-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PtGDHR+0FjvQaRgUAsYUhFiSf36AXZ/39wjFzxiAS+o4r1cullm0HPF+tNhqtmp3 O1CyHPOTgR0fYfmGUWBKcg== 0001047469-99-020363.txt : 19990517 0001047469-99-020363.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020363 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COGENERATION CORP OF AMERICA CENTRAL INDEX KEY: 0000795185 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 592076187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09208 FILM NUMBER: 99621568 BUSINESS ADDRESS: STREET 1: ONE CARLSON PARKWAY STREET 2: SUITE 240 CITY: MINNEAPOLIS STATE: MN ZIP: 55447-4454 BUSINESS PHONE: 6127457900 MAIL ADDRESS: STREET 1: ONE CARLSON PARKWAY STREET 2: SUITE 240 CITY: MINNEAPOLIS STATE: MN ZIP: 55447-4454 FORMER COMPANY: FORMER CONFORMED NAME: NRG GENERATING U S INC DATE OF NAME CHANGE: 19960507 FORMER COMPANY: FORMER CONFORMED NAME: O BRIEN ENVIRONMENTAL ENERGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OBRIEN ENERGY SYSTEMS INC DATE OF NAME CHANGE: 19910804 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ----------- (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9208 COGENERATION CORPORATION OF AMERICA (Exact name of Registrant as Specified in Charter) DELAWARE 59-2076187 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) ----------- ONE CARLSON PARKWAY, SUITE 240 MINNEAPOLIS, MINNESOTA 55447-4454 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 745-7900 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 19-34 subsequent to the distribution of securities under a plan confirmed by a court. X Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 6,857,269 shares of common stock, $0.01 par value per share (the "Common Stock"), as of April 27, 1999. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- COGENERATION CORPORATION OF AMERICA FORM 10-Q MARCH 31, 1999 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION: Item 1. Financial Statements......................................... 3 Consolidated Balance Sheets - March 31, 1999 and December 31, 1998....................... 3 Consolidated Statements of Operations - Three months ended March 31, 1999 and March 31, 1998....... 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and March 31, 1998....... 5 Notes to Consolidated Financial Statements................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk... 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................ 23 Item 6. Exhibits and Reports on Form 8-K............................. 24 Signature................................................................. 25 Index to Exhibits......................................................... 26
2 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COGENERATION CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
MARCH 31, DECEMBER 31, 1999 1998 ---------------- ---------------- (UNAUDITED) Current assets: Cash and cash equivalents.................................... $ 4,338 $ 3,568 Restricted cash and cash equivalents......................... 15,364 12,135 Accounts receivable, net..................................... 20,605 14,326 Receivables from related parties............................. 61 130 Inventories.................................................. 2,269 2,683 Other current assets......................................... 304 640 ---------------- ---------------- Total current assets....................................... 42,941 33,482 Property, plant and equipment, net of accumulated depreciation of $50,969 and $47,819, respectively........... 241,733 244,040 Investments in equity affiliates............................. 18,823 18,179 Deferred financing costs, net................................ 6,111 6,503 Other assets................................................. 16,468 16,470 ---------------- ---------------- Total assets............................................... $ 326,076 $ 318,674 ---------------- ---------------- ---------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of loans and payables due NRG Energy, Inc.... $ 9,591 $ 7,020 Current portion of nonrecourse long-term debt................ 7,849 8,060 Current portion of recourse long-term debt................... 1,509 1,550 Short-term borrowings........................................ 2,128 1,887 Accounts payable............................................. 9,033 8,800 Prepetition liabilities...................................... 811 803 Other current liabilities.................................... 3,653 4,227 ---------------- ---------------- Total current liabilities.................................. 34,574 32,347 Loans due NRG Energy, Inc.................................... 42,263 36,123 Nonrecourse long-term debt................................... 187,684 189,848 Recourse long-term debt...................................... 45,225 45,225 Deferred tax liabilities, net................................ 2,793 2,793 Other liabilities............................................ 7,298 8,525 ---------------- ---------------- Total liabilities.......................................... 319,837 314,861 Stockholders' equity (deficit): Common stock, par value $.01, 50,000,000 shares authorized 6,871,069 shares issued, 6,857,269 and 6,836,769 shares outstanding as of March 31, 1999 and December 31, 1998, respectively................................................ 68 68 Additional paid-in capital................................... 65,813 65,715 Accumulated deficit. (59,190) (61,590) Accumulated other comprehensive income (loss)................ (452) (380) ---------------- ---------------- Total stockholder's equity (deficit)....................... 6,239 3,813 ---------------- ---------------- Total liabilities and stockholders' equity (deficit)....... $ 326,076 $ 318,674 ---------------- ---------------- ---------------- ----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 COGENERATION CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED -------------------------------- MARCH 31, MARCH 31, 1999 1998 ------------ ------------ REVENUES: Energy revenues........................... $ 22,745 $ 11,283 Equipment sales and services.............. 3,807 5,471 Rental revenues........................... - 875 ------------ ------------ 26,552 17,629 COST OF REVENUES: Cost of energy revenues................... 12,803 3,513 Cost of equipment sales and services...... 3,327 4,739 Cost of rental revenues................... - 650 ------------ ------------ 16,130 8,902 ------------ ------------ Gross profit............................ 10,422 8,727 Selling, general and administrative expenses.................. 1,683 2,107 ------------ ------------ Income from operations.................. 8,739 6,620 ------------ ------------ Interest and other income................. 125 218 Equity in earnings of affiliates.......... 670 1,007 Interest and debt expense................. (5,706) (3,553) ------------ ------------ Income before income taxes.............. 3,828 4,292 Provision for income taxes................ 1,428 1,619 ------------ ------------ Net income.............................. $ 2,400 $ 2,673 ------------ ------------ ------------ ------------ Basic earnings per share.................. $ 0.35 $ 0.39 ------------ ------------ ------------ ------------ Diluted earnings per share................ $ 0.35 $ 0.38 ------------ ------------ ------------ ------------ Weighted average shares outstanding (Basic)...................... 6,847 6,837 ------------ ------------ ------------ ------------ Weighted average shares outstanding (Diluted).................... 6,918 7,010 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 COGENERATION CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED -------------------------------- MARCH 31, MARCH 31, 1999 1998 --------------- -------------- Cash Flows from Operating Activities: Net income................................................... $ 2,400 $ 2,673 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................ 3,542 2,106 Equity in earnings of affiliates......................... (644) (1,007) Gain on disposition of property and equipment............ - (67) Other, net............................................... - 29 Changes in operating assets and liabilities: Accounts receivable, net............................... (6,270) (302) Inventories............................................ 381 3 Receivables from related parties....................... 69 22 Other assets........................................... 339 325 Accounts payable and other current liabilities......... (188) (1,303) --------------- -------------- Net cash provided by (used in) operating activities.. (371) 2,479 --------------- -------------- Cash Flows from Investing Activities: Capital expenditures......................................... (2,071) (25,314) Proceeds from disposition of property and equipment.......... - 71 Collections on notes receivable.............................. - 26 Deposits into restricted cash accounts, net.................. (3,221) (102) --------------- -------------- Net cash used in investing activities................ (5,292) (25,319) --------------- -------------- Cash Flows from Financing Activities: Proceeds from long-term debt................................. 12,874 23,387 Repayments of long-term debt................................. (6,780) (2,176) Net proceeds of short-term borrowing......................... 241 3,168 Deferred financing costs..................................... - (4) Purchase of treasury stock................................... (50) - Proceeds from issuance of common stock....................... 148 - --------------- -------------- Net cash provided by financing activities............ 6,433 24,375 --------------- -------------- Net increase in cash and cash equivalents..................... 770 1,535 Cash and cash equivalents, beginning of period................ 3,568 3,444 --------------- -------------- Cash and cash equivalents, end of period...................... $ 4,338 $ 4,979 --------------- -------------- --------------- -------------- Supplemental disclosure of cash flow information: Interest paid............................................... $ 3,786 $ 3,237 Income taxes paid........................................... 38 347
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 COGENERATION CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 (DOLLARS IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cogeneration Corporation of America ("CogenAmerica" or the "Company") is an independent power producer pursuing "inside-the-fence" cogeneration products in the U.S. The Company is engaged primarily in the business of developing, owning and managing the operation of cogeneration projects which produce electricity and thermal energy for sale under long-term contracts with industrial and commercial users and public utilities. The Company is currently focusing on natural gas-fired cogeneration projects with long-term contracts for substantially all of the output of such projects. In addition the Company sells and rents power generation and standby/peak shaving equipment and services through several wholly owned subsidiaries operating under the common name "PUMA". BASIS OF PRESENTATION The consolidated financial statements include the accounts of all majority-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated. Investments in companies, partnerships and projects that are more than 20% but less than majority-owned are accounted for by the equity method. The accompanying unaudited consolidated financial statements and notes should be read in conjunction with the Company's Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, the consolidated financial statements reflect all adjustments necessary for a fair presentation of the interim periods presented. Results of operations for an interim period may not give a true indication of results for the year. NET EARNINGS PER SHARE Basic earnings per share ("EPS") includes no dilution and is computed by dividing net income (loss) by the weighted average share of common stock outstanding. Diluted EPS is computed by dividing net income (loss) by the weighted average shares of common stock and dilutive common stock equivalents outstanding. The Company's dilutive common stock equivalents result from stock options and are computed using the treasury stock method.
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1999 MARCH 31, 1998 ---------------------------------------------------- ---------------------------------------------------- INCOME SHARES INCOME SHARES (NUMERATOR) (DENOMINATOR) EPS (NUMERATOR) (DENOMINATOR) EPS ------------------ -------------------- ---------- ------------------ -------------------- ---------- Net income: Basic EPS $ 2,400 $ 6,847 $ 0.35 $ 2,673 $ 6,837 $ 0.39 Effect of dilutive stock options - 71 - 173 ------------------ -------------------- ------------------ -------------------- Diluted EPS $ 2,400 $ 6,918 $ 0.35 $ 2,673 $ 7,010 $ 0.38 ------------------ -------------------- ------------------ -------------------- ------------------ -------------------- ------------------ --------------------
6 2. LOANS AND PAYABLES DUE NRG ENERGY, INC. Amounts owed to NRG Energy, Inc. are comprised of the following:
THREE MONTHS ENDED -------------------------------------- MARCH 31, DECEMBER 31, 1999 1998 ----------------- ----------------- Long-term debt: Note due April 30, 2001 $ 2,539 $ 2,539 Grays Ferry note due July 1, 2005 1,900 1,900 Pryor note due September 30, 2004 23,415 23,947 Morris note due December 31, 2004 21,069 12,027 ----------------- ----------------- 48,923 40,413 Less current portion (6,660) (4,290) ----------------- ----------------- $ 42,263 $ 36,123 ----------------- ----------------- ----------------- ----------------- Current maturities of loans and accounts payable: Current maturities: Morris note $ 4,149 $ 2,104 Pryor note 2,511 2,186 Accounts payable: Management services, operations and other 2,931 2,730 ----------------- ----------------- $ 9,591 $ 7,020 ----------------- ----------------- ----------------- -----------------
3. COMPREHENSIVE INCOME The Company's comprehensive income is comprised of net income and other comprehensive income, which consists solely of foreign currency translation adjustments. Income taxes have not been provided on the foreign currency translation adjustments as the earnings of the foreign subsidiary are considered permanently reinvested. The components of comprehensive income, for the first quarter of 1999 and 1998 were as follows:
THREE MONTHS ENDED ------------------------------- MARCH 31, MARCH 31, 1999 1998 ------------- ------------- Net income $ 2,400 $ 2,673 Foreign currency translation (72) 35 gain (loss) ------------- ------------- Comprehensive income $ 2,328 $ 2,708 ------------- ------------- ------------- -------------
4. INVESTMENT IN EQUITY AFFLIATES Investments in equity affiliates consist of the following:
MARCH 31, DECEMBER 31, 1999 1998 -------------------------------- Grays Ferry (33% owned) $ 18,234 $ 17,603 PoweRent Limited (50% owned) 589 576 ------------- ------------- $ 18,823 $ 18,179, ------------- ------------- ------------- -------------
7 GRAYS FERRY On March 31, 1999, CogenAmerica Schuylkill, a wholly-owned subsidiary of the Company, had a one-third partnership interest in the Grays Ferry Cogeneration Partnership("Grays Ferry"). The other partners as of such date were affiliates of PECO Energy Company ("PECO")and Trigen Energy Corporation ("Trigen"). Grays Ferry has constructed a 150 MW cogeneration facility located in Philadelphia which began commercial operations in January 1998. Grays Ferry has a 25-year contract to supply all the steam produced by the project to an affiliate of Trigen through 2022 and two 20-year contracts ("PPAs") to supply all of the electricity produced by the project to PECO through 2017. The Company accounts for its investment in Grays Ferry by the equity method. The Company's equity in earnings of the partnership was $631 and $986 for the three months ended March 31, 1999 and 1998, respectively. On April 23, 1999, Grays Ferry and PECO reached final settlement on the resolution of litigation concerning the parties' Power Purchase Agreements. Under the terms of the settlement, PECO transferred its one-third ownership interest in the 150-megawatt project to Grays Ferry. As a result, the Company's respective interest in Grays Ferry increased to 50% effective April 23, 1999 (See Note 6). Summarized financial information for Grays Ferry for the three months ended March 31, 1999 and 1998 is presented below:
THREE MONTHS ENDED ------------------------------- MARCH 31, MARCH 31, 1999 1998 ------------- ------------- Current assets $ 30,595 $ 28,137 Non-current assets $ 157,505 $ 161,944 Current liabilities $ 136,493 $ 151,680 Non-current liabilities $ - $ - Net revenues $ 19,174 $ 17,033 Cost of sales $ 11,803 $ 10,863 Operating income $ 4,539 $ 5,172 Partnership net income $ 869 $ 2,958
POWERENT LIMITED PoweRent Limited ("PoweRent") is a 50% owned United Kingdom Company owned by PUMA that sells and rents power generation equipment. The Company accounts for its investment by the equity method. The Company's equity in earnings was $13 and $27 for the three months ended March 31, 1999 and 1998, respectively. The Company has determined and previously announced that its equipment sales, rental and services business is not a part of its strategic plan. The Company is currently pursuing several avenues for the disposition of PUMA, which is not expected to have a material adverse effect on the Company's final position or results of operations. 8 5. SEGMENT INFORMATION The Company is engaged principally in developing, owning and managing cogeneration projects and the sale and service of cogeneration related equipment. The Company has classified its operations in the following segments: energy, and equipment sales, rental and service. The energy segment consists of cogeneration and standby/peak shaving projects. The equipment sales, rental and service segment consists of PUMA, the Company's wholly-owned subsidiary based in the United Kingdom and O'Brien Energy Services Company ("OES") until its sale in November 1998. Summarized information about the Company's operations in each industry segment are as follows:
QUARTER ENDED MARCH 31, 1999 ------------------------------------------------------------------ EQUIPMENT SALES, RENTAL ENERGY & SERVICE OTHER TOTAL ---------- -------------- ----------- ----------- Revenues $ 22,745 $ 3,807 $ - $ 26,552 Depreciation & amortization 3,123 27 - 3,150 Other cost of revenues 9,680 3,300 - 12,980 ---------- -------------- ----------- ----------- Gross profit 9,942 480 - 10,422 Selling, general & administrative expenses 1,121 354 208 1,683 ---------- -------------- ----------- ----------- Income (loss) from operations 8,821 126 (208) 8,739 Interest & other income 76 - 49 125 Interest & debt expense (5,212) (72) (422) (5,706) Equity in earning of affiliates 630 40 - 670 ---------- -------------- ----------- ----------- Income (loss) before taxes $ 4,315 $ 94 $ (581) $ 3,828 ---------- -------------- ----------- ----------- ---------- -------------- ----------- ----------- Identifiable assets $260,688 $ 7,428 $ 57,960 $ 326,076 Capital expenditures 962 22 3 987 QUARTER ENDED MARCH 31, 1998 ------------------------------------------------------------------ EQUIPMENT SALES, RENTAL ENERGY & SERVICE OTHER TOTAL ---------- -------------- ----------- ----------- Revenues $ 11,283 $ 6,346 $ - $ 17,629 Depreciation & amortization 1,899 50 - 1,949 Other cost of revenues 1,614 5,339 - 6,953 ---------- -------------- ----------- ----------- Gross profit 7,770 957 - 8,727 Selling, general & administrative expenses 1,238 579 290 2,107 ---------- -------------- ----------- ----------- Income (loss) from operations 6,532 378 (290) 6,620 Interest & other income 124 5 89 218 Interest & debt expense (3,131) (79) (343) (3,553) Equity in earning of affiliates 987 20 - 1,007 ---------- -------------- ----------- ----------- Income (loss) before taxes $ 4,512 $ 324 $ (544) $ 4,292 ---------- -------------- ----------- ----------- ---------- -------------- ----------- ----------- Identifiable assets $182,169 $ 9,274 $ 62,240 $ 253,683 Capital expenditures 212 $ 76 $ - $ 288
9 6. SUBSEQUENT EVENTS SETTLEMENT BETWEEN GRAYS FERRY COGENERATION PARTNERSHIP AND PECO On April 23, 1999, Grays Ferry and PECO reached a final settlement in the Common Pleas Court in Philadelphia on the resolution of litigation concerning the parties' Power Purchase Agreements ("PPAs"). The settlement calls for PECO and Grays Ferry to specifically perform the existing PPAs as amended, under an order from the Court. This includes PECO paying for capacity and electric energy purchases from Grays Ferry at the specific contract prices set out in the PPAs for the 1998-2000 time period. The energy pricing under the original terms of the PPAs after the year 2000 was based upon a percentage of the PJM market price, which is the local wholesale market price. This market-based pricing is expected to produce substantially lower revenues than the more favorable rates of the early contract years. As part of the settlement, the PPAs were amended to modify the percentage of the PJM market price to lessen the impact in the early years of market-index pricing. Under the terms of the settlement, PECO will also transfer its one-third ownership interest in the 150-megawatt project to Grays Ferry. As a result, CogenAmerica and Trigen Energy Corporation's respective interest in Grays Ferry will increase from 33% to 50%. PECO will transfer its interest to Grays Ferry at no cost. The transfer is effective with the final settlement on April 23, 1999. As a result of the settlement, CogenAmerica will record a one-time gain in the second quarter of 1999, based upon the fair market value of the additional ownership interest. Management currently estimates the after-tax gain will be approximately $5 to $6 million. Additionally, the settlement resolves litigation against PECO by the Chase Manhattan Bank and Westinghouse Power Generation and arbitration between Grays Ferry and Westinghouse regarding the construction contract. MORRIS OUTAGE The Morris facility experienced an unscheduled outage on April 20, 1999 which resulted in service and business interruption to Equistar Chemicals LP ("Equistar"). In January 1999 there were two similar incidents. CogenAmerica, Equistar and NRG Energy, in its capacity as provider of construction management services and operation and maintenance services, are continuing to investigate the matter and are examining their respective rights and obligations with respect to each other and with respect to potentially responsible third parties, including insurers. CogenAmerica believes it is likely that additional capital from the construction contingency from the project financing will be expended to enhance reliability. The Company does not believe that there will be a material adverse impact on the Company's financial statements, however, no assurance can be given as to the ultimate outcome of this matter. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part II, Item 7, of the Company's Report on Form 10-K for the year ended December 31, 1998. Capitalized terms used in this Item 2 which are not defined herein have the meaning ascribed to such terms in the Notes to the Company's consolidated financial statements included in Part I, Item 1 of this Report on Form 10-Q. All dollar amounts (except per share amounts) set forth in this Report are in thousands. Except for the historical information contained in this Report, the matters reflected or discussed in this Report which relate to the Company's beliefs, expectations, plans, future estimates and the like are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the generality of the foregoing, the words "believe," "anticipate," "estimate," "expect," "intend," "plan," "seek" and similar expressions, when used in this Report and in such other statements, are intended to identify forward-looking statements. These forward looking statements include, among others, the Company's estimates of the impact of the Grays Ferry settlement on its net income and earnings per share. Such forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, operating risks and uncertainties which tend to be greater with respect to new facilities, such as the risk that the breakdown or failure of equipment or processes or unanticipated performance problems may result in lost revenues or increased expenses, and other factors discussed in this Report and the Company's Report on Form 10-K for the year ended December 31, 1998 in the section entitled "Item 1. Business -- Risk Factors". Many of such factors are beyond the Company's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. By making these forward-looking statements, the Company does not undertake to update them in any manner except as may be required by the Company's disclosure obligations in filings it makes with the Securities and Exchange Commission under the Federal securities laws. GENERAL CogenAmerica is an independent power producer pursuing "inside-the-fence" cogeneration projects in the U.S. The Company is engaged primarily in the business of developing, owning and managing the operation of cogeneration projects which produce electricity and thermal energy for sale under long-term contracts with industrial and commercial users and public utilities. The Company is currently focusing on natural gas-fired cogeneration projects with long-term contracts for substantially all of the output of such projects. The Company's strategy is to develop, acquire and manage the operation of such cogeneration projects and to provide U.S. industrial facilities and utilities with reliable and competitively priced energy from its power projects. CogenAmerica has substantial expertise in the development and operation of power projects. The Company's project portfolio as of March 31, 1999 consisted of: 11 (i) a 122 MW cogeneration facility in Parlin, New Jersey (the "Parlin Project"), which began commercial operation in June 1991 and is owned through its wholly-owned subsidiary, CogenAmerica Parlin; (ii) a 58 MW cogeneration facility in Newark, New Jersey (the "Newark Project"), which began commercial operation in November 1990 and is owned through its wholly-owned subsidiary, CogenAmerica Newark; (iii) a 117 MW cogeneration facility in Morris, Illinois (the "Morris Project"), which began commercial operation in November 1998 and is owned through its wholly-owned subsidiary, CogenAmerica Morris. See "Part I - Item 1. - Subsequent Events"; (iv) a 110 MW cogeneration facility in Pryor, Oklahoma (the "Pryor Project"), which had been in commercial operation prior to acquisition by the Company in October 1998, and is owned through the Company's wholly-owned subsidiary, Oklahoma Loan Acquisition Corporation; (v) two standby/peak shaving facilities with an aggregate capacity of 22 MW in Philadelphia, Pennsylvania (the "PWD Project"), which began commercial operation in September 1993, the principal project agreements of which are held by O'Brien (Philadelphia) Cogeneration, Inc., an 83%-owned subsidiary of the Company; and (vi) a one-third partnership interest in a 150 MW cogeneration facility located at Grays Ferry in Philadelphia, Pennsylvania (the "Grays Ferry Project"), which began operation in January 1998. CogenAmerica's partnership interest increased to 50% on April 23, 1999. See "Part I - Item 1. - Subsequent Events." Each of the projects is currently producing revenues under long-term power sales agreements that expire at various times. Energy and capacity payment rates are generally negotiated during the development phase of a cogeneration project and are finalized prior to securing project financing and the start of a plant's commercial operation. Pricing provisions of each of the Company's project power sales agreements contain unique features. As a result, different rates exist for each plant and customer pursuant to the applicable power sales agreement. However, in general, revenues for each of the Company's cogeneration projects consist of two components: energy payments and capacity payments. Energy payments are based on the power plant's actual net electrical output, expressed in kilowatt-hours of energy, purchased by the customer. Capacity payments are based on the net electrical output the power plant is capable of producing (or portion thereof) and which the customer has contracted to have available for purchase. Energy payments are made for each kilowatt-hour of energy delivered, while capacity payments, under certain circumstances, are made whether or not any electricity is actually delivered. 12 The projects' energy and capacity payments are generally based on scheduled prices and/or base prices subject to periodic indexing mechanisms, as specified in the power sales agreements. In general terms, energy and capacity payments are intended to recover the variable and fixed costs of operating the plant, respectively, plus a return. A power plant may be characterized as one or more of the following: a "base-load" facility, a "dispatchable" facility, a combination "base-load/dispatchable" facility or a "merchant" facility. Such characterization depends upon the manner in which the plant will be used and the requirements of the related power sales agreement(s). A "base-load" facility generally means that the plant is operated continuously to produce a fixed amount of energy and capacity for one or more customers. A "dispatchable" facility generally means that the customer(s) purchased the right to a fixed amount of available capacity, which must be produced if and when requested by the customer(s). A combination "base-load/dispatchable" facility is a plant that operates in both modes, with a portion of the plant's capacity designated as base-load and the remainder available for dispatch. A "merchant" facility generally refers to a plant that operates and sells its output to various customers at prevailing market prices rather than pursuant to a long-term power sales agreement. Under a power sales agreement with Jersey Central Power and Light Company ("JCP&L") extending into 2011, CogenAmerica Parlin has committed 114 MW of the Parlin facility's generating capacity to JCP&L, of which 41 MW are committed as base capacity and 73 MW as dispatchable capacity. JCP&L must purchase energy from the base capacity whenever such energy is available from the Parlin facility. Energy from the dispatchable capacity is purchased by JCP&L only when requested (dispatched) by JCP&L. The Parlin PPA provides for curtailment by JCP&L under such typical conditions as emergencies, inspection and maintenance. In addition, JCP&L may also reduce base capacity during periods of low load on the PJM (the local wholesale market) by up to 600 hours in any calendar year, of which 400 may be during on-peak periods, but only when all PJM member utilities are required to reduce generation to minimum levels and PJM has requested JCP&L to reduce or interrupt external generation purchases. The Parlin PPA also provides for an annual average heat rate adjustment that will increase or decrease JCP&L's payments to CogenAmerica Parlin, depending upon whether the average heat rate of the Parlin Project is below or above average 9,500 Btu per kWh (higher heating value). The actual adjustment is calculated by applying a ratio based on this differential to a fuel cost calculation. CogenAmerica Newark has a power sales agreement with JCP&L extending through 2015 whereby it has committed to sell all of the Newark facility's generating capacity to JCP&L, up to a maximum of 58 MW per hour. The Newark Project is effectively a base-load unit and JCP&L must purchase the energy whenever such energy is available from the Newark facility. Under the terms of the Newark PPA, JCP&L, in its sole discretion, is allowed to curtail production at the facility for 700 hours per year provided that the duration of each curtailment is a minimum of six hours and all curtailments occur only during Saturdays, Sundays and Holidays. Since contract inception in 1996, JCP&L have fully utilized this curtailment option annually and the Company expects JCP&L will continue to do so in future years. JCP&L may also disconnect from CogenAmerica Newark for emergencies, inspections and maintenance for up to 400 hours per year if all PJM 13 member utilities are required to reduce generation to minimum levels and JCP&L has been requested by PJM to reduce or interrupt external generation purchases. The Newark PPA provides for an annual average heat rate adjustment that will increase or decrease JCP&L's payments to CogenAmerica Newark depending upon whether the average heat rate of the Newark Project is below or above 9,750 Btu per kWh (higher heating value). The actual adjustment is calculated by applying a ratio based upon this differential to a fuel cost calculation. Morris LLC has an Energy Service Agreement ("ESA") with Equistar through 2023 to provide base-load power and steam. Equistar has agreed to purchase the entire requirements of Equistar's plant (subject to certain exceptions) for electricity up to the full electric output of two of the three combustion turbines at the Morris Project. In addition, the Morris Project has an arrangement with the local utility to provide standby power. Each combustion turbine at the Morris facility has a nominal rating of 39 MW. The Morris Project designed redundancy into the energy production capability of the facility in order to meet Equistar's demand. The cost of installing and maintaining the reserve capacity was taken into account when the energy services agreement was negotiated. CogenAmerica Morris is permitted to arrange for the sale to third parties of interruptible capacity and/or energy from the third turbine and to the extent available, any excess power from the two turbines required to supply Equistar with its actual requirements. CogenAmerica Morris is in the process of contracting with a third-party power marketer for the sale of this excess capacity/energy. CogenAmerica Pryor has a power sales agreement with Oklahoma Gas and Electric Company ("OG&E") through 2008 to provide 110 MW of dispatchable capacity, with a maximum dispatch of 1,500 hours per year. The facility also sells electricity to Public Service Company of Oklahoma ("PSO") when not dispatched by OG&E. The Pryor Project purchases natural gas from Dynegy and Aquila. Under the terms of the agreement with PSO, the pricing of energy sales is indexed to a market fuel rate. Under terms of the agreement with OG&E, energy sales are linked to the average cost of fuel. The power sales agreements for the Parlin, Newark, and Morris projects are structured to avoid or minimize the impact on the Company's revenues from fluctuations in fuel costs. Since the power sales agreements were amended in April 1996, JCP&L is responsible for the supply and transportation of natural gas required to operate the Parlin and Newark plants. Thus, revenues from the Parlin and Newark plants exclude any amounts attributable to recovery of fuel costs. Prior to the contract amendments, Parlin and Newark cost of revenues included fuel and related costs and contract provisions for delayed recovery of such costs in revenues caused variability in the projects' gross profit. Under the terms of the Morris ESA with Equistar, Equistar is the fuel manager and all of the costs of supplying the fuel are effectively a pass-through to Equistar. As a result, although fuel costs are included in the Morris Project revenues and costs of revenues, the Company believes it has minimized any impact on gross profit from fluctuations in the price of natural gas purchases and supply for the Morris Project. The Grays Ferry Project has a gas sales agreement with Aquila providing for the purchase of natural gas to meet the power plant's requirements. For the period from 14 commercial operations in January 1998 until the end of the year 2000, the partnership has purchased a natural gas collar with a cap in order to limit the volatility of natural gas purchases. Beginning in 2001, the price for natural gas supplied by Aquila is indexed to a market electricity rate. During 1998, the Company also sold and rented power generation equipment and provided related services in the U.S. and international markets under the names OES and PUMA. As previously announced, the Company has determined that its equipment sales rental and service segment is no longer a part of its strategic plan. Accordingly, on November 5, 1998 the Company sold OES, a wholly-owned subsidiary of the Company, in a stock transaction to an unrelated third party. The Company is currently pursuing alternatives for the disposition of its remaining equipment sales and service business operated by PUMA. The Company expects that the disposition of PUMA will not have a material adverse effect on the Company's results of operations or financial condition. Although OES was sold in 1998, the equipment sales, rental and service segment has not been reported as a discontinued operation in the financial statements because specific plans regarding the timing and manner of ultimate disposition of PUMA are still under consideration. NET INCOME AND EARNINGS PER SHARE Net income for the 1999 first quarter was $2,400, or diluted earnings per share of $0.35, compared to first quarter 1998 net income of $2,673, or diluted earnings per share of $0.38. The decrease in net income and earnings per share for first quarter was primarily due to outages at the Newark and Grays Ferry facilities. REVENUES Energy revenues for the first quarter of 1999 of $ 22,745 increased from $11,283 for the comparable period in 1998. Energy revenues primarily reflect billings associated with the Parlin, Newark, Morris, Pryor and PWD Projects. The increase in energy revenues was primarily attributable to the acquisition of the Pryor Project in October 1998, and the commencement of Morris operations in November 1998. Energy revenues in the first quarter of 1999 were negatively impacted by an outage at the Newark Project. PROJECT ENERGY REVENUES
THREE MONTHS ENDED --------------------------------- MARCH 31, MARCH 31, 1999 1998 --------------- --------------- Cogeneration Projects Parlin $ 5,380 $ 5,386 Newark 4,505 4,845 Morris 7,982 - Pryor 3,834 - Standby/Peak Shaving Facilities PWD 1,044 1,052 -------------- -------------- $ 22,745 $ 11,283 -------------- -------------- -------------- --------------
Equipment sales and services revenues for the first quarter 1999 of $3,807 decreased from $5,471 for the comparable period in 1998. The decrease was primarily 15 attributable to the sale of OES in November 1998. PUMA equipment sales and services revenues for the first quarter 1999 of $3,807 increased from $3,223 for the comparable period in 1998. The increase was primarily due to higher sales volume. Rental revenues in the 1998 first quarter were attributable to OES, which was sold in November 1998. COSTS AND EXPENSES Cost of energy revenues for the first quarter 1999 of $12,803 increased from $3,513 for the comparable period in 1998. The increase was primarily the result of commencement of the Morris operations, the Pryor acquisition and depreciation associated with equipment capitalized at the Parlin and Newark facilities in 1998. Cost of equipment sales and services for the first quarter 1999 of $3,327 decreased from $4,739 for the comparable period in 1998. The decrease was primarily due to the sale of OES. Cost of rental revenues in the 1998 first quarter were attributable to OES, which was sold in November 1998. The Company's gross profit for the first quarter 1999 of $10,422 (39.3% of sales) increased from the first quarter 1998 gross profit of $8,727 (49.5% of sales). The gross profit increase was primarily attributable to the addition of the Morris and Pryor Projects. The gross profit decrease, as a percentage of sales, for the first quarter was primarily attributable to the addition of the Morris and Pryor Projects which have lower operating margins than the Newark and Parlin Projects. It is expected that competition will continue to put pressure on these margins in the future as new projects are added. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") for the first quarter 1999 of $1,683 decreased from first quarter 1998 SG&A expenses of $2,107. The decrease was primarily due to lower legal expenses. INTEREST AND OTHER INCOME Interest and other income for the first quarter 1999 of $125 decreased from interest and other income of $218 for the comparable period in 1998. EQUITY IN EARNINGS OF AFFILIATES Equity in earnings of affiliates for the first quarter 1999 of $670 decreased from $1,007 in the comparable period in 1998. The decrease was primarily due to combustion and steam turbine outages at the Grays Ferry facility. 1999 equity earnings include income of $341 to true up estimated earnings recorded by the Company in the 1998 fourth quarter. As a result of the Grays Ferry and PECO settlement, CogenAmerica will record a one-time gain in the second quarter of 1999 based upon the fair market value of the additional ownership interest. Management currently estimates the after-tax gain will be approximately $5 to $6 million. 16 INTEREST AND DEBT EXPENSE Interest and debt expense for the first quarter 1999 of $5,706 increased from interest and debt expense of $3,553 for the comparable period in 1998. The increase was primarily attributable to the financing of the Pryor and Morris Projects, both of which were acquired and commenced commercial operations, respectively in the fourth quarter of 1998. INCOME TAXES Income tax expense for the first quarter of 1999 of $ 1,428 decreased from $1,619 for the comparable period in 1998. The decrease was primarily due to lower pre-tax earnings. The consolidated effective tax rate for the quarters ended March 31, 1999 and 1998 was 37.3% and 37.7%, respectively. LIQUIDITY AND CAPITAL RESOURCES The development, construction and operation of cogeneration projects and other power generation facilities requires significant capital. Historically, the Company has employed substantial leverage at both the project and parent company level to finance its capital requirements. Debt financing at the project level is typically nonrecourse to the parent. Nonrecourse project financing agreements usually require initial equity investments at the project level. The Company has financed such equity investments through cash generated from operations and other borrowings, including borrowings at the parent level. Almost all of the Company's operations are conducted through subsidiaries and other affiliates. As a result, the Company depends almost entirely upon their earnings and cash flow to service consolidated indebtedness, including indebtedness of the parent, CogenAmerica. The nonrecourse project financing agreements of certain subsidiaries and other affiliates generally restrict their ability to pay dividends, make distributions or otherwise transfer funds to the parent prior to the payment of other obligations, including operating expenses, debt service and reserves. At March 31, 1999, cash and cash equivalents totaled $4,338 and restricted cash totaled $15,364. The restricted cash primarily represents escrow funds required by the terms of credit agreements for the Newark, Parlin and Morris projects. Cash provided by (used in) operating activities was $(371) and $2,479 for the three months ended March 31, 1999 and 1998, respectively. Cash provided by operating activities decreased primarily due to accounts receivable balances relating to the Morris Project. Cash used in investing activities was $5,292 and $25,319 for the three months ended March 31, 1999 and 1998 respectively. Cash used by investing activities during the first quarter of 1999 primarily represents net deposits of $3,221 into restricted cash accounts as required by certain credit agreements. Cash provided by financing activities was $6,433 and $24,375 for the three months 17 ended March 31, 1999 and 1998, respectively. During the first quarter of 1999, proceeds from long-term debt totaled $12,874 consisting of loans due NRG Energy related to the Morris Project. Repayments of long-term debt totaled $6,780. In May 1996, the Company's wholly-owned subsidiaries CogenAmerica Newark and CogenAmerica Parlin entered into a credit agreement (the "Newark and Parlin Credit Agreement") which established provisions for a $155,000 fifteen-year loan and a $5,000 five-year debt service reserve line of credit. The loan is secured by all of CogenAmerica Newark's and CogenAmerica Parlin's assets and a pledge of the capital stock of such subsidiaries. The Company has guaranteed repayment of $21,775 of the amount outstanding under the Credit Agreement. The interest rate on the outstanding principal is variable based on, at the option of CogenAmerica Newark and CogenAmerica Parlin, LIBOR plus a 1.125% margin or a defined base rate plus a 0.375% margin, with nominal margin increases in the sixth and eleventh year. For any quarterly period where the debt service coverage ratio is in excess of 1.4:1, both margins are reduced by 0.125%. Concurrently with the Newark and Parlin Credit Agreement, CogenAmerica Newark and CogenAmerica Parlin entered into an interest rate swap agreement with respect to 50% of the principal amount outstanding under the Credit Agreement. This interest rate swap agreement fixes the interest rate on such principal amount at 6.9% plus the margin. At March 31, 1999, the principal amount outstanding under the credit agreement was $132,524. CogenAmerica Schuylkill, a wholly-owned subsidiary of the Company, owned as of March 31, 1999, a one-third partnership interest in the Grays Ferry Project which commenced operation in January 1998. CogenAmerica's partnership interest increased to 50% on April 23, 1999. See "Part I - Item 1. - Subsequent Events." In March 1996, the Grays Ferry Partnership entered into a credit agreement with Chase to finance the project. The credit agreement obligated each of the project's three partners to make a $10,000 capital contribution prior to the commercial operation of the facility. The Company made its required capital contribution in 1997. NRG Energy entered into a loan commitment to provide CogenAmerica Schuylkill the funding, if needed, for the CogenAmerica Schuylkill capital contribution obligation to the Grays Ferry Partnership. Prior to December 31, 1997, CogenAmerica Schuylkill had borrowed $10,000 from NRG Energy under this loan agreement, of which $1,900 remained outstanding to NRG Energy at March 31, 1999. In connection with its acquisition of the Morris Project, CogenAmerica Funding, a wholly-owned subsidiary of the Company, assumed all of the obligations of NRG Energy to provide future equity contributions to the project, which obligations are limited to the lesser of 20% of the total project cost or $22,000. NRG Energy has guaranteed to the Morris Project's lenders that CogenAmerica Funding will make these future equity contributions, and the Company has guaranteed to NRG Energy the obligation of CogenAmerica Funding to make these future equity contributions (which guarantee is secured by a second priority lien on the Company's interest in the Morris Project). In addition, NRG Energy has committed in a Supplemental Loan Agreement between the Company, CogenAmerica Funding and NRG Energy to loan CogenAmerica Funding and the Company (as co-borrowers) the full amount of such equity contributions by CogenAmerica Funding, subject to certain conditions precedent, at CogenAmerica Funding's option. Any such loan will be secured by a second priority lien on all of the membership interests of the project and will be recourse to CogenAmerica Funding and the Company. Effective November 30, 1998 the Company and NRG Energy agreed to a First Amendment to the Supplemental Loan Agreement that allowed the Company to contribute the $22,000 of 18 equity in installments to match the construction draw payments. At March 31, 1999, the entire $22,000 had been drawn and contributed as equity. The Supplemental Loan Agreement calls for an interest rate of prime plus 1.5%. Effective with the First Amendment the interest rate was changed to prime plus 3.5% until the possible event of default related to the Grays Ferry Project had been eliminated. On February 16, 1999 NRG Energy agreed to reduce the interest rate under the loan back to prime plus 1.5%. This adjustment was made effective January 1, 1999. At March 31, 1999, $21,069 was due NRG Energy under the Supplemental Loan Agreement. On September, 15, 1997, Morris LLC (which was at that time an affiliate of NRG Energy) entered into a $91,000 construction and term loan agreement (the "Agreement") to provide nonrecourse project financing for a major portion of the Morris Project. The Company assumed the Agreement in December 1997 upon acquiring Morris LLC. The Agreement provides $85,600 of 20-month construction loan commitments and $5,400 in letter of credit commitments (the "LOC Commitment"). Upon satisfaction of all completion criteria as set forth in the Agreement, the construction loan is due and payable or, if certain criteria are satisfied, may be converted to a five year term loan based on a 25-year amortization with a balloon payment at maturity. Interest on the construction loan is variable based on, at the Company's option, either the base rate, as defined in the Agreement, or LIBOR plus 0.75%. The interest rate resets based on the Company's selection of the borrowing period ranging from one to six months. Borrowings are secured by CogenAmerica Funding's ownership interest in Morris LLC, its cash flows, dividends and any other property that CogenAmerica Funding may be entitled to as owner of Morris LLC. At March 31, 1999, $84,305 was outstanding under the construction loan and no amounts were pledged under the LOC Commitment. On December 17, 1997, the Company entered into the MeesPierson Credit Agreement providing for a $30,000 reducing revolving credit facility. The facility is secured by the assets and cash flows of the PWD Project as well as the distributable cash flows of the Parlin and Newark Projects, and the Grays Ferry Partnership. On December 19, 1997 the Company borrowed $25,000 under this facility. The proceeds were used to repay $16,949 to NRG Energy, to repay $6,551 of obligations of the PWD Project and $1,500 for general corporate purposes. The MeesPierson Credit Agreement includes cross default provisions that cause defaults to occur in the event certain defaults or other adverse events occur under certain other instruments or agreements (including financing and other project documents) to which the Company or one or more of its subsidiaries or other entities in which it owns an ownership interest is a party. The actions taken by the power purchaser of the Grays Ferry Project resulted in a cross default under the MeesPierson Credit Agreement. On August 14, 1998 the lender agreed to waive the default until July 1, 1999 by imposing a 2.0% increase in the interest rate effective October 1, 1998. On February 12, 1999 the lender agreed to a permanent waiver of the Grays Ferry Project cross default and eliminated the 2.0% increase in the interest rate effective January 1, 1999. The Company also reduced the size of the facility to $25,000. The repayment of the $25,000 is due in full on December 17, 2000. The Company's principal credit agreements (including the Newark and Parlin Credit Agreement) include cross-default provisions that generally permit its lenders to accelerate the indebtedness owed thereunder, to decline to make available any additional amounts for borrowing thereunder, and to exercise certain other remedies in respect of any collateral securing such indebtedness in the event certain defaults or other adverse events occur under certain other instruments or agreements (including 19 financing and other project documents) to which the Company or one or more of its subsidiaries or other entities in which it owns an ownership interest is a party. As a result, a default under one such other instrument or agreement could have a material adverse effect on the Company by causing one or more cross-defaults to occur under one or more of the Company's principal credit agreements, potentially having one or more of the effects set forth above and otherwise adversely affecting the Company's liquidity and capital position. During 1998 the Company incurred approximately $1,001 of third-party costs related to a capital markets financing transaction expected to be completed during 1999. These costs have been deferred and are included in the balance sheet as "Deferred financing costs, net." If the Company elects to pursue an alternative financing, such as through the commercial bank market, or if the financing currently contemplated for the capital markets is indefinitely delayed or discontinued, the Company will be required to expense the financing costs that have been deferred. In October 1998, NRG Energy loaned the Company and CogenAmerica Pryor approximately $23,900 to finance the acquisition of the Pryor Project. The loan is a six-year term facility calling for principal and interest payments on a quarterly basis, based on project cash flows. The interest rate on the note relating to such loan was initially set at prime rate plus 3.5% and such rate reduces by two percentage points upon the occurrence of certain events related to elimination of default risk under the loan. On February 16, 1999 NRG Energy agreed to reduce the interest rate under the loan to prime plus 1.5%. This adjustment was made effective January 1, 1999. At March 31, 1999, $23,415 was due NRG Energy under the loan. YEAR 2000 The Year 2000 issue refers generally to the data structure problem that may prevent systems from properly recognizing dates after the year 1999. The Year 2000 issue affects information technology ("IT") systems, such as computer programs and various types of electronic equipment that process date information by using only two digits rather than four digits to define the applicable year, and thus may recognize a date using "00" as the year 1900 rather than the year 2000. The issue also affects some non-IT systems, such as devices which rely on a microcontroller to process date information. The Year 2000 issue could result in system failures or miscalculations, causing disruptions of a company's operations. Moreover, even if a company's systems are Year 2000 compliant, a problem may exist to the extent that the data that such systems process is not. The following discussion contains forward-looking statements reflecting management's current assessment and estimates with respect to the Company's Year 2000 compliance efforts and the impact of Year 2000 issues on the Company's business and operations. Various factors, many of which are beyond the control of the Company, could cause actual plans and results to differ materially from those contemplated by such assessments, estimates and forward-looking statements. Some of these factors include, but are not limited to, representations by the Company's vendors and counterparties, technological advances, economic considerations and consumer perceptions. The Company's Year 2000 compliance program is an ongoing process involving continual evaluation and may be subject to change in response to new developments. 20 THE COMPANY'S STATE OF READINESS The Company has implemented a Year 2000 compliance program designed to ensure that the Company's computer systems and applications will function properly beyond 1999. The Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 conversions to be completed on a timely basis. In light of its compliance efforts, the Company does not believe that the Year 2000 issue will materially adversely affect operations or results of operations, and does not expect implementation to have a material impact on the Company's financial statements. However, there can be no assurance that the Company's systems will be Year 2000 compliant prior to December 31, 1999, or that the failure of any such system will not have a material adverse effect on the Company's business, operating results and financial condition. In addition, to the extent the Year 2000 problem has a material adverse effect on the business, operations or financial condition of third parties with whom the Company has material relationships, such as vendors, suppliers and customers, the Year 2000 problem could have a material adverse effect on the Company's business, results of operations and financial condition. IT SYSTEMS. The Company has reviewed and continues to review all of its IT systems as they relate to the Year 2000 issue. The Company's accounting system has been upgraded to alleviate any potential Year 2000 issues. The Company outsources its human resource and payroll systems and is in the process of working with the outside vendor to identify and correct any potential Year 2000 issues. This process is expected to be complete and any changes implemented by December 31, 1999. The Company's billing systems are either provided by the customer or are performed internally on microcomputer systems. In these cases, the collection of data is the most important feature and any impact from a Year 2000 issue is expected to be immaterial. NON-IT SYSTEMS. As indicated above, the Company is dependent upon some of its customers for billing data related to the amount of electricity and steam sold and delivered during the month. For the most part, the collection of this data is done mechanically rather than electronically. Only data storage is managed electronically. The collection of this data also occurs within the control systems of the Company's various facilities. The Company has requested that the control system vendors audit their software to identify any potential Year 2000 issues and provide recommendations for alleviating any potential problems. This process has been completed for all of the Company's facilities and the various solutions have been implemented. The Company does not believe that any further upgrades, if necessary, will be material to its financial condition or results of operation. YEAR 2000 ISSUES RELATING TO THIRD PARTIES. As described above, the Company, in some cases, is dependent upon certain customers to provide billing data. However, the Company also captures and processes this data as a redundancy. The Company's control systems have been upgraded as described above and the Company does not believe that any loss of data will occur due to a Year 2000 issue. In addition, the Company's third parties are major utilities and sophisticated industrial concerns who are participants in sophisticated Year 2000 readiness programs. The Company has participated in vendor surveys to determine the readiness of various Company systems for any potential Year 2000 issues. In addition, the Company has obtained written disclosure from a number of vendors relating to their Year 2000 preparedness. 21 COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES The Company's costs to review and assess the Year 2000 issue have not been material. The Company believes that its future costs to implement Year 2000 solutions will also be immaterial to the financial statements. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES The Company believes that its most likely Year 2000 worst case scenario would be the loss of billing data to utilities and industrial companies which purchase the Company's electricity and steam. This billing information, as explained above, is also captured by the Company's control systems at its various facilities. THE COMPANY'S CONTINGENCY PLANS As described above, the contingency plan for the loss of billing data is to use the data provided by the Company's internal control systems which are in the process of being upgraded to eliminate any Year 2000 issues. NEW ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is required to be adopted for fiscal years beginning after June 15, 1999 (fiscal year 2000 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is the type of hedge transaction. Management has not yet determined the impact that adoption of SFAS No. 133 will have on its earnings or financial position, but it may increase earnings volatility. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk is primarily impacted by changes in interest rates and changes in natural gas prices. The Company's market risk has not materially changed from that reported in Part II, Item 7a, of the Company's Report on Form 10-K for the year ended December 31, 1998. 22 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GRAYS FERRY COGENERATION PARTNERSHIP. Trigen-Schuylkill Cogeneration, Inc., NRGG (Schuylkill) Cogeneration, Inc. and Trigen-Philadelphia Energy Corp. v. PECO Energy Company, Adwin (Schuylkill) Cogeneration, Inc. and the Pennsylvania Public Utility Commission, Court of Common Pleas Philadelphia County, April Term 1998, No. 544, filed April 9, 1998. This matter was previously reported in the Company's Report on Form 10-K for the year ended December 31, 1998. On April 23, 1999 the Grays Ferry Cogeneration Partnership ("Grays Ferry") and PECO Energy Company ("PECO") reached a final settlement of this litigation. The settlement calls for PECO and Grays Ferry to specifically perform their existing Power Purchase Agreements ("PPAs"), as amended, under an order from the Court. This includes PECO paying for capacity and electrical energy purchases from Grays Ferry at the specific contract prices set out in the PPAs for the 1998-2000 time period. The energy pricing under the original terms of the PPAs, after the year 2000 was based upon a percentage of the PJM market price, which is the local wholesale market price. This market-based pricing is expected to produce substantially lower revenues than the more favorable rates of the early contract years. As part of the settlement the PPAs were amended to modify the percentage of the PJM market price to lessen the impact in the early years of market-index pricing. Under the terms of the settlement, PECO will also transfer its one-third ownership interest in the 150-megawatt project to Grays Ferry. As a result, CogenAmerica and Trigen Energy Corporation's respective interest in Grays Ferry will increase from 33% to 50%. PECO will transfer its interest to Grays Ferry at no cost. The transfer is effective with the final settlement on April 23, 1999. The Company is subject from time to time to various other claims that arise in the normal course of business, and management believes that the outcome of any such matters as currently may be pending (either individually or in the aggregate) will not have a material adverse effect on the business or financial condition of the Company. 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The "Index to Exhibits" following the signature page is incorporated herein by reference. (b) Reports on Form 8-K On March 30, 1999, the Company filed a Report on Form 8-K/A dated October 9, 1998, which amended a Report on Form 8-K filed October 26, 1998, for the purpose of filing financial statements required under Item 7. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Cogeneration Corporation of America ------------------------------------------ Registrant Date: May 10,1999 By: /s/ Timothy P. Hunstad ------------------------------------------ Timothy P. Hunstad VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (Principal Financial Officer and Duly Authorized Officer) 25 INDEX TO EXHIBITS 3.1 Amended and Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998 and incorporated herein by this reference. 3.2 Preferred Stock Certificate of Designation of the Company filed as Exhibit 3.3 to the Company's Current Report on Form 8-K dated April 30, 1996 and incorporated herein by this reference. 3.3 Restated Bylaws of the Company filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by this reference. 10.1 Agreement dated January 31, 1999 between the Company and Timothy P. Hunstad, Vice President and Chief Financial Officer. 10.2 Agreement dated January 31, 1999 between the Company and Richard C. Stone, Vice President Business Development and Marketing. 10.3 Agreement of Employment dated as of May 1, 1999 between the Company and Julie A. Jorgensen, President and Chief Executive Officer. 10.4 Second Amendment Agreement dated as of April 23, 1999 between Grays Ferry Cogeneration Partnership and PECO Energy Company. 27 Financial Data Schedule for the three months ended March 31, 1999 (for SEC filing purposes only).
26 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 AGREEMENT This Agreement is made and entered into as of the 31st day of January, 1999 between Mr. Timothy P. Hunstad and Cogeneration Corporation of America (CogenAmerica or Corporation), a Delaware corporation. I. RECITALS A. Mr. Hunstad is and has been employed by CogenAmerica as an at-will employee since September, 1996 and currently holds the position of Vice President & Chief Financial Officer. He desires continued employment in this capacity. B. The purpose of this Agreement is to set forth certain terms and conditions under which Mr. Hunstad and CogenAmerica will continue their employment relationship, to protect the interests of CogenAmerica in Confidential Information, and to provide sufficient opportunity for CogenAmerica to continue its operations without disruption in the event of the termination or diminishment of salary of Mr. Hunstad's employment. II. AGREEMENT In consideration of the recitals stated above and the mutual promises made below, the parties agree as follows: 1. AT-WILL STATUS. Mr. Hunstad's employment continues to be at-will. This means that his employment may be terminated at any time, for any reason, with or without cause and that Mr. Hunstad has no obligation to continue as an employee of CogenAmerica notwithstanding any provision of this Agreement. 2. COMPENSATION AND BENEFITS. CogenAmerica shall pay Mr. Hunstad such base salary and incentives as may be separately agreed upon from time to time, but not less than the rates for salary and incentives in effect on the date of this Agreement, and shall provide such vacation, 1 holiday, medical and other benefits as are provided by CogenAmerica. The benefits provided by CogenAmerica to its employees are subject to change from time to time at the discretion of CogenAmerica with or without prior notice. 3. SEVERANCE PAY. CogenAmerica will pay Mr. Hunstad severance pay in an amount equal to six (6) months of his/her current base salary, less applicable state and federal tax withholdings and other customary payroll deductions, if CogenAmerica terminates his/her employment or diminishes his/her salary before January 31, 2000. This payment will be made by mailing checks in the appropriate amount to Mr. Hunstad at 8212 Kentucky Circle South, Bloomington, MN 55438 on a monthly basis for six (6) months from the date of termination. However, CogenAmerica shall have no obligation to provide severance pay to Mr. Hunstad (a) in the event that (1) he resigns from employment at any time, (2) the Corporation terminates his employment for gross negligence, willful misconduct or failure to perform his duties in a professional manner after written notice specifying the nature of such failure and a reasonable period to cure such failure is given, or (3) the Corporation terminates his employment subsequent to January 31, 2000, or (b) as provided in paragraph 9 of this Agreement. 4. NON-COMPETE. (a) So long as severance payments are being made, Mr. Hunstad agrees not to accept employment with any competitor of CogenAmerica. For purposes of this paragraph 4(a), a competitor of CogenAmerica shall mean any person or entity engaged, wholly or partly, in the business of developing, financing, owning, operating or maintaining cogeneration or other electric power generation facilities or projects in the United States of America. (b) For as long as Mr. Hunstad is employed by CogenAmerica and for a period of one (1) year from the date of the termination of his/her employment with the Corporation, Mr. Hunstad 2 will not, either directly or indirectly, alone or in conjunction with any other party, divert or appropriate, or attempt to divert or appropriate, any CogenAmerica Project Opportunity. A CogenAmerica Project Opportunity means any and all of, but only, the following: a project or opportunity to develop a project on which CogenAmerica was actively working as of Mr. Hunstad's date of termination and as to which CogenAmerica has not been eliminated from pursuing. CogenAmerica will provide Mr. Hunstad with a list of projects meeting the above criteria promptly following the date of Mr. Hunstad's termination. Mr. Hunstad will have 30 days after his receipt of such list to notify CogenAmerica of any projects or project opportunities included on the list that Mr. Hunstad does not believe meet the above criteria for CogenAmerica Project Opportunity. CogenAmerica will consider his objections in good faith and then reissue the list of CogenAmerica Project Opportunities, omitting any projects or project opportunities that CogenAmerica agrees do not meet the above criteria. The reissued list (or in the case of no objections within the above 30 day disagreement period, the original list) will be the final list of CogenAmerica Project Opportunities. Mr. Hunstad acknowledges that he has carefully considered the restrictions set forth in the preceding paragraphs, and that the restrictions are reasonable and that they will not unduly restrict him from finding other employment. 5. DUTY OF LOYALTY AND CONFLICT OF INTEREST. By signing this Agreement Mr. Hunstad acknowledges and confirms that for the period employed by the Corporation that he will expend his best efforts, substantially all of his business time, and his full cooperation to perform and discharge the duties of his position with CogenAmerica. He will not engage in any business or professional activities which conflict with his duties on behalf of CogenAmerica and shall promptly disclose to its President any potential conflict. 3 6. NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION. Mr. Hunstad agrees that unless he first obtains the written consent of CogenAmerica's President, he shall not disclose or use at any time either during or for a period of two years after his employment by CogenAmerica, any Confidential Information (as defined below) of which he becomes aware, except to the extent such disclosure or use is required in the performance of his duties for CogenAmerica. He shall follow all procedures established by CogenAmerica to safeguard Confidential Information and to protect it against disclosure or misuse. Confidential Information is defined as all confidential technical, financial and other CogenAmerica project related information other than information that: (a) is in the public domain at the time of disclosure; (b) is known, or becomes known, to the public from a source other than Mr. Hunstad; or (c) is legally required to be disclosed by judicial or other governmental action. 7. CONFIDENTIALITY OF AGREEMENT. Mr. Hunstad agrees that unless he first obtains the written consent of CogenAmerica's President, he will not disclose the terms and conditions of this Agreement to any individual or entity, except his spouse, attorneys, accountants, tax consultants, state and federal tax authorities or as may be required by law. 8. RECORDS, DOCUMENTS, AND PROPERTY. When his employment with CogenAmerica terminates, Mr. Hunstad will return to CogenAmerica all records, correspondence, and documents in his possession at that time, which contain Confidential Information. Mr. Hunstad will also return to CogenAmerica all property of the Corporation, including any corporate credit cards and air travel cards he may have. 9. REMEDY FOR BREACH. Mr. Hunstad acknowledges that failure to comply with paragraphs 4(b), 5, 6, 7 and/or 8 may irreparably harm CogenAmerica and that, in the event that he violates or threatens to violate any of these paragraphs, CogenAmerica or its successors or assigns 4 shall be entitled to injunctive relief in any court of competent jurisdiction and that he will be obligated to pay all costs incurred by CogenAmerica in securing legal or equitable relief, including, but not limited to reasonable attorneys' fees and court costs if CogenAmerica is successful or prevails in its legal action. If CogenAmerica is unsuccessful, CogenAmerica will be responsible for Mr. Hunstad's costs, including but not limited to reasonable attorney's fees and court costs. Mr. Hunstad also acknowledges that in the event of a breach of paragraphs 4 (b), 5, 6, 7 and/or 8 he will not receive any of the severance payments described in paragraph 3 of this Agreement. 10. ENTIRE AGREEMENT. This agreement contains the entire understanding between the parties with respect to this subject matter and supersedes all oral agreements and negotiations between the parties on this subject matter. Any amendments, modifications or waivers of the provisions of this Agreement shall be valid only when they have been reduced to writing and duly signed by the parties. The terms of this Agreement shall not be deemed to have been waived by oral agreement, course of performance or by any other means other than a written agreement expressly providing for such waiver. 11. VOLUNTARY AND KNOWING ACTION. Mr. Hunstad acknowledges that he has read and understands the terms of this Agreement and that he is voluntarily entering into this Agreement. He acknowledges that this Agreement is intended to be a legally binding document and that he has had ample opportunity to consult with a competent attorney before agreeing to its terms. 12. INVALIDITY. If any one or more of the provisions of this Agreement should be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained in this Agreement will not in any way be affected or impaired. 5 13. NO IMPLIED WAIVER. Should CogenAmerica fail to immediately exercise its right to enforce any provision of this Agreement, such action shall not be construed as a waiver of its right to enforce any and all of its rights at a later date. 14. NON-ASSIGNMENT. The Agreement shall not be assigned by Mr. Hunstad without the prior written consent of the President of CogenAmerica 15. MODIFICATION BY COURT. If the scope of any provision of this Agreement is too broad to permit enforcement of the provision to its full extent, the parties agree that the provision shall be enforced to the maximum extent allowed by law and modified by a court of competent jurisdiction in any proceeding to enforce the provision. 16. GOVERNING LAW. This Agreement will be construed and interpreted in accordance with the laws of the State of Minnesota. 17. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. By signing below Mr. Hunstad acknowledges that he has received a copy of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. COGENERATION CORPORATION EMPLOYEE OF AMERICA By: ------------------------------- ------------------------------------ Julie A. Jorgensen Timothy P. Hunstad Its President & CEO 6 EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 AGREEMENT This Agreement is made and entered into as of the 31st day of January, 1999 between Mr. Richard C. Stone and Cogeneration Corporation of America (CogenAmerica or Corporation), a Delaware corporation. I. RECITALS A. Mr. Stone is and has been employed by CogenAmerica as an at-will employee since September, 1997 and currently holds the position of Vice President, Business Development. He desires continued employment in this capacity. B. The purpose of this Agreement is to set forth certain terms and conditions under which Mr. Stone and CogenAmerica will continue their employment relationship, to protect the interests of CogenAmerica in Confidential Information, and to provide sufficient opportunity for CogenAmerica to continue its operations without disruption in the event of the termination or diminishment of salary of Mr. Stone's employment. II. AGREEMENT In consideration of the recitals stated above and the mutual promises made below, the parties agree as follows: 1. AT-WILL STATUS. Mr. Stone's employment continues to be at-will. This means that his employment may be terminated at any time, for any reason, with or without cause and that Mr. Stone has no obligation to continue as an employee of CogenAmerica notwithstanding any provision of this Agreement. 2. COMPENSATION AND BENEFITS. CogenAmerica shall pay Mr. Stone such base salary and incentives as may be separately agreed upon from time to time, but not less than the rates for salary and incentives in effect on the date of this Agreement, and shall provide such vacation, holiday, 1 medical and other benefits as are provided by CogenAmerica. The benefits provided by CogenAmerica to its employees are subject to change from time to time at the discretion of CogenAmerica with or without prior notice. 3. SEVERANCE PAY. CogenAmerica will pay Mr. Stone severance pay in an amount equal to six (6) months of his/her current base salary, less applicable state and federal tax withholdings and other customary payroll deductions, if CogenAmerica terminates his/her employment or diminishes his/her salary before January 31, 2000. This payment will be made by mailing checks in the appropriate amount to Mr. Stone at 4557 Medina Lake Drive, Medina, MN 55340 on a monthly basis for six (6) months from the date of termination. However, CogenAmerica shall have no obligation to provide severance pay to Mr. Stone (a) in the event that (1) he resigns from employment at any time, (2) the Corporation terminates his employment for gross negligence, willful misconduct or failure to perform his duties in a professional manner after written notice specifying the nature of such failure and a reasonable period to cure such failure is given, or (3) the Corporation terminates his employment subsequent to January 31, 2000, or (b) as provided in paragraph 9 of this Agreement. 4. NON-COMPETE. (a) So long as severance payments are being made, Mr. Stone agrees not to accept employment with any competitor of CogenAmerica. For purposes of this paragraph 4(a), a competitor of CogenAmerica shall mean any person or entity engaged, wholly or partly, in the business of developing, financing, owning, operating or maintaining cogeneration or other electric power generation facilities or projects in the United States of America. (b) For as long as Mr. Stone is employed by CogenAmerica and for a period of one (1) year from the date of the termination of his/her employment with the Corporation, Mr. Stone will 2 not, either directly or indirectly, alone or in conjunction with any other party, divert or appropriate, or attempt to divert or appropriate, any CogenAmerica Project Opportunity. A CogenAmerica Project Opportunity means any and all of, but only, the following: a project or opportunity to develop a project on which CogenAmerica was actively working as of Mr. Stone's date of termination and as to which CogenAmerica has not been eliminated from pursuing. CogenAmerica will provide Mr. Stone with a list of projects meeting the above criteria promptly following the date of Mr. Stone's termination. Mr. Stone will have 30 days after his receipt of such list to notify CogenAmerica of any projects or project opportunities included on the list that Mr. Stone does not believe meet the above criteria for CogenAmerica Project Opportunity. CogenAmerica will consider his objections in good faith and then reissue the list of CogenAmerica Project Opportunities, omitting any projects or project opportunities that CogenAmerica agrees do not meet the above criteria. The reissued list (or in the case of no objections within the above 30 day disagreement period, the original list) will be the final list of CogenAmerica Project Opportunities. Mr. Stone acknowledges that he has carefully considered the restrictions set forth in the preceding paragraphs, and that the restrictions are reasonable and that they will not unduly restrict him from finding other employment. 5. DUTY OF LOYALTY AND CONFLICT OF INTEREST. By signing this Agreement Mr. Stone acknowledges and confirms that for the period employed by the Corporation that he will expend his best efforts, substantially all of his business time, and his full cooperation to perform and discharge the duties of his position with CogenAmerica. He will not engage in any business or professional activities which conflict with his duties on behalf of CogenAmerica and shall promptly disclose to its President any potential conflict. 3 6. NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION. Mr. Stone agrees that unless he first obtains the written consent of CogenAmerica's President, he shall not disclose or use at any time either during or for a period of two years after his employment by CogenAmerica, any Confidential Information (as defined below) of which he becomes aware, except to the extent such disclosure or use is required in the performance of his duties for CogenAmerica. He shall follow all procedures established by CogenAmerica to safeguard Confidential Information and to protect it against disclosure or misuse. Confidential Information is defined as all confidential technical, financial and other CogenAmerica project related information other than information that: (a) is in the public domain at the time of disclosure; (b) is known, or becomes known, to the public from a source other than Mr. Stone; or (c) is legally required to be disclosed by judicial or other governmental action. 7. CONFIDENTIALITY OF AGREEMENT. Mr. Stone agrees that unless he first obtains the written consent of CogenAmerica's President, he will not disclose the terms and conditions of this Agreement to any individual or entity, except his spouse, attorneys, accountants, tax consultants, state and federal tax authorities or as may be required by law. 8. RECORDS, DOCUMENTS, AND PROPERTY. When his employment with CogenAmerica terminates, Mr. Stone will return to CogenAmerica all records, correspondence, and documents in his possession at that time, which contain Confidential Information. Mr. Stone will also return to CogenAmerica all property of the Corporation, including any corporate credit cards and air travel cards he may have. 9. REMEDY FOR BREACH. Mr. Stone acknowledges that failure to comply with paragraphs 4(b), 5, 6, 7 and/or 8 may irreparably harm CogenAmerica and that, in the event that he violates or threatens to violate any of these paragraphs, CogenAmerica or its successors or assigns shall be 4 entitled to injunctive relief in any court of competent jurisdiction and that he will be obligated to pay all costs incurred by CogenAmerica in securing legal or equitable relief, including, but not limited to reasonable attorneys' fees and court costs if CogenAmerica is successful or prevails in its legal action. If CogenAmerica is unsuccessful, CogenAmerica will be responsible for Mr. Stone's costs, including but not limited to reasonable attorney's fees and court costs. Mr. Stone also acknowledges that in the event of a breach of paragraphs 4 (b), 5, 6, 7 and/or 8 he will not receive any of the severance payments described in paragraph 3 of this Agreement. 10. ENTIRE AGREEMENT. This agreement contains the entire understanding between the parties with respect to this subject matter and supersedes all oral agreements and negotiations between the parties on this subject matter. Any amendments, modifications or waivers of the provisions of this Agreement shall be valid only when they have been reduced to writing and duly signed by the parties. The terms of this Agreement shall not be deemed to have been waived by oral agreement, course of performance or by any other means other than a written agreement expressly providing for such waiver. 11. VOLUNTARY AND KNOWING ACTION. Mr. Stone acknowledges that he has read and understands the terms of this Agreement and that he is voluntarily entering into this Agreement. He acknowledges that this Agreement is intended to be a legally binding document and that he has had ample opportunity to consult with a competent attorney before agreeing to its terms. 12. INVALIDITY. If any one or more of the provisions of this Agreement should be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained in this Agreement will not in any way be affected or impaired. 5 13. NO IMPLIED WAIVER. Should CogenAmerica fail to immediately exercise its right to enforce any provision of this Agreement, such action shall not be construed as a waiver of its right to enforce any and all of its rights at a later date. 14. NON-ASSIGNMENT. The Agreement shall not be assigned by Mr. Stone without the prior written consent of the President of CogenAmerica 15. MODIFICATION BY COURT. If the scope of any provision of this Agreement is too broad to permit enforcement of the provision to its full extent, the parties agree that the provision shall be enforced to the maximum extent allowed by law and modified by a court of competent jurisdiction in any proceeding to enforce the provision. 16. GOVERNING LAW. This Agreement will be construed and interpreted in accordance with the laws of the State of Minnesota. 17. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. By signing below Mr. Stone acknowledges that he has received a copy of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. COGENERATION CORPORATION EMPLOYEE OF AMERICA By: ------------------------------- ------------------------------------ Julie A. Jorgensen Richard C. Stone Its President & CEO 6 EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 AGREEMENT OF EMPLOYMENT THIS AGREEMENT is entered into as of the 1st day of May, 1999 by and between Cogeneration Corporation of America ("Company"), a Delaware corporation, and Julie A. Jorgensen ("Employee"). WHEREAS: A. Company desires to employ Employee, and Employee desires to be employed by Company, as Company's "President and Chief Executive Officer." B. Employee and Company recognize and acknowledge that Employee's executive responsibilities will give Employee knowledge of all aspects of the Company's operations, including its business plans and strategies, current and contemplated generation projects and ventures, customers, and other proprietary information, which information would seriously harm Company if provided to a competitor. In addition, Employee's responsibilities will allow Employee to develop business relationships with existing and potential customers, suppliers and partners and with other Company employees that, if used on behalf of a competitor, would seriously harm Company. C. Employee and Company recognize and acknowledge Company's need to protect its confidential and proprietary information as well as its business relationships and goodwill. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, Employee and Company, intending to be legally bound, agree as follows: 1. EMPLOYMENT. (a) POSITION AND DUTIES. Company agrees to employ Employee as its "President and Chief Executive Officer," with such duties as may be determined by Company from time to time. Employee shall perform these duties subject to the direction and supervision of Company's Board of Directors. Employee accepts such employment and agrees to devote her full time skills to the conduct of Company's business, performing to the best of Employee's abilities such duties as may be reasonably requested by Company. Employee agrees to serve Company diligently and faithfully so as to advance Company's best interests and agrees to not take any action in conflict with Company's interests. (b) TERM. This Agreement shall be effective May 1, 1999 and shall continue for an initial term ending on the second anniversary of the effective date. Thereafter, the term shall be automatically extended for successive one year periods unless either party gives written notice to the other in advance of any annual anniversary date of this Agreement (beginning May 1, 2000) that the term shall expire one year from such annual anniversary date. (c) TERMINATION. This Agreement may be terminated by either Company or Employee upon 30 days advance written notice. In addition, this Agreement shall immediately terminate upon Employee's death or Disability (as defined below). If Employee's employment is terminated due to Employee's death or Disability or for Cause (as defined below) or if Employee voluntarily resigns without Good Cause (as defined below), Company shall pay Employee's Base Salary (as defined below) and employee benefits (which shall not include any incentives such as stock option grants or annual or other bonuses which were not earned in full as of the date of termination or resignation) through the date of termination or resignation and Company shall have no further obligations under this Agreement. If Company terminates Employee's employment for any reason other than death, Disability or Cause, or if Employee voluntarily resigns for Good Cause, Company shall pay Employee a lump sum, as severance (the "Severance Payment"), calculated as set forth below provided that Employee executes a settlement and release agreement in a form acceptable to Company releasing Company from any and all claims which Employee may have against Company, whether relating to Employee's employment, termination or otherwise. The Severance Payment shall be equal to two times the sum of Employee's then current Base Salary plus an amount equal to the target amount for Employee's annual bonus as provided in the Company's Short Term Incentive Plan in effect on the date of Employee's termination or resignation; provided, however, that if there has been a "Change in Control" (as such term is defined in the Company's 1997 Stock Option Plan (the "1997 Plan"), a copy of which is attached as Exhibit A) of the Company and the effective date of such termination or resignation is on or before May 1, 2000, the Severance Payment shall be equal to the sum of Employee's then current Base Salary plus an amount equal to the target amount for Employee's annual bonus as provided in the Company's Short Term Incentive Plan in effect on the date of Employee's termination or resignation. For purposes of this Agreement, (i) "Cause" means willful neglect or failure to render services to be performed under this Agreement (not including any failure resulting from any of the circumstances covered within the definition of "Disability") or engaging in illegal conduct or gross misconduct either of which results in material and demonstrable damage to the business of Company, (ii) "Disability" means the date upon which Employee is qualified to receive long term disability benefits under the Company's long term disability policy or, if no such policy exists, the date upon which Employee shall have been unable, due to illness, accident or any other physical or mental incapacity, to perform her duties under this Agreement for a period of six consecutive months and (iii) resign with "Good Cause" means resigning (A) within three months of a material change or reduction in Employee's title or job responsibilities with Company, unless such action is remedied by Company promptly upon receipt of written notice thereof from Employee, (B) within three months of a change of the Company's headquarters to a location which is more than 25 miles from its current location at 1 Carlson Parkway, Minnetonka, MN or (C) as a result of a material breach by Company of the compensation or benefit terms of this Agreement, provided that Employee has given Company written notice of, and a reasonable opportunity to cure, such breach. (d) COMPENSATION AND BENEFITS. (I) BASE SALARY. Company shall pay Employee an annual base salary ("Base Salary") of $200,000, payable in 24 equal bi-monthly installments on the Company's regular payroll dates. The Base Salary shall be subject to review and adjustment by the Board of Directors as of May of each year but shall not be less than the Base Salary initially in effect on the date of this Agreement. (II) ONE-TIME BONUS. Upon execution of this Agreement, Company shall pay Employee a one-time signing bonus of $20,000. If Employee resigns her employment with Company for any reason other than Good Cause or if Employee's employment with Company is terminated for Cause on or before May 1, 2000, Employee shall be obligated to refund to Company all amounts paid to Employee under this subparagraph (II); (III) ANNUAL BONUS PROGRAM. Employee will be eligible to participate in the Company's Short-Term Incentive Plan which provides for annual bonuses based on the performance of Employee and Company. The guidelines used to determine awards under the Company's existing Short-Term Incentive Plan are set forth on Exhibit B. (IV) OTHER BENEFITS. Employee shall be entitled to fully paid parking (if necessary), 4 weeks of paid vacation annually and a leased automobile pursuant to the Company's program administered by GE Credit (which is the same as the program in place for officers of NRG Energy, Inc.). In addition, Company shall provide such medical and other benefits as are approved by Company's Board of Directors for the benefit of all Company executives; provided, however, that the benefits provided by Company to its executives (including Employee) and other employees are subject to change from time to time at the discretion of Company with or without prior notice. Finally, Employee acknowledges that Company does not currently have, and it is not contemplated that Company will have, a defined benefit pension plan. (V) CLUB MEMBERSHIP. Employee shall be entitled to reimbursement for monthly membership dues (but not initiation fees or dues), up to a maximum of $450 per month (subject to upward adjustment by the Board of Directors), at a club of her choice located near the Company's headquarters. (VI) STOCK OPTIONS. Employee shall be entitled to receive performance based incentive stock options (the "Options") to purchase 233,000 shares of Company common stock under the 1997 Plan and 17,000 shares of Company common stock under the Company's 1998 Stock Option Plan (the "1998 Plan"), a copy of which is attached as Exhibit C. The exercise price of the Options shall be equal to the closing price of Company common stock on the date the Options are granted, and the Options shall vest as follows: a) 50,000 shares under the 1997 Plan (the "First Block") when either (i) the price of Company common stock is greater than or equal to $15 per share for at least 15 of 20 consecutive trading days or (ii) a "Corporate Transaction" shall be deemed to occur under the 1997 Plan which will result in at least $15 per share in cash (or an equivalent amount in other consideration) to be paid to the holders of Company common stock, provided that if the First Block has not vested on or before December 31, 2004 it shall expire; b) 50,000 shares under the 1997 Plan (the "Second Block") when either (i) the price of Company common stock is greater than or equal to $20 per share for at least 15 of 20 consecutive trading days or (ii) a "Corporate Transaction" shall be deemed to occur under the 1997 Plan which will result in at least $20 per share (or an equivalent amount in other consideration) to be paid to the holders of Company common stock, provided that if the Second Block has not vested on or before December 31, 2004 it shall expire; c) 100,000 shares under the 1997 Plan (the "Third Block") when either (i) the price of Company common stock is greater than or equal to $25 per share for at least 15 of 20 consecutive trading days or (ii) a "Corporate Transaction" shall be deemed to occur under the 1997 Plan which will result in at least $25 per share (or an equivalent amount in other consideration) to be paid to the holders of Company common stock, provided that if the Third Block has not vested on or before December 31, 2006 it shall expire; d) 33,000 shares under the 1997 Plan (the "Fourth Block") when either (i) the price of Company common stock is greater than or equal to $35 per share for at least 15 of 20 consecutive trading days or (ii) a "Corporate Transaction" shall be deemed to occur under the 1997 Plan which will result in at least $35 per share (or an equivalent amount in other consideration) to be paid to the holders of Company common stock, provided that if the Fourth Block has not vested on or before December 31, 2006 it shall expire; and e) 17,000 shares under the 1998 Plan (the "Fifth Block") when either (i) the price of Company common stock is greater than or equal to $35 per share for at least 15 of 20 consecutive trading days or (ii) a "Corporate Transaction" shall be deemed to occur under the 1998 Plan which will result in at least $35 per share (or an equivalent amount in other consideration) to be paid to the holders of Company common stock, provided that if the Fifth Block has not vested on or before December 31, 2006 it shall expire. Except as specifically provided above, none of the Options shall vest or otherwise become exercisable upon a "Change in Control" or "Corporate Transaction" (as such terms are defined in the applicable Stock Option Plan). If any of the Options vest in accordance with their terms, such Options shall remain exercisable until ten years from the date of grant. (VII) TRANSACTION BONUS. If Employee's employment is terminated by Company without Cause on or before May 1, 2001 and if within six months of the effective date of such termination a Corporate Transaction shall be deemed to occur under the applicable Stock Option Plan, then Company shall pay to Employee a bonus equal to the number of shares of Company common stock covered by Qualifying Options (as defined below) multiplied by the difference (calculated for each Qualifying Option) between the value of the consideration paid per share in the Corporate Transaction to holders of Company common stock and the exercise price per share of any Options which were not vested as of the effective date of such termination but which would have vested had Employee been employed by Company on the date the Corporate Transaction is deemed to occur ("Qualifying Options"). If the consideration paid in the Corporate Transaction is stock or other securities which would have allowed Employee to be eligible for long-term capital gains treatment with respect to any gain to be recognized on the disposition of the stock or other securities received, the amount calculated in the preceding sentence shall be increased by 50%. 2. NON-COMPETITION. (a) Employee understands and agrees that, in addition to Employee's below-described exposure to Company's Confidential Information or Trade Secrets, Employee may, in his or her capacity as an employee, at times meet with Company's customers and suppliers, and that as a consequence of using and associating with Company's name, goodwill, and professional reputation, Employee will be in a position to develop personal and professional relationships with Company's past, current, and prospective customers and suppliers. Employee further acknowledges that during the course and as a result of employment by Company, Employee may be provided certain specialized training or know-how. Employee understands and agrees that this goodwill and reputation, as well as Employee's knowledge of Confidential Information or Trade Secrets and specialized training and know-how, could be used unfairly in competition against Company. (b) Accordingly, Employee agrees that, during the course of Employee's employment with Company and for one year from the date of Employee's voluntary or involuntary resignation from, or termination of employment with, Company, Employee shall not: (i) Directly or indirectly own, manage, consult, associate with, operate, join, work for, control or participate in the ownership, management, operation or control of, or be connected in any manner with, any business (whether in corporate, proprietorship, or partnership form or otherwise), as more than a 10% owner in such business or member of a group controlling such business, which is engaged in the development, ownership or operation of cogeneration energy facilities or which will compete with any proposed business activity of Company in the planning stage on the date of her resignation or termination. Employee and Company agree that this provision is reasonably enforced as to the United States. (ii) Directly or indirectly solicit, service, contract with or otherwise engage any past (one year prior) or existing customer, client, or account who then has a relationship with Company for current or prospective business on behalf of a competitor of the Company, or on Employee's own behalf for a competing business. Employee and Company agree that this provision is reasonably enforced as to the United States. (iii) Cause or attempt to cause any existing customer, client, or account, who then has a relationship with the Company for current or prospective business, to divert, terminate, limit or in any manner modify, or fail to enter into any actual or potential business relationship with Company. Employee and Company agree that this provision is reasonably enforced as to the United States. (iv) Directly or indirectly solicit, employ or conspire with others to employ any of Company's employees. The term "employ" for purposes of this paragraph means to enter into an arrangement for services as a full-time or part-time employee, independent contractor, consultant, agent or otherwise. Employee and Company agree that this provision is reasonably enforced as to the United States. (c) Employee further agrees to inform any new employer or other person or entity with whom Employee enters into a business relationship during the one year non- competition period, before accepting such employment or entering into such a business relationship, of the existence of this Agreement and give such employer, person or other entity a copy of this paragraph 2. (d) Company agrees that the terms "activity which will compete with the business of the Company," "competitor of the Company," "competing business," and "relationship with the Company" as used in this Agreement shall be narrowly applied and that it is not the belief of Company that all companies in the energy business are competitors of Company. Company further agrees that this Agreement shall not be so broadly construed that Employee is prevented during the non-compete period from obtaining all other employment in the energy industry. 3. RETURN OF PROPERTY. Employee agrees that upon the termination of employment with Company the originals and all copies of any and all documents (including computer data, disks, programs, or printouts) that contain any customer information, financial information, product information, or other information that in any way relates to Company, its products or services, its clients, its suppliers, or other aspects of its business shall be immediately returned to Company. Employee further agrees to not retain any summary of such information. 4. CONFIDENTIAL INFORMATION/TRADE SECRETS. (a) Employee acknowledges that during the course and as a result of his or her employment, Employee may receive or otherwise have access to, or contribute to the production of, Confidential Information or Trade Secrets. "Confidential Information" or "Trade Secrets" means information that is proprietary to or in the unique knowledge of Company (including information discovered or developed in whole or in part by Employee); the Company's business methods and practices; or information that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. It includes, among other things, strategies, procedures, manuals, confidential reports, lists of clients, customers, suppliers, past, current or possible future products or services, and information concerning research, development, accounting, marketing, selling or leases and the prices or charges paid by the Company's customers to the Company, or by the Company to its suppliers. (b) Employee further acknowledges and appreciates that any Confidential Information or Trade Secret constitutes a valuable asset of Company and that Company intends any such information to remain secret and confidential. Employee therefore specifically agrees that except to the extent required by Employee's duties to Company or as permitted by the express written consent of the Board of Directors, Employee shall never, either during employment with Company or at any time thereafter, directly or indirectly use, discuss or disclose any Confidential Information or Trade Secrets of Company or otherwise use such information to his or her own or a third party's benefit. 5. CONSIDERATION. Employee and Company agree that the provisions of this Agreement are reasonable and necessary for the protection of Company and its business. In exchange for Employee's agreement to be bound by the terms of this Agreement, Company has provided Employee the consideration provided in paragraph 1. Employee accepts and acknowledges the adequacy of such consideration for this Agreement. 6. REMEDIES FOR BREACH. Employee and Company acknowledge that a breach of the provisions of this Agreement may cause irreparable harm that may not be fully remedied by monetary damages. Accordingly, Employee and Company shall, in addition to any relief afforded by law, be entitled to injunctive or other equitable relief from the other for breach. Employee and Company agree that both damages at law and injunctive or other equitable relief shall be proper modes of relief and are not to be considered alternative remedies. 7. EMPLOYEE'S ACKNOWLEDGEMENT OF REVIEW. Employee represents that Employee has carefully read and fully understands all provisions of this Agreement and that Employee has had a full opportunity to review this Agreement before signing and to have all the terms of this Agreement explained to her by counsel. 8. GENERAL PROVISIONS. Employee and Company acknowledge and agree as follows: (a) This Agreement contains the entire understanding of the parties with regard to all matters contained herein. There are no other agreements, conditions, or representations, oral or written, express or implied, with regard to such matters. This Agreement supersedes and replaces any prior agreement between the parties generally relating to the same subject matter. (b) This Agreement may be amended or modified only by a writing signed by both parties. (c) Waiver by either Company or Employee of a breach of any provision, term or condition hereof shall not be deemed or construed as a further or continuing waiver thereof or a waiver of any breach of any other provision, term or condition of this Agreement. (d) This Agreement shall inure to the benefit of and be binding upon Company and its successors and assigns. Company shall require any successor (whether direct or indirect, by asset or stock purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean include any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. No assignment of this Agreement shall be made by Employee, and any purported assignment shall be null and void. (e) No provision of this Agreement shall be construed as denying Company or Employee the right to terminate this Agreement consistent with the terms hereof. (f) Employee's obligations under paragraphs 2, 3, and 4 of this Agreement and Company's obligations under paragraph 1(c) and (d) shall survive any changes in Employee's employment status with Company, by promotion or otherwise, or Employee's resignation from, or termination of employment with, Company. (g) If any court finds any provision or part of this Agreement to be unreasonable, in whole or in part, such provision shall be deemed and construed to be reduced to the maximum duration, scope or subject matter allowable under applicable law. Any invalidation of any provision or part of this Agreement will not invalidate any other provision or part of this Agreement. (h) This Agreement will be construed and enforced in accordance with the laws and legal principles of the State of Minnesota. The Employee consents to the jurisdiction of the Minnesota courts for the enforcement of this Agreement. (i) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 9. ARBITRATION. Any claim, controversy or dispute arising between the parties under this Agreement ("Dispute"), to the maximum extent allowed by law, shall be submitted to and finally resolved by, binding arbitration. Any party may file a written demand for arbitration with the American Arbitration Association, and shall send a copy of the demand for arbitration to the other party. The arbitration shall be conducted pursuant to the then current terms of the Federal Arbitration Act and the Rules of the American Arbitration Association. To the extent such rules are not inconsistent with the terms and conditions of this paragraph 9, the venue for the arbitration shall be Minneapolis, Minnesota. The arbitration shall be conducted before one arbitrator selected as follows: within ten business days after the filing of the demand for arbitration, each party shall designate a representative and, within ten business days after the end of such ten day period, such representatives shall select an arbitrator who will serve as the sole arbitrator of the Dispute. If the representatives of the parties are in good faith unable to agree upon an arbitrator during the latter ten day period, the arbitrator shall be selected through the American Arbitration Association's arbitrator selection procedures. The arbitrator shall promptly fix the time, date and place of the hearing and notify the parties accordingly. The arbitration shall be held and the decision of the arbitrator shall be provided as quickly as is reasonably possible and the arbitrator's decision may include an award of legal fees, costs of arbitration and interest. The arbitrator shall promptly transmit an executed copy of its decision to the parties, stating the reasons for the decision. The decision of the arbitrator shall be final, binding and conclusive upon the parties. Each Party shall have the right to have the decision enforced by any court of competent jurisdiction. Notwithstanding any other provision of this paragraph 9, any dispute in which a party seeks equitable relief may be brought in any court having competent jurisdiction. THIS AGREEMENT IS INTENDED TO BE A LEGALLY BINDING DOCUMENT FULLY ENFORCEABLE IN ACCORDANCE WITH ITS TERMS. IF IN DOUBT, SEEK COMPETENT LEGAL ADVICE BEFORE SIGNING. - ------------------------------------------- ------------------------- (Employee) Date COGENERATION CORPORATION OF AMERICA By ---------------------------------------- ------------------------- Its Chairman of the Board Date Employee acknowledges that she has received a copy of this Agreement. EX-10.4 5 EXHIBIT 10.4 Exhibit 10.4 SECOND AMENDMENT AGREEMENT This Second Amendment Agreement is made this ______ day of April, 1999, by and between Grays Ferry Cogeneration Partnership, a partnership ("SELLER"), and PECO Energy Company ("PECO ENERGY") (collectively, the "PARTIES"). BACKGROUND SELLER and PECO ENERGY are parties to an Agreement for Purchase of Electric Output dated July 28, 1992 ("Original Agreement"), pursuant to which SELLER agreed to sell, and PECO ENERGY agreed to purchase, the NET ELECTRIC OUTPUT to be generated by SELLER from a cogeneration facility ("FACILITY") to be constructed by SELLER. By an Amendment Agreement signed January 31, 1994, SELLER and PECO ENERGY amended the Original Agreement to reflect SELLER's desire to construct the FACILITY in two phases. Thus, the Original Agreement was substituted with (1) an Agreement for Purchase of Electric Output (Phase I) from SELLER's cogeneration FACILITY up to 31 megawatts, and (2) an Agreement for Purchase of Electric Output (Phase II) from SELLER's cogeneration FACILITY up to 119 megawatts ("Revised Agreements"). In addition, SELLER and PECO ENERGY entered into two Contingent Capacity Purchase Addendums to the Agreements for Purchase of Electric Output (for Phase I and Phase II) dated as of September 17, 1993 ("Capacity Addendums"). Under these Capacity Addendums, SELLER agreed to sell, and PECO ENERGY agreed to purchase, electric capacity from the 31 megawatt and 119 megawatt FACILITIES under certain circumstances. In early 1998, a dispute arose between the PARTIES concerning the payments to be made by PECO ENERGY under the Revised Agreements and the Capacity Addendums. A lawsuit was filed in the Philadelphia Court of Common Pleas at April Term, 1998 No. 544 against PECO ENERGY and Adwin (Schuylkill) Cogeneration, Inc. by SELLER and the following entities: Trigen-Schuylkill Cogeneration, Inc. and NRGG (Schuylkill) Cogeneration, Inc., two of the partners of SELLER, and Trigen-Philadelphia Energy Corporation (the "Grays Ferry action"). The Chase Manhattan Bank ("CHASE") and Westinghouse Power Generation, a Division of CBS Corporation ("WESTINGHOUSE"), provided financing to SELLER for construction of the FACILITY. CHASE intervened as a plaintiff in the Grays Ferry action, and WESTINGHOUSE filed a separate action against PECO ENERGY at May Term, 1998 No. 3454, which was consolidated with the Grays Ferry action (the consolidated actions are referred to as "the LITIGATION"). The PARTIES have now reached an amicable resolution of their disputes and have entered into an agreement to settle the LITIGATION, as provided in the Final Settlement Decree and Order. As a term of the settlement of the LITIGATION, the PARTIES have agreed to amend the Revised Agreements and Capacity Addendums as follows and CHASE and WESTINGHOUSE have consented to the PARTIES' amendment of the Revised Agreements and Capacity Addendums. All capitalized terms not defined herein shall have the meanings ascribed to them in the Revised Agreements and the Capacity Addendums NOW, THEREFORE, in consideration of the above, and intending to be legally bound hereby, the PARTIES agree that the Revised Agreements and Capacity Addendums are hereby amended as follows: 1. Section 4.1 AMOUNT PURCHASED of the Agreement for Purchase of Electric Output (Phase I) is deleted in its entirety and replaced with the following language: 4.1 AMOUNT PURCHASED. Commencing on the DATE OF INITIAL OPERATION, and thereafter during the term of the AGREEMENT, SELLER shall sell and deliver to PECO ENERGY exclusively, and PECO ENERGY shall purchase and accept delivery of, the PROJECT's NET ELECTRIC OUTPUT. Subject to Section 3.1 AVAILABILITY of the Capacity Addendum, as amended, PECO ENERGY has the exclusive right to purchase all of the NET ELECTRIC OUTPUT of the FACILITY throughout the term of this AGREEMENT; provided, however, that PECO ENERGY shall not be required to purchase or accept delivery of NET ELECTRIC OUTPUT from the PROJECT in excess of the lesser of (a) 31 megawatts or (b) the amount of electric output for which the FERC has certified the FACILITY as a QUALIFYING FACILITY. SELLER shall notify the person designated by PECO ENERGY by 10:00 a.m. at least one business day prior to delivering NET ELECTRIC OUTPUT in excess of 150 megawatts per hour (31 megawatts per hour per Phase I, 119 megawatts per hour per Phase II), and PECO ENERGY will purchase and accept such NET ELECTRIC OUTPUT from SELLER unless PECO ENERGY notifies SELLER by 12:00 p.m. noon at least one business day prior to delivery that it will not purchase and accept such NET ELECTRIC OUTPUT, in which case SELLER shall have the right to sell such NET ELECTRIC OUTPUT in excess of 150 megawatts per hour to third parties. Should PECO ENERGY elect to accept NET ELECTRIC OUTPUT in excess of 150 megawatts per hour, SELLER has no obligation to provide such excess electric output in the amount identified during each hour of the period for which PECO ENERGY has agreed to accept the excess energy. Section 4.1 AMOUNT PURCHASED of the Agreement for Purchase of Electric Output (Phase II) is deleted in its entirety and replaced with the following language: 4.1 AMOUNT PURCHASED. Commencing on the DATE OF INITIAL OPERATION, and thereafter during the term of the AGREEMENT, SELLER shall sell and deliver to PECO ENERGY exclusively, and PECO ENERGY shall purchase and accept delivery of, the PROJECT's NET ELECTRIC OUTPUT. Subject to Section 3.1 AVAILABILITY of the Capacity 2 Addendum, as amended, PECO ENERGY has the exclusive right to purchase all of the NET ELECTRIC OUTPUT of the FACILITY throughout the term of this AGREEMENT; provided, however, that PECO ENERGY shall not be required to purchase or accept delivery of NET ELECTRIC OUTPUT from the PROJECT in excess of the lesser of (a) 119 megawatts or (b) the amount of electric output for which the FERC has certified the FACILITY as a QUALIFYING FACILITY. SELLER shall notify the person designated by PECO ENERGY by 10:00 a.m. at least one business day prior to delivering NET ELECTRIC OUTPUT in excess of 150 megawatts per hour (31 megawatts per hour per Phase I, 119 megawatts per hour per Phase II), and PECO ENERGY will purchase and accept such NET ELECTRIC OUTPUT from SELLER unless PECO ENERGY notifies SELLER by 12:00 p.m. noon at least one business day prior to delivery that it will not purchase and accept such NET ELECTRIC OUTPUT, in which case SELLER shall have the right to sell such NET ELECTRIC OUTPUT in excess of 150 megawatts per hour to third parties. Should PECO ENERGY elect to accept NET ELECTRIC OUTPUT in excess of 150 megawatts per hour, SELLER has no obligation to provide such excess electric output in the amount identified during each hour of the period for which PECO ENERGY has agreed to accept the excess energy. 2. Section 4.3(c) of both Revised Agreements is deleted in its entirety and replaced with the following language: "(c) Commencing after the FINAL PROJECTION DATE of December 31, 2000 and through December 31, 2004, the Output Purchase Payment shall be ninety-eight percent (98%) of the PJM VALUE." A new Section 4.3(d) is added to both Revised Agreements after the revised Section 4.3(c) as follows: "(d) Commencing on January 1, 2005 and through December 31, 2017, the remaining term of the AGREEMENT, the Output Purchase Payment shall be eighty-seven percent (87%) of the PJM VALUE." 3. A new Section 4.3(e) is added to both Revised Agreements after the new Section 4.3(d) as follows: 3 "(e) Notwithstanding the other provisions of this Section, payment for NET ELECTRIC OUTPUT in excess of 150 megawatts per hour from the combined Phase I and Phase II FACILITY shall be at the PJM VALUE, unless SELLER fails to provide PECO ENERGY with the notice required by Section 4.1 in which case payment for NET ELECTRIC OUTPUT in excess of 150 megawatts per hour shall be ninety-eight percent (98%) of the PJM VALUE through December 31, 2004, and eighty-seven percent (87%) of the PJM VALUE through December 31, 2017." 4. The following language is added to the end of Section 3.1 AVAILABILITY of both of the Capacity Addendums: "SELLER shall be entitled to sell to third parties any capacity from the FACILITY in excess of the NOMINATED CAPACITY of 150 megawatts." 5. Line 10 of Section 6.9 DISPATCH of both Capacity Addendums is revised as follows: "twenty (20)" shall be deleted and replaced with "fifty (50)", so that the third sentence of Section 6.9 DISPATCH as revised, reads in its entirety: "The scheduling of DISPATCH PERIODS shall be at the sole discretion of PECO, except that (A) a DISPATCH PERIOD shall not exceed sixteen (16) hours in duration and (B) PECO shall not schedule more than fifty (50) DISPATCH PERIODS in a CALENDAR YEAR." 6. Other than the amendments stated above, the Revised Agreements and the Capacity Addendums shall remain unchanged. 7. This Second Amendment Agreement may be executed in counterparts each of which shall constitute an original and all of which together shall constitute one Agreement. This Second Amendment Agreement shall become effective upon its execution by authorized representatives of the PARTIES, CHASE and WESTINGHOUSE, and upon the entry of the Final Settlement Decree and Order by the Court in the LITIGATION. 4 IN WITNESS WHEREOF the PARTIES have caused this Second Amendment Agreement to be executed as of the day and year first above written. PECO ENERGY COMPANY Attest: /s/ [ILLEGIBLE] By: /s/ Michael J. Egan ------------------------------ -------------------------------- Secretary MICHAEL J. EGAN, SENIOR VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER GRAYS FERRY COGENERATION PARTNERSHIP By Trigen-Schuylkill Cogeneration, Inc., its Managing General Partner Attest: By: /s/ [ILLEGIBLE] ------------------------------ -------------------------------- Secretary President CONSENTED TO: THE CHASE MANHATTAN BANK Attest: /s/ Deborah [ILLEGIBLE] By: /s/ Cathryn A. Greene 4/27/99 ------------------------------ -------------------------------- Assistant Treasurer Cathryn A. Greene CONSENTED TO: WESTINGHOUSE POWER GENERATION Attest: By: ------------------------------ -------------------------------- Secretary 5 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FINANCIAL STATEMENTS FOR ITS FIRST QUARTER YEAR-TO-DATE OF FISCAL YEAR 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 MAR-31-1999 19,702 0 20,605 0 2,269 42,941 241,733 0 326,076 34,574 0 0 0 68 6,171 326,076 26,552 26,552 16,130 16,130 888 0 5,706 3,828 1,428 2,400 0 0 0 2,400 .35 .35
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