall promptly be delivered to the Pledgor.
5.11 Termination.
(a) Upon any transfer of the Collateral permitted by the Trust
Indenture and the other Financing Documents, the Collateral Agent shall, upon
the written request of (and at the sole cost and expense of) the Pledgor,
promptly cause to be assigned, transferred and delivered, against receipt but
without any recourse, warranty or representation whatsoever, such Collateral and
shall promptly execute and deliver to the Pledgor such Uniform Commercial Code
termination statements and such other documentation as shall be requested by the
Pledgor to effect the termination and release of the Liens on such Collateral.
(b) Upon the Debt Termination Date the security interest
created by this Agreement shall terminate and all rights to the Collateral shall
revert to the Pledgor, and the Collateral Agent shall forthwith cause to be
assigned, transferred and delivered, against receipt but without any recourse,
warranty or representation whatsoever, any remaining Collateral and money
received in respect thereof, to or on the order of the Pledgor. The Collateral
Agent shall also execute and deliver to the Pledgor upon such termination such
Uniform Commercial Code termination statements and such other documentation as
shall be requested by the Pledgor to effect the termination and release of the
Liens on the Collateral.
5.12 Expenses. The Pledgor agrees to pay to the Collateral
Agent all reasonable fees and out-of-pocket expenses (including reasonable fees
and expenses for legal services) of, or incident to, the enforcement of any of
the provisions of this Section 5, or performance by the Collateral Agent of any
obligations of the Pledgor in respect of the Collateral which the Pledgor has
failed or refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting rights
and claims of the Collateral Agent in respect thereof, by litigation or
otherwise, and all such fees and expenses, together with interest thereon at the
applicable Post-Default Rate shall be Secured Obligations to the Collateral
Agent secured under Section 3 hereof.
5.13 Further Assurances. The Pledgor agrees that, from time to
time upon the request of the Collateral Agent, the Pledgor shall execute and
deliver such further documents and do such other acts and things as the
Collateral Agent may reasonably request in order fully to effectuate the
purposes of this Agreement.
Section 6. Miscellaneous.
<PAGE> 17
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6.1 No Waiver. No failure on the part of the Collateral Agent
or any of its agents to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or remedy hereunder shall operate as a
waiver thereof, and no single or partial exercise by the Collateral Agent or any
of its agents of any right, power or remedy hereunder shall preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided herein are cumulative and are not exclusive of any
remedies provided by applicable law.
6.2 Notices. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers or consents under, this Agreement) shall be given or made in writing in
the manner set forth in Section 16 of the Intercreditor Agreement. Unless
otherwise so changed by the respective parties hereto, all notices, requests and
other communications to each party hereto shall be sent to the address for
notices of such parties set forth on the signature pages hereto.
6.3 Waivers, Etc. This Agreement may be amended, supplemented
or modified only by an instrument in writing signed by the Pledgor and the
Collateral Agent acting with the consent of the Secured Parties as provided in
Section 8(c) of the Intercreditor Agreement, and any provision of this Agreement
may be waived by the Collateral Agent acting with consent of the Secured Parties
or the Secured Parties as provided in Section 8(c) of the Intercreditor
Agreement; provided that no amendment, supplement, modification or waiver shall,
unless by an instrument in writing signed by all of the Secured Parties or by
the Collateral Agent acting with the consent of all of the Secured Parties,
alter the terms of this Section 6.3. Any waiver shall be effective only in the
specific instance and for the specified purpose for which it was given.
6.4 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Pledgor, the Collateral Agent, the other Secured Parties and each holder of any
of the Secured Obligations (provided, however, that the Pledgor shall not assign
or transfer its rights hereunder without the prior consent of the Collateral
Agent).
6.5 Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts, all of which when taken together shall
constitute one and the same instrument and either of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall
become effective at such time as the Collateral Agent shall have received
counterparts hereof signed by all of the intended parties hereto.
<PAGE> 18
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6.6 Agents, Etc. The Collateral Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith. In accordance with the Intercreditor Agreement and the Depositary
Agreement, the Collateral Agent has appointed the Depositary Agent as its agent
for purposes of the Depositary Agreement. The Pledgor acknowledges that it has
received a copy of the Depositary Agreement and acknowledges and agrees to the
terms and conditions of the Depositary Agreement as the same apply hereto.
6.7 Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by
applicable law, (a) the other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in favor of the
Collateral Agent and the other Secured Parties in order to carry out the
intentions of the parties hereto as nearly as may be possible and (b) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
6.8 The Collateral Agent. As provided in Section 8 of the
Intercreditor Agreement, each Secured Party has appointed The Chase Manhattan
Bank (National Association) as its Collateral Agent for purposes of this
Agreement. Following the Debt Termination Date, the provisions of said Section 8
shall be deemed to continue in full force and effect for the benefit of the
Collateral Agent under this Agreement.
6.9 Headings. Headings appearing herein are used solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement.
6.10 Limitation of Liability. The liability of the Pledgor for
the payment and performance of the Secured Obligations shall be limited as and
to the extent provided under Section 27 of the Intercreditor Agreement.
6.11 Security Interest Absolute. The rights and remedies of
the Collateral Agent hereunder, the Liens created hereby and the obligations of
the Pledgor hereunder are absolute, irrevocable and unconditional, irrespective
of:
(a) the validity or enforceability of any of the Secured
Obligations, any other Project Document or any other agreement or instrument
relating thereto;
(b) any amendment to, waiver of, consent to or departure from,
or failure to exercise any right, remedy, power or privileges under or in
respect of, any of the Secured Obligations, any other Project Document or any
other agreement or instrument relating thereto;
<PAGE> 19
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(c) the acceleration of the maturity of any of the Secured
Obligations or any other modification of the time of payment thereof;
(d) any substitution, release or exchange of any other
security for or guarantee of any of the Secured Obligations or the failure to
create, preserve, validate, perfect or protect any other Lien granted to, or
purported to be granted to, or in favor of, the Collateral Agent or any other
Secured Party; or
(e) any other event or circumstance whatsoever which might
otherwise constitute a legal or equitable discharge of a surety or a guarantor,
it being the intent of this Section 6.11 that the obligations of the Pledgor
hereunder shall be absolute, irrevocable and unconditional under any and all
circumstances.
6.12 Subrogation. The Pledgor shall not exercise, and hereby
irrevocably waives, any claim, right or remedy that it may now have or may
hereafter acquire against the Partnership arising under or in connection with
this Agreement, including, without limitation, any claim, right or remedy of
subrogation, contribution, reimbursement, exoneration, indemnification or
participation arising under contract, by Law or otherwise in any claim, right or
remedy of the Collateral Agent or the Secured Parties against the Partnership or
any other Person or any Collateral which the Collateral Agent or any Secured
Party may now have or may hereafter acquire. If, notwithstanding the preceding
sentence, any amount shall be paid to the Pledgor on account of such subrogation
rights at any time when any of the Secured Obligations shall not have been paid
in full, such amount shall be held by the Pledgor in trust for the Collateral
Agent and the Secured Parties, segregated from other funds of the Pledgor and be
turned over to the Collateral Agent in the exact form received by the Pledgor
(duly endorsed by the Pledgor to the Collateral Agent, if required), to be
applied against the Secured Obligations, whether matured or unmatured, in
accordance with the Trust Indenture and the Security Documents.
6.13 Reinstatement. This Agreement and the Lien created
hereunder shall automatically be reinstated if and to the extent that for any
reason any payment by or on behalf of the Partnership in respect of the Secured
Obligations is rescinded or must otherwise be restored by any holder of the
Secured Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and the Pledgor shall indemnify the Collateral
Agent and its employees, officers and agents on demand for all reasonable fees,
costs and expenses (including, without limitation, fees, costs and expenses of
counsel) incurred by the Collateral Agent or its employees, officers or agents
in connection with such rescission or restoration.
6.14 NO THIRD PARTY BENEFICIARIES. THE
<PAGE> 20
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AGREEMENTS OF THE PARTIES HERETO ARE SOLELY FOR THE BENEFIT OF THE PLEDGOR, THE
COLLATERAL AGENT AND THE OTHER SECURED PARTIES, AND NO PERSON (OTHER THAN THE
PARTIES HERETO, THE OTHER SECURED PARTIES AND THEIR SUCCESSORS AND ASSIGNS
PERMITTED HEREUNDER) SHALL HAVE ANY RIGHTS HEREUNDER.
6.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, ARE GOVERNED BY THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
<PAGE> 21
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
COGENTRIX COTTAGE GROVE, LLC
By Cogentrix Mid-America, Inc., its manager
By /s/ James R. Pagano
--------------------------------
Name : James R. Pagano
Title: President
Address for Notices:
Cogentrix Cottage Grove, LLC
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, NC 28273
Attention: General Counsel
Telecopier No.: (704) 529-1006
<PAGE> 22
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THE CHASE MANHATTAN BANK,
as Collateral Agent
By /s/ David G. Safer
-----------------------------
Name : David Safer
Title:
Address for Notices:
The Chase Manhattan Bank,
as Collateral Agent
Global Trust Services
450 West 33rd Street
15th Floor
New York, NY 10001-2697
Attention: David Safer
Telecopier No.: (212) 946-8177
<PAGE> 23
ANNEX 1
PLEDGED STOCK
COGENTRIX COTTAGE GROVE, LLC
Issuer: LSP-Cottage Grove, Inc.
Share Certificate No.: 1
Class: Common
Par Value: $0.01
Number of Shares: 20
Registered Owner: Cogentrix Cottage Grove, LLC
<PAGE> 1
EXHIBIT 10.174
**********************************************************
PLEDGE AGREEMENT
Dated as of March 20, 1998
between
COGENTRIX WHITEWATER, LLC
and
THE CHASE MANHATTAN BANK
as Collateral Agent
**********************************************************
<PAGE> 2
PLEDGE AGREEMENT (this "Agreement") dated as of March 20, 1998, between
COGENTRIX WHITEWATER, LLC, a limited liability company duly formed and validly
existing under the laws of the State of Delaware (the "Pledgor") and THE CHASE
MANHATTAN BANK, as agent for the Secured Parties under the Intercreditor
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "Collateral Agent") .
W I T N E S S E T H:
WHEREAS, LSP-Whitewater Limited Partnership, a limited partnership
duly organized and validly existing under the laws of the State of Delaware (the
"Partnership") owns and operates a dispatchable, intermediate load,
combined-cycle natural gas-fired cogeneration facility designed to generate
approximately 245 megawatts of electrical capacity and a maximum of 190,000
pounds per hour of steam and related property and facilities (collectively the
"Project");
WHEREAS, the Partnership has financed the acquisition, construction
and equipping of the Project through, among other things, a private placement by
LS Power Funding Corporation (the "Funding Corporation") of bonds, the proceeds
of which have been used to purchase the Initial Bonds of the Partnership;
WHEREAS, the Partnership has duly authorized the creation and issuance
of bonds (the "Bonds") pursuant to the Trust Indenture dated as of May 1, 1995
(as amended, supplemented or modified and in effect from time to time, the
"Trust Indenture") between the Partnership and IBJ Schroder Bank & Trust
Company, as Trustee (in such capacity together with its successors in such
capacity, the "Trustee");
WHEREAS, in order to satisfy certain requirements of the Partnership
under the Project Agreements, the Partnership may incur indebtedness as
permitted under the Trust Indenture and the other Financing Documents in
connection with the issuance of letters of credit by the Credit Banks pursuant
to the Credit Bank Reimbursement Agreement;
WHEREAS, in order to pay Operating Expenses, the Partnership may incur
indebtedness as permitted under the Trust Indenture and the other Financing
Documents in the
<PAGE> 3
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form of revolving working capital loans made by the Credit Banks under the
Credit Bank Working Capital Agreement;
WHEREAS, the Partnership may, in accordance with the Trust
Indenture and the other Financing Documents, incur additional indebtedness,
including, without limitation, bonds, debentures, promissory notes or other
evidences of such indebtedness, as permitted under the Trust Indenture and the
other Financing Documents to finance certain modifications and enhancements to
the Project in the future;
WHEREAS, the Partnership, The Chase Manhattan Bank (National
Association), as Depositary Agent (in such capacity, together with its
successors in such capacity, the "Depositary Agent") and the Collateral Agent
have entered into the Deposit and Disbursement Agreement dated as of May 1, 1995
(as amended, supplemented or modified and in effect from time to time, the
"Depositary Agreement") in order to, among other things, appoint the Depositary
Agent to hold and administer the proceeds of the issuance of the Bonds, the
proceeds of the revolving working capital loans made by the Credit Banks under
the Credit Bank Working Capital Agreement, the proceeds of capital contributions
to the Partnership and the proceeds of insurance and revenues generated by the
Project;
WHEREAS, all obligations of the Partnership under the Credit
Bank Reimbursement Agreement, the Credit Bank Working Capital Agreement, the
Trust Indenture, the Interest Rate Protection Agreements and the Additional
Permitted Debt Documents have been secured as set forth in the Security
Documents;
WHEREAS, the Partnership, the Depositary Agent, the Collateral
Agent and certain other parties referred to therein have entered into the
Collateral Agency and Intercreditor Agreement dated as of May 1, 1995 (as
amended, supplemented or modified and in effect from time to time, the
"Intercreditor Agreement") in order to set forth their mutual understanding with
respect to (a) the exercise of certain rights, remedies and options by the
respective parties thereto under the above described documents, (b) the priority
of their respective security interests created by the Security Documents and (c)
the appointment of, and the rights and obligations of, the Collateral Agent;
<PAGE> 4
-3-
WHEREAS, Granite Power Partners, L.P. ("Granite") has
previously executed and delivered a Pledge Agreement, dated as of May 1, 1995,
between Granite and the Collateral Agent, by the terms of which Granite has
pledged the shares of capital stock of the Issuer owned by Granite at that time;
WHEREAS, pursuant to a certain Securities Purchase Agreement,
dated as of March 6, 1998, between LS Power Corporation, Granite, Cogentrix
Mid-America, Inc., Cogentrix Cottage Grove, LLC, Cogentrix Energy, Inc. and the
Pledgor, the Pledgor has acquired all of the capital stock of the Issuer from
Granite;
WHEREAS, as of the date hereof, the Pledgor owns 100% of the
issued and outstanding capital stock of the Issuer;
WHEREAS, the terms of the Trust Indenture require, in order to
better secure the benefits of the other collateral subject of the Security
Documents, that the Pledgor pledge the shares of issued and outstanding capital
stock of the Issuer owned by the Pledgor from time to time; and
WHEREAS, the Pledgor is not guaranteeing or otherwise
furnishing support for the Secured Obligations;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and for other good and valuable consideration, the receipt and
the adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. Capitalized terms that are defined
herein shall have the meanings herein specified and such definitions shall be
equally applicable to the singular and plural forms of the terms defined.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in, and the interpretations applicable thereto under, the Intercreditor
Agreement, the Trust Indenture as in existence on the date hereof and the
Depositary Agreement. All terms used herein which are not defined herein or in
the Trust Indenture, the Intercreditor Agreement or the Depository Agreement and
are defined in the Uniform Commercial Code shall have the meanings therein
stated. Unless otherwise stated, any agreement, contract or document defined or
referred to herein shall mean such agreement, contract or document and all
schedules, exhibits and attachments thereto as in effect as of the date hereof,
as the same may thereafter be
<PAGE> 5
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amended, supplemented or modified and in effect from time to time and shall
include any agreement, contract or document in substitution or replacement of
any of the foregoing. Any reference to any Person shall include its permitted
successors and assigns, and in the case of any Governmental Authority, any
Persons succeeding to its functions and capacities. The words "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
"Collateral" shall have the meaning assigned to such term in
Section 3 hereof.
"Good Faith Contest" shall mean the contest of an item if (i)
the item is diligently contested in good faith by appropriate
proceedings timely instituted, (ii) adequate reserves are established
in accordance with GAAP with respect to the contested item and held in
cash or Permitted Investments, if the contested item individually or
when taken together with all other contested items for which reserves
are not at the time being held in cash or Permitted Investments would
reasonably be expected to result in liability of the Pledgor in excess
of $1,000,000, (iii) during the period of such contest, the enforcement
of any contested item is effectively stayed, unless such enforcement
would not reasonably be expected to result in a Material Adverse
Change, (iv) any Lien filed in connection therewith shall have been
removed from the record by bonding arrangements by a reputable surety
company, or cash deposits are otherwise provided to assure the
discharge of the Pledgor's obligation in connection therewith and of
any additional charge, penalty or expense arising from or incurred as a
result of such contest, (v) such payment in respect of any Tax, Lien or
claim shall have been made as is necessary to prevent the recordation
of a tax deed or other similar instrument conveying the property of the
Pledgor or any portion thereof, (vi) the failure to pay or comply with
the contested item during the period of such Good Faith Contest would
not reasonably be expected to result in a Material Adverse Change and
(vii) the Pledgor has no knowledge of any actual or proposed deficiency
or additional assessment in connection therewith not otherwise
satisfying the requirements of clauses (i) through (vi).
"Issuer" shall mean LSP-Whitewater I, Inc., a corporation duly
organized and validly existing under the laws of the State of Delaware
and a general partner of the Partnership.
"Material Adverse Change" shall mean a material change in the
business, operations, properties or financial condition of the Pledgor
or any event or occurrence of whatever nature which would materially
adversely affect (i) the ability of the Pledgor to perform its
obligations under any Financing Document to
<PAGE> 6
-5-
which the Pledgor is a party or (ii) the Liens under any Collateral
Document to which the Pledgor is a party.
"Pledgor Permitted Liens" shall mean (a) Liens imposed by any
Governmental Authority for Taxes which are not yet due or which are
being contested in a Good Faith Contest and (b) Liens created pursuant
to this Agreement.
"Pledged Stock" shall have the meaning assigned to such term
in Section 3(a) hereof.
"Records" shall have the meaning assigned to such term in
Section 2(a) hereof.
"Secured Obligations" shall mean, as at any date, all
indebtedness, liabilities and obligations of the Partnership, of
whatsoever nature and however evidenced (including, but not limited to,
principal, interest, fees, reimbursement obligations, penalties,
indemnities and legal and other expenses, whether due after
acceleration or otherwise), to the Secured Parties under or pursuant to
the Trust Indenture, the Bonds, the Credit Bank Working Capital
Agreement, the Credit Bank Reimbursement Agreement, any Additional
Permitted Debt Documents, any Interest Rate Protection Agreements, the
Security Documents or any other Financing Document, to the extent
arising on or prior to the Debt Termination Date, in each case, direct
or indirect, primary or secondary, fixed or contingent, now or
hereafter arising out of or relating to any such agreements.
"Secured Parties" shall mean the Trustee (as trustee for and
representative of the Holders of the Bonds), the L/C Facility Agent (as
agent for and representative of the Credit Banks party to the Credit
Bank Reimbursement Agreement), the Working Capital Agent (as agent for
and representative of the Credit Banks party to the Credit Bank Working
Capital Agreement), each Additional Permitted Debt Agent (as agent for
and representative of the holders of Additional Permitted Debt) and
each Other Representative (as agent for and representative of the
holders of debt under the related financing documents), in each case to
the extent the same is, or by operation of Section 14(a) of the
Intercreditor Agreement becomes, a party thereto.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
<PAGE> 7
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Section 2. Representations and Warranties. The Pledgor
represents and warrants to the Secured Parties that:
(a) The chief place of business and chief executive office of
the Pledgor and the office where the Pledgor keeps its records
concerning the Collateral, including the registration book in which all
shares of capital stock of the Issuer and pledges and transfers thereof
are recorded (hereinafter, collectively called the "Records") is
located at 1105 N. Market Street, Suite 1108, Wilmington,
Delaware 19801.
(b) The Pledgor is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business and is in good standing
in the State of Delaware and in all other places where necessary in
light of the transactions contemplated by this Agreement except where
the failure to so qualify would not reasonably be expected to result in
a Material Adverse Change.
(c) The Pledgor has the full power, authority and legal right
to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance by the Pledgor of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary member and limited liability
company action. This Agreement has been duly executed and delivered by
the Pledgor, is in full force and effect and is the legal, valid and
binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether enforcement thereof
is sought in a proceeding at law or in equity).
(d) The execution, delivery and performance by the Pledgor of
this Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not (i) require any consent or
approval of the members of the Pledgor or any other Person that has not
been duly obtained and each such consent or approval that has been
obtained is in full force and effect, (ii) violate any provision of any
of the certificate of limited liability company or the limited
liability company agreement of the Pledgor or any Law or Governmental
Approval applicable to the Pledgor, (iii) conflict with, result in a
breach of or constitute a default under any of the certificate of
limited liability company or the limited liability company agreement of
the Pledgor or any indenture or loan or credit agreement or other
agreement, lease or instrument to which the Pledgor is a party or by
which it or any of its property may be bound or affected except any
<PAGE> 8
-7-
such conflict, breach or default that would not reasonably be expected
to result in a Material Adverse Change or (iv) result in, or require
the creation or imposition of, any Lien (other than Pledgor Permitted
Liens), upon or with respect to any of the properties now owned or
hereafter acquired by the Pledgor.
(e) This Agreement creates in favor of the Collateral Agent
for the equal and ratable benefit of the Secured Parties, a valid Lien
on and security interest in all of the Collateral, subject to no Lien
other than Pledgor Permitted Liens, securing the payment and
performance of the Secured Obligations, and all filings and other
actions necessary or desirable to create, preserve, validate, perfect
and protect such Lien and the priority thereof have been duly made or
taken.
(f) No Governmental Approval by, and no filing with, any
Governmental Authority is required to be obtained by the Pledgor in
connection with this Agreement and the transactions contemplated hereby
and thereby (except for such Governmental Approvals and such filings
heretofore obtained or made and in full force and effect and for the
filing of financing statements in the relevant jurisdictions).
(g) The Pledgor is the sole legal and beneficial owner of the
Collateral in which it purports to grant a security interest pursuant
to Section 3 hereof, and no Lien exists or will exist upon the
Collateral at any time (and, with respect to the Collateral, no right
or option to acquire the same exists in favor of any other Person),
except for Pledgor Permitted Liens and except for the pledge and
security interest in favor of the Collateral Agent for the benefit of
the Secured Parties created or provided for herein.
(h) There is no action, suit or proceeding at law or in equity
or by or before any Governmental Authority, arbitral tribunal or other
body now pending, or to the knowledge of the Pledgor, threatened,
against or affecting the Pledgor or any of the Collateral which would
reasonably be expected to result in a Material Adverse Change with
respect to the Pledgor.
(i) The Pledgor has filed, or caused to be filed, all tax and
information returns that are required to have been filed by it in any
jurisdiction, and has paid (prior to their delinquency dates) all Taxes
shown to be due and payable on such returns and all other Taxes payable
by it, to the extent that the same have become due and payable, except
to the extent there is a Good Faith Contest thereof by the Pledgor.
<PAGE> 9
-8-
(j) The Pledged Stock evidenced by the certificates identified
in Annex 1 hereto is, and all other Pledged Stock in which the Pledgor
shall hereafter grant a security interest pursuant to Section 3 hereof
will be, duly authorized, validly existing, fully paid and
non-assessable and none of such Pledged Stock is or will be subject to
any contractual restriction, or any restriction under the charter or
by-laws of the Issuer of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained herein).
(k) The Pledged Stock evidenced by the certificates identified
in Annex 1 hereto constitutes all of the issued and outstanding shares
of capital stock of any class of the Issuer beneficially owned by the
Pledgor on the date hereof (whether or not registered in the name of
the Pledgor) and said Annex 1 correctly identifies, as at the date
hereof, the Issuer of such Pledged Stock, the respective class and par
value of the shares comprising such Pledged Stock and the respective
number of shares (and registered owners thereof) evidenced by each such
certificate.
(l) The Pledgor owns 100% of the issued and outstanding
capital stock of the Issuer as of the date hereof.
Section 3. The Pledge. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Pledgor hereby pledges, assigns,
hypothecates transfers, delivers and grants to the Collateral Agent for the
equal and ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent for the equal and ratable benefit of the Secured Parties a lien
on and security interest in, all of the Pledgor's right, title and interest in,
to and under the following, whether now owned by the Pledgor or hereafter
acquired and whether now existing or hereafter coming into existence and
wherever located (all being collectively referred to herein as "Collateral"):
(a) the shares of capital stock of the Issuer evidenced by the
certificates identified in Annex 1 hereto and all other shares of
capital stock of whatever class of the Issuer, now or hereafter owned
by the Pledgor, in each case together with the certificates evidencing
the same (collectively, the "Pledged Stock");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in
<PAGE> 10
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exchange therefor, and any subscription warrants, rights or options
issued to the holders of, or otherwise in respect of, the Pledged
Stock;
(c) without affecting the obligations of the Pledgor, the
Issuer or the Partnership under any provision prohibiting such action
hereunder or under the Intercreditor Agreement, in the event of any
consolidation or merger in which the Issuer is not the surviving
corporation, all shares owned by the Pledgor of each class of the
capital stock of the successor corporation formed by or resulting from
such consolidation or merger;
(d) all proceeds of and to any of the property of the Pledgor
described in the preceding clauses of this Section 3 and, to the extent
related to any property described in said clauses or such proceeds, all
books, correspondence, credit files, records, invoices and other
papers; and
(e) to the extent not included in the foregoing, all products,
offspring, rents, revenues, issues, profits, royalties, income,
benefits, accessions, additions, substitutions and replacements of and
to any and all of the foregoing.
Section 4. Covenants. The Pledgor covenants and agrees that,
until the Debt Termination Date:
(a) The Pledgor shall preserve and maintain its legal
existence and form and all of its rights, privileges and franchises
that are necessary for the maintenance of its existence and the
performance of all of its obligations under this Agreement.
(b) The Pledgor shall not create, incur, assume or suffer to
exist any Lien upon any of the Collateral other than Pledgor Permitted
Liens.
(c) The Pledgor shall promptly but in no case later than five
Business Days upon obtaining knowledge of any action, suit or
proceeding at law or in equity by or before any Governmental Authority,
arbitral tribunal or other body pending or threatened against the
Pledgor which would reasonably be expected to result in a Material
Adverse Change, furnish to the Collateral Agent a notice of such event
describing the same in reasonable detail and, together with such notice
or as soon thereafter as possible, a description of the action that the
Pledgor has taken and proposes to take with respect thereto.
(d) The Pledgor shall not sell, assign, transfer or otherwise
dispose of all or any part of the Collateral, or consent to the
issuance of any capital stock
<PAGE> 11
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of any class by the Issuer in a manner so as to cause the occurrence of
an Event of Default under Section 8.1(c) (but solely as the same
relates to Section 6.21(a) of the Trust Indenture), 8.1(p), 8.1(q) or
8.1(r) of the Trust Indenture (or the occurrence of an Event of Default
(as defined in the Intercreditor Agreement) under the correlative
provisions of any other Financing Document).
Section 5. Further Assurances; Remedies. In furtherance of the
grant of the pledge and security interest pursuant to Section 3 hereof, the
Pledgor hereby agrees with the Secured Parties as follows:
5.1 Delivery and Other Perfection. The Pledgor shall:
(a) if any of the certificates, warrants, shares, securities,
moneys, rights, options or other property required to be pledged by the
Pledgor under Section 3 hereof are received by the Pledgor, forthwith
(i) transfer and deliver to the Collateral Agent such certificates,
warrants, shares, securities, moneys, rights, options or other property
so received by the Pledgor (together with the certificates for any such
shares and securities duly endorsed in blank or accompanied by undated
stock powers duly executed in blank), all of which thereafter shall be
held by the Collateral Agent, pursuant to the terms of this Agreement,
as part of the Collateral and/or (ii) take such other action as the
Collateral Agent shall deem necessary or appropriate to duly record the
Lien created hereunder in such certificates, warrants, shares,
securities, moneys, rights, options or other property;
(b) give, execute, deliver, file and/or record any financing
statement, continuation statement, notice, instrument, document,
agreement or other papers that may be reasonably required to create,
preserve, perfect or validate the security interest granted pursuant
hereto or to enable the Collateral Agent to exercise and enforce its
rights hereunder with respect to such pledge and security interest,
including, without limitation, causing any or all of the Collateral to
be transferred of record into the name of the Collateral Agent or its
nominee (and the Collateral Agent agrees that if any Collateral is
transferred into its name or the name of its nominee, the Collateral
Agent shall thereafter promptly give to the Pledgor copies of any
notices and communications received by it with respect to the
Collateral). Without limiting the generality of the foregoing, the
Pledgor shall, if any Collateral shall be evidenced by a promissory
note or other instrument, deliver and pledge to the Collateral Agent
for the equal and ratable benefit of the Secured Parties such note or
instrument duly endorsed or accompanied by duly executed instruments of
transfer or assignment, all in such form and substance as will allow
the Collateral Agent to realize upon the Collateral pursuant to Section
5.5 hereof;
<PAGE> 12
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(c) maintain, hold and preserve full and accurate Records, and
stamp or otherwise mark such Records in such manner as may be
reasonably required in order to reflect the security interests granted
by this Agreement; and
(d) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its Records.
5.2 Other Financing Statements and Liens. Without the prior
consent of the Collateral Agent (granted with the written authorization of the
Secured Parties), the Pledgor shall not file or suffer to be on file, or
authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Collateral in which
the Collateral Agent is not named as the sole secured party for the benefit of
the Secured Parties.
5.3 Preservation of Rights. The Collateral Agent shall not be
required to take steps necessary to preserve any rights against prior parties to
any of the Collateral.
5.4 Collateral.
(a) The Pledgor shall cause the Collateral to constitute at
all times 100% of the total number of shares of each class of capital stock of
the Issuer then outstanding owned by the Pledgor.
(b) So long as no Trigger Event shall have occurred and be
continuing, the Pledgor shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Collateral for all purposes not
inconsistent with the terms of this Agreement, any other Project Document or any
other Financing Documents; and the Collateral Agent shall execute and deliver to
the Pledgor or cause to be executed and delivered to the Pledgor all such
proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the rights and powers which it is
entitled to exercise pursuant to this Section 5.4(b).
(c) Unless and until a Trigger Event has occurred and is
continuing, the Pledgor shall be entitled to receive, retain and distribute as
dividends or otherwise any dividends on the Collateral paid in cash out of
earned surplus.
(d) If any Trigger Event shall have occurred and be
continuing, and whether or not the Collateral Agent or any other Secured Party
exercises any available right to declare any Secured Obligation due and payable
or seeks or pursues any other
<PAGE> 13
-12-
relief or remedy available to it under applicable law or under this Agreement or
any other Project Document, all dividends and other distributions on the
Collateral to which the Pledgor is entitled shall be paid directly to the
Collateral Agent and retained by it as part of the Collateral, subject to the
terms of this Agreement, and, if the Collateral Agent shall so request, the
Pledgor agrees to execute and deliver to the Collateral Agent appropriate
additional dividend, distribution and other orders and documents to that end,
provided that if such Trigger Event is waived or cured, any such dividend or
distribution theretofore paid to the Collateral Agent shall, upon request of the
Pledgor (except to the extent theretofore applied to the Secured Obligations),
be returned by the Collateral Agent to the Pledgor.
5.5 Trigger Events. If any Trigger Event shall have occurred
and be continuing:
(a) the Collateral Agent shall have the rights and the
obligations with respect to this Agreement as more particularly
provided in the Intercreditor Agreement;
(b) the Pledgor shall, at the request of the Collateral Agent,
assemble the Collateral owned by it at such place or places, reasonably
convenient to both the Collateral Agent and the Pledgor, designated in
its request;
(c) the Collateral Agent shall have all of the rights and
remedies with respect to the Collateral of a secured party under the
Uniform Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by applicable law, to exercise
all voting, consensual and other powers of ownership pertaining to the
Collateral as if the Collateral Agent were the sole and absolute owner
thereof (and the Pledgor agrees to take all such action as may be
appropriate to give effect to such right);
(d) the Collateral Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms, of any of the Collateral;
(e) the Collateral Agent in its discretion may, in its name or
in the name of the Pledgor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral, but shall be under
no obligation to do so; and
<PAGE> 14
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(f) the Collateral Agent may, upon ten Business Days' prior
notice to the Pledgor of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall thereafter
come into the possession, custody or control of the Collateral Agent,
the other Secured Parties or any of their respective agents, sell,
lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Collateral Agent deems best,
and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of
the time or place thereof (except such notice as is required above or
by applicable statute and cannot be waived), and the Collateral Agent
or any other Secured Party or anyone else may be the purchaser, lessee,
assignee or recipient of any or all of the Collateral so disposed of at
any public sale (or, to the maximum extent permitted by applicable law,
at any private sale) and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any right or equity of
redemption (statutory or otherwise), of the Pledgor, any such demand,
notice and right or equity being hereby expressly waived and released
to the maximum extent permitted by applicable law. The Collateral Agent
may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at
the time and place fixed for the sale, and such sale may be made at any
time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.5 shall be applied in accordance with Section 5.8 hereof.
The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Collateral Agent may be compelled, with respect to any sale
of all or any part of the Collateral, to limit purchasers to those who will
agree, among other things, to acquire the Collateral for
<PAGE> 15
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their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor acknowledges that any such private sale may be at
prices and on terms less favorable to the Collateral Agent than those obtainable
through a public sale without such restrictions, and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Collateral Agent shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Collateral for the period of time necessary to permit the respective
issuer thereof to register it for public sale.
5.6 Removals, Etc. Without at least 30 days' prior notice to
the Collateral Agent, the Pledgor shall not (a) maintain any of its Records at
any office or maintain its principal place of business at any place other than
at the address for notices set forth on the signature pages hereto or (b) change
its corporate name, or the name under which it does business, from the name
shown on the signature pages hereto.
5.7 Private Sale. The Collateral Agent and the other Secured
Parties shall incur no liability as a result of the sale of the Collateral, or
any part thereof, at any private sale pursuant to Section 5.5 hereof conducted
in a commercially reasonable manner. The Pledgor hereby waives, to the maximum
extent permitted by applicable law, any claims against the Collateral Agent or
any other Secured Party arising by reason of the fact that the price at which
the Collateral may have been sold at such a commercially reasonable private sale
was less than the price which might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations, even if, to the
extent that it is commercially reasonable to do so, the Collateral Agent accepts
the first offer received and does not offer the Collateral to more than one
offeree.
5.8 Application of Proceeds.
(a) Except as otherwise herein expressly provided, the
proceeds of any collection, sale or other realization of all or any
part of the Collateral pursuant hereto shall be remitted to the
Depositary Agent in the form received with all necessary endorsements
and, to the maximum extent permitted by applicable law, be applied in
accordance with the Depositary Agreement and the Intercreditor
Agreement.
(b) No sale or other disposition of all or any part of the
Collateral pursuant to Section 5.2 shall be deemed to relieve the
General Partner of its obligations under any Project Documents to which
it is party except to the extent the proceeds thereof are applied to
the payment of such obligations.
5.9 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Collateral Agent while no Trigger Event has
occurred and is
<PAGE> 16
-15-
continuing, upon the occurrence and during the continuance of any Trigger Event
the Collateral Agent is hereby appointed the attorney-in-fact of the Pledgor for
the purpose of carrying out the provisions of this Section 5 and taking any
action and executing any instruments which may be reasonably required to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, so long as the Collateral Agent shall be entitled under this Section
5 to make collections in respect of the Collateral, the Collateral Agent shall
have the right and power to receive, endorse and collect all checks made payable
to the order of the Pledgor representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
5.10 Perfection. Concurrently with the execution of this Agreement, the
Pledgor shall deliver to the Collateral Agent all certificates identified in
Annex 1 hereto, accompanied by undated stock powers duly executed in blank. The
Pledgor hereby authorizes the Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part of
the Collateral without the signature of the Pledgor where permitted by
applicable law. Copies of any such statement or amendment thereto shall promptly
be delivered to the Pledgor. Prior to or within 10 days after the date of this
Agreement, the Pledgor shall file such financing statements and other documents
in such offices as the Collateral Agent may request to perfect the security
interests granted by Section 3 of this Agreement. The Pledgor hereby authorizes
the Collateral Agent to file one or more financing or continuation statements,
and amendments thereto, relating to all or any part of the Collateral without
the signature of the Pledgor where permitted by applicable law. Copies of any
such statement or amendment thereto shall promptly be delivered to the Pledgor.
5.11 Termination.
(a) Upon any transfer of the Collateral permitted by the Trust
Indenture and the other Financing Documents, the Collateral Agent shall, upon
the written request of (and at the sole cost and expense of) the Pledgor,
promptly cause to be assigned, transferred and delivered, against receipt but
without any recourse, warranty or representation whatsoever, such Collateral and
shall promptly execute and deliver to the Pledgor such Uniform Commercial Code
termination statements and such other documentation as shall be requested by the
Pledgor to effect the termination and release of the Liens on such Collateral.
(b) Upon the Debt Termination Date the security interest
created by this Agreement shall terminate and all rights to the Collateral shall
revert to the Pledgor, and the Collateral Agent shall forthwith cause to be
assigned, transferred and delivered, against receipt but without any recourse,
warranty or representation whatsoever, any remaining Collateral and money
received in respect thereof, to or on the order of the
<PAGE> 17
-16-
Pledgor. The Collateral Agent shall also execute and deliver to the Pledgor upon
such termination such Uniform Commercial Code termination statements and such
other documentation as shall be requested by the Pledgor to effect the
termination and release of the Liens on the Collateral.
5.12 Expenses. The Pledgor agrees to pay to the Collateral Agent all
reasonable fees and out-of-pocket expenses (including reasonable fees and
expenses for legal services) of, or incident to, the enforcement of any of the
provisions of this Section 5, or performance by the Collateral Agent of any
obligations of the Pledgor in respect of the Collateral which the Pledgor has
failed or refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting rights
and claims of the Collateral Agent in respect thereof, by litigation or
otherwise, and all such fees and expenses, together with interest thereon at the
applicable Post-Default Rate shall be Secured Obligations to the Collateral
Agent secured under Section 3 hereof.
5.13 Further Assurances. The Pledgor agrees that, from time to time
upon the request of the Collateral Agent, the Pledgor shall execute and deliver
such further documents and do such other acts and things as the Collateral Agent
may reasonably request in order fully to effectuate the purposes of this
Agreement.
Section 6. Miscellaneous.
6.1 No Waiver. No failure on the part of the Collateral Agent or any of
its agents to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or remedy hereunder shall operate as a waiver
thereof, and no single or partial exercise by the Collateral Agent or any of its
agents of any right, power or remedy hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided herein are cumulative and are not exclusive of any
remedies provided by applicable law.
6.2 Notices. All notices, requests and other communications provided
for herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing in the manner
set forth in Section 16 of the Intercreditor Agreement. Unless otherwise so
changed by the respective parties hereto, all notices, requests and other
communications to each party hereto shall be sent to the address for notices of
such parties set forth on the signature pages hereto.
<PAGE> 18
-17-
6.3 Waivers, Etc. This Agreement may be amended, supplemented or
modified only by an instrument in writing signed by the Pledgor and the
Collateral Agent acting with the consent of the Secured Parties as provided in
Section 8(c) of the Intercreditor Agreement, and any provision of this Agreement
may be waived by the Collateral Agent acting with consent of the Secured Parties
or the Secured Parties as provided in Section 8(c) of the Intercreditor
Agreement; provided that no amendment, supplement, modification or waiver shall,
unless by an instrument in writing signed by all of the Secured Parties or by
the Collateral Agent acting with the consent of all of the Secured Parties,
alter the terms of this Section 6.3. Any waiver shall be effective only in the
specific instance and for the specified purpose for which it was given.
6.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the Pledgor,
the Collateral Agent, the other Secured Parties and each holder of any of the
Secured Obligations (provided, however, that the Pledgor shall not assign or
transfer its rights hereunder without the prior consent of the Collateral
Agent).
6.5 Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts, all of which when taken together shall constitute one
and the same instrument and either of the parties hereto may execute this
Agreement by signing any such counterpart. This Agreement shall become effective
at such time as the Collateral Agent shall have received counterparts hereof
signed by all of the intended parties hereto.
6.6 Agents, Etc. The Collateral Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith. In accordance with the Intercreditor Agreement and the Depositary
Agreement, the Collateral Agent has appointed the Depositary Agent as its agent
for purposes of the Depositary Agreement. The Pledgor acknowledges that it has
received a copy of the Depositary Agreement and acknowledges and agrees to the
terms and conditions of the Depositary Agreement as the same apply hereto.
6.7 Severability. If any provision hereof is invalid or unenforceable
in any jurisdiction, then, to the fullest extent permitted by applicable law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Collateral Agent
and the other Secured Parties in order to carry out the intentions of the
parties hereto as nearly as may be possible and (b) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
<PAGE> 19
-18-
6.8 The Collateral Agent. As provided in Section 8 of the Intercreditor
Agreement, each Secured Party has appointed The Chase Manhattan Bank (National
Association) as its Collateral Agent for purposes of this Agreement. Following
the Debt Termination Date, the provisions of said Section 8 shall be deemed to
continue in full force and effect for the benefit of the Collateral Agent under
this Agreement.
6.9 Headings. Headings appearing herein are used solely for convenience
of reference and are not intended to affect the interpretation of any provision
of this Agreement.
6.10 Limitation of Liability. The liability of the Pledgor for the
payment and performance of the Secured Obligations shall be limited as and to
the extent provided under Section 27 of the Intercreditor Agreement.
6.11 Security Interest Absolute. The rights and remedies of the
Collateral Agent hereunder, the Liens created hereby and the obligations of the
Pledgor hereunder are absolute, irrevocable and unconditional, irrespective of:
(a) the validity or enforceability of any of the Secured Obligations,
any other Project Document or any other agreement or instrument relating
thereto;
(b) any amendment to, waiver of, consent to or departure from, or
failure to exercise any right, remedy, power or privileges under or in respect
of, any of the Secured Obligations, any other Project Document or any other
agreement or instrument relating thereto;
(c) the acceleration of the maturity of any of the Secured Obligations
or any other modification of the time of payment thereof;
(d) any substitution, release or exchange of any other security for or
guarantee of any of the Secured Obligations or the failure to create, preserve,
validate, perfect or protect any other Lien granted to, or purported to be
granted to, or in favor of, the Collateral Agent or any other Secured Party; or
(e) any other event or circumstance whatsoever which might otherwise
constitute a legal or equitable discharge of a surety or a guarantor, it being
the intent of this Section 6.11 that the obligations of the Pledgor hereunder
shall be absolute, irrevocable and unconditional under any and all
circumstances.
6.12 Subrogation. The Pledgor shall not exercise, and hereby
irrevocably waives, any claim, right or remedy that it may now have or may
hereafter acquire against the Partnership arising under or in connection with
this Agreement,
<PAGE> 20
-19-
including, without limitation, any claim, right or remedy of subrogation,
contribution, reimbursement, exoneration, indemnification or participation
arising under contract, by Law or otherwise in any claim, right or remedy of the
Collateral Agent or the Secured Parties against the Partnership or any other
Person or any Collateral which the Collateral Agent or any Secured Party may now
have or may hereafter acquire. If, notwithstanding the preceding sentence, any
amount shall be paid to the Pledgor on account of such subrogation rights at any
time when any of the Secured Obligations shall not have been paid in full, such
amount shall be held by the Pledgor in trust for the Collateral Agent and the
Secured Parties, segregated from other funds of the Pledgor and be turned over
to the Collateral Agent in the exact form received by the Pledgor (duly endorsed
by the Pledgor to the Collateral Agent, if required), to be applied against the
Secured Obligations, whether matured or unmatured, in accordance with the Trust
Indenture and the Security Documents.
6.13 Reinstatement. This Agreement and the Lien created hereunder shall
automatically be reinstated if and to the extent that for any reason any payment
by or on behalf of the Partnership in respect of the Secured Obligations is
rescinded or must otherwise be restored by any holder of the Secured
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and the Pledgor shall indemnify the Collateral
Agent and its employees, officers and agents on demand for all reasonable fees,
costs and expenses (including, without limitation, fees, costs and expenses of
counsel) incurred by the Collateral Agent or its employees, officers or agents
in connection with such rescission or restoration.
6.14 NO THIRD PARTY BENEFICIARIES. THE AGREEMENTS OF THE PARTIES HERETO
ARE SOLELY FOR THE BENEFIT OF THE PLEDGOR, THE COLLATERAL AGENT AND THE OTHER
SECURED PARTIES, AND NO PERSON (OTHER THAN THE PARTIES HERETO, THE OTHER SECURED
PARTIES AND THEIR SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER) SHALL HAVE ANY
RIGHTS HEREUNDER.
6.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, ARE
GOVERNED BY THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE> 21
-20-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
COGENTRIX WHITEWATER, LLC
By Cogentrix Mid-America, Inc.,
its manager
By /s/ James R. Pagano
-------------------------------
Name: James R. Pagano
Title: President
Address for Notices:
Cogentrix Whitewater, LLC
c/o Cogentrix Energy, Inc.
9405 Arrowpoint Boulevard
Charlotte, North Carolina 28273
Attention: General Counsel
Telecopier No.: (704) 529-1006
<PAGE> 22
-21-
THE CHASE MANHATTAN BANK,
as Collateral Agent
By /s/ David G. Safer
-----------------------------
Name : David Safer
Title: Vice President
Address for Notices:
The Chase Manhattan Bank,
as Collateral Agent
Global Trust Services
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Attention: David Safer
Telecopier No.: (212) 946-8177
<PAGE> 23
ANNEX 1
PLEDGED STOCK
COGENTRIX WHITEWATER, LLC
Issuer: LSP-Whitewater I, Inc.
Share Certificate No.: 2
Class: Common
Par Value: $0.01
Number of Shares: 20
Registered Owner: Cogentrix Whitewater, LLC
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF LS POWER FUNDING CORPORATION AS OF AND
FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 332,001
<CURRENT-LIABILITIES> 0
<BONDS> 332,000
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 332,001
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,886
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSP-COTTAGE GROVE, L.P. AS OF AND FOR THE PERIOD ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,816
<SECURITIES> 0
<RECEIVABLES> 7,610
<ALLOWANCES> 0
<INVENTORY> 2,312
<CURRENT-ASSETS> 18,791
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 270,818
<CURRENT-LIABILITIES> 8,432
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> 107,386
<TOTAL-LIABILITY-AND-EQUITY> 270,818
<SALES> 10,738
<TOTAL-REVENUES> 10,738
<CGS> 5,851
<TOTAL-COSTS> 5,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,087
<INCOME-PRETAX> 89,218
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,218
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF LSP-WHITEWATER LIMITED PARTNERSHIP AS OF
AND FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,749
<SECURITIES> 0
<RECEIVABLES> 7,178
<ALLOWANCES> 0
<INVENTORY> 1,793
<CURRENT-ASSETS> 17,402
<PP&E> 8,393
<DEPRECIATION> 112
<TOTAL-ASSETS> 308,115
<CURRENT-LIABILITIES> 11,556
<BONDS> 177,000
0
0
<COMMON> 0
<OTHER-SE> 119,559
<TOTAL-LIABILITY-AND-EQUITY> 308,115
<SALES> 13,348
<TOTAL-REVENUES> 13,348
<CGS> 7,747
<TOTAL-COSTS> 7,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,024
<INCOME-PRETAX> 99,002
<INCOME-TAX> 0
<INCOME-CONTINUING> 99,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,002
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
