<PAGE>   1




                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

           FOR THE SIX-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1997

                        Commission File Number: 33-74254

                             COGENTRIX ENERGY, INC.
             (Exact name of registrant as specified in its charter)


         NORTH CAROLINA                                          56-1853081
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


        9405 ARROWPOINT BOULEVARD
        CHARLOTTE, NORTH CAROLINA                                 28273-8110
(Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (704) 525-3800

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF ACT:       NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF ACT:       NONE

         Indicate by checkmark 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
---------    ---------

         Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

Number of shares of Common Stock, no par value, outstanding at March 30, 1997:
282,000

DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>   2
                             COGENTRIX ENERGY, INC.
                     INDEX TO TRANSITION REPORT ON FORM 10-K

<TABLE>
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                                                                                                              Page
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<S>               <C>                                                                                         <C>
PART I
Item 1:           Business                                                                                      3
Item 2:           Properties                                                                                   28
Item 3:           Legal Proceedings                                                                            28
Item 4:           Submission of Matters to a Vote of Security Holders                                          30

PART II
Item 5:           Market for the Registrant's Common Stock and Related Shareholder Matters                     31
Item 6:           Selected Consolidated Financial Data                                                         32
Item 7:           Management's Discussion and Analysis of Financial Condition and Results of Operations        34
Item 8:           Financial Statements and Supplementary Data                                                  45
Item 9:           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure         73

PART III
Item 10:          Directors and Executive Officers of the Registrant                                           74
Item 11:          Executive Compensation                                                                       77
Item 12:          Security Ownership of Certain Beneficial Owners and Management                               80
Item 13:          Certain Relationships and Related Transactions                                               80

PART IV
Item 14:          Exhibits, Financial Statement Schedules and Reports on Form 8-K                              83
Signatures                                                                                                     97
</TABLE>




                                       2
<PAGE>   3
                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

         Cogentrix Energy, Inc., through its direct and indirect subsidiaries
(the "Company") is principally engaged in the business of acquiring, developing,
owning and operating independent (i.e., non-utility) electric power generation
facilities and selling electricity and steam in the United States and selected
international markets. The Company was one of the early participants in the
market for independently generated electric power which developed in the United
States as a result of the enactment of the Public Utility Regulatory Policies
Act ("PURPA"). The Company currently has interests in eleven power generation
facilities having an aggregate generating capacity of 1,120 megawatts. In March
1998, the Company acquired ownership interests in two separate 245 megawatt
gas-fired power generation facilities in the Midwestern United States. In
addition, the Company has a pending acquisition, subject to the fulfillment of
all required conditions, of ownership interests in twelve domestic power
generation facilities with an aggregate generating capacity of approximately
2,400 megawatts and a natural gas pipeline. Since its inception in 1983, the
Company has capitalized on its expertise in engineering, construction
management, operations, fuel management and financing capabilities to
successfully expand its operations. Based on net ownership of total megawatts in
operation, the Company is among the larger independent power producers in the
United States.

         Unless the context requires otherwise, references herein to the
"Company" mean Cogentrix Energy, Inc. and its direct and indirect subsidiaries.
The former parent company, Cogentrix, Inc., which as the result of a
restructuring completed in December 1993 is now one of the Company's principal
subsidiaries, is referred to herein as "Cogentrix." The Company's subsidiaries
engaged in the development, ownership or operation of cogeneration facilities
are sometimes referred to individually as a "project subsidiary" and
collectively as the Company's "project subsidiaries."

POWER MARKET OUTLOOK

         The restructuring of the electric market worldwide has created a trend
away from government-owned electric generation toward a deregulated, competitive
market, both domestically and internationally. In response to increasing
customer demand for access to low cost electricity and enhanced services, new
regulatory initiatives are currently being adopted or considered at both state
and federal levels to increase competition in the domestic power generation
industry. The Company believes that industry trends and such regulatory
initiatives will lead to the transformation of the existing regulated market
which sells to a captive customer base to a more competitive market in which end
users may purchase electricity from a variety of suppliers including non-utility
generators, power marketers, public utilities and others. Management believes
that these market trends will create significant new business opportunities for
companies like Cogentrix Energy, Inc. that have demonstrated the ability to
construct and operate efficient, low cost power generation facilities.

         Management also believes that these market trends and changes in the
electric market will result in a disposition of power generation facilities by
utilities, independent power producers and industrial companies. This trend will
create investment opportunities for companies such as Cogentrix Energy, Inc.
that have integrated power services capabilities.

         The passage of the Energy Policy Act of 1992 (the "Energy Policy Act")
significantly expanded the options available to independent power producers,
particularly with respect to siting a generating facility. Among other things,
it enables independent power producers to obtain an order from the Federal
Energy Regulatory Commission ("FERC") requiring an intermediary utility to give
access to its transmission lines to transmit, or wheel, electric power from a
project to its utility purchaser. The availability of wholesale transmission
wheeling could be an important aspect in the development of new projects. For
example, the Company may be able to develop a project in one utility's service
territory and wheel the electric power produced by the project through the
transmission lines of such utility to a second utility or another wholesale
purchaser. The Energy Policy Act also created a new class of generator, Exempt
Wholesale Generator ("EWGs"), that, unlike Qualified Facilities ("QFs"), are not
required to use alternative or renewable fuels or to have useful thermal energy
output. See "Regulation -- Energy Regulations" herein.


                                       3
<PAGE>   4
         The Company believes that knowledge gained from developing and
operating power plants in the United States can be applied to take advantage of
selective opportunities in international markets. In order to satisfy an
increase in electric demand, many countries have adopted active government
programs designed to encourage private investment in power generation
facilities. To this end, the Company is actively exploring development of
projects outside of the United States, principally in Asia and Latin America.

PROJECT DEVELOPMENT STRATEGY

         The Company intends to remain among the leaders in the independent
power industry by developing and constructing or acquiring electric power
generation facilities (or interests therein) in the United States and in
selected foreign countries where the political climate is conducive to increased
foreign investment. The Company's overall goal in pursuing this strategy is to
capitalize on its reputation as an efficient and reliable energy provider.

         The Company's overall project development strategy is to concentrate on
those segments of the market for independent power, in both the domestic and
international sectors, requiring smaller generating facilities, ranging from 60
to 240 megawatts primarily using natural gas as fuel.

         In developing future projects, the Company anticipates that it will
increasingly participate on a joint venture basis with various partners,
including non-regulated subsidiaries of electric utilities, other independent
power producers, financial institutions, equipment manufacturers, large
construction companies and fuel suppliers. Through such joint venture
relationships, the Company expects to gain a number of advantages, including
technical expertise possessed by others, enhanced knowledge of and experience
with the political and social conditions of the region or country where the
project is being developed and the ability to leverage the joint venture
partner's human and financial resources. The Company also expects such joint
ventures will enable it to share the risks associated with development of
projects and build a larger and more diversified portfolio of projects. The
Company anticipates that it will share control over the development and
construction of such projects with its joint venture partners and will seek to
operate the facilities whenever possible.

         The Company has identified three market segments in which it intends to
focus its future development activities. These targeted market segments are
acquisitions of domestic generating assets, domestic and foreign industrial
companies and greenfield project development.

         ACQUISITIONS OF DOMESTIC GENERATING ASSETS. In pursuing its growth
strategy, the Company intends to focus on opportunities where it is able to
capitalize on its management and technical expertise to identify acquisition
opportunities of domestic generating assets. In pursuing these acquisition
opportunities, the Company seeks to target facilities which have power sales
contracts with electric utilities or customers with significant credit strength
as well as facilities that are highly efficient, low cost energy providers that
can take advantage of opportunities in a deregulated energy market. By pursuing
this acquisition strategy, the Company has already significantly expanded and
diversified its project portfolio. In 1998, the Company has signed agreements
related to acquisitions involving various ownership interests in 14 domestic
generating facilities. As a result of these transactions, the Company will
nearly double its net ownership power generation capacity and substantially
diversify its technology and fuel mix.

         DOMESTIC AND FOREIGN INDUSTRIAL COMPANIES. With opportunities for
development in the electric utility market diminishing, the Company is
increasing its focus on the industrial market for new domestic as well as
selected international project development opportunities. Management believes
that establishing relationships with large United States multinational
industrial corporations will also help to serve as an indirect route to the
development of projects in the international market.

         Many of these industrial companies, both domestic and international,
are currently operating their own "inside the fence" cogeneration facilities to
produce both electricity and thermal energy, which employ older technology,
produce energy inefficiently and generally are managed as an adjunct to the
industrial companies' primary manufacturing objectives. The cost of their energy
supply is a major component of these industrial companies' costs. The Clean Air
Act amendments of 1990 also present challenges for many industrial companies
which must retrofit existing facilities to comply with the new law. The Company
believes that smaller cogeneration facilities with state of the art technology
could readily be employed to replace, or in certain circumstances, upgrade
existing inside the fence cogeneration facilities.


                                       4
<PAGE>   5
         Most state regulatory authorities have not yet resolved the issue of
whether an independent power producer may lawfully sell power directly to one or
more retail customers, and, if so, whether such producer becomes subject to
regulation as a public utility. Even if regulatory authorities permit the
Company and others to develop such facilities for the retail sale of
electricity, electric utilities may decide to mount legal challenges to such
developments. To avoid such regulatory and legal challenges, the Company may
structure the ownership of projects such that the industrial corporation retains
a controlling interest in the project or may use acceptable alternative
structures.

         GREENFIELD PROJECT DEVELOPMENT. The Company intends to pursue domestic
development of highly efficient, low cost power generating facilities. In
developing these opportunities, the Company will hedge its exposure to electric
market price risk by entering into arrangements with utilities, fuel suppliers
and/or power markets.

         The Company believes that the knowledge and experience that it has
gained in developing and operating facilities in the United States can be
effectively employed in selected situations to develop projects outside the
United States. In pursuing selected international development projects, the
Company intends to focus primarily on the segment of the international market
for generating facilities in the 60 to 240 megawatt range. By concentrating on
the development of smaller facilities, the Company believes that it can
successfully export its proven core business while making relatively smaller
equity investments in international projects. The Company intends to pursue
selected opportunities in Asia and Latin America, where demand for power is
rapidly growing and private investment is encouraged.

ACQUISITIONS OF LS POWER AND BECHTEL ASSETS

         In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in two independent power plants in
Whitewater, Wisconsin (the "Whitewater Facility") and Cottage Grove, Minnesota
(the "Cottage Grove Facility"). Each of the Cottage Grove and Whitewater
Facilities is a 245 megawatt gas-fired, combined-cycle cogeneration facility.
The Cottage Grove Facility sells capacity and energy to Northern States Power
Company under a 30-year power sales contract terminating in 2027. The Whitewater
Facility sells capacity and energy to Wisconsin Electric Power Company under a
25-year power sales contract terminating in 2022. Commercial operations of the
facilities commenced in the last half of calendar 1997.

         In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. ("Bechtel") to acquire Bechtel's ownership interest in twelve
electric generating facilities and one interstate natural gas pipeline in the
United States. The acquisition of these facilities will provide the Company with
a net equity interest of approximately 360 megawatts in a diverse generating
portfolio that comprises approximately 2,400 megawatts in total plant capacity.
These facilities are located in New Jersey, New York, Pennsylvania, West
Virginia, Massachusetts and Florida. Nine of the generating facilities were
developed and are managed by U.S. Generating Company, an indirect, wholly-owned
subsidiary of PG&E Corporation, and are owned in part by affiliates of U.S.
Generating Company.

         For further discussion of the acquisitions see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."


                                       5
<PAGE>   6
PROJECTS UNDER DEVELOPMENT

         In May 1993, the Government of India ("GOI") approved in principle,
subject to certain conditions, the Company's proposal to develop a coal-fired
power generation facility with a total gross electrical generating capacity of
approximately 1,000 megawatts. The project was designated by the GOI as one of
eight projects under development which would receive the support of a partial
guaranty by the GOI of the payment obligations of the related State Government.
The proposed site for the facility near Mangalore in the State of Karnataka has
already received in-principle clearance related to the environmental permitting
process. The Company has executed a power sales agreement with the Karnataka
State Electricity Board and has executed the Government of Karnataka guaranty of
the full financial obligation of the Karnataka State Electricity Board and the
State Support Agreement which commits the State of Karnataka to facilitate
required government actions. The Company is currently negotiating with the GOI
on revision to the power sales agreement, which the Company's management
believes will lead to issuance of the GOI partial counter-guaranty of the
Government of Karnataka guaranty.

         In July 1995, the Company executed a joint development agreement with a
subsidiary of China Light & Power Company, Limited ("CLP") (the "Joint Venture")
which provides for the Company and CLP to co-develop the India project and to
share equally in the direct development expenses related to the project.
Additionally, the Company expects to secure one or more other partners for the
purpose of making equity investments in the project. If the Company is
successful in obtaining the necessary governmental approvals and guarantees of
the power sales agreement and construction financing, the Company intends to
further participate by overseeing construction of the project and managing,
under a long-term agreement, the operation of the facility by a third party.

         The projects the Company is seeking to develop are complex and the
completion of any such project is subject to substantial risks. There can be no
assurance that the Company will be able to obtain new power sales agreements,
the necessary site agreements, steam sales agreements, licenses and
certifications, environmental and other permits and financing necessary for the
successful development of new projects. These, and other risks, may result in
the Company abandoning projects under development.

PROJECT UNDER CONSTRUCTION

         In December 1997, the Company substantially completed construction of a
248 megawatt combined-cycle, gas-fired electric generation facility (the "Clark
Facility") for Public Utility District Number 1 of Clark County, Washington
("Clark") and earned a construction management fee of $4.5 million. Upon final
completion of the facility and acceptance by Clark, the Company will earn an
additional construction management fee of $500,000 and will also share in 50% of
the amount, if any, of the excess of the contract amount ($117 million) over the
actual costs and expenses incurred in constructing the Clark Facility. The
excess is currently expected to be approximately $7 million. Cogentrix of
Vancouver, Inc. ("CVC"), a subsidiary of Cogentrix Energy, Inc., performed the
development and preliminary engineering of the Clark Facility and received a
development fee of $4.5 million in October 1995. CVC is currently managing the
post-completion operations and maintenance of the Clark Facility pursuant to a
two-year agreement.

POWER MARKETING

         Increased competition in the wholesale electric power market, and
improved access to that market through wheeling, has prompted hundreds of
companies to enter the market as non-generating wholesale power marketers. Such
companies purchase and resell electric power, often packaging available electric
power from several different sources to meet the unique needs of particular
wholesale purchasers.

         The Company's power marketing subsidiary, Cogentrix Energy Power
Marketing, Inc. ("CEPM"), has entered into agreements with a utility to purchase
electric capacity and energy and to schedule transmission of electric energy.
CEPM has also entered into power sales and transmission scheduling agreements
with a major industrial company to provide capacity and energy to its production
facilities in the Pacific Northwest. CEPM currently matches its contracts to
purchase capacity and energy with corresponding contracts to sell equivalent
capacity and energy, thus CEPM is not subject to losses resulting from price
fluctuations in the wholesale electric power market.


                                       6
<PAGE>   7
GREENHOUSE OPERATIONS

         The Company has entered into an agreement with Agro Power Development,
Inc. ("Agro"), a developer and operator of greenhouse facilities, giving the
Company a right of first refusal to make investments in partnerships which
develop, construct and operate greenhouses which produce tomatoes. The Company
has made investments in partnerships which currently operate greenhouses with an
aggregate 107 acres of production capacity. These greenhouses are located in
Texas, Pennsylvania and New York.

DESCRIPTION OF THE COMPANY'S FACILITIES IN OPERATION

         (The following discussion of the Company's facilities in operation does
not reflect the Company's acquisition on March 20, 1998 of an approximate 74%
ownership interest in two independent power plants from LS Power Corporation.
See the discussion appearing above under the heading "Acquisitions of LS Power
and Bechtel Assets.")

         The Company's project subsidiaries currently own 100% of nine
cogeneration power facilities in operation. The Company's other two facilities
in operation are held by partnerships in each of which a Company subsidiary is a
50% general partner. Ten of these eleven facilities are currently operated and
managed by the Company. The eleventh facility is operated and managed by an
affiliate of the Company's partner in that facility. Each facility is located on
a site which is owned or leased on a long-term basis by a project subsidiary,
which ownership or leasehold interest is mortgaged to secure the subsidiary's
project financing obligations, and, in certain instances, to secure the
Company's project subsidiaries' obligations under their power sales agreements.

         PROJECT AGREEMENTS. Each of the Company's project subsidiaries sells
electricity to a utility under long-term power sales agreements. A plant's
revenue from a power sales agreement usually consists of two components: energy
payments and capacity payments. Energy payments, which are generally intended to
cover the variable costs of electric generation (such as fuel costs and variable
operation and maintenance expense), are based on a facility's net electrical
output measured in kilowatt hours, with payment rates either fixed or indexed to
the fuel costs of the purchasing utility. Capacity payments, which are intended
to compensate for the fixed costs incurred by the project subsidiary (such as
debt service on the project financing), are more complex and are calculated
based on a declared capacity of a facility. Declared capacity is the electric
generating capacity in megawatts that the Company's project subsidiary agrees in
a power sales agreement to make available to the utility purchasing its
electricity and is a percentage of the facility's design capacity dictated by
its equipment and design specifications. Capacity payments are based either on a
plant's net electrical output and paid on a kilowatt hour basis or on the
plant's declared capacity and can be adjusted if actual capacity varies
significantly from declared capacity.

         Many power sales agreements (including the Company's) permit the
purchasing utility to dispatch the facility (i.e., direct the plant to deliver a
variable amount of electrical output) within limited parameters. The power sales
agreements for ten of the Company's facilities are of a type typically called
"fully dispatchable," providing the utility with greater dispatching rights
whenever it determines that it can obtain lower cost power either from the
utility's in-system generation or from bulk purchases. The power sales
agreements for these facilities are structured in a manner such that when the
amount of electrical output is reduced, the plant continues to receive capacity
payments (which provide substantially all of the project subsidiary's profits).
Energy payments (which cover the variable operating, maintenance and fuel costs)
are received for each kilowatt hour delivered.

         With the exception of two facilities, which produce thermal energy in
the form of hot water for use by commercial greenhouses, all of the Company's
plants produce steam ("process steam") for use by an industrial host. These
industrial hosts, which include textile manufacturing companies, pharmaceutical
manufacturing companies, chemical producers and synthetic fiber plants, use the
process steam in their manufacturing processes. The Company's steam sales
contracts with these industrial hosts generally are long-term contracts that
provide payment on a per thousand pound basis for steam delivered and a minimum
annual payment if the industrial host's plant is shut down. All contracts
require steam purchases during their initial terms adequate to allow maintenance
of QF status. See "Regulation -- Energy Regulations" herein.

         Each of the Company's project subsidiaries purchases fuel under
long-term supply agreements. The fuel supply contracts with respect to each of
the Company's projects are structured so that the fuel cost escalations are
generally matched


                                       7
<PAGE>   8
by increases in the energy payments received by the Company for electricity
under the corresponding power sales agreement. This matching is typically
effected by having the fuel prices escalate as a function of the solid fuel
index of the purchasing utility, which reflects changes in the utility's cost of
fuel to operate its plants or by contracting for scheduled increases in energy
payments designed to offset scheduled increases in fuel prices.

         The power sales agreements and the steam sales agreements provide
substantially all of the revenue stream of the Company's facilities. Costs
incurred under the fuel supply agreements (including related transportation
agreements) accounted for approximately 45.7% of the Company's operating
expenses during the six-month period ended December 31, 1997.

         PROJECT FINANCING. The Company has financed each facility through
project subsidiaries primarily under financing arrangements and related
documents which, except as noted herein, require the extensions of credit to be
repaid solely from the project's revenues and provide that the repayment of the
extensions of credit (and interest thereon) is secured solely by the physical
assets, agreements, cash flow and, in certain cases, the capital stock of or
partnership interests in that project subsidiary. This type of financing is
generally referred to as "project financing." Project financing transactions are
generally structured so that all revenues of a project are deposited directly
with a bank or other financial institution acting as escrow or security deposit
agent. These funds are then payable in a specified order of priority set forth
in the financing documents to assure that, to the extent available, they are
used first to pay operating expenses, senior debt service and taxes and to fund
reserve accounts. Thereafter, subject to satisfying debt service coverage ratios
and certain other conditions, amounts may be disbursed to the Company for
management fees or dividends or, where there are subordinated lenders, to the
payment of subordinated debt service.

         The Company's existing facilities are financed using a high proportion
of debt to equity. Leveraged financing permits the development of projects with
a limited equity base but also increases the risk that a reduction in revenues
could adversely affect a particular project's ability to meet its debt or lease
obligations. The lenders have security interests covering certain aspects of the
project, including the plant, related facility support agreements, the stock or
partnership interest of certain of the Company's project subsidiaries, licenses
and permits necessary to operate the plant and the cash flow derived from the
plant. In the event of a foreclosure after a default, the Company would only
retain an interest in the property remaining, if any, after all debts and
obligations were paid. In addition, the debt of each operating project may
reduce the liquidity of the Company's interest in such project since any sale or
transfer of its interest would, in most cases, be subject both to a lien
securing such project debt and to transfer restrictions in the relevant
financing agreements. Also, the Company's ability to transfer or sell its
interest in certain projects is restricted by a purchase option to a steam
purchaser and certain rights of first refusal in favor of its power and steam
purchasers. See "Facilities in Operation" herein.

         The lenders under these project financing structures cannot look to the
Company or its other projects for repayment (that is, they are "non-recourse" to
the Company and its other project subsidiaries), unless the Company or another
project subsidiary expressly agrees to undertake liability. The Company has
agreed to undertake limited financial support for certain of its project
subsidiaries in the form of certain limited obligations and contingent
liabilities. These obligations and contingent liabilities take the form of
guarantees, indemnities, capital infusions and agreements to pay certain debt
service deficiencies. To the extent the Company becomes liable under such
guarantees and other agreements with respect to a particular project,
distributions received by the Company from other projects may be used by the
Company to satisfy these obligations. To the extent of these obligations, the
lenders to a project have recourse to the Company and the distributions to the
Company from other projects. The aggregate contractual liability of the Company
to its project lenders is, in each case, a small portion of the aggregate
project debt. Thus the project financing structures are generally described
throughout this Report as being "substantially non-recourse" to the Company and
its other projects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

         The Indenture under which the Senior Notes were issued permits the
incurrence of debt, guarantees and liens jointly by any future project
subsidiaries or joint ventures with respect to the future development of power
generation facilities. To the extent the Company takes advantage of these
provisions of the Indenture, the project lender (or lenders) will have recourse
to several of the Company's facilities instead of having its (or their) recourse
limited to the facility (or facilities) owned by a single project subsidiary.


                                       8
<PAGE>   9
         The Company's plants are insured in accordance with covenants in each
project's debt financing agreements. Coverages for each plant include workers'
compensation, commercial general liability, supplemented by primary and excess
umbrella liability, and a master property insurance program including property,
boiler and machinery (at replacement cost) and business interruption.

         OPERATING ARRANGEMENTS. Unlike many independent power producers who
contract with third party operators, the Company operates ten of its facilities.
Each project subsidiary employs directly the persons required to operate the
facility it owns or leases. The Company hires its general plant managers early
in the construction phase of the plants, invests in the training of operating
personnel and structures its plant bonus program to reward efficient and cost
effective operation of the plants. Executive management of the Company meets
several times a year with the plant managers and conducts on-site plant
performance reviews with each plant manager.

         The Company provides to the plants it operates certain administrative
and management services for a periodic fee, which in some cases is adjusted
annually by an inflation factor. The ability of a project subsidiary to pay
these management fees is contingent upon the continuing compliance by the
project subsidiary with certain covenants under the project financing agreements
and may be subordinated to the payment of obligations under those agreements.
The Company has earned and will continue to earn incentive compensation from the
Hopewell Facility, in which the Company holds a 50% general partnership interest
and is the managing general partner, if the facility achieves certain net income
levels.

         ASH REMOVAL. Project subsidiaries owning nine of the Company's
facilities contract with ReUse Technology, Inc. ("ReUse"), a wholly-owned
subsidiary of the Company operated as an autonomous business unit, to remove
coal ash generated by such plants. A third party removes and handles coal ash at
the other coal-fired plant. As an alternative to disposing of coal ash in
landfills, ReUse has developed the use of coal ash as structural fill material
and in the manufacturing and production of various ash derived products for
resale.

         ReUse also provides ash services for cogeneration facilities owned and
operated by unaffiliated independent power producers. In connection with the
provision by ReUse of such services under a contract for one of these
facilities, Cogentrix has agreed to take all action necessary (including making
loans and equity contributions) to ensure that ReUse has adequate financial
resources to perform its obligations under its agreement with the facility's
owner up to a maximum aggregate liability of $1.5 million.






                                       9
<PAGE>   10
FACILITIES IN OPERATION

         Set forth in the table and the text below are descriptions of the
Company's eleven plants in operation at December 31, 1997. In each case, the
Company developed the plant (except for the Ringgold facility that the Company
purchased immediately prior to construction and the Birchwood facility in which
the Company purchased its 50% interest during construction), which included
siting, permitting and financing activities. Revenues are currently being
realized from the sale of electricity and thermal energy generated by each of
these facilities.

         Each of the Company's facilities relies on a power sales agreement with
a single customer for the majority of its revenues over the life of the power
sales agreement. During the six-month period ended December 31, 1997, two
regulated utilities, Carolina Power & Light Company ("CP&L") and Virginia
Electric and Power Company ("Virginia Power"), accounted for approximately 85%
of the Company's consolidated revenues. The failure of either of these utility
customers to fulfill its contractual obligations for a prolonged period of time
would have a substantial negative impact on the Company's primary source of
revenues. Both CP&L and Virginia Power's senior debt securities are rated
investment grade by Standard & Poor's Corporation and Moody's Investors Service,
Inc.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                       ACTUAL       DESIGN                                                             DATE OF
                       PROJECT    CAPACITY OF                                                       COMMENCEMENT       COMPANY'S
    LOCATION OF        COST(1)    ELECTRICITY            POWER               THERMAL ENERGY         OF COMMERCIAL      OWNERSHIP
    FACILITIES           (IN      (MEGAWATTS)     PURCHASING UTILITY         PURCHASER/USER           OPERATION         INTEREST
                      MILLIONS)
================================================================================================================================
<S>                   <C>         <C>            <C>                      <C>                    <C>                   <C>
 ELIZABETHTOWN, NC     $ 30.3          35                CP&L             Alamac Knit Fabrics,       December 1985        100%
                                                                                  Inc.
--------------------------------------------------------------------------------------------------------------------------------
   LUMBERTON, NC       $ 30.5          35                CP&L             Alamac Knit Fabrics,       December 1985        100%
                                                                                  Inc.
--------------------------------------------------------------------------------------------------------------------------------
  KENANSVILLE, NC      $ 32.8          35                CP&L             Guilford Mills, Inc.        April 1986          100%
--------------------------------------------------------------------------------------------------------------------------------
    ROXBORO, NC        $ 44.9          60                CP&L               Collins & Aikman          August 1987         100%
                                                                               Corporation
--------------------------------------------------------------------------------------------------------------------------------
   SOUTHPORT, NC       $ 82.9         120                CP&L                Archer-Daniels-        September 1987        100%
                                                                             Midland Company
--------------------------------------------------------------------------------------------------------------------------------
   HOPEWELL, VA        $ 97.8         120           Virginia Power            Allied-Signal          December 1987         50%
                                                                               Corporation
--------------------------------------------------------------------------------------------------------------------------------
  PORTSMOUTH, VA       $ 94.7         120           Virginia Power              Clariant              June 1988           100%
                                                                               Corporation
--------------------------------------------------------------------------------------------------------------------------------
  ROCKY MOUNT, NC      $107.2         120           Virginia Power         Abbott Laboratories       October 1990         100%
                                                 d/b/a North Carolina
                                                     Power Company
--------------------------------------------------------------------------------------------------------------------------------
   RINGGOLD, PA        $ 32.0        15.5        Pennsylvania Electric      Keystone Village          April 1991          100%
                                                        Company                Farms, Inc.
--------------------------------------------------------------------------------------------------------------------------------
   RICHMOND, VA        $243.7         240           Virginia Power           E.I. Du Pont de       Unit I May 1992;       100%
                                                                            Nemours & Company    Unit II August 1992
--------------------------------------------------------------------------------------------------------------------------------
  KING GEORGE, VA      $364.0         220           Virginia Power           Greenhost, Inc.         November 1996         50%
    (BIRCHWOOD
     FACILITY)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Actual project cost includes all costs directly associated with the
construction of the facility, related improvements and land acquisition,
together with costs incurred to obtain construction and permanent financing and
other costs associated with the formation of each project entity and the
start-up of the facility.

         ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES. Cogentrix Eastern
Carolina Corporation, a North Carolina corporation ("CECC"), owns and operates
three 35 megawatt stoker coal-fired cogeneration plants in Elizabethtown,
Lumberton and Kenansville, North Carolina (collectively, the "ELK Facilities"
and individually an "ELK Facility"). The ELK Facilities were the first
cogeneration facilities developed by the Company and are presently financed
under a single project financing credit facility. The Elizabethtown and
Lumberton plants commenced commercial operation in December 1985 with the
Kenansville plant following in April 1986.

         The ELK Facilities sell electricity to CP&L under separate power sales
agreements, which were amended effective in September 1996. Under the amended
terms, the power sales agreements for the Elizabethtown and Lumberton Facilities
each have an initial term expiring in November 2000, and the power sales
agreement for the Kenansville Facility has an initial term expiring in September
2001. Each of the power sales agreements has automatic renewals for one-year
renewal


                                       10
<PAGE>   11
terms unless either party terminates the agreement prior to the commencement of
a renewal term. The purchase price for electricity during such renewal term
would continue to be the rate set forth in the power sales agreements. Annual
increases in energy prices under the power sales agreement are designed to
offset annual increases in coal and rail transportation prices.

         In addition to CP&L's right to dispatch or suspend delivery of
electricity from the ELK Facilities for maintenance and emergencies, the ELK
Facilities are also subject to economic dispatch by CP&L. This right allows CP&L
to suspend or reduce purchases of energy from the ELK Facilities if CP&L
determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that CECC will continue
to receive capacity payments during any period of economic dispatch. Capacity
payments cover project debt service, fixed operating costs and constitute a
substantial portion of the profit component of the power sales agreement. Energy
payments, which would be reduced (or possibly eliminated) as a result of an
economic dispatch, primarily cover variable operating, maintenance, coal and
rail transportation costs.

         In the event CECC decides to dispose of an ELK Facility, it must first
offer the facility to the respective steam purchaser, and if the steam purchaser
does not exercise its right, CECC must then offer the facility to CP&L at fair
market value.

         Each of the power sales agreements provides that in the event of
termination (other than for a material breach by CP&L) prior to the expiration
of the initial term of the power sales agreements, CECC must pay CP&L a
termination charge equal to the excess paid for capacity and energy over what
would have been paid to CECC under the North Carolina Utilities Commission
("NCUC") published capacity credit and variable energy rates plus interest.

         If the average capacity made available in the peak period or average
energy generated or made available in peak or off-peak periods during any
12-month period falls below 80% of the established contract capacity level or
the contract peak or off-peak energy level, as the case may be, CP&L may
establish a new contract capacity level or contract energy level. If a reduction
in the contract capacity level is invoked, a special charge will be imposed by
CP&L equal to a percentage of the termination charge described above. If a
reduction in the contract energy level is invoked, a special reduction in the
contract energy charge will also be imposed. In addition, if CECC desires to
terminate the power sales agreement prior to its expiration and a substitute
operator satisfactory to CP&L is not secured, CECC must pay to CP&L the
termination charge described above plus an amount equal to the depreciated
installed cost of the interconnection facilities relating to the plant (using a
20-year useful life). Cogentrix has guaranteed the performance of CECC under the
CP&L power sales agreements.

         Alamac Knit Fabrics, Inc. purchases steam for its apparel fabrics
division mills from the Lumberton Facility and the Elizabethtown Facility under
separate steam sales agreements expiring in December 2000, each of which
contains renewal options. Guilford Mills, Inc. ("Guilford") purchases steam from
the Kenansville Facility for use in its textile manufacturing plant under a
steam sales agreement expiring in July 2001, which contains renewal options.

         Each of the ELK Facilities uses low-sulfur stoker coal mined in
Kentucky supplied under a single coal sales agreement with James River Coal
Sales, Inc. ("James River") and its affiliate, Bell County Coal Corporation. The
coal sales agreement provides that CECC will purchase and James River will
provide all of CECC's coal requirements through September 2001. If the ELK
Facilities do not purchase an average of 320,000 tons per fiscal year (as
appropriately reduced due to force majeure events), the contract will be
extended if during any subsequent period the ELK Facilities are selling
electricity to CP&L until CECC purchases such short-fall amount.

         The coal purchased for the ELK Facilities is transported by CSX
Transportation, Inc. ("CSX") under separate rail transportation contracts each
having a term through September 2001 to rail unloading facilities owned by CECC.
Coal is then hauled by truck to each of the plants by independent contractors,
and ash is removed from each of the plants by ReUse, under separate long-term
coal hauling and ash disposal agreements.

         The ELK Facilities are financed pursuant to a senior credit facility
which provides for a term loan ($26.7 million outstanding at December 31, 1997)
and a $3.3 million letter of credit to secure the obligations of CECC to pay
debt service.


                                       11
<PAGE>   12
         Cogentrix has pledged the stock of CECC to secure the obligations of
CECC under the senior credit facility, but Cogentrix is not liable for any
deficiency if the proceeds of any sale or disposition of the collateral are
insufficient to pay the secured obligations.

         The ELK Facilities generated $16.4 million of revenues in the six-month
period ended December 31, 1997, $35.7 million of revenues in fiscal 1997, $53.9
million of revenues in fiscal 1996 and $52.4 million of revenues in fiscal 1995.

         ROXBORO AND SOUTHPORT FACILITIES. Cogentrix of North Carolina, Inc., a
North Carolina corporation ("CNC"), operates two stoker coal-fired cogeneration
plants in Roxboro and Southport, North Carolina (individually, the "Roxboro
Facility" and "Southport Facility"; collectively, the "Roxboro and Southport
Facilities"), which are owned by another wholly-owned subsidiary of the Company,
Cogentrix of North Carolina Holdings, Inc. The Roxboro and Southport Facilities
are financed under a single project financing credit facility. The 60 megawatt
Roxboro Facility, which commenced commercial operation in August 1987, may
operate at a declared capacity of up to 56 megawatts. The 120 megawatt Southport
Facility, which may operate at a declared capacity of up to 107 megawatts,
commenced commercial operation in September 1987.

         The Roxboro and Southport Facilities sell electricity to CP&L under
separate power sales agreements, each having an initial term expiring in
December 2002 with automatic renewals for two-year renewal terms unless either
party terminates the agreement prior to the commencement of a renewal term. The
purchase price for electricity during such renewal term would continue to be the
rate for 2002 set forth in the power sales agreements. These power sales
agreements were amended effective in September 1996 to provide CP&L economic
dispatch rights on the facilities and to eliminate options CP&L had to purchase
these facilities. Under the amended power sales agreements, CP&L has a right of
first refusal on either or both facilities.

         The power sales agreements provide for scheduled annual increases in
energy payments through 1997, which the Company believes are sufficient to
offset scheduled annual increases in coal and rail transportation prices. Energy
payments from 1998 through 2002 under the power sales agreements are designed to
offset annual fluctuations in coal and rail transportation prices.

         In addition to CP&L's right to dispatch or suspend delivery of
electricity from the Roxboro and Southport Facilities for maintenance and
emergencies, the Roxboro and Southport Facilities are also subject to economic
dispatch by CP&L. This right allows CP&L to suspend or reduce purchases of
energy from the Roxboro and Southport Facilities if CP&L determines that it can
operate its system for a designated period more economically. The power sales
agreements are structured so that CNC will continue to receive capacity payments
during any period of economic dispatch. Capacity payments cover project debt
service, fixed operating costs and constitute a substantial portion of the
profit component of the power sales agreements. Energy payments, which would be
reduced (or possibly eliminated) as a result of an economic dispatch, primarily
cover variable operating, maintenance, coal and rail transportation costs.

         Each of the power sales agreements provides that in the event CNC
desires to terminate the power sales agreement or abandons the Roxboro or
Southport Facility, CNC must pay CP&L a termination charge. Such termination
charge will be equal to the sum of (i) the depreciated installed cost of the
interconnection facilities relating to the plant (using a 20-year useful life),
plus (ii) the cost incurred by CP&L to replace the capacity provided by the
Roxboro or Southport Facility in excess of the capacity payments which would
have been made to CNC for the Roxboro or Southport Facility, plus (iii) a
carrying charge equal to the overall pretax cost of capital allowed to CP&L by
the NCUC retail rate order in effect during the time the energy credits were
received.

         Cogentrix has guaranteed the performance of CNC under the CP&L power
sales agreements.

         Collins & Aikman Corporation ("C&A") purchases process steam for its
textile manufacturing facility from the Roxboro Facility under a 15-year steam
sales agreement (of which approximately five years remain) that is renewable by
C&A for an additional five-year term upon one year's prior written notice.
During the initial term of the steam sales agreement, C&A is obligated to
purchase and use a minimum of five percent of the Roxboro Facility's total
energy output so that the facility will remain a QF under PURPA.


                                       12
<PAGE>   13
         Archer-Daniels-Midland Company ("ADM") purchases steam for its
pharmaceutical and chemical manufacturing company from the Southport Facility
under a 15-year steam sales agreement (of which approximately five years remain)
that is renewable by ADM for an additional five-year term upon one year's prior
written notice. During the initial term of the steam sales agreement, ADM is
obligated to purchase and use a minimum of five percent of the Southport
Facility's total energy output so that the facility will remain a QF under
PURPA.

         CNC has executed long-term coal sales agreements for both the Roxboro
and Southport Facilities with subsidiaries of Alliance Coal Corporation. The
terms of these contracts correspond with the terms of each Facility's power
sales agreement.

         Norfolk Southern Railway Company transports coal to the Roxboro
Facility under a rail transportation contract ending in 2002. The coal for the
Southport Facility is transported by CSX, under a rail transportation contract
ending in 2002, to a rail side track located approximately six miles from the
Southport Facility and is then hauled by a CNC operated locomotive to the plant
site.

         Ash hauling services are provided for the Roxboro and Southport
Facilities by ReUse under contracts expiring in December 2002.

         The Southport and Roxboro Facilities are financed pursuant to a senior
credit facility which provides for a term loan ($93 million outstanding at
December 31, 1997) and a $6.5 million letter of credit facility to secure the
obligations of CNC to pay debt service. In connection with the financing, the
Company entered into an agreement for the benefit of the project lenders to fund
cash deficits CNC could experience as a result of incurring certain costs,
subject to a cap of $11.3 million.

         Certain of the Company's subsidiaries have pledged their respective
ownership interests in the Roxboro and Southport Facilities as collateral
security for the senior credit facility, but Cogentrix Energy, Inc. is not
liable for any deficiency if the proceeds of any sale or disposition of the
collateral are insufficient to pay the secured obligations.

         The steam sales agreement for the Southport Facility provides that upon
at least 12 months' prior notice, CNC will sell to ADM up to an additional
100,000 pounds of steam per hour. The power sales agreement further provides
that if upon a sale of the Southport Facility CP&L exercises its right of first
refusal and a package boiler to meet ADM's increased steam demands has not been
installed, CNC must deposit into an escrow account at such time an amount
sufficient to provide a package boiler to meet such increased steam demands.
Management anticipates such a boiler could be provided at a cost of
approximately $2,500,000.

         The Roxboro and Southport Facilities generated $24.9 million of
revenues in the six-month period ended December 31, 1997, $58.2 million of
revenues in fiscal 1997, $86.9 million of revenues in fiscal 1996 and $84.4
million of revenues in fiscal 1995.

         HOPEWELL FACILITY. The Company's Hopewell facility (the "Hopewell
Facility"), located in Hopewell, Virginia, is a 120 megawatt stoker coal-fired
cogeneration facility owned by James River Cogeneration Company ("JRCC"), which
may operate at a declared capacity of up to 92.5 megawatts. JRCC is a North
Carolina general partnership, in which a 50% general partnership interest is
owned by Cogentrix of Virginia, Inc., a Virginia corporation ("CVA"), which is a
wholly-owned subsidiary of the Company. The remaining 50% is owned by Capistrano
Cogeneration Company, a subsidiary of Edison Mission Energy. Commercial
operation of the Hopewell Facility commenced in December 1987.

         CVA, as managing general partner, has complete responsibility for the
operation, maintenance and management of the Hopewell Facility under a 20-year
operations, maintenance and management agreement with JRCC (expiring in December
2008). JRCC is governed by a partnership agreement which provides that certain
significant business decisions regarding the partnership must be approved by
representatives of both partners. The operations, maintenance and management
agreement provides for CVA to receive base compensation as well as incentive
compensation if the facility achieves certain levels of net income.

         The Hopewell Facility sells electricity to Virginia Power under a power
sales agreement which expires in January 2008. The power sales agreement was
amended, effective in February 1998, to provide Virginia Power economic dispatch
rights on


                                       13
<PAGE>   14
the Facility and to eliminate the regulatory disallowance provision in the power
sales agreement, which allocated, in part, the risk of disallowance by the
Virginia State Corporation Commission ("SCC") to JRCC.

         Under the amended power sales agreement, JRCC provides up to 92.5
megawatts of capacity to Virginia Power. The amended power sales agreement
provides for scheduled annual increases in energy payments through 2002, which
the Company believes are sufficient to offset scheduled increases in coal and
rail transportation costs. Energy payments from 2003 through 2008 under the
power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices.

         In addition to Virginia Power's right to suspend delivery of
electricity for maintenance and emergencies, the Hopewell Facility is also
subject to economic dispatch by Virginia Power. This right allows Virginia Power
to suspend or reduce purchases of energy from the Hopewell Facility if Virginia
Power determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that JRCC will continue
to receive capacity payments during any period of economic dispatch. Capacity
payments cover project debt service, fixed operating costs and constitute a
substantial portion of the profit component of the power sales agreement. Energy
payments, which would be reduced (or possibly eliminated) as a result of an
economic dispatch, primarily cover variable operating, maintenance, coal and
rail transportation costs. If the power sales agreement is terminated prior to
the end of its initial or any subsequent term other than due to a default by
Virginia Power, JRCC must pay Virginia Power the difference between payments for
capacity already made and those that would have been allowable under the
applicable avoided cost schedules plus interest.

         The power sales agreement grants to Virginia Power a right of first
refusal to purchase the Hopewell Facility at fair market value provided that
such amount will not exceed JRCC's net investment in the Hopewell Facility.

         Allied-Signal Corporation ("ASC") purchases steam from the Hopewell
Facility under a 20-year steam sales agreement (of which approximately 10 years
remain). ASC is obligated to purchase and use a minimum of five percent of the
Hopewell Facility's total energy output in a manner such that the facility will
remain a QF under PURPA.

         Coal for the Hopewell Facility is supplied from mines in Kentucky by
Pontiki Coal Corporation ("Pontiki") under a 15-year coal sales agreement (of
which approximately five years remain), which requires Pontiki to sell and JRCC
to purchase all of the Hopewell Facility's requirements for coal. Because the
term of the coal sales agreement for the Hopewell Facility expires at the end of
2002, JRCC will need to assure itself of a supply of coal for the remaining term
of its power sales agreement. JRCC's current plans are to negotiate a
replacement long-term coal sales agreement. However, if JRCC is unable to enter
into agreements acceptable to it, JRCC currently believes it would be able to
purchase its requirements on the short-term spot market at prices that are
presently significantly below the present contract rates. The coal is
transported by Norfolk Southern Railroad Company under a 15-year rail
transportation agreement (of which approximately five years remain).

         Ash generated by the Hopewell Facility is removed and disposed of by
ReUse under an ash removal agreement having a term expiring in 2005.

         In February 1998, JRCC refinanced its project debt with the proceeds of
a senior credit facility, which provides for a $80 million term loan and a $5
million debt service reserve letter of credit. In connection with the
refinancing, the Company entered into an agreement for the benefit of the
project lenders to fund cash deficits JRCC could experience as a result of
incurring certain costs, subject to a cap of $10.6 million.

         Cogentrix has pledged the stock of CVA as security for the obligations
of JRCC under this senior credit facility, but Cogentrix is not liable for any
deficiency if the proceeds of any sale or disposition of the pledged stock are
insufficient to pay all secured obligations.

         The Hopewell Facility generated $24.8 million of revenues in the
six-month period ended December 31, 1997, $51.2 million of revenues in fiscal
1997, $57.4 million in revenues in fiscal 1996 and $54.9 million in revenues in
fiscal 1995.


                                       14
<PAGE>   15
         PORTSMOUTH FACILITY. The Company's Portsmouth Facility (the "Portsmouth
Facility") located in Portsmouth, Virginia is a 120 megawatt stoker coal-fired
cogeneration facility owned by Cogentrix Virginia Leasing Corporation, a North
Carolina corporation ("CVLC"), which may operate at a declared capacity of up to
115 megawatts. Commercial operation of the Portsmouth Facility commenced in June
1988.

         The Portsmouth Facility sells electricity to Virginia Power under a
power sales agreement which expires in June 2008. The power sales agreement was
amended, effective in December 1997, to provide Virginia Power economic dispatch
rights on the Facility and to eliminate the regulatory disallowance provision in
the power sales agreement, which allocated, in part, the risk of disallowance by
the SCC to CVLC.

         Under the amended power sales agreement, CVLC provides up to 115
megawatts of capacity to Virginia Power. The amended power sales agreement
provides for scheduled annual increases in energy payments through 2002, which
the Company believes are sufficient to offset scheduled increases in coal and
rail transportation costs. Energy payments from 2003 through 2008 under the
power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices.

         In addition to Virginia Power's right to suspend delivery of
electricity for maintenance and emergencies, the Portsmouth Facility is also
subject to economic dispatch by Virginia Power. This right allows Virginia Power
to suspend or reduce purchases of energy from the Portsmouth Facility if
Virginia Power determines that it can operate its system for a designated period
more economically. The power sales agreement is structured so that CVLC will
continue to receive capacity payments during any period of economic dispatch.
Capacity payments cover project debt service, fixed operating costs and
constitute a substantial portion of the profit component of the power sales
agreement. Energy payments, which would be reduced (or possibly eliminated) as a
result of an economic dispatch, primarily cover variable operating, maintenance,
coal and rail transportation costs.

         In addition, if the power sales agreement is terminated prior to the
end of its initial or any subsequent term other than due to a default by
Virginia Power, CVLC must pay Virginia Power the difference between payments for
capacity already made and those that would have been allowable under the
applicable avoided cost schedules plus interest.

         The power sales agreement grants to Virginia Power a right of first
refusal to purchase the Portsmouth Facility at fair market value provided that
such amount will not exceed CVLC's net investment in the Portsmouth Facility.

         The Portsmouth Facility supplies process steam to Clariant Corporation
("Clariant") pursuant to a 20-year steam sales agreement (of which approximately
11 years remain) which renews automatically for successive two-year periods
unless either party gives two years' notice of cancellation. Clariant is
obligated to purchase and use a minimum of five percent of the Portsmouth
Facility's total energy output (except in the case of force majeure) so that the
facility will remain a QF under PURPA.

         Coal for the Portsmouth Facility is supplied from mines in Kentucky by
Arch Coal Sales Company ("ACS") pursuant to a 15-year coal sales agreement (of
which approximately six years remain), which requires ACS to sell and CVLC to
purchase all of the Portsmouth Facility's requirements for coal.

         Coal for the Portsmouth Facility is transported by rail and barge. CVLC
has a 15-year rail transportation contract (of which approximately six years
remain) with Norfolk Southern Railway Company. From the rail unloading facility
in Norfolk, Virginia, the coal is then transported by a barge owned by CVLC to
the Portsmouth Facility under a barge transportation contract having a term
expiring December 31, 2002 with an unrelated party that provides tugboat and
supervisory services for the loading and unloading of the coal.

         Ash generated by the Portsmouth Facility is managed by ReUse under an
ash removal agreement having a term expiring December 31, 2005, subject to two
five-year renewal options.

         In December 1997, CVLC refinanced its project debt with a senior credit
facility which provides for a term loan ($61.5 million outstanding at December
31, 1997), a revolving credit facility ($40.5 million commitment with $-0-
outstanding at December 31, 1997) and a $6 million debt service reserve letter
of credit. In connection with the refinancing,


                                       15
<PAGE>   16
the Company entered into an agreement for the benefit of the project lenders to
fund cash deficits CVLC could experience as a result of incurring certain costs,
subject to a cap of $30 million.

         Cogentrix has pledged the stock of CVLC to secure the obligations of
CVLC under the credit facility, but Cogentrix is not liable for any deficiency
if the proceeds of any sale or disposition of the collateral are insufficient to
pay the secured obligations.

         The Portsmouth Facility generated $31.3 million of revenues in the
six-month period ended December 31, 1997, $61.0 million in revenues in fiscal
1997, $58.9 million in revenues in fiscal 1996 and $57.4 million in revenues in
fiscal 1995.

         ROCKY MOUNT FACILITY. The Company's Rocky Mount Facility located near
Rocky Mount, North Carolina is a 120 megawatt stoker coal-fired cogeneration
facility (the "Rocky Mount Facility") owned by Cogentrix of Rocky Mount, Inc., a
North Carolina corporation ("CRM"). Commercial operation of the Rocky Mount
Facility commenced in October 1990. Under a power sales agreement with North
Carolina Power Company ("NC Power"), a division of Virginia Power, the Rocky
Mount Facility provides a declared capacity of 115.5 megawatts of electricity
for an initial 25-year term (of which approximately 18 years remain) with two
renewal terms of up to five years each. Annual changes in energy prices under
the power sales agreement are designed to offset annual fluctuations in coal and
rail transportation prices. NC Power has a right of first refusal to purchase
the Rocky Mount Facility.

         In addition to NC Power's right to dispatch or suspend delivery of
electricity from the Rocky Mount Facility for maintenance and emergencies, the
facility is also subject to economic dispatch by NC Power. This right allows NC
Power to suspend or reduce purchases of energy from the Rocky Mount Facility if
NC Power determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that CRM will continue
to receive capacity payments during any period of economic dispatch. Capacity
payments constitute a substantial portion of the profit component of the power
sales agreement. Energy payments, which would be reduced (or possibly
eliminated) as a result of an economic dispatch, primarily cover variable
operating, maintenance, coal and rail transportation costs associated with
operating at different levels.

         Currently, NC Power is permitted full recovery from its customers of
payments to CRM under the power sales agreement. The power sales agreement
provides, however, that if an applicable legislative or regulatory authority
should take action which would have the effect of disallowing NC Power from
recovering from its customers all or a portion of the payments for capacity in
excess of a certain amount during the first 18 years following the commencement
of commercial operation of the facility (until October 2008), NC Power will
continue to pay for capacity at the contract price through the first 18 years
and may thereafter withhold up to 75% of the payments for capacity for the
following three years to the extent necessary to repay the disallowance to NC
Power with interest. In the event such withholdings do not fully repay such
disallowance, CRM must repay the difference at the end of the 21st year.
Aggregate payments for capacity after the 18th anniversary of the commercial
operation date are not permitted to exceed the amount that NC Power is allowed
to recover from its customers.

         In light of this regulatory disallowance provision in the power sales
agreement, the project lender for the Rocky Mount Facility has established a
regulatory disallowance reserve account, which is required to be funded at any
time a regulatory disallowance occurs or, from and after January 1, 2004, any
filing with a regulatory authority, which is deemed meritorious in the judgment
of the lender in consultation with counsel, is made challenging the pass-through
of payments under the power sales agreement (each a "Regulatory Disallowance
Event"). If a Regulatory Disallowance Event occurs during the period from 1994
through 2002, 25% of cash flow from the facility must be deposited to the
regulatory disallowance reserve account until the balance of such account is
equal to the amount required to be funded. If a Regulatory Disallowance Event
occurs during the period from 2003 through 2013, 100% of the cash flow from the
facility must be deposited to the regulatory disallowance reserve account until
the balance of such account is equal to the amount required to be funded. The
amount required to be funded in such account is an amount equal to the lesser of
(i) projected reduction in cash flows from 2009 through 2013 as a result of the
disallowance, and (ii) the amount of the debt outstanding at September 30, 2008.


                                       16
<PAGE>   17
         If the Rocky Mount Facility has forced outage days in any year with
respect to more than the greater of 25 days or ten percent of the total number
of days the facility was required by NC Power to operate, capacity payments for
such period will be reduced by four percent for each such excess forced outage
day.

         In the event capacity testing indicates that the Rocky Mount Facility's
dependable capacity is less than 90% of the declared capacity, CRM will be
obligated to pay annual liquidated damages to NC Power. A letter of credit has
been posted by CRM in favor of NC Power to secure its obligations to perform
under the power sales agreement.

         Steam from the Rocky Mount Facility is sold to Abbott Laboratories
("Abbott") pursuant to a 25-year steam sales agreement (of which approximately
18 years remain) which may be extended for an additional five-year term upon one
year's prior written notice by Abbott. Abbott is obligated to purchase and use a
minimum of five percent of the total energy output so that the facility will
remain a QF under PURPA. The steam sales agreement provides that if CRM does not
deliver steam in accordance with the agreement under certain circumstances,
Abbott is entitled to receive certain quantities of steam in the future at
substantially reduced prices.

         Coal for the Rocky Mount Facility is supplied from mines in West
Virginia under a 23-year coal sales agreement (of which approximately 16 years
remain) with Laurel Creek Co., Inc. and ACS Coal Sales Company ("ACS Coal
Sales"), which requires ACS Coal Sales to sell and CRM to purchase all of the
Rocky Mount Facility's requirements for coal. The contract price for coal
includes a base price which is modified based upon changes in a fuel and
transportation index that equals the fluctuation in rates payable by Virginia
Power for energy under the power sales agreement adjusted by fluctuations in
pricing under CRM's rail transportation contract. CRM purchases the lime
required by the plant's pollution control equipment from APG Lime Corp. under a
five-year agreement expiring in December 2000.

         CSX transports the coal for the Rocky Mount Facility pursuant to a
23-year rail transportation contract (of which approximately 16 years remain)
with pricing indexed to parallel increases in rates under CSX's transportation
agreements with Virginia Power.

         Ash generated by the Rocky Mount Facility is managed by ReUse under an
ash removal agreement having a term expiring in 2013.

         The Rocky Mount Facility is financed pursuant to a term loan ($125.8
million outstanding at December 31, 1997). In addition, CRM has a cash
collateralized letter of credit in a face amount equal to $3,150,000 issued in
favor of NC Power in support of CRM's obligations under the power sales
agreement with NC Power.

         The Rocky Mount Facility generated $25.1 million in revenues in the
six-month period ended December 31, 1997, $48.5 million in revenues in fiscal
1997, $47.5 million in revenues in fiscal 1996 and $45.3 million in revenues in
fiscal 1995.

         RINGGOLD FACILITY. The Company's Ringgold facility (the "Ringgold
Facility"), located in Ringgold, Pennsylvania, is a 15.5 megawatt gas-fired
cogeneration facility using an internal combustion engine fueled primarily by
natural gas. The Ringgold Facility is owned by Cogentrix of Pennsylvania, Inc.,
a Delaware corporation ("CPA"). The Ringgold Facility commenced commercial
operation in April 1991.

         Pennsylvania Electric Company ("Penelec") purchases energy from the
Ringgold Facility under a 20-year power sales agreement (of which approximately
13 and one-half years remain). Under the power sales agreement, failure of CPA
to generate and sell electricity throughout the term of the agreement (other
than due to force majeure) at an annual average level which is at least equal to
85% of the average output achieved during a rolling three-year period of
operation would result in the payment of a penalty which may be offset against
amounts payable by Penelec for energy.

         In January 1998, the Company signed an agreement with Penelec to
terminate the Ringgold Facility's power purchase agreement with Penelec. This
termination agreement was the result of a request for proposals to buy-back or
restructure power sales agreements issued to all major operating IPP projects in
Penelec's territory in April 1997. The termination agreement with Penelec
provides for a payment to the Company of approximately $25 million which will be
sufficient to retire all of the outstanding project debt. The buy-back of the
power purchase agreement


                                       17
<PAGE>   18
is subject to the issuance of an order by the Pennsylvania Public Utility
Commission granting Penelec the authority to fully recover from its customers
the consideration paid to CPA under the buyout agreement. Management does not
expect this event to have an adverse impact on the Company's consolidated
results of operations or financial position.

         Thermal energy (in the form of hot water) from the Ringgold Facility is
provided to a 10-acre greenhouse owned by CPA which is leased to and operated by
Keystone Village Farms, Inc. ("Keystone"), a subsidiary of Agro Power
Development, Inc. (see "Greenhouse Operations" herein), under a lease with a
ten-year term, which may be extended with the consent of the Company. Keystone
harvests tomatoes from the greenhouse which are then sold to wholesalers for
resale to grocery store chains.

         Natural gas for the facility is supplied pursuant to two gas supply
contracts. One of these contracts is with JC Enterprises ("JCE") under an
agreement pursuant to which CPA has agreed to purchase two-thirds of its
requirements for gas. The price for gas under the agreement with JCE is a fixed
price which escalates by a fixed percentage monthly. JCE is responsible for
delivering the gas to CPA's property from its gas wells located in close
proximity to the plant. The term of this contract is 15 years (of which
approximately eight years remain) or until a specified volume of gas is
purchased, whichever is earlier. CPA also purchases gas under a gas purchase
agreement with Eastern Marketing Corporation ("Eastern") pursuant to which it
has prepaid for the quantity of gas contracted for thereunder. Eastern is
responsible for transporting the gas to CPA's property. The term of the Eastern
contract is ten years (of which approximately three years remain).

         The Ringgold Facility is financed pursuant to a senior term loan ($15.7
million outstanding at December 31, 1997) and a subordinated note payable ($7.4
million outstanding at December 31, 1997). Cogentrix has granted a lien on the
stock of CPA to the senior lenders. In April 1994, Cogentrix Delaware Holdings,
Inc. (a wholly owned subsidiary of Cogentrix Energy, Inc.) purchased for
$3,000,000 the entire $7.4 million outstanding principal balance of the
subordinated note and the related accrued interest receivable from the financial
institution holding the subordinated note.

         When this project was initially developed, CPA entered into a
consulting agreement which provided for certain payments to be made annually to
the original developer of the Ringgold Facility. In September 1994, the Company
purchased the developer's interest in the consulting agreement with CPA and
acquired all outstanding shares of junior preferred stock of CPA held by him.

         As a result primarily of higher than anticipated construction costs,
the failure and subsequent replacement of certain equipment and higher than
anticipated maintenance and operation expenses, the Ringgold Facility has failed
to produce sufficient revenue to cover the debt service requirements of the
subordinated credit facility and to cover completely the debt service
requirements of the senior credit facility. Since the date of commencement of
construction through June 30, 1997, the Company has made approximately $18.8
million in equity contributions to CPA in order to cover construction costs and
permit CPA to make required payments of principal and interest. Given the
current restructuring efforts, the Company intends to continue to provide funds
to CPA, if necessary, for debt service.

         The Ringgold Facility generated $4.4 million in revenues for the
six-month period ended December 31, 1997, $8.4 million in revenues in fiscal
1997, $7.8 million in revenues in fiscal 1996 and $7.6 million in revenues in
fiscal 1995.

         RICHMOND FACILITY. Cogentrix of Richmond, Inc., a North Carolina
corporation ("CR"), owns and operates a 240 megawatt stoker coal-fired
cogeneration plant in Richmond, Virginia (the "Richmond Facility"). Commercial
operation of the Richmond Facility was commenced in two phases: Unit I in May
1992 and Unit II in August 1992.

         The Richmond Facility provides 209 megawatts of declared capacity
electricity to Virginia Power under two 25-year power sales agreements (of which
approximately 20 years remain) each of which may be extended for an additional
five-year term provided that two years prior to the end of the initial term the
parties agree to such extension. Annual changes in energy prices under the power
sales agreements are designed to offset annual fluctuations in coal and rail
transportation prices. Virginia Power has a right of first refusal to purchase
the Richmond Facility subject to the prior exercise of any such right by the
steam purchaser.


                                       18
<PAGE>   19
         Currently, Virginia Power is permitted full recovery from its customers
of payments made to CR under the power sales agreements. The power sales
agreements provide, however, that if an applicable legislative or regulatory
authority should take action which would have the effect of disallowing Virginia
Power from recovering from its customers all or a portion of the payments for
capacity in excess of a certain amount during the first 18 years following the
commencement of commercial operation of the facility, Virginia Power will
continue to pay for capacity at the contract price through the first 18 years
and may thereafter withhold up to 75% of the payments for capacity for the
following three years to the extent necessary to repay the disallowance to
Virginia Power with interest. In the event such withholdings do not fully repay
such disallowance, CR will repay the difference at the end of the 21st year.
Aggregate payments for capacity after the 18th anniversary of the commercial
operation date are not permitted to exceed the amount that Virginia Power is
allowed to recover from its customers.

         If the Richmond Facility has forced outage days in any year with
respect to more than the greater of 25 days or ten percent of the total number
of days the facility was required by Virginia Power to operate, capacity
payments for such period will be reduced by four percent for each such excess
forced outage day. In addition to Virginia Power's right to dispatch or suspend
delivery of electricity from the Richmond Facility for maintenance and
emergencies, the facility is also subject to economic dispatch by Virginia
Power. This right allows Virginia Power to suspend or reduce purchases of energy
from the Richmond Facility if Virginia Power determines that it can operate its
system for a designated period more economically. The power sales agreements are
structured so that CR will continue to receive capacity payments during any
period of economic dispatch. Capacity payments constitute a substantial portion
of the profit component of the power sales agreement. Energy payments, which
would be reduced (or possibly eliminated) as a result of an economic dispatch,
primarily cover variable operating, maintenance, coal and rail transportation
costs associated with operating at different levels.

         In the event capacity testing indicates that the Richmond Facility's
dependable capacity is less than 90% of the declared capacity, CR will be
obligated to pay annual liquidated damages to Virginia Power. Letters of credit
have been posted by CR in favor of Virginia Power to secure its obligations to
perform under the power sales agreements.

         The Richmond Facility provides steam to E. I. Du Pont de Nemours &
Company ("DuPont") for its Spruance plant located in Chesterfield County,
Virginia, under a long-term steam sales agreement. DuPont is obligated to
purchase and use a minimum of five percent of the Richmond Facility's total
energy output in a manner such that the Facility will remain a QF under PURPA.
If CR is unable to operate the Richmond Facility to comply with the steam sales
agreement, DuPont has a qualified right to operate the facility. DuPont also has
the right to purchase the Richmond Facility upon the termination of the steam
sales agreement for a price equal to fair market value of the facility at the
time of exercise.

         Coal for the Richmond Facility is purchased under two separate coal
sales agreements. Under a 20-year agreement (of which approximately 15 years
remain), Electric Fuels Corporation ("Electric Fuels") provides coal mined in
Kentucky for Unit I of the Richmond Facility. Coastal provides the coal
requirements for Unit II from mines in Kentucky under a separate 15-year
agreement (of which approximately 10 years remain). The coal sales agreements
require the coal providers to sell and CR to purchase all of the requirements
for the respective unit of the Richmond Facility, subject to certain maximum and
minimum requirements. The contract price for coal includes a base price which is
modified based upon a fuel and transportation index that parallels the
fluctuation in rates payable by Virginia Power for energy under the power sales
agreement adjusted by fluctuations in pricing under CR's rail transportation
contracts. CSX transports the coal for both units of the Richmond Facility
pursuant to two separate rail transportation contracts each having a 20-year
term expiring in 2012.

         Ash generated by the Richmond Facility is managed by ReUse under an ash
removal agreement having a term expiring in 2008.

         The Richmond Facility is financed pursuant to a senior credit facility,
which includes (i) a letter of credit ($150.1 million outstanding at December
31, 1997) issued to support commercial paper notes of CR issued from time to
time; (ii) letters of credit ($48.0 million outstanding at December 31, 1997)
issued to support certain revenue bonds issued by the Industrial Development
Authority of the City of Richmond, Virginia; and (iii) letters of credit in an
aggregate face amount equal to $5,700,000 issued in support of CR's obligations
to Virginia Power under the power sales agreements.

         CR purchased one of the power sales agreements relating to the Richmond
Facility from WV Hydro, Inc. ("WV"). In connection with such purchase and in
consideration of certain consulting arrangements, CR has continuing obligations
to make payments to Clover Development Company ("Clover"), an affiliate of WV,
in an aggregate amount ranging from


                                       19
<PAGE>   20
$250,000 to $750,000, each year through 2003, from excess facility cash flow. If
excess facility cash flow for any year is insufficient to pay the $250,000
minimum amount, the deficiency will be carried forward and is payable from
excess facility cash flow, if any, in future years. In addition, CR is obligated
to pay to Clover an amount ranging from 3 to 3.5 percent of the net proceeds
payable to CR upon any sale, disposition or refinancing of the Richmond Facility
after payment of senior and subordinated project financing debt and expenses.

         The Richmond Facility generated $41 million in revenues for the
six-month period ended December 31, 1997, $79.5 million in revenues in fiscal
1997, $80.9 million in revenues in fiscal 1996 and $79.2 million in revenues in
fiscal 1995.

         BIRCHWOOD FACILITY. Birchwood Power Partners, L.P. ("Birchwood"), a
Delaware limited partnership, owns the Birchwood Facility, which is located in
King George, Virginia. Cogentrix/Birchwood Two, L.P., an indirect, wholly-owned
subsidiary of the Company, owns a 50% interest in Birchwood. An indirect,
wholly-owned subsidiary of The Southern Company owns the remaining 50% of
Birchwood. The Birchwood Facility commenced commercial operation in November
1996.

         The Birchwood Facility provides up to 202 megawatts of declared
capacity electricity to Virginia Power under a 25-year power sales agreement (of
which approximately 24 years remain) which may be extended for an additional
five-year term provided that two years prior to the end of the initial term the
parties agree to such extension. Annual changes in energy prices under the power
sales agreement are designed to offset annual fluctuations in coal and rail
transportation prices. Virginia Power has a right of first refusal to purchase
the Birchwood Facility. In addition, Virginia Power has an option to purchase
the Birchwood Facility at the end of the term of the power sales agreement.

         Currently, Virginia Power is permitted full recovery from its customers
of payments made to Birchwood under the power sales agreement. The power sales
agreement provides, however, that if an applicable legislative or regulatory
authority should take action which would have the effect of disallowing Virginia
Power from recovering from its customers all or a portion of the payments for
capacity in excess of a certain amount during the first 20 years following the
commencement of commercial operation of the facility, Virginia Power will
continue to pay for capacity at the contract price through the first 20 years
and may thereafter withhold up to 75% of the payments for capacity for the
following year to the extent necessary to repay the disallowance to Virginia
Power with interest. In the event such withholdings do not fully repay such
disallowance, Birchwood will repay the difference at the end of the 21st year.
Aggregate payments for capacity after the 20th anniversary of the commercial
operation date are not permitted to exceed the amount that Virginia Power is
allowed to recover from its customers.

         If the Birchwood Facility is unable to operate within the dispatch
parameters established by Virginia Power under the power sales agreement, the
capacity payments for such period are subject to reduction. In addition to
Virginia Power's right to dispatch or suspend delivery of electricity from the
Birchwood Facility for maintenance and emergencies, the facility is also subject
to economic dispatch by Virginia Power. This right allows Virginia Power to
suspend or reduce purchases of energy from the Birchwood Facility if Virginia
Power determines that it can operate its system for a designated period more
economically. The power sales agreement is structured so that Birchwood will
continue to receive capacity payments during any period of economic dispatch.
Capacity payments constitute a substantial portion of the profit component of
the power sales agreement. Energy payments, which would be reduced (or possibly
eliminated) as a result of an economic dispatch, primarily cover variable
operating, maintenance, coal and rail transportation costs associated with
operating at different levels.

         In the event capacity testing indicates that the Birchwood Facility's
dependable capacity is less than 90% of the declared capacity, Birchwood will be
obligated to pay annual liquidated damages to Virginia Power. A letter of credit
has been posted by Birchwood in favor of Virginia Power to secure its
obligations to perform under the power sales agreement.

         The 36-acre greenhouse located adjacent to the Facility, which is
jointly owned by the partners of Birchwood and operated by Agro, uses steam from
the Facility.

         Birchwood has a 25-year coal supply agreement for the requirements of
the Facility with Laurel Creek Co., Inc. ("Laurel"), Rockspring Development,
Inc. ("Rockspring"), Neweagle Industries, Inc. (as assignee of AgipCoal Holding


                                       20
<PAGE>   21
USA, Inc.) and Neweagle Coal Sales Corp. (as assignee of AgipCoal Sales USA,
Inc.) (collectively, "Neweagle"). Birchwood also has a back-up coal supply
letter agreement with Arch Mineral Corp. ("Arch") and two of its subsidiaries,
ACSC Coal Sales, Inc. ("ACSC") and Cumberland River Coal Company ("CRCC"),
whereby Arch guarantees that ACSC and CRCC will supply coal to the Facility in
the event of default by Neweagle under the coal supply agreement.

         ER&L Birchwood, Inc. ("ER&LB"), a subsidiary of Energy Resources and
Logistics, Inc. ("Energy Resources"), and an indirect subsidiary of CSX,
provides transportation of the coal from the coal seller's mines in West
Virginia to the Facility. ER&LB will use CSX's rail lines and equipment to meet
its obligations under the 25-year coal transportation agreement. CSX by separate
agreement assures full and complete performance of all of ER&LB's obligations
under the coal transportation agreement.

         The combined fuel and transportation cost under the coal supply
agreement and the coal transportation agreement is approximately equal to the
fuel compensation price that Birchwood receives under the power purchase
agreement. Furthermore, Neweagle and ER&LB have agreed to the same price
adjustment mechanism and redetermination formula included in the power purchase
agreement for the fuel compensation price. In effect, this passes the fuel and
transportation cost escalation risks from Birchwood through to the suppliers.

         JTM Industries, Inc. ("JTM") removes and disposes of the ash generated
by the Birchwood Facility under an ash removal contract that expires in 2021.
JTM will attempt to identify viable markets to maximize the quantity of ash
being used. JTM and Birchwood will develop a revenue sharing program in
connection with the marketing of the ash.

         The Birchwood Facility is financed pursuant to a senior credit facility
which consists of a bank credit facility ($153.6 million outstanding at December
31, 1997), an institutional debt facility ($135.0 million outstanding at
December 31, 1997), and $50 million of tax exempt debt. Cogentrix/Birchwood Two,
L.P. has pledged its ownership interests in Birchwood and the greenhouse located
adjacent to the Birchwood Facility as collateral security for the senior credit
facility, however Cogentrix Energy, Inc. is not liable for any deficiency if the
proceeds of any sale or disposition of the collateral are insufficient to pay
the secured obligations.

PRINCIPAL CUSTOMERS

         Electric utility customers accounting for more than ten percent of the
Company's revenue for the six-month period ended December 31, 1997 and for each
of the last three fiscal years were as follows:

<TABLE>
<CAPTION>
                                                    SIX-MONTH          FISCAL YEAR ENDED JUNE 30,
                                                   PERIOD ENDED       ----------------------------
                                                DECEMBER 31, 1997      1997       1996       1995
                                               -------------------    ------     ------     ------
         <S>                                   <C>                    <C>        <C>        <C>
         CP&L                                           22%             25%        33%        34%
         Virginia Power (including NC Power)            63              62         55         57
</TABLE>

COMPETITION

         The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under
cost-of-service based regulation. The enactment of PURPA in 1978 spawned the
growth of the independent power industry which expanded rapidly in the 1980s.
The electric power industry is now in the midst of fundamental change, in terms
of both who the participants are and how they operate and are regulated. The
initial independent power producers to enter the market were an entrepreneurial
group of cogenerators and small power producers who recognized the business
opportunities offered by PURPA. This initial group of independent power
producers, which included the Company, was later joined by larger,
better-capitalized companies, such as subsidiaries of fuel supply companies,
utility affiliates, engineering companies, equipment manufacturers and
affiliates of other industrial companies. In addition, a number of regulated
utilities created subsidiaries which compete with the independent power
producers. Some independent power producers specialize in market niches, such as
a specific technology or fuel (e.g., gas-fired cogeneration,


                                       21
<PAGE>   22
waste-to-energy, hydroelectric, geothermal, wind, solar, wood, coal and
conservation) or a specific region of the country where they believe they have a
market advantage.

         Based on net ownership of total project megawatts in operation, the
Company is among the larger independent power producers in the United States.
Although the Company is an established leader in the independent power industry,
other independent power producers and utility affiliates, including, among
others, Enron Power Corp., Calpine Corporation, CalEnergy, The AES Corporation,
Edison Mission Energy and U.S. Generating Company, have significantly larger
capital resources available to them than the Company.

         Over the past decade, obtaining a power sales agreement with a utility
has become a progressively more difficult, expensive and competitive process.
The Company and its competitors now must put a significant amount of financial
resources at risk in order to develop a proposal or bid to a utility. Many
states and utilities now have policies that require or encourage power sales
agreements to be awarded by competitive bidding, which both increases the costs
and decreases the chances of obtaining such agreements.

         Amendments to the Public Utility Holding Company Act of 1935 ("PUHCA")
enacted in the Energy Policy Act of 1992 have increased the number of the
Company's competitors by reducing certain restrictions on the ownership of
projects which are not QFs under PURPA. On the other hand, the Energy Policy Act
has also made it simpler for developers to develop certain types of larger
generation projects without the necessity of locating a steam host or developing
a complex ownership structure to avoid PUHCA restrictions.

REGULATION

         The Company is subject to federal, state and local energy and
environmental laws and regulations applicable to the development, ownership and
operation of its United States plants. Federal laws and regulations govern
transactions with utilities, types of fuel utilized, the type of energy produced
and power plant ownership. State regulatory commissions must approve the rates
and, in some instances, other terms under which utilities purchase electricity
from certain independent producers. Under certain circumstances, such state
commissions may have broad jurisdiction over non-utility power plants. Power
projects also are subject to laws and regulations governing environmental
emissions and other substances produced by a plant, along with the geographical
location, zoning, land use and operation of a plant. Applicable federal
environmental laws typically have state and local enforcement and implementation
provisions. These environmental laws and regulations generally require that a
wide variety of permits and other approvals be obtained before construction or
operation of a power plant commences and that the facility operate in compliance
therewith. The Company strives to comply with all environmental laws,
regulations, permits and licenses but, despite such efforts, at times has been
in non-compliance. No such instance of non-compliance has resulted in
significant fines or revocation of any permit or license.

ENERGY REGULATIONS

QFs under PURPA.

         Each of the Company's current operating facilities is a QF. QFs are
relieved of compliance with extensive federal, state and local regulations that
control the development, financial structure and operation of power plants and
cost-of-service based ratemaking to determine the prices at which power
generation facilities sell energy. In order to be a QF, a cogeneration facility
must sequentially produce both electricity and useful thermal energy for
non-mechanical or non-electrical uses in certain proportions to the facility's
total useful energy output. A QF utilizing oil or natural gas as fuel also must
meet certain energy efficiency standards. A small power production facility may
be a QF if it uses certain alternative fuels as its primary energy input,
subject to limitations on fossil fuel input and size for the facility. Finally,
a QF must not be controlled or more than 50% owned by an electric utility or by
an electric utility holding company, or a subsidiary of either or any
combination thereof.

         PURPA exempts QFs from PUHCA, most provisions of the Federal Power Act
(the "FPA") and, except under certain limited circumstances, state rate and
financial regulations. These exemptions are important to the Company and its
competitors.


                                       22
<PAGE>   23
         In the absence of a power sales agreement, FERC regulations require
utilities to purchase electricity generated by QFs at a price based on the
purchasing utility's full "avoided cost," and that the utility sell back-up
power to the QF on a non-discriminatory basis. Avoided costs are the incremental
costs to a utility of electric energy or capacity or both which, but for the
purchase thereof from QFs, such utility would generate for itself or purchase
from another source. Due to increasing competition for utility contracts, the
current practice is for most power sales agreements to be awarded below avoided
cost.

         The Company endeavors to minimize the risk of its facilities losing
their QF status. The occurrence of events outside the Company's control, such as
loss of a steam customer, could jeopardize QF status. While the facilities
usually would be able to react in a manner to avoid the loss of QF status by,
for example, replacing the steam customer or finding another use for the steam
which meets PURPA's requirements, there is no certainty that such action would
be practicable or economic.

         If one of the Company's facilities were to lose its status as a QF, the
subsidiary would lose its exemptions from PUHCA and the FPA (and certain state
laws and regulations). This could subject the subsidiary to regulation under the
FPA and, in such event, would result in the Company inadvertently becoming a
public utility holding company. The Company's other facilities could in turn
lose their QF status. Moreover, loss of QF status could result in certain
utility customers terminating their power sales agreement with the nonqualifying
facility. If loss of QF status were threatened for a facility, the Company could
avoid holding company status (and thereby protect the QF status of its other
facilities) by applying to the FERC to obtain EWG status for the owner of the
nonqualifying facility. See "EWGs under the Energy Policy Act" herein.
Alternatively, the FERC may grant a limited waiver to the QF that would provide
continued exemption under PUHCA, provided the facility's rates were regulated
under the FPA.

EWGs under the Energy Policy Act.

         The passage of the Energy Policy Act has significantly expanded the
options available to independent power producers with respect to their
regulatory status. In addition to (or in lieu of) QF status, an independent
power producer selling exclusively at wholesale now can also apply to the FERC
to be granted status as an EWG. Except for existing cost-of-service based
facilities (for which state consents are required) any owner of a facility may
apply for status as an EWG. An EWG (like a QF) is exempt from regulation under
PUHCA. However, EWG status does not exempt a facility from FERC and state public
utility commission ("PUC") regulatory reviews, which may be more expansive than
those applicable to QFs. Birchwood, the owner of the Birchwood Facility, which
is a QF, has also been determined to be an EWG.

Foreign Investments under the Energy Policy Act.

         The Energy Policy Act has also expanded the options for companies that
wish to invest in foreign enterprises that own power production facilities
outside the United States. Amendments to PUHCA in the Energy Policy Act provide
that a domestic company making such an investment may avoid "holding company"
status or other regulation under PUHCA, if the foreign enterprise obtains EWG
status or files a notice with the Commission that it is a foreign utility
company ("FUCO").

PUHCA.

         Under PUHCA, any entity owning or controlling ten percent or more of
the voting securities of a "public utility company" is a "holding company" and
is subject to registration with the Commission and regulation under PUHCA,
unless eligible for an exemption. Under the Energy Policy Act and PURPA, EWGs,
FUCOs, and owners and operators of QFs are deemed not to be public utility
companies under PUHCA. The Securities and Exchange Commission ("SEC") has also
determined that power marketers are not public utility companies under PUHCA.
Momentum is growing in Congress for the repeal of PUHCA, as more legislators
adopt the view that this statute has outlived its purpose. Elimination of PUHCA
would enable more companies to consider owning generation and transmission
assets, would permit "single state" utility systems to expand beyond their state
borders, and would permit companies that are currently in registered holding
company systems to diversify their investments to a greater extent than now
permitted. This could attract more competitors to the power development and
power marketing business. The Company believes that it is well positioned,
however, to meet stronger competition and, indeed, may be able to pursue more
investment opportunities made available by the repeal of PUHCA.


                                       23
<PAGE>   24
FPA.

         The FPA grants the FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce, including ongoing as well
as initial rate jurisdiction, which enables the FERC to revoke or modify
previously approved rates. While QFs under PURPA are exempt from the traditional
rate-making and certain other provisions of the FPA, projects not qualifying for
QF status (for example, most EWGs) are subject to the FPA and to FERC
rate-making jurisdiction. Power marketers are also subject to FERC review of
their wholesale rates, and to FERC oversight of various business dealings such
as corporate reorganizations. Pursuant to the FPA, the Company's power marketing
subsidiary has filed its wholesale electric power rates with the FERC and
obtained authorization to sell electric power at rates set by supply and demand
in the marketplace.

State Regulation.

         PUCs regulate retail rates of electric utilities and in certain cases
power sales agreements from independent power producers. In addition, states
have been delegated the authority to determine utilities' avoided costs under
PURPA. PUCs often will pre-approve agreements with prices that do not exceed
avoided costs, because such contracts often have been acquired through a
competitive or market-based process. Recognizing the competitive nature of the
acquisition process, many PUCs will permit utilities to "pass through" expenses
associated with a power sales agreement with an independent power producer. In
addition, retail sales of electricity or steam by an independent power producer
may be subject to PUC regulation, depending on state law.

         EWGs are subject to broad regulation by PUCs, ranging from the
requirement of certificates of public convenience and necessity to regulation of
organizational, accounting, financial and other corporate matters. In addition,
states may assert jurisdiction over the siting and construction of EWGs (as well
as QFs), and over the issuance of securities and the sale or other transfer of
assets by these facilities. Many state utility commissions and state
legislatures are actively seeking ways to lower electric power costs at the
retail level, including options that would permit or compel competition at the
retail level. Federal legislation that would require states to permit retail
competition is also being given serious consideration. An opening of the retail
market would create tremendous opportunities for companies that have until now
been limited to the wholesale market. At the same time, state commissions are
pressuring the utilities they regulate to cut purchased power costs through
strict enforcement of existing contracts with QFs and EWGs, many of which are
considered to be overpriced. Because the Company is in compliance with its QF
contracts, it is not threatened by these pressures. State commissions are also
encouraging efforts by utilities to buy out or buy down such contracts.

Proposed Legislation.

         In addition to federal legislative initiatives, the state commissions
or state legislatures of many states are considering, or have considered,
whether to open the retail electric power market to competition (so-called
"retail access" or "customer choice"). Such "customer choice" plans typically
allow customers to choose their electricity suppliers by a certain date. Retail
competition is possible when a customer's local utility agrees, or is required,
to "unbundle" its distribution service (i.e., the delivery of electric power to
retail customers through its local distribution lines) from its transmission and
generation service.

         The competitive price environment that will result from retail
competition may cause utilities to experience revenue shortfalls and
deteriorating creditworthiness. However, most, if not all, state plans will
insure that utilities receive sufficient revenues, through a distribution
surcharge if necessary, to pay their obligations under existing long-term power
purchase contracts with QFs and EWGs (including the above-market rates, or
"stranded investment" costs, provided for in such contracts). Many states will
also provide that the stranded investment costs will be "securitized" through
new financial instruments. On the other hand, QFs and EWGs may be subject to
pressure to lower their contract prices or to renegotiate contracts in an effort
to reduce the "stranded investment" costs of their utility customers.

         Retail access programs may provide the Company with additional
opportunities to provide power from the Company's projects to industrial users
or power marketers. In addition, in light of the states' approaches to "stranded
investment" costs, the Company does not believe retail access programs will have
a material adverse effect on the Company's existing contracts.


                                       24
<PAGE>   25
Transmission and Wheeling.

         Under the FPA, the FERC regulates the rates, terms and conditions for
electricity transmission in interstate commerce. The FERC's authority under the
FPA to require electric utilities to provide transmission service to QFs and
EWGs was significantly expanded by the Energy Policy Act. Currently, none of the
Company's facilities requires the wheeling of electricity over power lines owned
by others. Except when market factors (such as an exceptional site or power
sales opportunity) warrant it, the Company generally attempts to site its
facilities within the utility customer's service area, and thus avoid the need
to utilize wheeling. The new provisions of the Energy Policy Act, however, and
actions taken by the FERC under the FPA have improved transmission access and
pricing for independent power producers like the Company.

         In April 1996, the FERC issued a rulemaking order under the FPA, Order
888, requiring all jurisdictional public utilities to file "open access"
transmission tariffs. Compliance with Order 888 has been virtually universal.
However, many utilities are seeking permission from the FERC to recover for
"stranded investment" through add-ons to their transmission rates. To the extent
that the FERC permits such charges, the cost of transmission may be too high on
some systems to be of practical use to wholesale sellers like the Company.
Therefore, the full value of Order 888 remains to be determined.

         The FERC is also encouraging the voluntary restructuring of
transmission operations through the use of independent system operators and
regional transmission groups. Such entities may create efficiencies for
traditional utilities, but are not likely to have a substantial impact on power
developers and power marketers like the Company.

ENVIRONMENTAL REGULATIONS -- UNITED STATES

         The construction and operation of power projects are subject to
extensive environmental protection and land use regulation in the United States.
Those regulations applicable to the Company primarily involve the discharge of
emissions into the water and air and the use of water, but can also include
wetlands preservation, endangered species, waste disposal and noise regulation.
These laws and regulations often require a lengthy and complex process of
obtaining and renewing licenses, permits and approvals from federal, state and
local agencies. If such laws and regulations are changed and the Company's
facilities are not grandfathered, extensive modifications to project
technologies and facilities could be required.

         Although a number of major environmental statutes are scheduled for
reauthorization, the Company expects that environmental regulations will
continue to become more stringent as environmental regulations previously passed
become implemented. Accordingly, the Company plans to continue a strong emphasis
on implementation of environmental standards and procedures at its operating
plants to minimize the environmental impact of its energy generation.

Clean Air Act.

         In late 1990, Congress passed the Clean Air Act Amendments of 1990 (the
"1990 Amendments") which affect existing facilities as well as new project
development. The original Clean Air Act of 1970 set guidelines for emissions
standards for major pollutants from newly-built sources. All of the Company's
facilities perform at levels better than federal performance standards mandated
for such facilities under the Clean Air Act. The 1990 Amendments attempt to
reduce emissions from existing sources -- particularly large older facilities
that were exempted from certain regulations under the original Clean Air Act.

         The 1990 Amendments create a marketable commodity called a sulfur
dioxide ("SO2") "allowance." All non-exempt facilities over 25 megawatts that
emit SO2 (including independent power plants) must obtain allowances in order to
operate after 1999. Each allowance gives the owner the right to emit one ton of
SO2. The 1990 Amendments exempt from the SO2 allowance provisions all
independent power projects which were operating, under construction or with
power sales agreements (or letters of intent therefor) as of November 15, 1990,
as well as facilities outside the contiguous 48 states. As a result, most of the
Company's current operating facilities are exempt. The Company's non-exempt
operating facilities have determined their need for allowances and have
accounted for these requirements in their operating budgets and financial
forecasts. In the future, the facilities the Company expects to develop will
continue to rely on "clean (low sulfur) coal," with flue gas desulfurization
technology or natural gas technology. The Company believes that the additional
costs of obtaining the number of allowances needed for future projects should
not materially affect the Company's ability to develop such


                                       25
<PAGE>   26
projects. There has also been an oversupply of allowances in the market
resulting in a significant decrease in allowance prices.

         The 1990 Amendments also require states to impose annual operating
permit fees. While such permit fees may be substantial and will be greater for
coal-fired projects than for those burning gas or certain other fuels, such fees
are not expected to significantly increase the Company's plant operating costs.

         The 1990 Amendments also contain other provisions that could affect the
Company's projects. Provisions dealing with geographical areas the EPA has
designated as in "nonattainment" with national ambient air quality standards
require that existing sources of air pollutants in a nonattainment area be
retrofit with reasonably available control technology ("RACT") for all
pollutants for which an area is designated nonattainment. The technology
currently installed at the Company's projects should uniformly meet or exceed
RACT for all such pollutants. The nonattainment provisions also require that
each new or expanded source of air pollutants in newly designated nonattainment
areas which has not submitted a complete air permit application before November
15, 1992 must obtain emissions reductions from existing sources that more than
offset the emissions from the new or expanded source. While the "offset"
requirements may hamper new project development in certain geographical areas,
development of new projects has and will likely continue, particularly as
markets for "offsets" develop.

         The 1990 Amendments also provide an extensive new operating permit
program for existing sources called the Title V permitting program. Because all
of the existing Company facilities were permitted under the Prevention of
Significant Deterioration New Source Review Process, the permitting impact to
the Company under the 1990 Amendments is expected to be minimal. Continuous
emission monitoring systems may need to be upgraded at some facilities while the
permit fees will increase operating expenses. The costs of applying for and
obtaining operating air permits are not anticipated to be significant.

         The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities, such as the Company's facilities.
Three studies of the emissions from such facilities are, however, in progress.
Until all of these studies are completed and Congress either amends the Clean
Air Act further or the EPA promulgates regulations, the federal hazardous air
pollutants emissions restrictions, which will be applied to the Company's
facilities and other electric steam generating facilities, will remain
uncertain.

         In July 1997, the EPA promulgated more restrictive ambient air quality
standards for ozone and particulate matter (less than 25 microns in diameter -
PM-2.5). These new standards will likely increase the number of nonattainment
areas for both ozone and PM-2.5. If the Company's plants are in these new
nonattainment areas, further emission reduction requirements could result in the
installation of additional control technology.

         In addition, the Ozone Transport Assessment Group ("OTAG"), composed of
state and local air regulatory officials from the 37 eastern states, has
recommended additional NOx emission reductions that go beyond current federal
standards. These recommendations include reductions from utility and industrial
boilers. In the fall of 1997, the EPA proposed a call for revisions to state
implementation plans ("SIPs"). This SIP call implements some of the OTAG's
recommendations and goes beyond some of OTAG's recommendations for reductions in
NOx emissions. If more stringent NOx emission standards are adopted by the EPA
and/or certain states as a result of these recommendations, the Company could be
required to install additional NOx emission control technologies and/or obtain
allowances from other emitters.

         The Company does not believe that any of the potential additional
requirements discussed above will have a material adverse effect on the
operations or financial position of the Company.

         The 1990 Amendments expand the enforcement authority of the federal
government by increasing the range of civil and criminal penalties for
violations of the Clean Air Act and enhancing administrative civil penalties and
adding a citizen suit provision. These enforcement provisions also include
enhanced monitoring, recordkeeping and reporting requirements for existing and
new facilities. On February 13, 1997, the EPA issued a regulation providing for
the use of "any credible evidence or information" in lieu of, or in addition to,
the test methods prescribed by regulation to determine the compliance status of
permitted sources of air pollution. This rule may effectively make emission
limits previously established for many


                                       26
<PAGE>   27
air pollution sources, including the Company's, more stringent. On March 10,
1997, a number of utilities filed a petition for review of the EPA regulations
in the U.S. Court of Appeals for the District of Columbia Circuit.

         The Kyoto Protocol regarding greenhouse gas emissions and global
warming was signed by the U.S. committing to significant reductions in
greenhouse gas emissions. The U.S. Senate must ratify the agreement for the
protocol to take effect. The Clinton Administration has proposed a package of
legislative and administrative policies to curb greenhouse gases, none of which
are affected by the need for Senate ratification. Management believes that none
of these policies will have a material effect on the consolidated results of
operations or financial position of the Company. Future initiatives on this
issue and the effects on the Company are unknown at this time.

Clean Water Act.

         The Company's existing facilities are subject to a variety of state and
federal regulations governing existing and potential water/wastewater and
stormwater discharges from the facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through NPDES permits. Under current provisions of the
Clean Water Act, existing permits must be renewed every five years, at which
time permit limits are under extensive review and can be modified to account for
more stringent regulations. In addition, the permits have re-opener clauses
which can be used to modify a permit at anytime. Several of the Company's
facilities have either recently gone through permit renewal or will be renewed
within the next few years. Based upon recent renewals, the Company does not
anticipate more stringent monitoring requirements.

Emergency Planning and Community Right-to-Know Act.

         In April of 1997, the EPA expanded the list of industry groups required
to report the Toxic Release Inventory ("TRI") under Section 313 of the Emergency
Planning and Community Right-to-Know Act ("EPCRA") to include electric
utilities. The Company's operating plants will be required to complete a toxic
chemical inventory release form for each listed toxic chemical manufactured,
processed or otherwise used in excess of threshold levels for the 1998 reporting
year. The purpose of this requirement is to inform the EPA, states, localities
and the public about releases of toxic chemicals to the air, water and land that
can pose a threat to the community.

ENVIRONMENTAL REGULATIONS -- INTERNATIONAL

         Although the type of environmental laws and regulations applicable to
independent power producers and developers varies widely from country to
country, many foreign countries have laws and regulations relating to the
protection of the environment and land use which are similar to those found in
the United States. Laws applicable to the construction and operation of electric
power generation facilities in foreign countries generally regulate discharges
and emissions into water and air and also regulate noise levels. Air pollution
laws in foreign jurisdictions often limit the emissions of particulates, dust,
smoke, carbon monoxide, sulfur dioxide, nitrogen oxide and other pollutants.
Water pollution laws in foreign countries generally limit wastewater discharges
into municipal sewer systems and require treatment of wastewater which does not
meet established standards. New projects and modifications to existing projects
are also subject, in many cases, to land use and zoning restrictions imposed in
the foreign country. In addition, developers of foreign independent power
projects often conduct environmental impact assessments of proposed projects
pursuant to existing legislative requirements. Certain lenders to international
development projects may impose their own requirements relating to the
protection of the environment.

         The Company believes that the level of environmental awareness and
enforcement is growing in most countries, including most of the countries in
which the Company intends to develop and operate new projects. As a result,
plants built overseas will likely include pollution control equipment that is
required in the United States. Therefore, based on current trends, the Company
believes that the nature and level of environmental regulation that it is
subject to will become increasingly stringent, whether the Company undertakes
new projects in foreign countries or in the United States.


                                       27
<PAGE>   28
EMPLOYEES

         At December 31, 1997, the Company employed 470 people, approximately
286 of whom are involved in facility operations and 92 of whom are involved in
ash disposal operations. No employees are covered by a collective bargaining
agreement.

ITEM 2.  PROPERTIES

         In addition to the Company's properties listed under Item 1. "Business
-- Description of the Company's Facilities," the Company leases its principal
executive office, a single 61,024 square foot building, located at 9405
Arrowpoint Boulevard in Charlotte, North Carolina. The Company leases the
building and related land from a partnership comprised of four of the Company's
shareholders. The building lease has an initial term ending in 2004, with
optional renewals through 2047. The term of the land lease extends through 2047.
See "Certain Transactions."

         The Company also leases office space in Prince George, Virginia;
Portland, Oregon; Singapore; Bangalore, India; Mangalore, India and New Delhi,
India, none of which leases or leased premises are material.

         The Company believes that its facilities and properties have been
satisfactorily maintained, are in good condition, and are suitable for the
Company's operations.

ITEM 3.  LEGAL PROCEEDINGS

         Under the terms of the amended power sales agreements for the
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport Facilities, the
purchasing utility, CP&L, has exercised its right of economic dispatch resulting
in significantly reduced fuel requirements at each of these facilities. Coal is
supplied to the ELK Facilities by James River Coal Sales, Inc. ("James River")
and its affiliate, Bell County Coal Corporation. Coal is supplied to the
Southport Facility by Coastal Coal Sales, Inc. ("Coastal"). The coal sales
agreements for both the ELK Facilities and the Southport Facility provide for
the sale and purchase of the coal requirements of those facilities through the
respective contract term.

         Under the amended power sales agreement for the Company's Portsmouth
Facility, Virginia Power has from time to time since December 1997 exercised its
right of economic dispatch resulting in significantly reduced fuel requirements
at the facility. Coal is supplied to the Portsmouth Facility by Arch Coal Sales
Company, Inc. ("Arch"). The coal sales agreement with Arch provides for the sale
and purchase of the coal requirements of the Portsmouth Facility during the
period extending 15 years from late 1987, the year of commencement of commercial
operations at the facility.

         As a result of the economic dispatch of these facilities and their
consequent reduced fuel requirements, the Company's project subsidiaries
operating these facilities are purchasing significantly less coal. James River,
Coastal and Arch have each initiated either a civil action or an arbitration
proceeding seeking to recover damages and, in some cases, seeking injunctive
relief. A summary of each of these pending disputes is set forth below.

JAMES RIVER DISPUTE (ELK FACILITIES)

         In November 1996, James River and its affiliate instituted an action in
the United States District Court for the Eastern District of Kentucky against
CECC claiming breach of contract and fraud in the inducement based on the
reduction in fuel requirements at the ELK Facilities. In this complaint, James
River and its affiliate sought specific performance and, in the alternative, an
unspecified amount of damages.

         CECC filed a motion to dismiss the complaint for (i) lack of
jurisdiction and (ii) failure to state a claim upon which relief can be granted.
Prior to the court ruling on the motion, the case was transferred in September
1997 to the United States District Court, Western District of North Carolina.
The CECC motion to dismiss was taken up by the North Carolina court, which by
order dated January 8, 1998 denied the motion to dismiss count I (breach of
contract) and granted the motion to dismiss count II (fraud in the inducement).
James River filed an amended complaint on January 29, 1998, and CECC refiled its
motion to dismiss count II of the amended complaint on February 24, 1998. The
motion to dismiss is under consideration by the court.


                                       28
<PAGE>   29
         The coal sales agreement for the ELK Facilities contains an arbitration
provision requiring contract disputes to be submitted to arbitration in
Charlotte, North Carolina. Upon resolution of the pending Motion, CECC may seek
enforcement of that provision.

COASTAL DISPUTE (SOUTHPORT FACILITY)

         In October 1996, Coastal initiated an arbitration proceeding against
CNC through the American Arbitration Association in Charlotte, North Carolina.
The notice of arbitration alleged breach of contract based on the reduction in
fuel requirements at the Southport Facility. The arbitration was conducted by a
three-member panel during the period September 30 through October 3, 1997, and
an arbitration award was rendered on October 22, 1997 in favor of CNC denying
any recovery to Coastal ("Arbitration Award").

         On January 20, 1998, ANR Coal Company, L.L.C. ("ANR"), as successor to
Coastal, filed a complaint in United States District Court for the Western
District of North Carolina (the "Court") seeking an order vacating the
Arbitration Award. The principal basis of the complaint is an allegation that
the impartial third arbitrator of the panel was improperly biased and failed to
make complete disclosure of pertinent information during the selection process.
CNC filed its motion to dismiss, motion to confirm and answer on February 17,
1998. The matter is currently under consideration by the Court. CNC does not
believe the allegations of ANR in the complaint are meritorious or provide a
basis upon which the Court could properly vacate the Arbitration Award.

ARCH DISPUTE (PORTSMOUTH FACILITY)

         In March 1998, Arch filed a complaint in the United States District
Court, Southern District of West Virginia against the Company's project
subsidiary that owns and operates the Portsmouth Facility alleging a breach of
contract. In the complaint, Arch seeks a determination that CVLC (i) is
obligated to purchase approximately 360,000 tons of coal per year, (ii) breached
the Coal Agreement by wrongfully reducing its requirements of coal, and (iii)
violated a duty of good faith and fair dealing owed to Arch. Arch also seeks a
determination that CVLC is obligated to purchase approximately 360,000 tons of
coal per year and damages for CVLC's failure to purchase such quantities of
coal.

         The claims made by Arch directly contradict the clear, overriding
provisions of the coal sales agreement, which specifically provide that
notwithstanding any provision in the agreement to the contrary, CVLC shall not
be obligated to purchase more than the Portsmouth Facility's requirements of
coal. Furthermore, the coal agreement contains an arbitration clause, which the
Company believes is enforceable, that requires any disputes between the parties
to be resolved by arbitration in Charlotte, North Carolina.

         The Company is confident that the claims made by Arch against CVLC will
ultimately be resolved in favor of CVLC. CVLC will vigorously defend the matter,
seek to enforce the terms of the agreement against Arch, including the
arbitration clause, and otherwise continue to perform under the agreement as
required.

SUMMARY OF COAL PURCHASE AGREEMENT DISPUTES

         Management believes that, as to the James River and Arch suits, there
is no basis for certain claims and there are meritorious defenses as to the
remainder. Management believes the Coastal Arbitration Award was the product of
an arbitration process that was entirely proper and in accordance with American
Arbitration Association guidelines and procedures. The Company intends to
vigorously contest the actions of James River, Arch and ANR (Coastal) and is
confident that they will be resolved in favor of the Company. The Company has
established reserves which management believes to be adequate to cover any costs
which may result from these matters. The ultimate disposition of the James
River, Arch and ANR (Coastal) actions, in the judgement of management, will not
have a material adverse impact on the Company's consolidated results of
operations or financial position.


                                       29
<PAGE>   30
OTHER ROUTINE LITIGATION

         In addition, the Company experiences routine litigation in the normal
course of business. Management is of the opinion that none of this routine
litigation will have a material adverse impact on the consolidated financial
position or results of operations of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.








                                       30
<PAGE>   31
                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
         MATTERS

(a)      Market Information - There is no established market for the Company's
         common stock, which is closely held.

(b)      Principal Shareholders - All of the issued and outstanding shares of
         common stock of the Company are beneficially owned by the six persons
         listed in Item 12 of this report.

(c)      Dividends - For the fiscal year ended June 30, 1997, the Company's
         board of directors declared a dividend on its outstanding common stock
         of $5.0 million, which was paid in September 1997. The Company's board
         of directors declared a dividend on its outstanding common stock of
         $2.1 million for the six-month period ended December 31, 1997, which
         was paid in March 1998. The board of directors has adopted a policy,
         which is subject to change at any time, of maintaining a dividend
         payout ratio of no more than 20% of the Company's net income for the
         immediately preceding fiscal year. In addition, under the terms of the
         Indenture of the Senior Notes and a revolving credit facility
         agreement, the Company's ability to pay dividends and make other
         distributions to its shareholders is restricted.






                                       31
<PAGE>   32
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following table sets forth certain selected consolidated financial
data as of and for the six-month period ended December 31, 1997 and the five
years ended June 30, 1997, which should be read in conjunction with the
Company's consolidated financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data as of and for the
six-month period ended December 31, 1997 and each of the five years in the
period ended June 30, 1997 set forth below has been derived from the
consolidated financial statements of the Company, which were audited by Arthur
Andersen LLP, independent public accountants.

         Effective January 1, 1998, the Company changed its fiscal year to
commence on January 1 and conclude on December 31 of each year. The Company's
fiscal year previously commenced each July 1, concluding on June 30 of the
following calendar year.

<TABLE>
<CAPTION>
                                                     SIX-MONTH
                                                       PERIOD
                                                        ENDED                          YEARS ENDED JUNE 30,
                                                      DECEMBER    -------------------------------------------------------------
                                                      31, 1997      1997          1996         1995         1994         1993
                                                     ---------    ---------    ---------    ---------    ---------    ---------
STATEMENT OF OPERATIONS DATA:                                                   (Dollars in thousands)
<S>                                                  <C>          <C>          <C>          <C>          <C>          <C>
  Operating revenue:
   Electric                                          $ 154,810    $ 315,203    $ 356,459    $ 357,674    $ 351,892    $ 338,645
   Steam                                                12,721       26,686       27,703       23,320       22,254       22,637
   Income from unconsolidated investments
     in power projects                                   1,186          574        3,862        1,116            0            0
   Other                                                 9,229       10,343       22,522        2,992        1,939        1,037
                                                     ---------    ---------    ---------    ---------    ---------    ---------
     Total operating revenue                           177,946      352,806      410,546      385,102      376,085      362,319
                                                     ---------    ---------    ---------    ---------    ---------    ---------

 Operating expenses:
   Operating costs                                      93,689      204,446      245,582      235,006      239,225      236,568
   General, administrative and development              18,242       39,425       29,983       30,499       26,664       25,116
   Depreciation and amortization                        20,407       40,047       37,842       37,642       36,290       28,851
   Loss on impairment and cost of removal of
     cogeneration facilities                                 0       65,628            0            0            0            0
                                                     ---------    ---------    ---------    ---------    ---------    ---------
     Total operating expenses                          132,338      349,546      313,407      303,147      302,179      290,535
                                                     ---------    ---------    ---------    ---------    ---------    ---------

 Operating income                                       45,608        3,260       97,139       81,955       73,906       71,784

 Other income (expense):
   Interest expense                                    (25,680)     (56,328)     (58,354)     (59,621)     (50,736)     (45,479)
   Investment and other income                           4,334       13,184        7,478        8,269        4,335        4,110
   Equity in net income (loss) of affiliates, net       (1,813)        (813)      (1,758)       8,696         (650)           0

 Minority interest in income of joint venture           (2,273)      (4,013)      (4,749)      (4,789)      (3,089)      (2,514)
                                                     ---------    ---------    ---------    ---------    ---------    ---------

 Income (loss) before income taxes, extraordinary
   gain (loss) and cumulative effect of change
   in accounting principle                              20,176      (44,710)      39,756       34,510       23,766       27,901

 Benefit (provision) for income taxes                   (7,971)      17,112      (15,961)     (13,337)      (9,307)     (11,508)
                                                     ---------    ---------    ---------    ---------    ---------    ---------

 Income (loss) before  extraordinary  gain (loss)
   and cumulative effect of change in accounting
   principle                                            12,205      (27,598)      23,795       21,173       14,459       16,393

 Extraordinary gain (loss) on early extinguishment
   of debt, net                                         (1,502)        (703)           0            0        3,055            0

 Cumulative effect of change in method of
   accounting for income taxes                               0            0            0            0         (875)           0
                                                     ---------    ---------    ---------    ---------    ---------    ---------

 Net income (loss)                                   $  10,703    $ (28,301)   $  23,795    $  21,173    $  16,639    $  16,393
                                                     =========    =========    =========    =========    =========    =========

</TABLE>


                                       32
<PAGE>   33
<TABLE>
<CAPTION>
                                                                     AS OF JUNE 30,
                              AS OF DECEMBER      ----------------------------------------------------
                                 31, 1997           1997       1996       1995       1994       1993
                              --------------      --------   --------   --------   --------   --------
                                                       (DOLLARS IN THOUSANDS)
<S>                           <C>                 <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:

Total assets                     $822,974         $859,828   $921,641   $930,733   $944,185   $868,369
                                 ========         ========   ========   ========   ========   ========

Project financing debt(1)        $567,705         $591,694   $616,588   $661,891   $702,736   $723,435
                                 ========         ========   ========   ========   ========   ========

Parent debt(2)                   $100,000         $100,000   $100,000   $100,000   $100,000   $ 32,037
                                 ========         ========   ========   ========   ========   ========


    Total shareholders' equity   $ 58,298         $ 49,709   $ 83,010   $ 63,618   $ 46,560   $ 33,725
                                 ========         ========   ========   ========   ========   ========
</TABLE>


(1)      Project financing debt with respect to each of the Company's facilities
         is "substantially non-recourse" to Cogentrix Energy, Inc. and its other
         project subsidiaries. For a discussion of the term "substantially
         non-recourse," see "Business -- Description of the Company's Facilities
         -- Project Financing" herein.

(2)      Parent debt represents obligations of Cogentrix Energy, Inc. only and
         does not include non-recourse obligations of the Company's project
         subsidiaries.








                                       33
<PAGE>   34
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         In addition to discussing and analyzing the Company's recent historical
financial results and condition, the following "Management's Discussion and
Analysis of Financial Condition and Results of Operations" includes statements
concerning certain trends and other forward-looking information affecting or
relating to the Company which are intended to qualify for the protections
afforded "Forward-Looking Statements" under the Private Securities Litigation
Reform Act of 1995, Public Law 104-67. The forward-looking statements made
herein and elsewhere in this Form 10-K are inherently subject to risks and
uncertainties which could cause the Company's actual results to differ
materially from the forward-looking statements. See cautionary statements
appearing above, under "Item 1. Business" and elsewhere in this Form 10-K for a
discussion of the important factors affecting the realization of those results.

GENERAL

         The Company is engaged in the acquisition, development, ownership, and
operation of power generation facilities and the sale of electricity and steam
in the United States and selected international markets. The Company owns
(entirely or in part) eleven power generation facilities having an aggregate
generating capacity of 1,120 megawatts. In March 1998, the Company acquired an
ownership interest in two gas-fired power generation facilities in the Midwest
United States, having an aggregate generating capacity of 490 megawatts. In
addition, the Company has a pending acquisition, subject to the fulfillment of
all required conditions, of ownership interests in twelve power generation
facilities in Florida and the Northeastern United States, comprising an
aggregate generating capacity of approximately 2,400 megawatts. Upon completion
of the pending acquisition, the Company's net interest in power generation
facilities will be 1,675 megawatts, an increase from 840 megawatts in 1994.

         Each of the Company's generating facilities relies on a power sales
agreement for the majority of its revenues. During the six-month period ended
December 31, 1997, two regulated utilities, CP&L and Virginia Power, accounted
for approximately 85% of the Company's consolidated revenues. As the result of
the Company's recent growth, the Company's operations will become more diverse
with regard to both geography and fuel source and will become less dependent on
any single project or customer.

         Each of the Company's power generation facilities produces electricity
for sale to a utility and thermal energy for sale to an industrial user. The
electricity and thermal energy generated by these facilities are typically sold
under long-term power or steam sales agreements, generally having original terms
of 20 to 30 years. Several of the Company's generating facilities originally
sold electricity under long-term must-run power sales agreements, which
obligated the utility to purchase all electricity generated by the power
generation facility. Over the last two years, the Company has amended the
majority of these must-run power sales agreements to provide the utility the
ability to suspend or reduce purchases of energy from the facilities if the
utility determines it can operate its system for a designated period more
economically. These amended power sales agreements are structured such that the
Company continues to receive capacity payments during any period of economic
dispatch. Capacity payments cover project debt service, fixed operating costs,
and constitute a substantial portion of the profit component of the power sales
agreement. Energy payments, which are reduced (or possibly eliminated) as a
result of economic dispatch, primarily cover variable operating and maintenance
costs as well as fuel and fuel transportation costs. The restructuring of a
must-run power sales agreement to an economic dispatch power sales agreement
causes a significant reduction in electric revenues recognized under the
contract, which is offset by a corresponding reduction in fuel cost and
operations and maintenance expense. In response to the reduction in fuel
requirements at certain of the facilities at which the Company has restructured
the power sales agreement, the facilities' coal suppliers have instituted
various legal proceedings against the Company seeking to recover damages. See
"Legal Proceedings" herein.

         Certain of the Company's power sales agreements either terminate in
years 2000 through 2002 or provide for a significant reduction in capacity
payments received under such agreements after 2002. Accordingly, revenues
recognized by the Company under these power sales agreements after 2002 will be
eliminated or significantly reduced.


                                       34
<PAGE>   35
         The activities of the Company are subject to stringent environmental
regulations by federal, state, local and (for future non-U.S. projects) foreign
governmental authorities. The Clean Air Act Amendments of 1990 require states to
impose permit fees on certain emissions, and Congress may consider proposals to
restrict or tax certain emissions, which proposals, if adopted, could impose
additional costs on the operation of the Company's facilities. There can be no
assurance that the Company's business and financial condition would not be
materially and adversely affected by the cost of compliance with future changes
in domestic or foreign environmental laws and regulations or additional
requirements for reduction or control of emissions imposed by regulatory
authorities in connection with renewals of required permits. The Company
maintains a comprehensive program to monitor its project subsidiaries'
compliance with all applicable environmental laws, regulations, permits and
licenses.

         The domestic power generation industry is currently going through a
period of significant change as many states are implementing or considering
regulatory initiatives designed to increase competition. In addition to
restructuring activities in various states, there have also been several
industry restructuring bills introduced in Congress (see Item 1. Business -
Regulation). The Company cannot predict the final form or timing of the proposed
restructurings and the impact, if any, that such restructurings would have on
the Company's existing business or consolidated results of operations. The
Company believes that any such restructuring would not have a material adverse
effect on its power sales agreements and, accordingly, believes that its
existing business and results of consolidated operations would not be materially
adversely affected, although there can be no assurance in this regard.

         In 1996, the Company began making investments in partnerships formed to
develop, construct and operate greenhouses to produce tomatoes. These
partnerships are currently operating greenhouses with a combined total of 107
acres of production capacity. The Company has a 50% interest in each of these
partnerships and accounts for these investments under the equity method.






                                       35
<PAGE>   36
RESULTS OF OPERATIONS

         The following table sets forth the results of operations and percentage
of total operating revenues represented by the components of operating revenues
and expenses for the six-month period ended December 31, 1997 and 1996
(unaudited) and the years ended June 30, 1997 and 1996.

<TABLE>
<CAPTION>
                                        SIX-MONTH PERIOD ENDED
                                              DECEMBER 31,                           YEARS ENDED JUNE 30,
                                 --------------------------------------     ------------------------------------
                                       1997                 1996                  1997                1996
                                 ----------------    ------------------     ----------------    ----------------
                                                         (UNAUDITED)
                                                                (DOLLARS IN THOUSANDS)
<S>                              <C>          <C>    <C>            <C>     <C>          <C>    <C>          <C>
Total operating revenues         $  177,946   100%   $  181,149     100%    $  352,806   100%   $  410,546   100%
Operating costs                      93,689    53       108,348      60        204,446    58       245,582    60
General, administrative and
  development                        18,242    10        16,017       9         39,425    11        29,983     7
Depreciation and amortization        20,407    11        18,610      10         40,047    11        37,842     9
Impairment and cost of removal           --    --        65,628      36         65,628    19            --    --
                                 ----------   ---    ----------    ----     ----------   ---    ----------   ---

Operating income (loss)          $   45,608    26%   $  (27,454)    (15)%   $    3,260     1%   $   97,139    24%
                                 ==========   ===    ==========    ====     ==========   ===    ==========   ===

</TABLE>

Six-Month Period Ended December 31, 1997 as compared to the Six-Month Period
Ended December 31, 1996

         Total operating revenues decreased 1.8% to $177.9 million for the
six-month period ended December 31, 1997 as compared to $181.1 million for the
six-month period ended December 31, 1996. This decrease was primarily
attributable to the significant decrease in electric revenues resulting from the
amendment in September, 1996, of the Company's power sales agreements with CP&L
on the Elizabethtown, Lumberton, Kenansville, Roxboro, and Southport Facilities.
The decrease in operating revenues was also due to a decrease in steam revenues
at the Hopewell and Southport Facilities resulting from a decrease in demand for
steam by the Facilities' steam hosts. These decreases in operating revenues were
partially offset by a $4.5 million construction management fee earned by the
Company in December, 1997, related to the construction of an electric generation
facility for Clark, as well as a $3.1 million increase in electric revenues at
the Rocky Mount and Portsmouth Facilities. The increase in electric revenues at
the Rocky Mount Facility was due to an increase in on-peak megawatt hours
provided to the purchasing utility, while the increase in electric revenues at
the Portsmouth Facility was mainly attributable to the restructured power sales
agreement with the purchasing utility eliminating Portsmouth's accrued
obligation to return previously disallowed capacity payments to the purchasing
utility. The decreases in operating revenues were also offset by a $0.8 million
increase in income from unconsolidated investments in power projects which was
primarily the result of earnings generated by the Company's investment in the
Birchwood Facility, which commenced commercial operations in November 1996. This
increase in earnings was partially offset by the impact of the Company selling
its investment in Bolivian Power Company Limited ("Bolivian Power") in December
1996. The Company recognized approximately $427,000 in income from
unconsolidated investments in power projects during the six-month period ended
December 31, 1996 related to its investment in Bolivian Power.

         Operating costs decreased 13.5% to $93.7 million for the six-month
period ended December 31, 1997 as compared to $108.3 million for the six-month
period ended December 31, 1996. This decrease resulted primarily from the
significant decrease in operating expenses at the Elizabethtown, Lumberton,
Kenansville, Roxboro, and Southport Facilities resulting from their economic
dispatch by CP&L. The decrease in operating expense was also due to reductions
in maintenance costs at the Rocky Mount Facility, at which Facility the Company
performed routine maintenance during the six-month period ended December 31,
1996. The decrease in operating costs was also related to transaction costs
incurred in connection with project debt refinancings completed during the
six-month period ended December 31, 1996, and severance costs incurred by


                                       36
<PAGE>   37
the Lumberton, Elizabethtown, Kenansville, Roxboro, and Southport Facilities in
the six-month period ended December 31, 1996 associated with the reduction of
the workforce at those Facilities due to the amendment of their power sales
agreements. These decreases were partially offset by an increase in operating
costs incurred by ReUse related to an increase in third party ash services
activity during the six-month period ended December 31, 1997 and an increase in
maintenance costs at the Portsmouth Facility related to routine maintenance
performed during the six-month period ended December 31, 1997.

         General, administrative and development expenses increased 13.9% to
$18.2 million for the six-month period ended December 31, 1997 as compared to
$16.0 million for the six-month period ended December 31, 1996. The increase in
general, administrative and development expenses related primarily to incentive
compensation expense incurred in December 1997 related to the successful
completion of the Clark Facility. The increase was also attributable to
severance costs incurred during the six-month period ended December 31, 1997
related to the reduction of the workforce at the corporate office.

         During the six-month period ended December 31, 1996, the Company
undertook an analysis of the post-contract operating environment for all of its
operating facilities in light of the dramatic market changes taking place in the
power generation industry. As a result of this analysis, the Company recorded a
loss on impairment of cogeneration facilities of $57.3 million and recognized an
$8.3 million liability related to the Company's estimated cost of removal
obligations under certain land leases (see discussion below under "Fiscal Year
Ended June 30, 1997 as compared to Fiscal Year Ended June 30, 1996"). Also, as
part of this analysis the Company reviewed the depreciable lives of its
operating facilities and concluded that, effective January 1, 1997, the
Lumberton, Elizabethtown, Kenansville, Roxboro, and Southport Facilities would
be depreciated over the remaining terms of these Facilities' power sales
agreements. The 9.7% increase in depreciation and amortization expense in the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996 related primarily to this change in the estimated useful
lives of these facilities.

         The decrease in investment and other income for the six-month period
ended December 31, 1997 as compared to the six-month period ended December 31,
1996 is due to the Company recognizing a one-time gain on the sale of its
investment in Bolivian Power in December 1996. The Company sold its investment
in Bolivian Power to NRG Generating Holdings (No. 9), B.V., a wholly owned
subsidiary of NRG Energy, Inc. ("Holdings"), pursuant to a cash tender offer
which Holdings made for all the outstanding common stock of Bolivian Power at a
price of $43 per share. The Company recognized a $3.1 million gain on the sale
of its investment in Bolivian Power, net of transaction costs, which included
payments made to certain unaffiliated individuals who performed development
activities for Bolivian Power.

         Interest expense decreased 8.75% to $25.7 million for the six-month
period ended December 31, 1997 as compared to $28.1 million for the six-month
period ended December 31, 1996. The decrease in interest expense was primarily
attributable to a decrease in the weighted average debt outstanding from $719
million for the six-month period ended December 31, 1996 to $680 million for the
six-month period ended December 31, 1997. The decrease in weighted average debt
outstanding related to scheduled maturities of the Company's project financing
debt.

         Equity in net loss of affiliates increased to $1.8 million for the
six-month period ended December 31, 1997 as compared to $1.1 million for the
six-month period ended December 31, 1996. The increase in equity in net loss was
primarily attributable to the Company recognizing its share of losses from its
investments in greenhouse facilities in Texas, Pennsylvania, and New York during
the six-month period ended December 31, 1997. These greenhouse facilities were
either not yet in commercial operation, had just started commercial operation or
the Company did not yet hold an investment interest in them during the six-month
period ended December 31, 1996. The increase in equity in net loss of affiliates
was partially offset by a reduction in development costs associated with the
termination in December 1996 of funding for a partnership pursuing development
opportunities in Latin America.

         The increase in minority interest in income of joint venture for the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996 related to an increase in the net income of the Hopewell
Facility. The increase in net income of the Hopewell Facility related primarily
to a reduction of maintenance costs incurred at the Hopewell facility during the
six-month period ended December 31, 1997 as compared to the six-month period
ended December 31, 1996. The increase in net income is also due to a reduction
in the amount of interest expense incurred during the six-month period ended
December 31, 1997 as compared to the six-month period ended December 31, 1996
related to a


                                       37
<PAGE>   38
decrease in the amount of project debt outstanding at the Hopewell Facility, and
transaction costs incurred in connection with the refinancing of Hopewell's
project debt during the six-month period ended December 31, 1996.

         The extraordinary loss on early extinguishment of debt for the
six-month period ended December 31, 1997 related to the refinancing of the
Portsmouth Facility's project debt in December, 1997. The loss consisted of a
write-off of the deferred financing costs on the Portsmouth Facility's original
project debt and net swap termination fees on interest rate swap agreements
hedging the original project debt. The extraordinary loss on early
extinguishment of debt for the six-month period ended December 31, 1996 related
to the write-off of the deferred financing costs on the Elizabethtown,
Lumberton, and Kenansville Facilities' original project debt, which was
refinanced in September 1996.

         The provision for income taxes for the six-month period ended December
31, 1997 represented an effective rate of 39.6% of income before income taxes as
compared to an effective rate of 38.3% of loss before benefit for income taxes
for the six-month period ended December 31, 1996. The increase in effective rate
for the six-month period ended December 31, 1997 related to a reduced
recognition of losses for state income tax purposes in the prior year. A more
complete discussion of income taxes is included in Note 7 of Notes to
Consolidated Financial Statements.

Fiscal Year Ended June 30, 1997 as compared to Fiscal Year Ended June 30, 1996

         Total operating revenues decreased 14.1% to $352.8 million for fiscal
1997 as compared to $410.5 million for fiscal 1996. This decrease was primarily
attributable to the significant decreases in electric revenues resulting from
economic dispatch of, and consequently reduced energy payments from, the
Elizabethtown, Lumberton, Kenansville, Roxboro and Southport Facilities. The
decrease in operating revenues is also attributable to the absence of revenue in
fiscal 1997 comparable to (i) the payment received in fiscal 1996 upon the
execution of a joint development agreement with CLP related to the development
of the Company's India project, (ii) the $5 million fee earned by the Company in
fiscal 1996 related to the pre-construction development phase of an electric
generation facility for Clark and (iii) the $7.5 million capacity buydown
payment received in fiscal 1996 from the utility purchasing the electrical
output of the Hopewell Facility. To a lesser extent, the decrease in operating
revenues was also attributable to a $1.5 million decrease in steam revenues at
the Hopewell, Kenansville and Richmond Facilities resulting from a decrease in
demand for steam by these Facilities' steam hosts and a $2.7 million decrease in
electric revenue at the Richmond and Rocky Mount Facilities resulting from a
decrease in megawatt hours sold to the purchasing utility. The decrease in
operating revenues was also due to a net decrease in income from unconsolidated
investments in power projects which was primarily attributable to the Company
selling its investment in Bolivian Power in December 1996. The Company
recognized approximately $3.9 million in income from unconsolidated investments
in power projects in fiscal 1996 related to Bolivian Power, which included the
Company's share of a one-time gain recognized by Bolivian Power on the sale of
its distribution assets. This decrease in income from unconsolidated investments
was partially offset by earnings generated by the Company's investment in the
Birchwood Facility, which commenced commercial operations in November 1996.
These decreases in operating revenues were partially offset by a $4.6 million
increase in electric revenues at the Hopewell and Portsmouth Facilities due to
an increase in on-peak megawatt hours provided to the purchasing utility, as
well as escalation/inflation adjustment provisions in certain power sales
agreements.

         Operating costs decreased 16.8% to $204.4 million for fiscal 1997 as
compared to $245.6 million for fiscal 1996. This decrease resulted primarily
from the significant decrease in operating expenses at the Elizabethtown,
Lumberton, Kenansville, Roxboro and Southport Facilities resulting from their
economic dispatch by CP&L, as well as a decrease in fuel expense at the Richmond
and Rocky Mount Facilities associated with a decrease in megawatt hours sold.
The decrease in operating expense is also due to reductions in maintenance costs
at the Hopewell, Portsmouth and Southport Facilities, at which Facilities the
Company performed routine maintenance during fiscal 1996. These decreases were
partially offset by an increase in maintenance costs at the Richmond Facility
associated with routine maintenance performed in fiscal 1997 and an increase in
operating costs incurred by ReUse related to third-party agreements and expense
associated with a payment due to a deceased officer's beneficiary in fiscal
1997.

         General, administrative and development expenses increased 31.5% to
$39.4 million for fiscal 1997 as compared to $29.9 million for fiscal 1996. The
increase was primarily the result of $10.7 million of payments made in
connection with restructuring or terminating incentive compensation arrangements
for certain employees, an increase in performance bonuses paid and severance
payments made to certain executive officers in fiscal 1997. These increases were
partially offset by a


                                       38
<PAGE>   39
reduction in payments made under the profit-sharing plan, due to a net loss
before tax, a reduction in development expenses incurred on a project the
Company is developing in Idaho, as well as a general reduction in consulting
expenses related to development.

         During fiscal 1997, the Company undertook an analysis of the
post-contract operating environment for all of its operating facilities in light
of the dramatic market changes that are taking place in the power generation
industry. The analysis included assumptions regarding future levels of
operations, operating costs and market prices for equivalent generation
available from other sources. As a part of this analysis, in accordance with the
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
the Company assessed whether any impairment of the Company's facilities had
occurred. This assessment included comparing the projected future cash flows to
be provided by these assets to the net book value of such assets. Based on this
assessment, the Company determined that an impairment loss had occurred on the
Elizabethtown, Lumberton, Kenansville and Ringgold Facilities. This loss on
impairment of cogeneration facilities of $57.3 million, recorded in fiscal 1997,
represented the excess of the net book value of these cogeneration facilities
over their current fair value, determined by discounting to present value
projected future cash flows to be provided by such assets. The Company believes
that its projections of future cash flows are based upon reasonable assumptions
about the future performance of these assets. Because of the risks and
uncertainties associated with any projections, there can be no assurances,
however, that actual events will be consistent with the assumptions made, and
future cash flows may be greater or less than those projected.

         The Company's analysis of the post-contract operating environment also
resulted in the recognition of an $8.3 million liability related to the
Company's estimated cost of removal obligations under the land leases for the
Elizabethtown, Lumberton and Kenansville Facilities. The total impairment loss
and cost of removal of $65.6 million has been reflected in the statement of
operations for the year ended June 30, 1997. Also in connection with the overall
assessment of the post-contract operating environment for its cogeneration
facilities, the Company concluded that, effective January 1, 1997, the
Lumberton, Elizabethtown, Kenansville, Roxboro and Southport Facilities would be
depreciated over the remaining term of these Facilities' power sales agreements.
The 5.8% increase in depreciation and amortization expense in fiscal 1997 as
compared to fiscal 1996 related primarily to this change in the estimated useful
lives of these facilities.

         The 3.5% decrease in interest expense is a result of the decrease in
the weighted average debt outstanding from $739 million in fiscal 1996 to $704
million in fiscal 1997. The decrease in weighted average debt outstanding, which
related to scheduled maturities of the Company's project finance debt and the
repayment of the subordinated debt at the Elizabethtown, Lumberton and
Kenansville Facilities, was partially offset by an increase in project debt
outstanding at the Hopewell Facility and the Roxboro and Southport Facilities,
which related to refinancings completed during fiscal 1997.

         Investment income increased 76.3% to $13.2 million for fiscal 1997 as
compared to fiscal 1996. The increase in investment income was related to larger
cash and investment balances maintained by the Company during fiscal 1997 as
compared to fiscal 1996, the recognition of a net loss on the sale of marketable
securities of approximately $900,000 during fiscal 1996 and the $3.1 million
gain on the sale (discussed below) of an investment during fiscal 1997.

         In December 1996, the Company sold its investment in Bolivian Power
Company Limited ("Bolivian Power") to NRG Generating Holdings (No. 9), B.V., a
wholly owned subsidiary of NRG Energy, Inc. ("Holdings"), pursuant to a cash
tender offer which Holdings made for all the outstanding common stock of
Bolivian Power at a price of $43 per share. The Company recognized a $3.1
million gain on the sale of its investment in Bolivian Power, net of transaction
costs, which included payments made to certain unaffiliated individuals who
performed development activities for Bolivian Power.

         The decrease in equity in net loss of affiliates to $800,000 for fiscal
1997 as compared to equity in net loss of $1.8 million in fiscal 1996 was
primarily due to a reduction in development costs associated with the
termination in December 1996 of funding for a partnership pursuing development
opportunities in Latin America. The decrease in equity in net loss in fiscal
1997 was also due to earnings generated by the Company's investment in a
greenhouse facility in Texas which commenced commercial operations in November
1996.

         The decrease in minority interest in income of joint venture in fiscal
1997 as compared to fiscal 1996 related to the decrease in net income of the
Hopewell Facility. The decrease in net income of the Hopewell Facility in turn
resulted primarily from the absence of revenue in fiscal 1997 comparable to the
$7.5 million capacity buydown payment received in


                                       39
<PAGE>   40
fiscal 1996 from the utility purchasing the electrical output of the Hopewell
Facility. This decrease was partially offset by a reduction in maintenance costs
incurred at the Hopewell Facility in fiscal 1997 as compared to fiscal 1996.

         The benefit for income taxes for fiscal 1997 represented an effective
rate of 38.3% of loss before benefit for income taxes as compared to an
effective rate of 40.1% of income before income taxes for fiscal 1996. The
decrease in the effective rate in fiscal 1997 related to the reduced recognition
of current year losses for state income tax purposes. A more complete discussion
of income taxes is included in Note 7 of Notes to Consolidated Financial
Statements.

         The extraordinary loss on early extinguishment of debt in fiscal 1997
related to the write-off of the deferred financing costs on the Elizabethtown,
Lumberton and Kenansville Facilities' original project debt, which was
refinanced in September 1996.

LIQUIDITY AND CAPITAL RESOURCES

         The principal components of operating cash flow for the six-month
period ended December 31, 1997 were generated by net income of $10.7 million,
increases due to adjustments for depreciation and amortization of $20.4 million,
deferred income taxes of $4.6 million, write-off of deferred financing costs of
$1.4 million, minority interest in income of joint venture of $.8 million, and
distributions from and equity in net loss of unconsolidated affiliates of $9.1
million, which were partially offset by a net $5.2 million use of cash
reflecting changes in other working capital assets and liabilities. Cash flow
provided by operating activities of $41.8 million, proceeds from project finance
borrowings of $62.7 million, and $3.1 million of cash escrows released were
primarily used to purchase property, plant and equipment additions of $.7
million, to purchase marketable securities of $.8 million, to make investments
in a greenhouse facility of $2.7 million, to provide $.9 million of funds to a
development joint venture company, to pay deferred financing costs of $1.5
million, to repay project finance borrowings of $86.8 million and to pay a
dividend to common shareholders of $5.0 million.

         The principal components of operating cash flow for the fiscal year
ended June 30, 1997 were generated by a net loss of $28.3 million, increases due
to adjustments for depreciation and amortization of $40 million, loss on
impairment and cost of removal of cogeneration facilities of $65.6 million,
extraordinary loss on early extinguishment of debt of $1.2 million,
distributions from and equity in net loss of unconsolidated affiliates of $7.4
million and a net $16.5 million source of cash reflecting changes in other
working capital assets and liabilities, which were partially offset by deferred
taxes of $27.6 million, gain on the sale of the investment in Bolivian Power of
$3.1 million and minority interest in income of joint venture, net of dividends,
of $7.7 million. Cash flow provided by operating activities of $64 million, net
of proceeds from the sale of the investment in Bolivian Power of $25.4 million,
proceeds from project finance borrowings of $70.7 million, and $55 million of
cash escrows and restricted marketable securities released were primarily used
to purchase equipment of $3.0 million, to make investments in marketable
securities of $21.5 million, to make investments in affiliates of $58.2 million,
to repay project finance borrowings of $95.5 million, to pay deferred financing
costs of $2.9 million and to pay common stock dividends of $4.8 million.

         The principal components of cash flow provided by operating activities
for fiscal year ended June 30, 1996 were generated by net income of $23.8
million, increases due to adjustments for depreciation and amortization of $37.8
million, deferred income taxes of $8.6 million, minority interest in income of
joint venture of $3.4 million, net of dividends, loss on the sale of securities,
net of $0.9 million, and a net $5.5 million source of cash reflecting changes in
other working capital assets and liabilities which were partially offset by $1.5
million of equity in net income of affiliates net of dividends received from
unconsolidated affiliates. Cash flow provided by operating activities of $78.5
million and proceeds from project finance borrowings of $0.4 million were
primarily used to purchase property, plant and equipment of $1.6 million, to
purchase marketable securities of $12.5 million, to make investments in
affiliates of $6.5 million, to repay project finance borrowings of $46.6
million, to fund cash escrows of $7.5 million and to pay a dividend to common
shareholders of $4.2 million.

         Historically, the Company has financed each facility primarily under
financing arrangements and related documents which generally require the
extensions of credit to be repaid solely from the project's revenues and provide
that the repayment of the extensions of credit (and interest thereon) is secured
solely by the physical assets, agreements, cash flow and, in certain cases, the
capital stock of that project subsidiary. This type of financing is generally
referred to as "project financing." The project financing debt of the Company's
subsidiaries and joint ventures is substantially non-recourse to the


                                       40
<PAGE>   41
Company and its other project subsidiaries, except in connection with certain
transactions where Cogentrix Energy, Inc. or Cogentrix has agreed to certain
limited guarantees and other obligations with respect to such projects. These
limited guarantees and other obligations include agreements for the benefit of
the project lenders to three project subsidiaries to fund cash deficits the
projects may experience as a result of incurring certain costs, subject to an
aggregate cap of $51.9 million. In addition, Cogentrix has guaranteed certain
project subsidiaries' obligations to the utility under power sales agreements
and obligations of up to $1.5 million of ReUse under an ash disposal agreement
with an unrelated third party. Because certain of these limited guarantees and
other obligations do not by their terms stipulate a maximum dollar amount of
liability, the aggregate amount of the Company's potential exposure under these
guarantees cannot be quantified. The aggregate contractual liability of the
Company to its subsidiaries' project lenders is, in each case, a small portion
of the aggregate project debt. If, however, the Company were required to satisfy
all these guarantees and other obligations or even one or more of the
significant ones, such event could have a material adverse impact on the
Company's financial condition.

         As of December 31, 1997, the Company had long-term debt (including the
current portion thereof) of approximately $667.7 million. With the exception of
the $100 million of Senior Notes issued in March, 1994, substantially all of
such indebtedness is project financing debt. Future annual maturities of
long-term debt range from $61.4 million to $81.4 million in the five-year period
ending December 31, 2002. The Company believes that its project subsidiaries
will generate sufficient cash flow to pay all required debt service on the
project financing debt and to allow them to pay management fees and dividends to
Cogentrix Energy, Inc. periodically in sufficient amounts to allow Cogentrix
Energy, Inc. to pay all required debt service on the Senior Notes, fund a
significant portion of its development activities and meet its other
obligations. If, as a result of unanticipated events, the Company's ability to
generate cash from operating activities is significantly impaired, the Company
could be required to curtail its development activities to meet its debt service
obligations.

         In May 1997, the Company entered into a credit agreement with Australia
and New Zealand Banking Group Limited, as Agent, which provides for a $50
million revolving credit facility (the "Corporate Credit Facility") with a term
of three years ("Revolving Term"). The Corporate Credit Facility provides for
one-year extensions of the Revolving Term, subject to lender consent. The
Company can utilize the Corporate Credit Facility in the form of direct advances
or the issuance of unsecured letters of credit. The outstanding balance of the
Corporate Credit Facility at the end of the Revolving Term is payable over two
years in four equal semiannual repayments of direct advances or
collateralization of letters of credit. As of December 31, 1997, the Company had
no advances or letters of credit outstanding under the Corporate Credit
Facility. In March 1998, the Company borrowed $50 million under the Corporate
Credit Facility to fund a portion of the purchase price related to the
Whitewater and Cottage Grove acquisitions.

         Any projects the Company develops in the future, and those independent
power projects it may seek to acquire, are likely to require substantial capital
investment. The Company's ability to arrange financing on a substantially
non-recourse basis and the cost of such capital are dependent on numerous
factors. In order to access capital on a substantially non-recourse basis in the
future, the Company may have to make larger equity investments in, or provide
more financial support for, the project entity.

         The ability of the Company's project subsidiaries to pay dividends and
management fees periodically to Cogentrix Energy, Inc. is subject to certain
limitations in their respective project credit documents. Such limitations
generally require that: (i) project debt service payments be current, (ii)
project debt service coverage ratios be met, (iii) all project debt service and
other reserve accounts be funded at required levels, and (iv) there be no
default or event of default under the relevant project credit documents. There
are also additional limitations that are adapted to the particular
characteristics of each project subsidiary. Management does not believe that
such restrictions or limitations will adversely affect its ability to meet its
debt obligations. See "Business -- Description of the Company's Facilities," and
" -- Facilities in Operation" herein.

         In December 1994, the Company acquired a 50% interest in Birchwood, a
partnership formed to own a 220 megawatt coal-fired cogeneration facility (the
"Birchwood Facility") in King George County, Virginia, from two indirect
wholly-owned subsidiaries of The Southern Company. The purchase price of the 50%
interest in Birchwood Power was approximately $29.5 million and was funded with
a portion of the net proceeds of the Company's Senior Note offering. The Company
also provided an equity contribution to Birchwood Power of approximately $43.7
million in March 1997, which was funded with the remaining proceeds of the
Company's Senior Note offering and corporate cash balances. Birchwood,


                                       41
<PAGE>   42
which commenced commercial operations in November 1996, sells electricity to
Virginia Power and provides thermal energy to a 36-acre greenhouse under
long-term contracts.

         In September 1996, the Company renegotiated the project financing
arrangements for its Roxboro and Southport Facilities. The amended agreements
resulted in an approximate $18.4 million increase in the amount of indebtedness
outstanding and extended the final maturity date of the loan by 7 months. The
Company's project subsidiary operating the Roxboro and Southport Facilities
transferred substantially all of the additional funds borrowed (net of
transaction costs) to Cogentrix Energy, Inc., which utilized $5.5 million to
make a capital contribution to the project subsidiary operating the ELK
Facilities in connection with the refinancing of its project debt in September
1996.

         In December 1996, the Company sold its investment in Bolivian Power
pursuant to a cash tender offer received for all of the outstanding common stock
of Bolivian Power at a price of $43 per share. The Company received proceeds of
$25.4 million from the sale of its investment in Bolivian Power, net of
transaction costs, which included payments made to certain unaffiliated
individuals who performed development activities for Bolivian Power. See
"Results of Operations" for the financial reporting impact of the sale of the
investment in Bolivian Power.

         In December 1997, the Company substantially completed construction of a
248 megawatt combined-cycle, gas-fired electric generation facility for Clark
and earned a construction management fee of $4.5 million. Upon final completion
of the facility and acceptance by Clark, the Company will earn an additional
construction management fee of $500,000 and will also share in 50% of the
amount, if any, of the excess of the contract amount ($117 million) over the
actual costs and expenses incurred in constructing the Clark Facility. The
excess is currently expected to be approximately $7 million.

         In December 1997, the Company renegotiated the project financing
arrangements for its Portsmouth Facility. The amended agreements resulted in an
extension of the final maturity date of the loan by three months and an increase
in the amount of commitment provided by the project lenders in the form of a
$40.5 million revolving credit facility. This revolving credit facility is
available to be drawn by the Portsmouth Facility at any time for general
corporate purposes, including paying dividends to Cogentrix Energy, Inc. In
March 1998, the Portsmouth Facility borrowed $20 million under the revolving
credit facility and distributed such amount to Cogentrix Energy, Inc. for
purposes of funding a portion of the purchase price related to the Whitewater
and Cottage Grove acquisitions.

         In February 1998, the Company renegotiated the project financing
arrangements for its Hopewell Facility, in which it owns a 50% interest. The
amended agreements resulted in a $34.6 million increase in outstanding
indebtedness of JRCC and extended the final maturity date of the loan by six
months. JRCC transferred substantially all of the additional funds borrowed (net
of transaction costs) to its partners. The distribution received by Cogentrix
Energy, Inc. related to the refinancing was approximately $16.6 million, which
was used by the Company to fund a portion of the acquisition price related to
the Whitewater and Cottage Grove acquisitions.

         In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in the Whitewater Facility and the Cottage
Grove Facility. Each of the Cottage Grove and Whitewater Facilities are 245
megawatt gas-fired, combined-cycle cogeneration facilities. Commercial
operations of the facilities commenced in the last half of calendar 1997. The
aggregate acquisition price for the equity interest in the Cottage Grove and
Whitewater Facilities was $158.0 million. In addition, the Company pre-funded a
$16.7 million distribution to the previous owners. This distribution represented
unused construction contingency and cash flows that were accumulated by the
Cottage Grove and Whitewater Facilities prior to January 1, 1998. Cogentrix
Energy, Inc. will be entitled to a distribution of the $16.7 million in 1998.
The purchase price was funded with proceeds of the Corporate Credit Facility and
corporate cash balances.

         In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire an ownership interest in twelve electric generating
facilities, comprising a net equity interest of 360 megawatts, and one
interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the Bechtel Asset Acquisition, which is subject to
customary conditions including the obtaining of certain consents and regulatory
approvals, is currently expected to occur in calendar 1998.

         In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of senior notes in a Rule 144A offering with a covenant
to register exchange notes with the U.S. Securities and Exchange Commission.
These senior notes will be unsecured and will rank pari passu with the Company's
$100 million of outstanding Senior Notes due 2004.


                                       42
<PAGE>   43
The proceeds will be used by the Company to finance the Bechtel Asset
Acquisition and to repay the outstanding borrowings under the Corporate Credit
Facility.

         For the fiscal year ended June 30, 1997, the Company's board of
directors declared a dividend on its outstanding common stock of $5.0 million,
which was paid in September 1997. The Company's board of directors declared a
dividend on its outstanding common stock of $2.1 million for the six-month
period ended December 31, 1997, which was paid in March 1998. The board of
directors' policy, which is subject to change at any time, provides for a
dividend payout ratio of no more than 20% of the Company's net income for the
immediately preceding fiscal year. In addition, under the terms of the Indenture
of the Senior Notes and the Corporate Credit Facility, the Company's ability to
pay dividends and make other distributions to its shareholders is restricted.

IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION

         Energy prices are influenced by changes in supply and demand as well as
economic conditions generally and tend to fluctuate significantly. Through
various hedging mechanisms, the Company has attempted to mitigate the impact of
changes on the results of operations of most of its projects. The basic hedging
mechanism against increased fuel and transportation costs is to provide
contractually for matching increases in the energy payments the Company's
project subsidiaries receive from the utility purchasing the electricity
generated by the facility.

         Under the power sales agreements for two of the Company's facilities,
energy payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity. The Company's other power
sales agreements provide periodic, scheduled increases in energy prices that are
designed to match periodic, scheduled increases in fuel and transportation costs
that are included in the fuel supply and transportation contracts for the
facilities.

         Changes in interest rates could have a significant impact on the
Company. Interest rate changes affect the cost of capital needed to construct
projects as well as interest expense of existing project financing debt. As with
fuel price escalation risk, the Company attempts to hedge against the risk of
fluctuations in interest rates by arranging either fixed-rate financing or
variable-rate financing with interest rate swaps, collars or caps on a portion
of its indebtedness.

         Although hedged to a significant extent, the Company's financial
results will likely be affected to some degree by fluctuations in energy prices,
interest rates and inflation. The effectiveness of the hedging techniques
implemented by the Company is dependent, in part, on each counterparty's ability
to perform in accordance with the provisions of the relevant contracts. The
Company has sought to reduce the risk by entering into contracts with
creditworthy organizations.

RECENTLY ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STATEMENTS

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the Company
effective January 1, 1998. The Company believes this pronouncement will not have
a material effect on its financial statements.

         In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This pronouncement
establishes standards for reporting information about operating segments in
annual and interim financial statements. SFAS No. 131 will be adopted by the
Company effective January 1, 1998. The Company believes this pronouncement will
not have a material effect on its financial statements.

YEAR 2000 COMPLIANCE

         The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The majority of the
Company's internal financial information systems are in the process of being
replaced with a fully compliant new system. This new system is expected to be
fully implemented by January 1, 1999. The Company is also evaluating its plant's
operating systems. Based on present information, the Company believes that only
minor


                                       43
<PAGE>   44
modifications and upgrades will be required for the operating systems to be Year
2000 compliant. As such, the Company does not anticipate that the costs incurred
to complete the necessary transition to ensure Year 2000 compliance will have a
material impact on the Company's consolidated results of operations or financial
position. Any costs necessary to modify existing systems to ensure Year 2000
compliance will be expensed as incurred. The Company is also communicating with
customers, suppliers, financial institutions and others to coordinate Year 2000
conversion. In the event that any of the Company's significant customers or
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.

CHANGE OF CORPORATE FISCAL YEAR

         Effective January 1, 1998, the Company changed its fiscal year to
commence on January 1 and conclude on December 31 of each year. The Company's
fiscal year previously commenced each July 1, concluding on June 30 of the
following calendar year.








                                       44
<PAGE>   45
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                      INDEX


<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
Reports of Independent Public Accountants                                                                       46

Consolidated Financial Statements:

         Consolidated Balance Sheets at December 31, 1997, June 30, 1997
             and June 30, 1996                                                                                  48

         Consolidated Statements of Operations For the Six-Month Periods Ended
             December 31, 1997 and 1996 (unaudited) and the Years Ended June 30, 1997, 1996 and 1995            49

         Consolidated Statements of Changes in Shareholders' Equity For the Six-Month Period Ended
             December 31, 1997 and the Years Ended June 30, 1997, 1996 and 1995                                 50

         Consolidated Statements of Cash Flows For the Six-Month Periods Ended
             December 31, 1997 and 1996 (unaudited) and the Years Ended June 30, 1997, 1996 and 1995            51

Notes to Consolidated Financial Statements                                                                      52

Financial Statement Schedules:

         Schedule I - Condensed Financial Information of the Registrant                                         69
</TABLE>








Schedules other than those listed above have been omitted, since they are not
required, are not applicable or are unnecessary due to the presentation of the
required information in the financial statements or notes thereto.


                                       45
<PAGE>   46
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO COGENTRIX ENERGY, INC.:

         We have audited the accompanying consolidated balance sheets of
Cogentrix Energy, Inc. (a North Carolina corporation) and subsidiary companies
as of December 31, 1997, June 30, 1997 and June 30, 1996, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the six-month period ended December 31, 1997 and for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The summarized
financial data for Bolivian Power Company Limited contained in Note 4 are based
on the financial statements of Bolivian Power Company Limited which were audited
by other auditors. Their report has been furnished to us and our opinion,
insofar as it relates to the data in Note 4, is based solely on the report of
the other auditors.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Cogentrix Energy, Inc. and subsidiary
companies as of December 31, 1997, June 30, 1997 and June 30, 1996, and the
results of their operations and their cash flows for the six-month period ended
December 31, 1997 and for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.




                                             ARTHUR ANDERSEN LLP

Charlotte, North Carolina,
         March 20, 1998.




                                       46
<PAGE>   47
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS:

Compania Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited

         We have audited the consolidated financial statements of Compania
Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited and its
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income of cash flows and of shareholders' equity for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Compania
Boliviana de Energia Electrica S.A. -- Bolivian Power Company Limited and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with accounting principles generally accepted in the
United States of America.

                                             PRICE WATERHOUSE

                                             La Paz, Bolivia

                                             February 28, 1997






                                       47
<PAGE>   48
                 COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
                           CONSOLIDATED BALANCE SHEETS
               DECEMBER 31, 1997, JUNE 30, 1997 AND JUNE 30, 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   DECEMBER     JUNE       JUNE
                                                                   31, 1997   30, 1997   30, 1996
                                                                   --------   --------   --------
<S>                                                                <C>        <C>        <C>
                              ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                        $ 71,833   $ 62,596   $ 33,351
  Restricted cash                                                    27,742     30,888     42,203
  Marketable securities                                              42,118     21,494          0
  Restricted investments                                                  0     20,000          0
  Accounts receivable                                                49,781     57,880     57,331
  Inventories                                                        15,210     15,723     19,086
  Other current assets                                                2,465      5,779      2,883
                                                                   --------   --------   --------

    Total current assets                                            209,149    214,360    154,854

PROPERTY, PLANT AND EQUIPMENT,
  Net of accumulated depreciation:  December 31, 1997, $188,227;
    June 30, 1997, $169,761; June 30, 1996, $156,215                496,589    514,449    604,491

LAND AND IMPROVEMENTS                                                 2,540      2,540      2,424

DEFERRED FINANCING, START-UP AND ORGANIZATION COSTS,
  Net of accumulated amortization:  December 31, 1997, $16,592;
    June 30, 1997, $17,509; June 30, 1996, $19,653                   21,085     22,601     25,105

RESTRICTED INVESTMENTS                                                    0          0     63,695

NATURAL GAS RESERVES                                                  2,384      2,829      3,611

INVESTMENTS IN UNCONSOLIDATED AFFILIATES                             79,072     84,599     56,028

OTHER ASSETS                                                         12,155     18,450     11,433
                                                                   --------   --------   --------

                                                                   $822,974   $859,828   $921,641
                                                                   ========   ========   ========

             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                $ 74,680   $ 62,370   $ 48,416
  Accounts payable                                                   13,755     22,147     21,453
  Accrued compensation                                                4,923     12,290      4,393
  Accrued interest payable                                            2,935      3,308      4,063
  Accrued dividends payable                                           2,140      5,000      4,759
  Other accrued liabilities                                           8,182     13,040      8,816
                                                                   --------   --------   --------

    Total current liabilities                                       106,615    118,155     91,900

LONG-TERM DEBT                                                      595,112    631,624    670,900

DEFERRED INCOME TAXES                                                25,872     23,074     46,971

MINORITY INTEREST IN JOINT VENTURE                                   15,131     14,354     22,044

OTHER LONG-TERM LIABILITIES                                          21,946     22,912      6,816
                                                                   --------   --------   --------

                                                                    764,676    810,119    838,631
                                                                   --------   --------   --------

COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
SHAREHOLDERS' EQUITY:
  Common stock, no par value, 300,000 shares authorized;
    282,000 shares issued and outstanding                               130        130        130
  Net unrealized gain on available for sale securities                   26          0          0
  Accumulated earnings                                               58,142     49,579     82,880
                                                                   --------   --------   --------

                                                                     58,298     49,709     83,010
                                                                   --------   --------   --------

                                                                   $822,974   $859,828   $921,641
                                                                   ========   ========   ========
</TABLE>

   The accompanying notes to consolidated financial statements are an integral
                   part of these consolidated balance sheets.


                                       48
<PAGE>   49
                 COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

     FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
                AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
       (DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS (LOSS) PER COMMON SHARE)

<TABLE>
<CAPTION>
                                                                        SIX-MONTH
                                                                       PERIOD ENDED
                                                                        DECEMBER 31,                YEAR ENDED JUNE 30,
                                                                  ----------------------    -----------------------------------
                                                                     1997         1996         1997         1996         1995
                                                                  ---------    ---------    ---------    ---------    ---------
                                                                              (Unaudited)
<S>                                                               <C>         <C>           <C>          <C>          <C>
OPERATING REVENUES:
  Electric                                                        $ 154,810    $ 162,909    $ 315,203    $ 356,459    $ 357,674
  Steam                                                              12,721       13,284       26,686       27,703       23,320
  Income from unconsolidated investments in power projects            1,186          348          574        3,862        1,116
  Other                                                               9,229        4,608       10,343       22,522        2,992
                                                                  ---------    ---------    ---------    ---------    ---------
                                                                    177,946      181,149      352,806      410,546      385,102
                                                                  ---------    ---------    ---------    ---------    ---------

OPERATING EXPENSES:
  Fuel expense                                                       60,500       71,350      131,405      171,310      168,184
  Operations and maintenance                                         33,189       36,998       73,041       74,272       66,822
  General, administrative and development expenses                   18,242       16,017       39,425       29,983       30,499
  Depreciation and amortization                                      20,407       18,610       40,047       37,842       37,642
  Loss on impairment and cost of removal of
    cogeneration facilities                                               0       65,628       65,628            0            0
                                                                  ---------    ---------    ---------    ---------    ---------
                                                                    132,338      208,603      349,546      313,407      303,147
                                                                  ---------    ---------    ---------    ---------    ---------

OPERATING INCOME (LOSS)                                              45,608      (27,454)       3,260       97,139       81,955

OTHER INCOME (EXPENSE):
  Interest expense                                                  (25,680)     (28,144)     (56,328)     (58,354)     (59,621)
  Investment and other income                                         4,334        7,729       13,184        7,478        8,269
  Equity in net income (loss) of unconsolidated affiliates, net      (1,813)      (1,088)        (813)      (1,758)       8,696
                                                                  ---------    ---------    ---------    ---------    ---------

INCOME (LOSS) BEFORE MINORITY INTEREST IN
  INCOME OF JOINT VENTURE, INCOME TAXES
  AND EXTRAORDINARY LOSS                                             22,449      (48,957)     (40,697)      44,505       39,299

MINORITY INTEREST IN INCOME OF JOINT VENTURE                         (2,273)      (1,614)      (4,013)      (4,749)      (4,789)
                                                                  ---------    ---------    ---------    ---------    ---------

INCOME (LOSS) BEFORE INCOME TAXES
  AND EXTRAORDINARY LOSS                                             20,176      (50,571)     (44,710)      39,756       34,510

BENEFIT (PROVISION) FOR INCOME TAXES                                 (7,971)      18,895       17,112      (15,961)     (13,337)
                                                                  ---------    ---------    ---------    ---------    ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                              12,205      (31,676)     (27,598)      23,795       21,173

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
  OF DEBT, NET OF INCOME TAX BENEFIT                                 (1,502)        (703)        (703)           0            0
                                                                  ---------    ---------    ---------    ---------    ---------

NET INCOME (LOSS)                                                 $  10,703    ($ 32,379)   ($ 28,301)   $  23,795    $  21,173
                                                                  =========    =========    =========    =========    =========

EARNINGS (LOSS) PER COMMON SHARE:
  Income (loss) before extraordinary loss                         $   43.28    ($ 112.32)   ($  97.87)   $   84.38    $   75.08
  Extraordinary loss                                                  (5.33)       (2.49)       (2.49)        0.00         0.00
                                                                  ---------    ---------    ---------    ---------    ---------
                                                                  $   37.95    ($ 114.81)   ($ 100.36)   $   84.38    $   75.08
                                                                  =========    =========    =========    =========    =========
WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                                                282,000      282,000      282,000      282,000      282,000
                                                                  =========    =========    =========    =========    =========
</TABLE>

       The accompanying notes to consolidated financial statements are an
                integral part of these consolidated statements.




                                       49
<PAGE>   50
                COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

      FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1997 AND THE YEARS ENDED
                          JUNE 30, 1997, 1996 AND 1995
          (DOLLARS IN THOUSANDS, EXCEPT FOR DIVIDENDS PER COMMON SHARE)


<TABLE>
<CAPTION>
                                                   NET UNREALIZED
                                                   GAIN (LOSS) ON
                                         COMMON     AVAILABLE FOR      ACCUMULATED
                                         STOCK     SALE SECURITIES      EARNINGS             TOTAL
                                         ------    ---------------     -----------         --------
<S>                                      <C>       <C>                 <C>                 <C>
Balance, June 30, 1994                    $130          $(476)          $ 46,906           $ 46,560

Net unrealized loss on available
    for sale securities, net of
    deferred income tax
    benefit of $34                           0            120                  0                120

Net income                                   0              0             21,173             21,173

Common stock dividends
    ($15.01 per common share)                0              0             (4,235)            (4,235)
                                          ----          -----           --------           --------

Balance, June 30, 1995                     130           (356)            63,844             63,618

Net unrealized gain on available
    for sale securities, net of
    deferred income tax
    provision of $256                        0            356                  0                356

Net income                                   0              0             23,795             23,795

Common stock dividends
    ($16.88 per common share)                0              0             (4,759)            (4,759)
                                          ----          -----           --------           --------

Balance, June 30, 1996                     130              0             82,880           $ 83,010

Net loss                                     0              0            (28,301)           (28,301)

Common stock dividends
    ($17.73 per common share)                0              0             (5,000)            (5,000)
                                          ----          -----           --------           --------

Balance, June 30, 1997                     130              0             49,579             49,709

Net unrealized gain on available
    for sale securities, net of
    deferred income tax
    provision of $14                         0             26                  0                 26

Net income                                   0              0             10,703             10,703

Common stock dividends
    ($7.59 per common share)                 0              0             (2,140)            (2,140)
                                          ----          -----           --------           --------

Balance, December 31, 1997                $130          $  26           $ 58,142           $ 58,298
                                          ====          =====           ========           ========
</TABLE>


   The accompanying notes to consolidated financial statements are an integral
                     part of these consolidated statements.


                                       50
<PAGE>   51
                 COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
     FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
                AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      SIX-MONTH
                                                                    PERIOD ENDED
                                                                     DECEMBER 31,                 YEAR ENDED JUNE 30,
                                                                ---------------------     ----------------------------------
                                                                  1997         1996         1997         1996         1995
                                                                --------     --------     --------     --------     --------
                                                                            (Unaudited)
<S>                                                             <C>         <C>           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                             $ 10,703    $ (32,379)    $(28,301)    $ 23,795     $ 21,173
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
    Depreciation and amortization                                 20,407       18,610       40,047       37,842       37,642
    Loss on impairment and cost of removal of
      cogeneration facilities                                          0       65,628       65,628            0            0
    Deferred income taxes                                          4,628      (24,192)     (27,585)       8,569        7,718
    Extraordinary loss on early extinguishment of debt,
      non-cash portion                                             1,395        1,173        1,173            0            0
    Minority interest in income of joint venture,
       net of dividends                                              777       (8,848)      (7,690)       3,407        3,680
    Gain on sale of investment in Bolivian Power                       0       (3,243)      (3,137)           0            0
    Equity in net (income) loss of unconsolidated affiliates         627          740          239       (2,104)     (11,057)
    Dividends received from unconsolidated affiliates              8,491          288        7,152          617       14,853
    Loss on sale of securities, net                                    0            0            0          890            0
    Decrease (increase) in accounts receivable                     8,099        4,113         (549)        (795)      (1,313)
    Decrease in inventories                                          958          718        4,145          667          317
    Increase (decrease) in accounts payable                       (8,392)       1,792          (61)       1,628       (2,708)
    Increase (decrease) in accrued liabilities                   (12,598)      (1,731)      12,121        3,809          585
    Decrease (increase) in other                                   6,710         (550)         866          141          564
                                                                --------     --------     --------     --------     --------
  Net cash flows provided by operating activities                 41,805       22,119       64,048       78,466       71,454
                                                                --------     --------     --------     --------     --------

 CASH FLOWS FROM INVESTING ACTIVITIES:
    Property, plant and equipment additions                         (732)        (837)      (2,956)      (1,555)      (8,171)
    Decrease (increase) in marketable securities                    (834)           0       22,201      (12,456)       1,506
    Investments in affiliates                                     (3,591)        (750)     (58,222)      (6,516)     (48,323)
    Proceeds from sale of investment in Bolivian Power, net            0       25,504       25,398            0            0
    Decrease (increase) in restricted cash                         3,146       12,929       11,315       (8,190)      (4,157)
                                                                --------     --------     --------     --------     --------
  Net cash flows provided by (used in) investing activities       (2,011)      36,846       (2,264)     (28,717)     (59,145)
                                                                --------     --------     --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds of notes payable and long-term debt                  62,728       67,750       70,661          406        1,622
    Repayments of notes payable and long-term debt               (86,761)     (63,535)     (95,552)     (46,642)     (42,513)
    Increase in deferred financing costs                          (1,524)      (2,584)      (2,889)           0          (93)
    Common stock dividends paid                                   (5,000)      (4,759)      (4,759)      (4,235)      (3,328)
                                                                --------     --------     --------     --------     --------
  Net cash flows used in financing activities                    (30,557)      (3,128)     (32,539)     (50,471)     (44,312)
                                                                --------     --------     --------     --------     --------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                 9,237       55,837       29,245         (722)     (32,003)
CASH AND CASH EQUIVALENTS, beginning of period                    62,596       33,351       33,351       34,073       66,076
                                                                --------     --------     --------     --------     --------
CASH AND CASH EQUIVALENTS, end of period                        $ 71,833     $ 89,188     $ 62,596     $ 33,351     $ 34,073
                                                                ========     ========     ========     ========     ========
</TABLE>


   The accompanying notes to consolidated financial statements are an integral
                     part of these consolidated statements.


                                       51
<PAGE>   52
                 COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. NATURE OF BUSINESS

         Cogentrix Energy, Inc. and subsidiary companies (collectively, the
"Company") is principally engaged in the business of acquiring, developing,
owning and operating independent power generating facilities (individually, a
"Facility," or collectively, the "Facilities"). As of December 31, 1997, the
Company owned or had interests in eleven Facilities in the United States with an
aggregate installed capacity of approximately 1,120 megawatts. Two of the eleven
Facilities are owned 50% by the Company and 50% by other independent power
producers. Electricity generated by each Facility is sold to an electric utility
(the "Utility") and steam is sold to an industrial company (the "Steam
Purchaser"), all under long-term contractual agreements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation and Basis of Presentation -- The
accompanying consolidated financial statements include the accounts of Cogentrix
Energy, Inc., its subsidiary companies and a 50% owned joint venture in which
the Company has effective control through majority representation on the board
of directors of the managing general partner. Investments in other affiliates in
which the Company has a 20% to 50% interest and/or the ability to exercise
significant influence over operating and financial policies are accounted for on
the equity method. All material intercompany transactions and balances among
Cogentrix Energy, Inc. and its subsidiary companies and its consolidated joint
venture have been eliminated in the accompanying consolidated financial
statements.

         Cash and Cash Equivalents -- Cash and cash equivalents include bank
deposits, commercial paper, government securities and certificates of deposit
that mature within three months of their purchase. Amounts in debt service
accounts which might otherwise be considered cash equivalents are treated as
current restricted cash.

         Marketable Securities -- Marketable securities include commercial
paper, corporate obligations, government securities, and certificates of deposit
with maturity dates in excess of three months from their date of purchase. All
investments in debt securities held by the Company are classified as available
for sale securities and are reported at fair value. Realized gains or losses are
determined on the specific identification method and are reflected in income.
Unrealized gains and losses are reported net of taxes as a separate component of
shareholders' equity, except those unrealized losses that are deemed to be other
than temporary, which are reflected in income.

         Construction Agreement -- In December 1994, the Company executed an
engineering, procurement and construction agreement (the "Construction
Agreement") with Public Utility District No. 1 of Clark County, Washington
("Clark"). Under this Construction Agreement, the Company is engineering,
procuring equipment for and constructing a 248 megawatt combined-cycle,
gas-fired electric generation facility (the "Clark Facility"). The Company is
accounting for the construction under the completed-contract method, and, as
such, all third-party construction costs and reimbursements are deferred until
the contract is completed. Costs incurred as of December 31, 1997, June 30, 1997
and June 30, 1996 of $121,396,000, $104,960,000 and $37,117,000, respectively,
are netted against the related reimbursed costs of $120,531,000, $99,552,000 and
$35,572,000, respectively, and the difference is included in accounts receivable
on the accompanying consolidated balance sheets.

         Inventories -- Coal inventories consist of the contract purchase price
of coal and all transportation costs incurred to deliver the coal to each
Facility. Gas inventories represent the cost of natural gas purchased as fuel
reserves for a Facility that is forecasted to be consumed during the next fiscal
year. Spare parts inventories consist of major equipment and recurring
maintenance supplies required to be maintained in order to facilitate routine
maintenance activities and minimize unscheduled maintenance outages. As of
December 31, 1997, June 30, 1997 and June 30, 1996, fuel and spare parts
inventories are comprised of the following (dollars in thousands):


                                       52
<PAGE>   53
<TABLE>
<CAPTION>
                                                 DECEMBER 31,    JUNE 30,        JUNE 30,
                                                     1997          1997            1996
                                                 ------------    --------        --------
                           <S>                   <C>             <C>             <C>
                           Coal                    $ 8,230        $ 8,274        $11,951
                           Natural gas                 700            700            700
                           Spare parts               6,280          6,749          6,435
                                                   -------        -------        -------
                                                   $15,210        $15,723        $19,086
                                                   =======        =======        =======
</TABLE>

Coal inventories at certain Facilities are recorded at last-in, first-out
("LIFO") cost, with the remaining Facilities' coal inventories recorded at
first-in, first-out ("FIFO") cost. The cost of coal inventories recorded on a
LIFO basis was $427,000, $900,000 and $1,458,000 less than the cost of these
inventories on a FIFO basis as of December 31, 1997, June 30, 1997 and June 30,
1996, respectively. Spare parts inventories are recorded at average cost.

         Property, Plant and Equipment -- Property, plant and equipment is
recorded at actual cost. Substantially all property, plant and equipment
consists of cogeneration facilities which are depreciated on a straight-line
basis over their estimated useful lives (ranging from 9 to 30 years). Other
property and equipment is depreciated on a straight-line basis over the
estimated economic or service lives of the respective assets (ranging from 3 to
10 years). Maintenance and repairs are charged to expense as incurred. Emergency
and rotatable spare parts inventories are included in plant and are depreciated
over the useful life of the related components.

         Deferred Financing, Start-up and Organization Costs -- Financing costs,
consisting primarily of legal and other direct costs incurred to obtain
financing for the Facilities, are deferred and amortized over the permanent
financing term. Start-up and organization costs include payroll costs and fees
paid to consultants, technicians and vendors associated with the formation of
each entity and the start-up of the Facilities. All start-up costs were fully
amortized as of June 30, 1997.

         Natural Gas Reserves -- Natural gas reserves consist of the cost of
natural gas purchased as long-term fuel reserves for a Facility. These reserves
are recorded at cost.

         Investments in Affiliates - Investments in affiliates include
investments in unconsolidated entities which own or derive revenues from power
projects currently in operation, investments in unconsolidated entities which
own and operate greenhouses, and investments in unconsolidated development joint
venture entities. The Company's share of income or loss from investments in
operating power projects is included in operating revenues in the accompanying
consolidated statements of operations. The Company's share of income or loss
from investments in greenhouses and development joint venture entities is
included in other income (expense) in the accompanying consolidated statements
of operations.

         Project Development Costs -- Project development costs represent costs
incurred after executing a power sales contract or obtaining a viable project
site or signing a letter of intent and prior to obtaining project financing and
starting physical construction. These costs represent amounts incurred for
professional services, salaries, permits, options and other direct and
incremental costs and are included in construction in progress when project
financing is obtained or expensed at the time the Company determines the project
will not be developed.

         Revenue Recognition -- Revenues from the sale of electricity and steam
are recorded based upon output delivered and capacity provided at rates
specified under contract terms. Significant portions of the Company's revenues
have been derived from certain electric utility customers. Two customers
accounted for 63% and 22% of revenues in the six-month period ended December 31,
1997, 62% and 25% of revenues in the year ended June 30, 1997, 55% and 33% of
revenues in the year ended June 30, 1996, and 57% and 34% of revenues in the
year ended June 30, 1995.

         Interest Rate Protection Agreements -- The Company enters into
interest-rate protection agreements with major financial institutions to fix or
limit the volatility of interest rates on its variable-rate, long-term debt. The
differential paid or received is recognized as an adjustment to interest
expense. Any premiums associated with interest rate protection


                                       53
<PAGE>   54
agreements are capitalized and amortized to interest expense over the term of
the agreement. Unamortized premiums are included in other assets in the
accompanying consolidated balance sheets.

         Income Taxes -- Deferred income tax assets and liabilities are
recognized for the estimated future income tax effects of temporary differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets are also established for the
estimated future effect of net operating loss and tax credit carryforwards when
it is more likely than not that such assets will be realized. Deferred taxes are
calculated based on provisions of the enacted tax law.

         Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This pronouncement
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income is defined as the
total of net income and all other non-owner changes in equity. This statement
will be adopted by the Company effective January 1, 1998. The Company believes
this pronouncement will not have a material effect on its financial statements.

         In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This pronouncement
establishes standards for reporting information about operating segments in
annual and interim financial statements. SFAS No. 131 will be adopted by the
Company effective January 1, 1998. The Company believes this pronouncement will
not have a material effect on its financial statements.

         Change of Fiscal Year - Effective January 1, 1998, the Company changed
its fiscal year to commence on January 1 and conclude on December 31 of each
year. The Company's fiscal year previously commenced each July 1, concluding on
June 30 of the following calendar year.

         Reclassifications -- Certain amounts included in the accompanying
consolidated financial statements for the fiscal years ended June 30, 1997, 1996
and 1995 have been reclassified from their original presentation to conform with
the presentation for the six-month period ended December 31, 1997.

3. INVESTMENT IN DEBT SECURITIES

         At December 31, 1997, investments in debt securities included in
marketable securities in the accompanying consolidated balance sheet consisted
of government securities and corporate obligations. The Company's net unrealized
gain of $40,000 on its investment in debt securities is reported in the
accompanying consolidated statements of changes in shareholders' equity, net of
$14,000 in deferred income taxes.

         At June 30, 1997, investments in debt securities included in restricted
cash and marketable securities in the accompanying consolidated balance sheet
consisted of government securities and corporate obligations. These securities
are recorded at their fair market value which approximates cost. Restricted
investments consist of an investment in a certificate of deposit which
collateralizes the Company's obligation under a letter of credit (Note 10).

         At June 30, 1996, there were no debt securities held in restricted cash
or marketable securities. Restricted investments consisted of investments in
certificates of deposit which collateralized the Company's obligations under
certain letters of credit.

         At June 30, 1995, the Company's net unrealized loss of $834,000 on its
investment in debt securities is reported in the accompanying consolidated
statements of changes in shareholders' equity, net of $222,000 allocated to
minority interest in joint venture and net of $256,000 in deferred income taxes.


                                       54
<PAGE>   55
4. INVESTMENTS IN UNCONSOLIDATED POWER PROJECTS

Bolivian Power Company Limited

         In November 1994, the Company acquired 719,206 shares of common stock
of Bolivian Power Company Limited ("Bolivian Power"), representing approximately
17.1% of Bolivian Power's issued and outstanding shares of common stock, for a
purchase price of approximately $18 million. In conjunction with the
transaction, three executive officers of the Company were elected to the
seven-member board of directors of Bolivian Power. In addition, the Company was
providing to Bolivian Power general administrative and management services, as
well as significant advisory services with respect to financial, regulatory and
governmental matters, pursuant to a management agreement. The investment in
Bolivian Power was accounted for using the equity method, because the Company
had the ability to exercise significant influence over Bolivian Power's
operating and financial policies.

         In January 1996, Bolivian Power closed the sale of its distribution
subsidiaries, realizing an after-tax gain of approximately $13.5 million. The
Company's share of this gain was approximately $2.3 million. In December 1996,
the Company sold its investment in Bolivian Power pursuant to a cash tender
offer made for all of the outstanding common stock of Bolivian Power at a price
of $43 per share. The Company received proceeds from the sale of $25.4 million,
net of transaction costs, which included payments to certain unaffiliated
individuals who performed development activities for Bolivian Power. The
resulting book gain of $3.1 million is included in investment and other income
in the accompanying consolidated statement of operations for the year ended June
30, 1997. The Company recognized approximately $0.4 million, $3.9 million and
$1.1 million in income from unconsolidated investments in power projects in the
accompanying consolidated statements of operations for the years ended June 30,
1997, 1996 and 1995, respectively, related to its investment in Bolivian Power.
The following table presents summarized financial information for Bolivian Power
as of December 31, 1996 and 1995 and for the three years ended December 31, 1996
(dollars in thousands):

<TABLE>
<CAPTION>
                                              1996          1995
                                            --------      --------
             <S>                            <C>           <C>
             BALANCE SHEET DATA:
               Current assets               $ 72,550      $ 54,686
               Noncurrent assets              81,211        93,849
                                            --------      --------
                 Total assets               $153,761      $148,535
                                            ========      ========

               Current liabilities          $ 12,818      $ 12,237
               Noncurrent liabilities         15,036        20,138
               Shareholders' equity          125,907       116,160
                                            --------      --------
                                            $153,761      $148,535
                                            ========      ========

<CAPTION>
                                              1996          1995          1994
                                            --------      --------      --------
             <S>                            <C>           <C>           <C>
             INCOME STATEMENT DATA:
               Operating revenues           $ 20,009      $ 52,874      $ 45,969
               Operating income (loss)        (4,159)        6,929         5,848
               Net income                      8,434         7,963         7,712
</TABLE>

Birchwood Power Partners, L.P.

         In December 1994, the Company acquired a 50% interest in Birchwood
Power Partners, L.P. ("Birchwood Power"), a partnership formed to construct and
own a 220 megawatt coal-fired cogeneration facility (the "Birchwood Facility")
in King George County, Virginia, from two indirect wholly-owned subsidiaries of
The Southern Company. The Company initially paid $29.5 million for its 50%
interest in Birchwood Power. In addition, pursuant to the equity funding
obligation under Birchwood Power's project financing arrangements, the Company
provided an equity contribution to Birchwood Power of approximately $43.7
million in March 1997. The initial distribution of $6.9 million received by the
Company from Birchwood Power in April 1997 was also subsequently paid to a
subsidiary of The Southern Company in accordance with the


                                       55
<PAGE>   56
terms of the original transaction agreement and was treated as part of the
purchase price of the Company's interest in Birchwood Power.

         The Birchwood Facility, which commenced commercial operations in
November 1996, sells electricity to a utility and provides thermal energy to a
36-acre greenhouse under long-term contracts. The Birchwood Facility is operated
by an affiliate of The Southern Company under a long-term operations and
maintenance agreement. The Company has 50% representation on Birchwood Power's
management committee, which must approve all material transactions of Birchwood
Power. The Company is accounting for its investment in Birchwood Power under the
equity method. The Company's share of net income of Birchwood Power is recorded
net of the amortization of the $36.4 million premium paid to purchase the
Company's 50% share interest in Birchwood Power. This premium is being amortized
on a straight-line basis over the estimated useful life of the Birchwood
Facility. The Company recognized approximately $1,727,000 and $147,000 in income
from unconsolidated investments in power projects, net of premium amortization,
in the accompanying consolidated statements of operations for the six-month
period ended December 31, 1997 and for the year ended June 30, 1997,
respectively, related to its investment in Birchwood Power. The following table
presents summarized financial information for Birchwood Power as of and for the
years ended December 31, 1997, 1996, and 1995 (dollars in thousands):

<TABLE>
<CAPTION>
                                           1997        1996        1995
                                         --------    --------    --------
             <S>                         <C>         <C>         <C>
             BALANCE SHEET DATA:
               Current assets            $ 30,577    $ 25,701    $  1,234
               Noncurrent assets          374,560     385,171     313,402
                                         --------    --------    --------
                 Total assets            $405,137    $410,872    $314,636
                                         ========    ========    ========

               Current liabilities       $  6,818    $ 89,599    $ 92,968
               Noncurrent liabilities     335,134     321,247     221,668
               Shareholders' equity        63,185          26           0
                                         --------    --------    --------
                                         $405,137    $410,872    $314,636
                                         ========    ========    ========

             INCOME STATEMENT DATA:
               Operating revenues        $ 69,275    $  9,745    $      0
               Operating income            35,087       4,527           0
               Net income                   6,451          26           0
</TABLE>

5. INVESTMENT IN OTHER UNCONSOLIDATED AFFILIATES

DEVELOPMENT JOINT VENTURES

         Michigan Cogeneration Partners -- In partnership with Wolverine Energy,
Inc., an indirect subsidiary of Northern States Power Company, a Minnesota-based
investor-owned electric utility, the Company pursued the development of a 65
megawatt cogeneration power facility in Michigan. Development of this project
began in September 1993 when the Company and its joint venture partner (the
"Michigan Partnership") purchased from another developer a power sales agreement
with Consumers Power Company providing for the sale of up to 65 megawatts of
electric power. In July 1994,


                                       56
<PAGE>   57
the Michigan Partnership joined with Consumers Power Company to terminate the
power sales agreement pursuant to terms under which the Partnership received
$29.9 million. The Company, which owns a 50% interest in the Michigan
Partnership, recognized its share of the Michigan Partnership's net income of
$22.9 million for the year ended June 30, 1995, which was comprised solely of
the proceeds received from this transaction net of project development costs.
The Company recorded the $10.2 million gain from this transaction, which
consisted of the Company's share of the net income of the Michigan Partnership
net of corporate incentive compensation costs related to the transaction, as
equity in net income of affiliates in the accompanying consolidated statement of
operations for the year ended June 30, 1995. The Michigan Partnership was
dissolved in June 1996.

         Other Development Joint Ventures - The Company makes investments in
other joint venture partnerships whose purpose is to develop power projects. The
Company utilizes the equity method of accounting for those partnerships in which
it holds an ownership interest between 20% and 50%. The Company recognized
approximately $103,000 in equity losses for the six-month period ended December
31, 1997, and $1,257,000, $1,758,000 and $1,546,000 in equity losses for the
years ended June 30, 1997, 1996 and 1995, respectively, related to its
investments in these partnerships. These losses are reflected in equity in
income (loss) of affiliates in the accompanying consolidated statements of
operations.

GREENHOUSES

         The Company has entered into an agreement with Agro Power Development,
Inc., a developer and operator of greenhouse facilities, to make investments in
partnerships which develop, construct and operate greenhouses which produce
tomatoes. As of December 31, 1997, the Company held a 50% interest in four
limited partnerships which had a combined 107 acres of production capacity in
operation. The Company is accounting for its investment in these partnerships
under the equity method. The Company recognized approximately $1,710,000 in
equity losses and $444,000 in equity income from affiliates in the accompanying
consolidated statements of operations for the six-month period ended December
31, 1997 and the year ended June 30, 1997, respectively, related to its
investments in these partnerships.

6. LONG-TERM DEBT

         The following long-term debt was outstanding as of December 31, 1997,
June 30, 1997, and June 30, 1996, respectively (dollars in thousands):

<TABLE>
<CAPTION>
                                                                               DECEMBER           JUNE            JUNE
                                                                               31, 1997         30, 1997        30, 1996
                                                                               ---------       ---------       ---------
<S>                                                                            <C>             <C>             <C>
PROJECT FINANCING DEBT:
HOPEWELL FACILITY:
     As of December 31, 1997 and June 30, 1997 - Note payable to banks;
      As of June 30, 1996 - commercial paper notes payable, net of
      unamortized issue discount of $87                                        $  45,417       $  49,513       $  42,403
PORTSMOUTH FACILITY:
     Note payable to banks                                                        61,489          60,500          68,250
ROCKY MOUNT FACILITY:
     Note payable to financial institution                                       125,761         126,409         127,576
RINGGOLD FACILITY:
     Note payable to banks                                                        15,737          16,900          18,799
RICHMOND FACILITY:
     Commercial paper notes payable, net of unamortized issue discount of
      $365, $409 and $319, respectively, and tax-exempt bonds                    198,113         203,651         214,379
ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:
     Notes payable to banks                                                       26,716          31,688          44,464
ROXBORO AND SOUTHPORT FACILITIES:
     Note payable to banks                                                        93,036         102,074          99,750
OTHER                                                                              1,436             959             967
                                                                               ---------       ---------       ---------
Total Project Financing Debt                                                     567,705         591,694         616,588
SENIOR NOTES (including unamortized gain on hedge transaction of
  $2,087, $2,300 and $2,728, respectively)                                       102,087         102,300         102,728
                                                                               ---------       ---------       ---------
Total Long-Term Debt                                                             669,792         693,994         719,316
Less:  Current portion                                                           (74,680)        (62,370)        (48,416)
                                                                               ---------       ---------       ---------
Long-term portion                                                              $ 595,112       $ 631,624       $ 670,900
                                                                               =========       =========       =========
</TABLE>

         Information related to each of these borrowings is as follows:




                                       57
<PAGE>   58
HOPEWELL FACILITY:

         In July 1996, the Hopewell Facility's project debt agreement was
    amended, which effectively replaced commercial paper notes with a note
    payable to banks and resulted in a $13,000,000 increase in the amount of
    outstanding indebtedness. The amended project debt accrues interest at an
    annual rate equal to the applicable London Interbank Offering Rate ("LIBOR")
    as chosen by the Company, plus .875% per annum through July 1999 and 1.125%
    thereafter (6.81% at December 31, 1997). Principal is payable quarterly with
    interest payable the earlier of the maturity of the applicable LIBOR term or
    quarterly through June 2002. The Hopewell Facility's project debt agreement
    was amended in February 1998 (see Note 14).

PORTSMOUTH FACILITY:

         The Portsmouth Facility's project debt agreement was amended in
    December 1997, resulting in the extension of the final maturity of the loan
    by three months to December 31, 2002. The amended terms of the loan
    agreement also increased the outstanding credit commitment from the project
    lenders by $40.5 million in the form of a revolving credit facility. As of
    December 31, 1997, there were no outstanding balances under this credit
    facility. The amended terms of the loan agreement provide for interest to
    accrue at an annual rate equal to the applicable LIBOR rate, as chosen by
    the Company, plus an additional margin of .875% through December 1998 and
    1.0% thereafter (6.845% at December 31, 1997). The banks' outstanding credit
    commitment under the loan agreement is reduced quarterly, with interest
    payable the earlier of the maturity of the applicable LIBOR term or
    quarterly through December 2002. The loan agreement also provides for a $6
    million letter of credit to secure the project's obligations to pay debt
    service. Cogentrix Energy, Inc. has indemnified the lenders of the senior
    credit facility for any cash deficits the Portsmouth Facility could
    experience as a result of incurring certain costs, subject to a cap of $30
    million.

         An extraordinary loss of $2,458,000 was recorded in the six-month
    period ended December 31, 1997 related to the write-off of unamortized
    deferred financing costs from the original senior loan of $1,395,000 and net
    swap termination fees of $1,063,000 related to interest rate swap agreements
    hedging the original project debt. This extraordinary loss is shown net of a
    tax benefit of $956,000 in the accompanying consolidated statements of
    operations.

ROCKY MOUNT FACILITY:

         The note payable to financial institution consists of a $125,761,000
    senior loan which accrues interest at a fixed annual rate of 7.58%. Payment
    of principal and interest is due quarterly through December 2013.

RINGGOLD FACILITY:

         The note payable to banks consists of a $15,737,000 senior loan which
    accrues interest at an annual rate equal to the applicable LIBOR rate, as
    chosen by the Company, plus .95% to 1.35% per annum (6.9% at December 31,
    1997). Interest is payable the earlier of the maturity of the applicable
    LIBOR term or quarterly in arrears. Payments of principal under the senior
    loan are due semiannually through April 2004.

RICHMOND FACILITY:

         Commercial paper notes outstanding are supported by an irrevocable,
    direct-pay letter of credit provided by a syndicate of banks (the "Banks").
    The maximum amount of commercial paper notes supported by the letter of
    credit is $150,114,000 as of December 31, 1997. The annual interest rate
    incurred is the yield on the commercial paper notes plus a 1.25% to 1.50%
    per annum fee (weighted average rate of 7.17% at December 31, 1997) paid to
    the Banks for providing the letter of credit.

         Tax-exempt industrial development bonds (the "Bonds") have been issued
    to support the purchase of certain pollution control and solid waste
    disposal equipment for a Facility ($48,000,000 outstanding at December 31,
    1997). Principal and interest payments on the Bonds are supported by an
    irrevocable, direct-pay letter of credit provided by the Banks. The annual
    interest rate is the yield on the Bonds plus a 1.25% to 1.50% per annum fee
    (6.875% at December 31, 1997). The letters of credit described above are
    part of one credit facility (the "Credit Facility"). The Credit Facility
    provides for commitment reductions through September 2007.

ELIZABETHTOWN, LUMBERTON AND KENANSVILLE FACILITIES:

         The project debt on the Elizabethtown, Lumberton and Kenansville
    Facilities, which consisted of a senior loan with a syndicate of banks and a
    subordinated credit facility with a financial institution, was refinanced in
    September 1996


                                       58
<PAGE>   59
    with the proceeds of a $39 million senior credit facility and $5.5 million
    capital contribution by the Company. The senior credit facility accrues
    interest at an annual rate equal to the applicable LIBOR rate, as chosen by
    the Company, plus .875% through September 1997 and 1% thereafter (6.94% at
    December 31, 1997). Principal is payable quarterly with interest payable at
    the earlier of the maturity of the applicable LIBOR term or quarterly
    through September 2000. The senior credit facility also provides for a $3.3
    million letter of credit to secure the project's obligations to pay debt
    service. An extraordinary loss of $1.2 million was recorded in the fiscal
    year ended June 30, 1997 related to the write-off of unamortized deferred
    financing costs from the original senior loan and subordinated credit
    facility. This extraordinary loss is shown net of a tax benefit of $470,000
    in the accompanying consolidated statements of operations.

ROXBORO AND SOUTHPORT FACILITIES:

         The project debt agreement for the Roxboro and Southport Facilities was
    amended in September 1996, resulting in an $18.4 million increase in the
    amount of outstanding indebtedness. The revised senior credit facility
    accrues interest at an annual rate equal to the applicable LIBOR rate, as
    chosen by the Company, plus .875% through September 1997, 1% thereafter
    through September 2001 and 1.125% thereafter (6.94% at December 31, 1997).
    Principal is payable quarterly with interest payable at the earlier of the
    maturity of the applicable LIBOR term or quarterly through June 2002. The
    senior credit facility also provides for a $6.5 million letter of credit to
    secure the project's obligations to pay debt service. Cogentrix Energy, Inc.
    has indemnified the lenders of the senior credit facility for any cash
    deficits the Roxboro and Southport Facilities could experience as a result
    of incurring certain costs, subject to a cap of $11.3 million.

INTEREST RATE PROTECTION AGREEMENTS:

         The Company has entered into interest rate cap, interest rate collar
    and interest rate swap agreements (Note 12) to manage its interest rate risk
    on its variable-rate project financing debt. The notional amounts of debt
    covered by these agreements as of December 31, 1997 and June 30, 1997 are
    $259,191,000 and $391,371,000, respectively. The agreements effectively
    change the interest rate on the portion of debt covered by the notional
    amounts from a weighted average variable rate of 7.06% to a weighted average
    effective rate of 7.29% at December 31, 1997. These agreements expire at
    various dates through July 2006.

SENIOR NOTES:

         On March 15, 1994, the Company issued $100 million of registered,
    unsecured senior notes due 2004 (the "Senior Notes") in a public debt
    offering. The Senior Notes were priced at par to yield 8.10%. In February
    1994, the Company entered into a forward sale of ten-year U.S. Treasury
    Notes in order to protect against a possible increase in the general level
    of interest rates prior to the completion of the Senior Notes offering. This
    hedge transaction resulted in the recognition of a gain which has been
    deferred and included as part of the Senior Notes on the accompanying
    consolidated balance sheets. This deferred gain will be recognized over the
    term of the Senior Notes, reducing the effective rate of interest on the
    Senior Notes to 7.5%. The Senior Notes require annual sinking fund payments
    beginning in March 2001. The impact of the sinking fund requirements has
    been reflected in the schedule of future maturities of long-term debt
    contained herein.

CORPORATE CREDIT FACILITY:

         In May 1997, the Company entered into a credit agreement with Australia
    and New Zealand Banking Group Limited, as Agent, which provides for a
    $50,000,000 revolving credit facility with an initial term of three years
    (the "Corporate Credit Facility"). The Corporate Credit Facility allows for
    direct advances or the issuance of letters of credit. The outstanding
    balance at the end of the three-year term (May 2000) is payable over two
    years in four equal semiannual repayments of direct advances or
    collateralization of letters of credit. Borrowings bear interest at LIBOR
    plus an applicable margin based on the credit rating on the Company's Senior
    Notes. Commitment fees related to the Corporate Credit Facility are
    currently 30 basis points per annum, payable each quarter on the outstanding
    unused portion of the Corporate Credit Facility. As of December 31, 1997,
    the Company had no borrowings or letters of credit outstanding.

         The project financing debt is substantially non-recourse to the Company
(as parent). The project financing agreements of the Company's subsidiaries, the
Indenture for the Senior Notes and the Corporate Credit Facility agreement
contain certain covenants which, among other things, place limitations on the
payment of dividends, limit additional indebtedness, and restrict the sale of
assets. The project financing agreements also require certain cash to be held
with a trustee as security for future debt service payments. In addition, the
Facilities, as well as the long-term contracts which support them, are pledged
as collateral for the Company's obligations under the project financing
agreements.


                                       59
<PAGE>   60
         The ability of the Company's project subsidiaries to pay dividends and
management fees periodically to the Company (as parent) is subject to certain
limitations in their respective project credit documents. Such limitations
generally require that: (i) project debt service payments be current, (ii)
project debt service coverage ratios be met, (iii) all project debt service and
other reserve accounts be funded at required levels, and (iv) there be no
default or event of default under the relevant project credit documents.
Dividends, when permitted, are declared and paid immediately to the Company at
the end of such period.

         The Company's ability to pay dividends to its shareholders is
restricted by certain covenants of the Indenture for the Senior Notes and the
Corporate Credit Facility agreement. These covenants did not restrict the
Company's ability to declare a $2.1 million dividend to the Company's
shareholders for the six-month period ended December 31, 1997.

         Future maturities of long-term debt at December 31, 1997, net of
unamortized issue discounts on commercial paper notes and excluding the
unamortized balance of the deferred gain on the Senior Notes hedge transaction,
are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                              YEAR ENDED
                             DECEMBER 31,
                            --------------
                            <S>                  <C>
                                 1998            $ 74,680
                                 1999              78,823
                                 2000              81,442
                                 2001              79,099
                                 2002              61,417
                              Thereafter          292,244
                                                 --------
                                                 $667,705
                                                 ========
</TABLE>

         Cash paid for interest on the Company's long-term debt amounted to
$29,249,000, $54,458,000, $58,253,000 and $58,952,000 for the six-month period
ended December 31, 1997 and the years ended June 30, 1997, 1996 and 1995,
respectively.






                                       60
<PAGE>   61
7. INCOME TAXES

         The provision (benefit) for income taxes for the six-month period ended
December 31, 1997 and the years ended June 30, 1997, 1996 and 1995 consists of
the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                        SIX-MONTH
                                                       PERIOD ENDED          YEAR ENDED JUNE 30,
                                                         DECEMBER     ---------------------------------
                                                         31, 1997       1997         1996        1995
                                                         --------     --------     --------    --------
            <S>                                        <C>            <C>          <C>         <C>
            Current
                 Federal                                 $  1,047     $  9,025     $  6,893    $  5,264
                 State                                      1,340          978          499         355
                                                         --------     --------     --------    --------
                                                            2,387       10,003        7,392       5,619
                                                         --------     --------     --------    --------

            Deferred
                 Federal                                    4,917      (23,085)       6,406       6,191
                 State                                       (289)      (4,500)       2,163       1,527
                                                         --------     --------     --------    --------
                                                            4,628      (27,585)       8,569       7,718
                                                         --------     --------     --------    --------
                                                         $  7,015     $(17,582)    $ 15,961    $ 13,337
                                                         ========     ========     ========    ========

            Statements of Operations Captions
                 Tax effect of extraordinary loss        $   (956)    $   (470)    $      0    $      0
                 Provision (benefit) for income taxes       7,971      (17,112)      15,961      13,337
                                                         --------     --------     --------    --------
                                                         $  7,015     $(17,582)    $ 15,961    $ 13,337
                                                         ========     ========     ========    ========
</TABLE>

         Reconciliations between the federal statutory income tax rate and the
Company's effective income tax rate are as follows:

<TABLE>
<CAPTION>
                                                       SIX-MONTH
                                                      PERIOD ENDED         YEAR ENDED JUNE 30,
                                                        DECEMBER        -------------------------
                                                        31, 1997         1997      1996     1995
                                                      ------------       ----      ----     ----
          <S>                                         <C>               <C>        <C>      <C>
          Federal statutory tax rate                      35.0%         (35.0)%    35.0%    35.0%
          State income taxes, net of loss
              carryforwards and federal tax impact         3.3           (5.0)      4.6      4.2
          Other                                            1.3            1.7        .5      (.6)
                                                          ----          -----      ----     ----

          Effective tax rate                              39.6%         (38.3)%    40.1%    38.6%
                                                          ====          =====      ====     ====
</TABLE>

         The net current and noncurrent components of deferred income taxes
reflected in the accompanying consolidated balance sheets as of December 31,
1997, June 30, 1997 and June 30, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER           JUNE           JUNE
                                                               31, 1997         30, 1997       30, 1996
                                                               --------         --------       --------
            <S>                                                <C>              <C>            <C>
            Net current deferred tax (asset) liability         $ (1,615)        $ (3,460)      $    228
            Net noncurrent deferred tax liability                25,872           23,074         46,971
                                                               --------         --------       --------
            Net deferred tax liability                         $ 24,257         $ 19,614       $ 47,199
                                                               ========         ========       ========
</TABLE>




                                       61
<PAGE>   62
         Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. Significant components of the
Company's net deferred tax liability as of December 31, 1997, June 30, 1997 and
June 30, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                       DECEMBER      JUNE        JUNE
                                                                       31, 1997    30, 1997    30, 1996
                                                                       --------    --------    --------
      <S>                                                              <C>         <C>         <C>
      Deferred tax liabilities:
           Depreciation/amortization and book/tax basis differences    $ 60,072    $ 60,575    $ 86,246
           Book/tax timing differences on joint venture interest         11,727       8,528       8,656
           Other                                                          5,323       5,592       6,554
                                                                       --------    --------    --------
                                                                         77,122      74,695     101,456
                                                                       --------    --------    --------

      Deferred tax assets:
           Depreciation/amortization and book/tax basis differences      11,626      10,873       6,697
           Operating loss carryforwards                                   2,726       2,194      16,762
           Accrued expenses not currently deductible                      7,066       8,721       3,005
           Investment tax credit carryforwards                            2,291         749       5,127
           Alternative minimum tax credit carryforwards                  23,537      25,537      17,227
           Other                                                          5,619       7,007       5,439
                                                                       --------    --------    --------
                                                                         52,865      55,081      54,257
                                                                       --------    --------    --------

           Net deferred tax liability                                  $ 24,257    $ 19,614    $ 47,199
                                                                       ========    ========    ========
</TABLE>

         At December 31, 1997, the Company had federal investment tax
carryforwards of approximately $1,086,000 expiring 2002 and $1,205,000 expiring
in 2006 and alternative minimum tax credit carryforwards of approximately
$23,537,000 with no expiration date available to reduce its future federal
income tax liabilities.

         Cash paid for income taxes amounted to $4,142,000, $8,271,000,
$7,023,000 and $4,664,000 for the six-month period ended December 31, 1997 and
the years ended June 30, 1997, 1996 and 1995, respectively.

8. LEASE COMMITMENTS

         The Company leases an office building and land from Equipment Leasing
Partners ("ELP"), a partnership formed by several of the Company's shareholders,
with remaining initial lease terms of 7 years and 50 years, respectively. The
Company also leases certain equipment from ELP used to transport and handle coal
and ash at certain Facilities. Future minimum lease payments under the
agreements with ELP and agreements with other equipment providers at December
31, 1997 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                          OTHER
                       YEAR ENDED                       EQUIPMENT
                      DECEMBER 31,           ELP        PROVIDERS       TOTAL
                     --------------        -------     -----------     -------
                     <S>                   <C>         <C>             <C>
                          1998             $ 1,633        $ 411        $ 2,044
                          1999               1,316          317          1,633
                          2000               1,275          257          1,532
                          2001               1,260           93          1,353
                          2002               1,260            0          1,260
                       Thereafter            6,073            0          6,073
</TABLE>




                                       62
<PAGE>   63
9.  LOSS ON IMPAIRMENT AND COST OF REMOVAL OF COGENERATION FACILITIES

         During the fiscal year ended June 30, 1997, the Company undertook an
analysis of the post-contract operating environment for all of its operating
facilities in light of the dramatic market changes that are taking place in the
power generation industry. The analysis included assumptions regarding future
levels of operations, operating costs and market prices for equivalent
generation available from other sources. As a part of this analysis, in
accordance with the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company assessed whether any impairment of the Company's
Facilities had occurred. This assessment included comparing the projected future
cash flows to be provided by these assets to the net book value of such assets.
Based on this assessment, the Company determined that an impairment loss had
occurred on the Elizabethtown, Lumberton, Kenansville and Ringgold Facilities.
This loss on impairment of cogeneration facilities of $57.3 million represents
the excess of the net book value of these cogeneration facilities over their
current fair value, determined by discounting to present value projected future
cash flows to be provided by such assets. The Company believes that its
projections of future cash flows are based upon reasonable assumptions about the
future performance of these assets. Because of the risks and uncertainties
associated with any projections, there can be no assurances, however, that
actual events will be consistent with the assumptions made, and future cash
flows may be greater or less than those projected. The analysis also resulted in
the recognition of an $8.3 million liability related to the Company's estimated
cost of removal obligations under the land leases for the Elizabethtown,
Lumberton and Kenansville Facilities. The total impairment loss and cost of
removal of $65.6 million has been reflected in the accompanying consolidated
statements of operations for the year ended June 30, 1997.

         Also in connection with the overall assessment of the post-contract
operating environment for its cogeneration facilities, the Company concluded
that the estimated useful lives of the Elizabethtown, Lumberton, Kenansville,
Roxboro and Southport Facilities should be adjusted to reflect the economic
lives of the plants as determined by the remaining terms of their respective
power purchase agreements. The annual depreciation expense for these five
facilities, in aggregate, increased approximately $6.1 million per year as a
result of the changes in estimated useful lives and the impairment loss
recognized during the fiscal year ended June 30, 1997.

10. COMMITMENTS AND CONTINGENCIES

         Long-Term Contracts -- The Company has several long-term contractual
commitments that comprise a significant portion of its financial obligations.
These contractual commitments with original terms varying in length from 10 to
25 years are the basis for a major portion of the revenue and operating expenses
recognized by the Company and provide for specific services to be provided at
fixed or indexed prices. The major long-term contractual commitments are as
follows:

         (i)      The Company is required to sell electricity generated by each
         Facility to a Utility and the Utility is required to purchase this
         electricity at pre-established or annually escalating prices.

         (ii)     The Company is required to sell and the Steam Purchaser is
         required to purchase a minimum amount of process steam from each
         Facility for each contract year. The Steam Purchaser is generally
         required to purchase its entire steam requirements from the Company.
         The purchase price of steam under these contracts escalates annually or
         is fixed and determinable during the term of the contracts.

         (iii)    The Company is obligated to purchase and fuel suppliers are
         required to supply all the fuel requirements of each Facility. Fuel
         requirements include the quality and estimated quantity of fuel
         required to operate each Facility. The price of fuel escalates annually
         for the term of each contract. In addition, the Company has
         transportation contracts with various entities to deliver the fuel to
         each Facility. These contracts also provide for annual escalations
         throughout the term of the contracts.

         Effective September 1996, the Company amended the power sales
agreements on its Lumberton, Elizabethtown, Kenansville, Roxboro and Southport
Facilities. These amendments provide the purchasing utility additional rights
related to the dispatch of the Facilities and eliminated the purchase options
which the utility held related to the Roxboro and Southport Facilities.


                                       63
<PAGE>   64
         Effective December 1997, the Company amended the power sales agreement
on its Portsmouth Facility. This amendment provided the purchasing utility
additional rights related to the dispatch of the Facility. The terms of the
amended power sales agreement also eliminated Portsmouth's accrued obligation to
return previously disallowed capacity payments to the purchasing utility.

         Under terms of contracts with one Utility, the Company is obligated to
pay up to $8,850,000 in liquidated damages to the Utility if two of the
Company's Facilities do not demonstrate certain operating and reliability
standards. A bank has issued letters of credit in favor of the Utility which
secure the Company's obligations to the Utility under this provision of the
contracts.

         Under certain contracts with one Utility, the Utility is permitted,
subsequent to the maturity date of the original project financing debt, to
reduce future payments or recover certain payments previously made in the event
that a state utility commission prohibits the Utility from recovering such
payments made under a power sales agreement.

         Construction Agreement -- In October 1995, the Company delivered to
Clark a $20 million letter of credit, provided by a bank, which was
collateralized with a pledge of marketable securities. This letter of credit
supported certain contingent obligations of the Company under the Construction
Agreement. In December 1997, the Company substantially completed construction of
the Clark Facility and earned a construction fee of $4.5 million, which is
included in other operating revenue in the accompanying consolidated statement
of operations for the six-month period ended December 31, 1997. The $20 million
letter of credit was also released to the Company at this time. Upon final
completion of the Clark Facility and acceptance by the owner, the Company will
earn an additional $500,000 fee. The Company will also share in 50% of the
amount, if any, equal to the excess of the contract amount over the costs and
expenses incurred in constructing the Clark Facility.

         Management Incentive Compensation Plans -- The Company has entered into
various incentive compensation plans with certain employees which provide for
compensation to the employees (during the period of employment) equal to a
percentage, as determined by the board of directors, of the Company's income
before income taxes or certain subsidiaries' cash flow. The Company incurred
expense under these plans of $3,710,000 for the fiscal year ended June 30, 1996
and $3,950,000 for the fiscal year ended June 30, 1995. During the fiscal year
ended June 30, 1997, the Company incurred $10.7 million of expenses in
connection with the restructuring or termination of these incentive compensation
plans. During the six-month period ended December 31, 1997, the Company incurred
$1,067,000 of expense related to these incentive compensation plans.

         Employee Benefit Plans -- The Company sponsors a defined contribution
401(k) savings plan for its full-time employees. The Company matches employees'
contributions to the plan up to specified limitations. Company contributions to
the plan were $804,000 in the six-month period ended December 31, 1997,
$1,618,000 in the fiscal year ended June 30, 1997, $1,629,000 in fiscal 1996 and
$1,612,000 in fiscal 1995.

         The Company has a non-qualified Supplemental Retirement Plan agreement
with certain directors and officers. Under the plan, the participants may elect
to have up to 35% of their compensation deferred. In addition, the Company will
credit the participant's deferral account, up to specified limitations, with an
amount equal to the participant deferral. The participants' account balances are
distributable upon termination of employment or death. The Company purchases
insurance on the participants' lives (cash surrender value of $2,685,000 at
December 31, 1997) which is used to fully fund the liability under the plan on
an annual basis. The Company is owner and beneficiary of the policies.

         Guarantees -- In connection with its substantially non-recourse project
financings and certain other subsidiary contracts, the Company and its
subsidiary, Cogentrix, Inc. have expressly undertaken certain limited
obligations and commitments, most of which will only be effective or will be
terminated upon the occurrence of future events. These obligations and
commitments include guarantees by Cogentrix, Inc. of a certain subsidiary's
obligation capped at $1.5 million and certain subsidiaries' performance under
their contracts with one Utility. In addition, Cogentrix Energy, Inc. has
indemnified the project lenders of certain subsidiaries for any cash deficits
such subsidiaries could experience as a result of incurring certain costs,
subject to an aggregate cap of $51.9 million, which includes the impact of the
JRCC refinancing in February 1998 (see Note 14).


                                       64
<PAGE>   65
         Pending Claims and Litigation -- Effective September 1996, the Company
amended the power sales agreements on its Elizabethtown, Lumberton, Kenansville,
Roxboro and Southport facilities. Under the amended terms of these power sales
agreements, the purchasing utility has exercised its right of economic dispatch
resulting in significant reductions in fuel requirements at each of these
facilities. In response to this reduction in fuel requirements, one of the coal
suppliers for these facilities initiated an arbitration proceeding and another
filed a civil action against certain subsidiaries of the Company. The
arbitration proceeding was completed in October, 1997, with the arbitration
panel denying any recovery to the coal supplier. The coal supplier subsequently
challenged the arbitration panel's ruling. Management believes that the coal
supplier's claims provide no basis by which a court could vacate an arbitration
ruling. With respect to the civil action filed by the other coal supplier,
management believes that there is no basis for certain claims and there are
meritorious defenses as to the remainder. The Company intends to vigorously
defend the pending civil action.

         Effective December 1997, the Company amended the power sales agreement
on its Portsmouth facility. Under the amended terms, the purchasing utility has
exercised its right of economic dispatch which has led to significant reductions
in that facility's fuel requirements. In response to the reduced fuel
requirements, the coal supplier for the Portsmouth facility has filed a civil
action against a subsidiary of the Company. Management believes that there is no
basis for certain claims of the coal supplier and there are meritorious defenses
as to the remainder. The Company intends to vigorously defend the pending civil
action.

         The Company has established reserves which management believes to be
adequate to cover any costs resulting from these matters. Management believes
that the resolution of these disputes will not have a material adverse impact on
the Company's consolidated financial position or results of operations.

         In addition, the Company experiences routine litigation in the normal
course of business. Management is of the opinion that none of this routine
litigation will have a material adverse effect on the consolidated financial
position or results of operations of the Company.

11. FUNDS HELD BY TRUSTEES

         The majority of revenue received by the Company is required by the
terms of various credit agreements to be deposited in accounts administered by
certain banks (the "Trustees"). The Trustees invest funds held in these accounts
at the direction of the Company. These accounts are established for the purpose
of depositing all receipts and monitoring all disbursements of each Facility. In
addition, special accounts are established to provide debt service payments and
income taxes. The funds in these accounts are pledged as security under the
project financing agreements of each subsidiary.

         Funds held by the Trustees were $42,170,000 at December 31, 1997,
$49,187,000 at June 30, 1997,and $59,287,000 at June 30, 1996. Debt service
account balances are reflected as restricted cash, whereas all other accounts
are classified as cash and cash equivalents in the accompanying consolidated
balance sheets.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS

         The Company invests its temporary cash balances in U.S. government
obligations, corporate obligations and financial instruments of highly-rated
financial institutions. A substantial portion of the Company's accounts
receivable are from two major regulated electric utilities and the associated
credit risks are limited.

         The carrying values reflected in the accompanying consolidated balance
sheets at December 31, 1997, June 30, 1997, and June 30, 1996 approximate the
fair values for cash and cash equivalents and variable-rate long-term debt.
Investments in debt securities and certificates of deposit included in
restricted cash, marketable securities and restricted investments are also
reported at fair market value, which approximates cost, at December 31, 1997,
June 30, 1997, and June 30, 1996 (Note 3). The fair value of the Company's
fixed-rate borrowings at December 31, 1997 is $8,376,000 greater than the
historical carrying value of $225,761,000. At June 30, 1997, the fair value of
the Company's fixed-rate borrowings was $1,759,000 lower than the historical
carrying value of $226,409,000, and at June 30, 1996, the fair value of the
Company's fixed-rate borrowings was $3,631,000 lower than the historical
carrying value of $238,018,000. In making such calculations, the Company
utilized credit reviews, quoted market prices and discounted cash flow analyses,
as appropriate.


                                       65
<PAGE>   66
         The Company is exposed to credit-related losses in the event of
non-performance by counterparties to the Company's interest rate protection
agreements (Note 6). The Company does not obtain collateral or other security to
support such agreements but continually monitors its positions with, and the
credit quality of, the counterparties to such agreements. As of December 31,
1997, the gross unrealized loss on the interest rate protection agreements was
$2,670,000. As of June 30, 1997, the gross unrealized gains and losses on the
Company's interest rate protection agreements were $3,130,000 and $2,102,000,
respectively, resulting in an estimated net unrealized gain of $1,028,000, and
as of June 30, 1996, the gross unrealized gains and losses on the Company's
interest rate protection agreements were $4,984,000 and $4,185,000,
respectively, resulting in an estimated net unrealized gain of $799,000.

13. RELATED PARTY TRANSACTIONS

         The Company has notes receivable and advances due from shareholders and
an affiliated entity of approximately $118,000, $450,000 and $678,000 as of
December 31, 1997, June 30, 1997 and June 30, 1996, respectively. The notes
receivable bear interest at various rates, all of which are in excess of the
prime rate in effect from time to time, and have specified repayment terms.
These notes have been classified as other assets in the accompanying
consolidated balance sheets.

         The Company leases certain equipment, its principal executive office
building and land from an affiliated entity. Payments by the Company under these
lease agreements were approximately $869,000, $1,968,000, $2,041,000, and
$2,158,000 for the six-month period ended December 31, 1997 and the years ended
June 30, 1997, 1996 and 1995, respectively.

         In September 1991, the Company entered into a consulting agreement with
a shareholder, director and former executive officer to provide consulting
services related to general business matters. The agreement provided for monthly
payments of $12,500 through December 1995 and monthly payments of $8,333
thereafter through December 1996. In addition, the shareholder was a participant
in management incentive compensation plans (Note 10) while employed as an
executive officer of the Company and continues to receive incentive compensation
annually pursuant to such plans equal to a percentage of net cash flow, as
defined, of certain subsidiaries. Total compensation to the shareholder under
the consulting agreement and incentive compensation plans was approximately
$100,000, $374,000, $442,000, and $510,000 for the six-month period ended
December 31, 1997 and the years ended June 30, 1997, 1996 and 1995,
respectively.

         Three shareholders, who are also employees of the Company, terminated
their participation in certain management incentive compensation plans during
the fiscal year ended June 30, 1997 (Note 10). The Company recognized $3.5
million of expense related to the termination of the shareholders' participation
in these plans.

14. SUBSEQUENT EVENTS

Cogentrix of Pennsylvania, Inc.

         In January 1998, the Company signed an agreement with Pennsylvania
Electric Company ("Penelec") to terminate the Ringgold Facility's power purchase
agreement. This termination agreement was the result of a request for proposals
to buy-back or restructure power sales agreements issued to all operating IPP
projects in Penelec's territory in April 1997. The termination agreement with
Penelec provides for a payment to the Company of approximately $25 million which
will be sufficient to retire all of Cogentrix of Pennsylvania, Inc.'s ("CPA")
outstanding project debt. The buy-back of the power purchase agreement is
subject to the issuance of an order by the Pennsylvania Public Utility
Commission granting Penelec the authority to fully recover from its customers
the consideration paid to CPA under the buyout agreement. Management does not
expect this event to have an adverse impact on the Company's consolidated
results of operations or financial position.

James River Cogeneration Company

         Effective February 1998, James River Cogeneration Company ("James
River"), a joint venture owned 50% by the Company, which owns a cogeneration
facility located in Hopewell, Virginia (the "Hopewell Facility"), amended its
power sales agreement with Virginia Power to provide Virginia Power additional
rights related to the dispatch of the Hopewell


                                       66
<PAGE>   67
Facility. In connection with the amendment of the power sales agreement, the
Company amended the terms of the existing project debt on the Hopewell Facility.

         The amended terms of the Hopewell project debt resulted in an extension
of the final maturity of the note payable by six months to December 31, 2002 and
increased outstanding borrowings $34.6 million, the proceeds of which (net of
transaction costs) were paid as a distribution to the James River partners. The
amended note payable accrues interest at an annual rate equal to the applicable
LIBOR rate, as chosen by the Company, plus an additional margin of .875% through
February 1998 and 1.00% thereafter. The amended note payable also provides for a
$5 million letter of credit to secure the project's obligation to pay debt
service. Cogentrix Energy, Inc. has indemnified the lenders of the note payable
for any cash deficits the Hopewell Facility could experience as a result of
incurring certain costs, subject to a cap of $10.6 million. An extraordinary
loss of $2.4 million will be recorded in the first quarter of 1998 related to
the write-off of unamortized deferred financing costs from the original project
debt and a swap termination fee on an interest rate swap agreement hedging the
original project debt.

         The pro forma future maturities of long-term debt as of December 31,
1997, excluding unamortized issue discounts on commercial paper notes and the
unamortized balance of the deferred gain on the Senior Notes hedge transaction
and taking into account the amended project debt agreement for the Hopewell
Facility, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                 YEAR ENDED
                                DECEMBER 31,
                               --------------
                               <S>                          <C>
                                    1998                    $   78,261
                                    1999                        85,625
                                    2000                        87,663
                                    2001                        84,578
                                    2002                        73,553
                                 Thereafter                    292,608
                                                             ---------
                                                             $ 702,288
                                                             =========
</TABLE>

Whitewater and Cottage Grove Transaction

         In March 1998, the Company acquired from LS Power Corporation an
approximate 74% ownership interest in two power generation facilities in
Whitewater, Wisconsin (the "Whitewater Facility") and in Cottage Grove,
Minnesota (the "Cottage Grove Facility"). Each of the Cottage Grove and
Whitewater Facilities are 245 megawatt gas-fired, combined-cycle cogeneration
facilities. Commercial operations of the facilities commenced in the last half
of calendar 1997. The Cottage Grove Facility sells capacity and energy to
Northern States Power Company under a 30-year power sales contract terminating
in 2027. The Whitewater Facility sells capacity and energy to Wisconsin Electric
Power Company under a 25-year power sales contract terminating in 2022. The
aggregate acquisition price for the equity interest in the Cottage Grove and
Whitewater Facilities was $158.0 million. In addition, the Company pre-funded a
$16.7 million distribution to the previous owners. This distribution represented
unused construction contingency and cash flows that were accumulated by the
Cottage Grove and Whitewater Facilities prior to January 1, 1998. Cogentrix
Energy, Inc. will be entitled to a distribution of the $16.7 million in calendar
1998. The purchase price was funded with proceeds of the Corporate Credit
Facility and corporate cash balances.

Bechtel Asset Acquisition

         In March 1998, the Company signed an agreement with Bechtel Generating
Company, Inc. to acquire an ownership interest in 12 electric generating
facilities, comprising a net equity interest of approximately 360 megawatts, and
one interstate natural gas pipeline in the United States (the "Bechtel Asset
Acquisition"). The closing of the Bechtel Asset Acquisition, which is subject to
customary conditions including the obtaining of certain consents and regulatory
approvals, is currently expected to occur in calendar 1998. Management
anticipates accounting for these investments under the equity method.


                                       67
<PAGE>   68
         In connection with the Bechtel Asset Acquisition, the Company plans to
issue up to $250 million of senior notes in a Rule 144A offering with a covenant
to register exchange notes with the U.S. Securities and Exchange Commission.
These senior notes will be unsecured and will rank pari passu with the Company's
$100 million of outstanding Senior Notes due 2004. The proceeds will be used by
the Company to finance the Bechtel Asset Acquisition and to repay the
outstanding borrowings under the Corporate Credit Facility. In connection with
this anticipated debt offering, the Company executed an interest rate agreement
in March 1998 covering a notional amount of $237 million for a period of four
months to hedge against fluctuations in interest rates prior to the completion
of the debt offering.








                                       68
<PAGE>   69
                                                                      SCHEDULE I

                             COGENTRIX ENERGY, INC.

                     CONDENSED BALANCE SHEETS OF REGISTRANT

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          DECEMBER      JUNE        JUNE
                                                                          31, 1997    30, 1997    30, 1996
                                                                          --------    --------    --------
<S>                                                                       <C>         <C>         <C>
                              ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                               $  8,264    $ 10,028    $  9,268
  Restricted cash                                                            2,411       1,688       1,716
  Accounts receivable                                                        1,343       6,161       4,029
  Accounts receivable from affiliates                                        9,038       8,671       5,460
  Restricted investments                                                         0      20,000           0
  Other current assets                                                         143         309         405
                                                                          --------    --------    --------
    Total current assets                                                    21,199      46,857      20,878
                                                                          --------    --------    --------

INVESTMENT IN SUBSIDIARIES (ON THE EQUITY METHOD)                          154,321     154,016     179,361
                                                                          --------    --------    --------

EQUIPMENT, net of accumulated depreciation of $2,971, $2,748
    and $2,287, respectively                                                   918       1,038       1,213
                                                                          --------    --------    --------

OTHER ASSETS:
  Restricted investments                                                       250           0      20,000
  Income tax benefit                                                        49,765      46,048      36,002
  Deferred financing costs, net of accumulated amortization of $1,200,
    $1,027 and $713, respectively                                            2,086       2,260       2,398
  Notes receivable from affiliates                                           7,126         921       1,001
  Other                                                                      4,316       3,797       1,619
                                                                          --------    --------    --------
    Total other assets                                                      63,543      53,026      61,020
                                                                          --------    --------    --------

Total Assets                                                              $239,981    $254,937    $262,472
                                                                          ========    ========    ========

               LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                        $  2,472    $  8,808    $  4,298
  Accounts payable to affiliate                                              1,857       1,858          50
  Accrued liabilities                                                       15,513      20,543      14,078
  Accrued dividends                                                          2,140       5,000       4,759
                                                                          --------    --------    --------
    Total current liabilities                                               21,982      36,209      23,185
                                                                          --------    --------    --------

LONG-TERM LIABILITIES:
  Notes payable to affiliates                                               44,405      54,675      46,176
  Long-term debt                                                           102,087     102,300     102,728
  Other                                                                     13,235      12,044       7,373
                                                                          --------    --------    --------
    Total long-term liabilities                                            159,727     169,019     156,277
                                                                          --------    --------    --------
      Total liabilities                                                    181,709     205,228     179,462
                                                                          --------    --------    --------

SHAREHOLDERS' EQUITY:
  Common stock                                                                 130         130         130
  Accumulated earnings                                                      58,142      49,579      82,880
                                                                          --------    --------    --------
    Total shareholders' equity                                              58,272      49,709      83,010
                                                                          --------    --------    --------

Total Liabilities and Shareholders' Equity                                $239,981    $254,937    $262,472
                                                                          ========    ========    ========
</TABLE>

              The accompanying notes are an integral part of these
                        condensed financial statements.


                                       69
<PAGE>   70
                                                                      SCHEDULE I

                             COGENTRIX ENERGY, INC.

                CONDENSED STATEMENTS OF OPERATIONS OF REGISTRANT

                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     SIX-MONTH
                                                    PERIOD ENDED           YEAR ENDED JUNE 30,
                                                      DECEMBER     ----------------------------------
                                                      31, 1997       1997         1996         1995
                                                    ------------   --------     --------     --------
<S>                                                 <C>            <C>          <C>          <C>
INCOME:
  Development and construction management fees        $  4,649     $  1,275     $      0     $    197
  Operating management fees                              8,501       20,239       10,549        9,576
                                                      --------     --------     --------     --------

    Total income                                        13,150       21,514       10,549        9,773
                                                      --------     --------     --------     --------

OPERATING EXPENSES:
  General, administrative and development expenses      17,948       38,381       25,123       27,180
  Depreciation and amortization                            639        1,253        1,302        1,221
                                                      --------     --------     --------     --------

    Total operating expenses                            18,587       39,634       26,425       28,401
                                                      --------     --------     --------     --------

OPERATING LOSS                                          (5,437)     (18,120)     (15,876)     (18,628)
                                                      --------     --------     --------     --------

OTHER INCOME (EXPENSE):
  Interest expense                                      (4,655)     (10,634)      (8,735)      (7,723)
  Investment and other income                              705        2,523        1,736          690
                                                      --------     --------     --------     --------

    Total other expense                                 (3,950)      (8,111)      (6,999)      (7,033)
                                                      --------     --------     --------     --------

LOSS BEFORE INCOME TAXES                                (9,387)     (26,231)     (22,875)     (25,661)

INCOME TAX BENEFIT                                       3,718       10,047        9,173        9,906

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES               16,372      (12,117)      37,497       36,928
                                                      --------     --------     --------     --------

NET INCOME (LOSS)                                     $ 10,703     $(28,301)    $ 23,795     $ 21,173
                                                      ========     ========     ========     ========
</TABLE>






              The accompanying notes are an integral part of these
                        condensed financial statements.


                                       70
<PAGE>   71
                                                                      SCHEDULE I

                             COGENTRIX ENERGY, INC.

                CONDENSED STATEMENTS OF CASH FLOWS OF REGISTRANT

                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                              SIX-MONTH
                                                             PERIOD ENDED           YEAR ENDED JUNE 30,
                                                               DECEMBER     ----------------------------------
                                                               31, 1997       1997         1996         1995
                                                             ------------   --------     --------     --------
<S>                                                          <C>            <C>          <C>          <C>
NET CASH FLOWS USED IN OPERATING ACTIVITIES                    $(15,188)    $(17,692)    $    (23)    $(24,462)
                                                               --------     --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease (increase) in restricted investments                  19,750            0      (20,000)           0
  Property, plant and equipment additions                          (102)        (286)        (232)        (532)
  Investments in subsidiaries, net                               16,067       13,228        7,422       31,178
                                                               --------     --------     --------     --------
  Net cash flows provided by (used in) investing activities      35,715       12,942      (12,810)      30,646
                                                               --------     --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable to affiliate                        8,230       10,944       18,500            0
  Decrease (increase) in restricted cash                           (723)          28          660         (681)
  Decrease (increase) in notes receivable from affiliates        (6,205)          80            0            0
  Increase in deferred financing costs                              (93)        (176)           0          (93)
  Repayment of long-term notes payable to affiliates            (18,500)        (607)      (3,560)      (1,500)
  Dividends paid                                                 (5,000)      (4,759)      (4,235)      (3,328)
                                                               --------     --------     --------     --------
  Net cash flows provided by (used in) financing activities     (22,291)       5,510       11,365       (5,602)
                                                               --------     --------     --------     --------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                               (1,764)         760       (1,468)         582

CASH AND CASH EQUIVALENTS, beginning of period                   10,028        9,268       10,736       10,154
                                                               --------     --------     --------     --------

CASH AND CASH EQUIVALENTS, end of period                       $  8,264     $ 10,028     $  9,268     $ 10,736
                                                               ========     ========     ========     ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION -- CASH DIVIDENDS RECEIVED                       $ 41,619     $ 56,614     $ 44,548     $ 37,952
                                                               ========     ========     ========     ========
</TABLE>






              The accompanying notes are an integral part of these
                        condensed financial statements.


                                       71
<PAGE>   72
                                                                      SCHEDULE I

                             COGENTRIX ENERGY, INC.
              NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT

1. SIGNIFICANT ACCOUNTING POLICIES

         Accounting for Subsidiaries -- Cogentrix Energy, Inc. has accounted for
its investment in and earnings of its subsidiaries on the equity method in the
condensed financial information.

         Income Taxes -- The benefit for income taxes has been
computed based on the Company's consolidated effective income tax rate.

         Change of Fiscal Year -- Effective January 1, 1998, Cogentrix Energy,
Inc. changed its fiscal year to commence on January 1 and conclude on December
31 of each year. Cogentrix Energy, Inc.'s fiscal year previously commenced each
July 1, concluding on June 30 of the following calendar year.

         Reclassification -- Certain amounts included in the condensed financial
statements for the fiscal years ended June 30, 1997, 1996 and 1995 have been
reclassified from their original presentation to conform with the presentation
for the six-month period ended December 31, 1997.

2. LONG-TERM DEBT

Senior Notes

         On March 15, 1994, Cogentrix Energy, Inc. issued $100 million of
registered, unsecured senior notes due 2004 (the "Senior Notes") in a public
debt offering. The Senior Notes were priced at par to yield 8.10%. In February
1994, the Company entered into a forward sale of ten-year U.S. Treasury Notes in
order to protect against a possible increase in the general level of interest
rates prior to the completion of the Senior Notes offering. This hedge
transaction resulted in the recognition of a gain which has been deferred and
included as part of the Senior Notes on the accompanying condensed balance
sheets. This deferred gain will be recognized over the term of the Senior Notes,
reducing the effective rate of interest on the Senior Notes to 7.5%. The Senior
Notes require annual sinking fund payments beginning in March 2001.

         Future maturities of long-term debt at December 31, 1997, excluding the
unamortized balance of the deferred hedge gain, are as follows (dollars in
thousands):

<TABLE>
<CAPTION>
                           YEAR ENDED
                          DECEMBER 31,
                         --------------
                         <S>                      <C>
                              1998                $      0
                              1999                       0
                              2000                       0
                              2001                  20,000
                              2002                  20,000
                           Thereafter               60,000
                                                  --------
                                                  $100,000
                                                  ========
</TABLE>

Corporate Credit Facility

         In May 1997, Cogentrix Energy, Inc. entered into a credit agreement
with Australia and New Zealand Banking Group Limited, as Agent, which provides
for a $50,000,000 revolving credit facility (the "Corporate Credit Facility")
with an initial term of three years (the "Revolving Term"). The Corporate Credit
Facility provides for one-year extensions of the Revolving Term, subject to
lender consent. The Corporate Credit Facility allows for direct advances or the
issuance of letters of credit. The outstanding balance at the end of the
Revolving Term is payable over two years in four equal semiannual repayments of
direct advances or collateralization of letters of credit. Borrowings bear
interest at LIBOR plus an applicable margin based on the credit rating on the
Senior Notes. Commitment fees related to the Corporate Credit Facility are
currently 30 basis points per annum, payable each quarter on the outstanding
unused portion of the Corporate Credit Facility. As of December 31, 1997,
Cogentrix Energy, Inc. had no borrowings or letters of credit outstanding.


                                       72
<PAGE>   73
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.










                                       73
<PAGE>   74
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The directors and executive officers of the Company are as set forth
below.

<TABLE>
<CAPTION>
NAME                       AGE     POSITION
----                       ---     --------
<S>                        <C>     <C>
George T. Lewis, Jr.       70      Chairman of the Board and Director
David J. Lewis             41      Vice Chairman, Chief Executive Officer and Director
Mark F. Miller             43      President, Chief Operating Officer and Director
Betty G. Lewis             68      Director
James E. Lewis             34      Executive Vice President and Director
Robert W. Lewis            44      Director
Dennis W. Alexander        51      Group Senior Vice President, General Counsel, Secretary and Director
W. E. Bill Garrett         67      Director
John A. Tillinghast        70      Director
James R. Pagano            38      Group Senior Vice President -- Chief Financial Officer
B. Yamin Afshar            54      Senior Vice President - Marketing and Development
Kartar B. Singh            57      Senior Vice President -- Estimating and Cost Scheduling
</TABLE>

         GEORGE T. LEWIS, JR., the founder of Cogentrix, has been Chairman of
the Board and a Director of the Company since its formation in 1993 and Chief
Executive Officer of the Company from December 1993 to August 1995, prior to
which he was Chief Executive Officer and a Director of Cogentrix from 1983 to
1993, Chairman of the Board of Cogentrix since 1990 and President of Cogentrix
from 1983 to 1989. Mr. Lewis previously served for over 18 years with Chas T.
Main, Inc. ("Main"), an engineering firm headquartered in Boston. In 1971, he
became a Senior Vice President responsible for that company's work with the
utility industry. From 1978 through 1980, he headed Main's Southern District
office located in Charlotte, North Carolina and directed Main's involvement in
the area of coal-fired industrial power plants. In 1980, Mr. Lewis was promoted
to Group Vice President and director and returned to Boston to assume
responsibility for all corporate marketing and sales. In this capacity, he
became convinced that cogeneration projects would become an emerging market and
left Main to form Cogentrix.

         DAVID J. LEWIS has been a Director of the Company since its formation
and was appointed Vice Chairman of the Board and Chief Executive Officer in
August 1995. Prior to August 1995, Mr. Lewis was Executive Vice President
--Marketing and Development, Chief Executive Officer -- Elect since June 1994,
Group Senior Vice President -- Marketing and Development with Cogentrix since
September 1993 and a Director of Cogentrix since 1988. From 1989 until September
1993, he was Senior Vice President -- CGX Environmental Systems and President
and Chief Operating Officer -- CGX Environmental Systems Division of Cogentrix.
From 1987 to 1989, he was Vice President -- Administration of Cogentrix, from
1986 to 1987, he was Resident Construction Manager and from 1985 to 1986, he was
Assistant Construction Manager. Prior to joining Cogentrix in 1985, he was
Operations Manager with Bartex Corporation, an export management company
headquartered in Portland, Oregon. David Lewis is a son of George T. Lewis, Jr.
and Betty G. Lewis.

         MARK F. MILLER was appointed President, Chief Operating Officer and a
Director of the Company in May 1997. Prior to joining the Company, Mr. Miller
was Vice President for Northrop Grumman in Bethpage, New York. He joined
Northrop Grumman in 1982 and held successive positions in the material, law and
contracts departments before being named Vice President, Contracts and Pricing
at Northrop's B-2 Division in 1991. In 1993, he became Vice President Business
Management at the B-2 Division. In 1994, Northrop acquired the Grumman
Corporation and Mr. Miller was named Vice President-Business Management for the
newly formed Electronics and Systems Integration Division, a position he held
until his move to Cogentrix. From 1980 to 1982, he was an Associate with the law
firm of Dolack, Hansler.

         BETTY G. LEWIS has been a Director of the Company since September 1994.
Betty Lewis is the spouse of George T. Lewis, Jr.



                                       74
<PAGE>   75
         JAMES E. LEWIS has been Executive Vice President and a Director of the
Company since its formation, prior to which he was Executive Vice President of
Cogentrix since November 1992 and a Director of Cogentrix since 1988. From 1991
to 1992, he was Senior Vice President of Operations responsible for the daily
operations of the Company's facilities. From 1989 to 1991, Mr. Lewis was Vice
President -- Utility Operations. Mr. Lewis joined Cogentrix in 1986 and in 1987,
he was selected as Assistant Project Manager responsible for the construction of
the Company's Portsmouth Facility. James Lewis is a son of George T. Lewis, Jr.
and Betty G. Lewis.

         ROBERT W. LEWIS has been a Director of the Company since its formation,
prior to which he was a Director of Cogentrix since 1988. In April 1991, Mr.
Lewis resigned from his positions of Vice Chairman and Secretary of Cogentrix
which he had held since March 1991. Since his resignation as an officer, Mr.
Lewis has served as a consultant to the Company. From October 1990 to March
1991, Mr. Lewis was Executive Vice President and Secretary. From March 1988 to
October 1990, Mr. Lewis was Senior Vice President -- Corporate Development and
Secretary, in which position Mr. Lewis was in charge of Cogentrix's development
efforts. From March 1987 to March 1988, Mr. Lewis was Senior Vice President --
Administration and Secretary. From September 1983 to March 1987, Mr. Lewis was
Vice President -- Administration and Secretary. Mr. Lewis joined Cogentrix in
April 1983 and served as Secretary through September 1983. Robert Lewis is a son
of George T. Lewis, Jr. and Betty G. Lewis.

         DENNIS W. ALEXANDER has been Group Senior Vice President, General
Counsel, Secretary and a Director since joining the Company in February 1994.
Immediately prior to joining the Company, Mr. Alexander was Vice
President/General Counsel of Wheelabrator Environmental Systems Inc., the
waste-to-energy and cogeneration subsidiary of Wheelabrator Technologies Inc.,
an independent power and environmental services and products company, as well as
Director, Environmental, Health and Safety Audit Program for Wheelabrator
Technologies Inc. From 1988 to 1990, Mr. Alexander was Vice President/General
Counsel -- Operations of Wheelabrator Environmental Systems Inc. and from 1986
to 1988 was Vice President/General Counsel of Wheelabrator Energy Systems, a
cogeneration project development subsidiary. From 1984 to 1986, he served as
Group General Counsel for The Signal Company and from 1980 to 1984 as Division
General Counsel of Wheelabrator-Frye Inc., each a diversified public company.

         W. E. BILL GARRETT has been a Director of the Company since its
formation and became a Director of Cogentrix in September 1993. Mr. Garrett
served on the staff of the National Geographic Society for 36 years -- the last
10 as Editor-in-Chief of the magazine. As a member of the Board of Trustees of
the National Geographic Society and its Research and Exploration Committee, he
was instrumental in the Society's emergence as the world's largest educational
and scientific institution. He resigned in 1990 and became the President of the
La Ruta Maya Conservation Foundation, which is involved in cultural and
conservation work with the Maya Indians. Mexico, Guatemala and Italy have
honored him with prestigious awards for his work in the region. Mr. Garrett
currently serves on the boards of the National Capital Bicentennial Celebration,
the American Land Conservancy, and Partners for Livable Communities.

         JOHN A. TILLINGHAST was elected a Director of the Company on March 19,
1998, filling a position left vacant since the death of former board member T.
Louis Austin, Jr. last year. Mr. Tillinghast has served since 1994 as President,
Chairman and CEO of Great Bay Power Corporation, a public utility in Dover, New
Hampshire. He also has served since 1997 as the President, Chairman and CEO of
BayCorp Holdings, Ltd., the holding company for Great Bay Power Corporation.
After graduating from Columbia University in 1949 with BS and MS degrees in
mechanical engineering, Mr. Tillinghast began a 30-year career with American
Electric Power Company, rising through the engineering ranks to become Vice
Chairman of the Board in charge of engineering and construction. Prior to his
current position at Great Bay Power Corporation, he served as Chairman of the
Energy Engineering Board of the National Academy of Sciences, Director of the
Edison Electric Institute and is a Fellow of the American Society of Mechanical
Engineers. Mr. Tillinghast is registered as a professional engineer in nine
states and holds two U.S. and seven foreign patents.

         JAMES R. PAGANO has been Group Senior Vice President -- Chief Financial
Officer of the Company since May 1997, prior to which he was Senior Vice
President -- Project Finance since February 1995 and Vice President -- Project
Finance since the Company's formation. Previously, Mr. Pagano was Vice President
-- Project Finance of Cogentrix since July 1993, Vice President -- Legal and
Finance from July 1992 to July 1993, and from January 1992 to July 1992, Mr.
Pagano was Vice President and Assistant General Counsel of Cogentrix. Prior to
joining Cogentrix, he was Vice President of The Deerpath Group, Inc., a
financial advisory firm. From 1987 to 1990, Mr. Pagano was an Associate with the
law firm of Simpson Thacher & Bartlett.



                                       75
<PAGE>   76
         B. YAMIN AFSHAR was appointed Senior Vice President - Marketing and
Development of the Company in September 1997, prior to which he was Senior Vice
President -- International Development since joining the Company in 1994. Mr.
Afshar is responsible for identifying and managing the development of
independent power opportunities for the Company. Prior to joining the Company,
Mr. Afshar was employed by Parsons Main International, Inc. for more than 20
years. His experience includes extensive work in Asia, Latin America and the
Middle East, developing and successfully negotiating contracts with suppliers
and contractors relating to power projects abroad.

         KARTAR B. SINGH has been Senior Vice President -- Estimating and Cost
Scheduling of the Company since its formation, prior to which he held the same
position of Cogentrix since 1988 and also the positions of Assistant to
President from 1987 to 1991 and Assistant to Chairman from 1991. From 1983 to
1984, he was Chief Estimator and Project Manager. From 1979 to 1983, Mr. Singh
was Chief Estimator and Chief Planning and Scheduling Engineer with Main. Mr.
Singh has 32 years' experience in engineering, estimating, planning and
scheduling and construction in the utility and industrial sector.










                                       76
<PAGE>   77
ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth information for the calendar year ended
December 31, 1997 and for the two fiscal years ended June 30, 1997 concerning
the annual compensation paid or accrued by the Company to or for the account of
each of the following: (i) the only person who served as the chief executive
officer of the Company during the calendar year ended December 31, 1997 and (ii)
the four most highly compensated executive officers of the Company incumbent at
December 31, 1997, other than the chief executive officer, for the year then
ended (collectively, the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             ANNUAL COMPENSATION
             NAME AND                      TWELVE-MONTH           ----------------------------------------         ALL OTHER
        PRINCIPAL POSITION                 PERIOD ENDING          SALARY (1)       BONUS (2)       TOTAL        COMPENSATION(3)
        ------------------                 -------------          ----------       ---------       -----        ---------------
<S>                                      <C>                      <C>              <C>          <C>             <C>
George T. Lewis, Jr.                     December 31, 1997         $674,086         $332,080    $1,006,166          $955,624
Chairman of the Board                      June 30, 1997            666,647          332,080       998,727           994,992
                                           June 30, 1996            649,100          381,810     1,030,910            60,960

David J. Lewis                           December 31, 1997          613,960          841,239     1,455,199           920,329
Vice Chairman and Chief Executive          June 30, 1997            565,317          695,824     1,261,141           929,829
Officer                                    June 30, 1996            351,720          359,500       711,220            45,040

James E. Lewis                           December 31, 1997          364,524          415,163       779,687           910,523
Executive Vice President                   June 30, 1997            360,347          345,124       705,471           928,883
                                           June 30, 1996            349,720          279,950       629,670            37,380

James R. Pagano                          December 31, 1997          223,532          345,033       568,565            28,412
Group Senior Vice President                June 30, 1997            194,498          180,000       374,498            28,912
and Chief Financial Officer                June 30, 1996            155,243          137,367       292,610            17,570

Dennis W. Alexander                      December 31, 1997          284,086          175,033       459,119            21,845
Group Senior Vice President                June 30, 1997            272,068           70,000       342,068            21,472
and General Counsel                        June 30, 1996            220,946          198,840       419,786            15,332
</TABLE>


(1)      Amounts listed in this column include all fees for service on the
         Company's board of directors.
(2)      Amounts listed in this column reflect annual performance bonuses and
         annual distributions under the Profit-Sharing Plan and Facility Cash
         Flow Incentive Compensation Agreements discussed below. The amounts
         listed do not include the distributions made under such plan and
         agreements to the Named Executive Officers during any fiscal year in
         which such distribution was earned in the previous fiscal year.
(3)      The amounts shown in this column include (i) the Company's matching
         contributions on behalf of the Named Executive Officers to the
         Company's 401(k) savings plan in which all Company employees are
         eligible to participate and to a non-qualified Supplemental Retirement
         Savings Plan in which approximately 33 employees, including all of the
         Named Executive Officers participate, and (ii) the payments made to
         David J. Lewis, James E. Lewis and George T. Lewis, Jr. related to the
         termination of the facility cash flow incentive compensation
         agreements, net of the awards each of these Named Executive Officers
         would have otherwise received under these plans for the fiscal year
         ended June 30, 1997, which amounts are included under the column
         heading "Bonuses."




                                       77
<PAGE>   78
COMPENSATION PURSUANT TO INCENTIVE COMPENSATION PLANS

Profit-Sharing Plan

         The Company has a non-qualified incentive compensation plan for the
benefit of approximately 42 employees of the Company and its affiliates (the
"Profit-Sharing Plan"). Under the Profit-Sharing Plan, the Company has entered
into arrangements with each of its executive officers, which provide for annual
cash compensation distribution awards to each participant equal to a designated
percentage of the Company's adjusted net income before taxes each fiscal year
plus the amount of any accrual for payments to be made under the Profit-Sharing
Plan (the "Designated Percentage"), with the Designated Percentage determined
annually at the discretion of the Company's Chief Executive Officer or Chief
Operating Officer based on criteria they deem appropriate. No payments were made
under the Profit-Sharing Plan for the fiscal year ended June 30, 1997. For the
twelve-month period ended December 31, 1997, David J. Lewis earned $190,065,
James E. Lewis earned $114,039, and James R. Pagano and Dennis W. Alexander each
earned $95,033 under the Profit Sharing Plan, all of which was earned during the
six-month period ended December 31, 1997.

         In the event a participant in the Profit-Sharing Plan terminates his or
her employment with the Company (for a reason other than death, total
disability, retirement or termination by the Company for willful misconduct),
the participant is entitled to receive a severance benefit equal to a percentage
(ranging from 100% after six years of full-time employment to a maximum of 200%
after ten years or more of full-time employment) of the most recent annual
distribution to which the employee is then entitled. In the event of a
participant's death or total disability, the participant (or his or her
beneficiary) is entitled to receive from zero to five years of annual
distribution awards thereafter, depending upon the participant's length of
service with the Company.

Executive Incentive Bonus Plan

         In addition to the annual cash compensation distribution awards payable
under the Profit-Sharing Plan or the Facility Cash Flow Incentive Compensation
Agreement described below, certain executive officers, including David J. Lewis,
James E. Lewis, Mark F. Miller, Dennis W. Alexander and James R. Pagano may
receive additional incentive cash compensation awards, determined on a sliding
scale, if the Company achieves certain designated net income before income tax
targets for a given fiscal year. No such additional incentive cash compensation
awards were earned during the fiscal year ended June 30, 1997 or during the
twelve-month period ended December 31, 1997.

Facility Cash Flow Incentive Compensation Agreements

         The Company had entered into non-qualified incentive compensation
agreements with three of the Named Executive Officers, David J. Lewis, James E.
Lewis and George T. Lewis, Jr., each of whom is a director and a shareholder of
the Company. Such agreements provided for each of these Named Executive Officers
to receive through June 30, 2007, annual distributions equal to a designated
percentage of the net cash flow for the fiscal year of one or both of two of the
Company's facilities. In fiscal 1997, the Company terminated the facility cash
flow incentive compensation agreements with these named executive officers. In
connection with the termination of these plans, David J. Lewis, James E. Lewis
and George T. Lewis, Jr. were paid $1,157,996, $1,119,816 and $1,247,259,
respectively.

EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS

David J. Lewis

         In August 1995, the board of directors elected David J. Lewis Vice
Chairman and Chief Executive Officer of the Company. George T. Lewis, Jr., the
former Chief Executive Officer, will continue to serve as Chairman of the Board.
The Company has an employment agreement with David J. Lewis through August 2000,
which provides for a base annual salary. In addition to the base salary, Mr.
Lewis is entitled to receive annual incentive compensation in an amount
determined by the board of directors, which amount, when combined with the base
salary payable to him, shall be at least sufficient to provide him with total
annual compensation that is competitive with total annual compensation offered
by other similarly situated companies to their employees in comparable
positions.



                                       78
<PAGE>   79
         The employment agreement is terminable upon notice given by the Company
in the event a majority of the board of directors terminates Mr. Lewis's
employment for cause. In addition, the Company may terminate the agreement at
any time at its option in the event that the board determines in its reasonable,
good faith judgment, and by a vote of at least two-thirds of the directors then
in office, that the continued service of Mr. Lewis as Chief Executive Officer of
the Company would not be in the best interest of the Company because there has
occurred a continued failure by him (whether or not such failure resulted from
his physical or mental incapacity) substantially to perform his duties,
responsibilities or obligations as Chief Executive Officer after having been
given written notice of such failure to perform and after having failed to
improve such performance within the time period (which shall have been a
reasonable time period) specified in such notice. Mr. Lewis may terminate his
employment agreement at any time at his option in the event of a Change of
Control (as defined) of the Company.

George T. Lewis, Jr.

         In August 1995, the Company entered into a five-year employment and
noncompetition agreement with George T. Lewis, Jr., a shareholder and Chairman
of the Board. Under the terms of the agreement, Mr. Lewis is required to be
fully available to the Company during customary business hours for
consultations, either in person or by telephone, with respect to such of the
Company's business and affairs as the Company may reasonably call on him to
furnish. In addition, the restrictive covenants of the agreement substantially
limit Mr. Lewis' ability to engage in consulting arrangements for other
companies and prohibit his support of any company in the energy industry.
Pursuant to the agreement, Mr. Lewis will receive base compensation, adjusted
annually based on an inflationary index, as well as performance bonuses, the
amount of which will be determined in accordance with Company policy by the
Chief Executive Officer in consultation with the Chief Operating Officer. Mr.
Lewis received base compensation of $646,000 for the year ended December 31,
1997.

         In the event of Mr. Lewis' death or inability to provide services due
to disability, the agreement shall terminate and the Company is obligated to
continue making payments to him or to his estate for a period of six months
after such termination. The Company may terminate this agreement for cause at
any time, and Mr. Lewis may voluntarily terminate this agreement at any time. In
either case, Mr. Lewis shall not be entitled to any further payments or benefits
under the consulting agreement. In the event the Company terminates this
agreement without cause, Mr. Lewis is entitled to receive all payments and
benefits which would have been earned throughout the term of this consulting
agreement.

Dennis W. Alexander

         When he joined the Company in January 1994, the Company entered into an
employment agreement with Dennis W. Alexander to serve as Senior Vice President,
General Counsel and Secretary. The Agreement also provides that Mr. Alexander
shall be a member of the Board of Directors. Under the employment agreement, Mr.
Alexander is entitled to a minimum base annual salary of $180,000, subject to
adjustment in future years. He is also entitled to participate in the Company's
Profit Sharing Plan (at a level of no less than 0.3% of net income before taxes)
and Executive Incentive Bonus Plan. The employment agreement is for a one year
term that renews automatically at the end of each calendar year unless the
Company previously exercises its right to terminate Mr. Alexander. The Company
has the right to terminate Mr. Alexander upon 30 days' written notice (with a
material change in his title, authority, duties or current compensation
following a change in control of the Company constituting a de facto termination
by the Company). In the event the Company terminates his employment, Mr.
Alexander is entitled to receive (within 30 days of his termination) a severance
payment in an amount equal to his total compensation received in the prior
calendar year (including any fees he received for serving as a member of the
Board of Directors).

DIRECTORS' COMPENSATION AND CONSULTING AGREEMENTS

         Directors, including employee directors, receive an annual retainer of
$25,000 for service on the board of directors. In addition, for each meeting
attended, each director receives a fee of $1,000. During the year ended December
31, 1997, there were five meetings of the Company's board of directors.

         The Company has entered into a consulting agreement with Mr. Garrett
that provides for payment to him of $15,000 annually for consulting services to
be rendered to the Company.


                                       79
<PAGE>   80
         While he was employed as an executive officer, Cogentrix entered into a
non-qualified incentive compensation agreement with Robert W. Lewis similar to
the agreements described above under "Facility Cash Flow Incentive Compensation
Agreements" providing for him to receive incentive compensation annually equal
to a designated percentage of the net cash flow for the fiscal year of two of
the Company's facilities. The Company's obligation to make such annual payments
to him continues through June 30, 2007. The Company has agreed to pay him an
annual minimum payment of $200,000 regardless of whether his actual annual
distribution would yield such amount. Robert W. Lewis must repay to the Company,
on or before January 31, 2008, an amount equal to the aggregate amount of
minimum payments made in excess of the actual annual distributions which he was
entitled to receive. The actual amount of the distribution Mr. Lewis received
pursuant to his facility cash flow compensation agreement for the six-month
period ended December 31, 1997 was $100,000.

         If at any time through June 1, 2007 Mr. Lewis sells or transfers any of
the shares of common stock of the Company held by him to anyone other than
certain other members of the Lewis family without granting the Company a right
of first refusal with respect to the shares sold or transferred, he will forfeit
his right to the annual distributions under his facility cash flow incentive
compensation agreement and the right to the annual minimum payment of $200,000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         All of the issued and outstanding shares of common stock of the Company
are beneficially owned by George T. Lewis, Jr., Betty G. Lewis and their three
sons: David J. Lewis, James E. Lewis and Robert W. Lewis. The number of shares
and the percentage of the total number of shares beneficially owned by each are
shown below.

<TABLE>
<CAPTION>
                                       NUMBER OF             PERCENTAGE
         NAME                           SHARES               OWNERSHIP
         ----                           ------               ---------
         <S>                           <C>                   <C>
         George T. Lewis, Jr.(1)        73,320                   26%
         John C. Fennebresque(2)        73,320                   26
         Betty G. Lewis                 73,320                   26
         David J. Lewis                 45,120                   16
         James E. Lewis                 45,120                   16
         Robert W. Lewis                45,120                   16
</TABLE>

(1)      George T. Lewis, Jr.'s shares are held of record by a revocable grantor
         trust (the "Trust") that may be revoked by Mr. Lewis at any time prior
         to his death, in which event the shares held by the Trust would be
         transferred to him. Accordingly, he is deemed to be the beneficial
         owner of the shares held by the Trust.
(2)      The 73,320 shares shown as beneficially owned by Mr. Fennebresque are
         all held of record by the Trust described in Note 1 above. Mr.
         Fennebresque is deemed to be the beneficial owner of these shares,
         because he is the sole trustee of the Trust and, as such, has the power
         to vote and invest the shares held by the Trust. Since George T. Lewis,
         Jr. is also deemed to be the beneficial owner of these shares, they are
         also included in the amount shown for the number of shares beneficially
         owned by George T. Lewis, Jr.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The transactions described or referred to below were entered into
between related parties. In connection with the public offering of the Company's
Senior Notes conducted in March 1994, the Company's board of directors adopted a
policy that all subsequent material transactions with related parties must be on
terms no less favorable than could be obtained from third parties and that any
variance from this policy is subject to approval by a majority of the Company's
disinterested directors. The Indenture under which the Senior Notes were issued
and the covenants of the Credit Facility place certain limitations on the
Company's ability to enter into material transactions with related parties as
well.

LEASES AND REAL PROPERTY TRANSACTIONS

         Equipment Leasing Partners ("ELP"), a North Carolina general
partnership consisting of four of the Company's shareholders, George T. Lewis,
Jr., David J. Lewis, James E. Lewis and Robert W. Lewis, owns and leases certain
equipment to the Company's project subsidiaries related to the operations of the
plants. Each of the partners in ELP is a member of the


                                       80
<PAGE>   81
Company's board of directors. David J. Lewis, James E. Lewis and George T.
Lewis, Jr. are also executive officers of the Company. Total rent paid by the
Company to ELP under such equipment leases was $329,892 for the six-month period
ended December 31, 1997, $1,021,400 for the fiscal year ended June 30, 1997,
$1,112,000 for the fiscal year ended June 30, 1996 and $1,244,000 for the fiscal
year ended June 30, 1995.

         ELP also owns and leases to the Company the Company's executive offices
under a long term lease with an initial term expiring in 2004. Total rent paid
by the Company to ELP under such lease was $398,526 for the six-month period
ended December 31, 1997, $834,000 for the fiscal year ended June 30, 1997,
$817,000 in the fiscal year ended June 30, 1996, and $801,000 for the fiscal
year ended June 30, 1995.

         ELP leases the land on which the Company's executive offices are
located under a long-term ground lease from an unrelated third party with an
initial term expiring in 2047, all payments under which are guaranteed by
Cogentrix. Total amounts paid by ELP under such lease were $56,000 for the
six-month period ended December 31, 1997 and $112,000 for each of the years
ended June 30, 1997, 1996 and 1995.

INDEBTEDNESS OF MANAGEMENT

         The Company has from time to time made loans and advances to certain
shareholders, each of whom is also a director of the Company. The largest
aggregate amount of indebtedness outstanding exceeding $60,000 at any time
during the six-month period ended December 31, 1997 for these shareholders and
the outstanding balances at December 31, 1997 were as follows:

<TABLE>
<CAPTION>
                                          LARGEST BALANCE
                                      OUTSTANDING DURING THE
                                      SIX-MONTH PERIOD ENDED        OUTSTANDING
                                      ----------------------       BALANCE AS OF
          SHAREHOLDER/DIRECTOR           DECEMBER 31, 1997       DECEMBER 31, 1997
          --------------------           -----------------       -----------------
          <S>                         <C>                        <C>
          George T. Lewis, Jr.                $140,000                 $28,000
</TABLE>

         The loans to George T. Lewis, Jr. were made at interest rates equal in
each case to the prime rate of certain designated banks plus one percent.

         Cogentrix has also from time to time made loans to ELP for the purpose
of financing purchases of equipment. These loans were made at variable rates of
interest equal to the prime rate of designated banks plus approximately two
percentage points. The largest aggregate amount of indebtedness of ELP to
Cogentrix outstanding during the six-month period ended December 31, 1997 was
$44,000. ELP had no indebtedness to Cogentrix as of December 31, 1997.

FACILITY CASH FLOW INCENTIVE COMPENSATION AGREEMENTS

         The Company has entered into agreements with four of the beneficial
owners of the Company's outstanding shares of common stock, three of whom are
executive officers of the Company (the fourth being a former executive officer)
and each of whom is a director, that provide for them to receive annual
distributions equal to a designated percentage of the net cash flow for each
fiscal year of one or both of two of the Company's facilities. During the fiscal
year ended June 30, 1997, the Company terminated these agreements for the three
executive officers. See "Executive Compensation --Compensation Pursuant to
Incentive Compensation Plans -- Facility Cash Flow Incentive Compensation
Agreements --Directors' Compensation and Consulting Agreements" herein.

SHAREHOLDER STOCK TRANSFER AGREEMENT

         In August 1994, George T. Lewis, Jr. entered into an agreement with
Betty G. Lewis ("Ms. Lewis") providing for, among other things, the transfer by
George T. Lewis, Jr. of a portion of his shares of the Company's common stock to
Ms. Lewis.


                                       81
<PAGE>   82
         In accordance with the agreement, if Ms. Lewis desires to transfer or
otherwise dispose of any of her shares of common stock of the Company, she must
first offer to sell them to the Company at a price equal to a bona fide offer
from an unrelated party. Any shares, the offer of sale of which is not accepted
by the Company after receipt of the written offer, must be offered by Ms. Lewis
at the same price to the other shareholders, who have the right to purchase such
shares on a pro rata basis determined in accordance with the then current stock
ownership of those shareholders. In the event neither the Company nor the other
shareholders notify Ms. Lewis of its or their intention to purchase her shares
within 15 days after receipt of the written offer, Ms. Lewis shall have the
right for 90 days thereafter to consummate the sale of her shares with the
unrelated party who provided the bona fide offer.










                                       82
<PAGE>   83

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a) Financial Statements, Financial Statement Schedules and Exhibits -
             The following documents are filed as part of this Form 10-K.

                  (1)      Consolidated Financial Statements - See index on page
                           45.

                  (2)      Financial Statement Schedules - See index on page 45.

                  (3)      Index to Exhibits.

<TABLE>
<CAPTION>

         Designation Of
              Exhibit              Description Of Exhibit
         -------------             ----------------------
         <S>                  <C>
               1.1            Form of Underwriting Agreement (1.1). (3)
               3.1            Articles of Incorporation of Cogentrix Energy,
                              Inc. (3.1). (1)
               3.2            Amended and Restated Bylaws of Cogentrix Energy,
                              Inc., as amended
               4.1            Indenture, dated as of March 15, 1994, between
                              Cogentrix Energy, Inc. and First Union National
                              Bank of North Carolina, as Trustee (4.1). (5)
               10.1           Electric Power Purchase Agreement, dated as of
                              June 13, 1984, among Cogentrix of North Carolina,
                              Inc. (then known as Cogentrix Leasing
                              Corporation), Cogentrix, Inc. (then known as
                              Cogentrix of North Carolina, Inc.) and Carolina
                              Power & Light Company, as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Elizabethtown Facility) (10.1). (1)
               10.1(a)        Second Amendment to Electric Power Purchase
                              Agreement, dated as of August 5, 1996, between
                              Cogentrix Eastern Carolina Corporation and
                              Carolina Power & Light Company (Elizabethtown
                              Facility) (10.1(a)). (*)(13)
               10.2           Electric Power Purchase Agreement, dated as of
                              June 13, 1984, among Cogentrix of North Carolina,
                              Inc. (then known as Cogentrix Leasing
                              Corporation), Cogentrix, Inc. (then known as
                              Cogentrix of North Carolina, Inc.) and Carolina
                              Power & Light Company, as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Lumberton Facility) (10.2). (1)
               10.2(a)        Second Amendment to Electric Power Purchase
                              Agreement, dated as of August 5, 1996, between
                              Cogentrix Eastern Carolina Corporation and
                              Carolina Power & Light Company (Lumberton
                              Facility) (10.2(a)). (*)(13)
               10.3           Electric Power Purchase Agreement, dated as of
                              June 13, 1984, among Cogentrix of North Carolina,
                              Inc. (then known as Cogentrix Leasing
                              Corporation), Cogentrix, Inc. (then known as
                              Cogentrix of North Carolina, Inc.) and Carolina
                              Power & Light Company, as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Kenansville Facility) (10.3). (1)
               10.3(a)        Second Amendment to Electric Power Purchase
                              Agreement, dated as of August 5, 1996, between
                              Cogentrix Eastern Carolina Corporation and
                              Carolina Power & Light Company (Kenansville
                              Facility) (10.3(a)). (*)(13)
               10.4           Electric Power Purchase Agreement, dated as of
                              December 17, 1985, among Cogentrix of North
                              Carolina, Inc. (successor by merger to Cogentrix
                              Carolina Leasing Corporation), Cogentrix, Inc.
                              (then known as Cogentrix of North Carolina, Inc.)
                              and Carolina Power & Light Company, as amended
                              (Roxboro Facility) (10.4). (1)
               10.4(a)        Third Amendment to Electric Power Purchase
                              Agreement, dated as of August 5, 1996, between
                              Cogentrix of North Carolina, Inc. and Carolina
                              Power & Light Company (Roxboro Facility)
                              (10.4(a)). (*)(13)
</TABLE>

                                       83
<PAGE>   84

<TABLE>
<CAPTION>

        Designation Of
            Exhibit              Description Of Exhibit
        --------------           ----------------------
        <S>                   <C>
               10.5           Electric Power Purchase Agreement, dated as of
                              December 17, 1985, among Cogentrix of North
                              Carolina, Inc. (successor by merger to Cogentrix
                              Carolina Leasing Corporation), Cogentrix, Inc.
                              (then known as Cogentrix of North Carolina, Inc.)
                              and Carolina Power & Light Company, as amended
                              (Southport Facility) (10.5). (1)
               10.5(a)        Third Amendment to Electric Power Purchase
                              Agreement, dated as of August 5, 1996, between
                              Cogentrix of North Carolina, Inc. and Carolina
                              Power & Light Company (Southport Facility)
                              (10.5(a)). (*)(13)
               10.6           Power Purchase and Operating Agreement, dated as
                              of December 31, 1985, between Cogentrix of
                              Virginia, Inc. and Virginia Electric and Power
                              Company, as amended (assigned to and assumed by
                              James River Cogeneration Company) (Hopewell
                              Facility) (10.6). (1)
               10.6(a)        Amendment No. 4 to Power Purchase and Operating
                              Agreement, dated as of January 1, 1996, by and
                              between James River Cogeneration Company and
                              Virginia Electric and Power Company (Hopewell
                              Facility) (10.1). (12)
               10.6(b)        Fifth Amendment and Restatement of the Power
                              Purchase and Operating Agreement, dated January
                              28, 1998, between James River Cogeneration Company
                              and Virginia Electric and Power Company (Hopewell
                              Facility).
               10.7           Power Purchase and Operating Agreement, dated as
                              of July 21, 1986, between Cogentrix of Virginia,
                              Inc. and Virginia Electric and Power Company, as
                              amended (assigned to and assumed by Cogentrix
                              Virginia Leasing Corporation) (Portsmouth
                              Facility) (10.7). (1)
               10.7(a)        Third Amendment and Restatement of the Power
                              Purchase and Operating Agreement, dated December
                              5, 1997, between Cogentrix Virginia Leasing
                              Corporation and Virginia Electric and Power
                              Company (Portsmouth Facility).
               10.8           Power Purchase and Operating Agreement, dated as
                              of January 24, 1989, between Cogentrix of Rocky
                              Mount, Inc. and Virginia Electric and Power
                              Company, doing business in North Carolina as North
                              Carolina Power, as amended (Rocky Mount Facility)
                              (10.8). (1)
               10.9           Agreement, dated as of June 23, 1986, for the Sale
                              of Energy from the Ringgold
                              Cogeneration/Greenhouse Plant, between Xiox
                              Corporation and Pennsylvania Electric Company, as
                              amended (assigned to and assumed by Cogentrix of
                              Pennsylvania, Inc.) (Ringgold Facility) (10.9).(1)
               10.10          Power Purchase and Operating Agreement, dated as
                              of January 24, 1989, between Cogentrix of
                              Richmond, Inc. (formerly named Cogentrix of
                              Petersburg, Inc.) and Virginia Electric and Power
                              Company, as amended. (Richmond Facility, Unit I)
                              (10.10). (1)
               10.11          Power Purchase and Operating Agreement, dated as
                              of January 24, 1989, between WV Hydro, Inc. and
                              Virginia Electric and Power Company, as amended
                              (assigned to and assumed by Cogentrix of Richmond,
                              Inc.) (Richmond Facility, Unit II) (10.11). (1)
               10.12          Power Purchase Agreement, dated as of August 4,
                              1992, between Consumers Power Company and Muskegon
                              Generation, Inc., as amended (assigned to and
                              assumed by Michigan Cogeneration Partners)
                              (Michigan Facility) (10.12). (1)
               10.12(a)       Memorandum of Agreement, dated as of July 18,
                              1994, among Consumers Power Company and Michigan
                              Cogeneration Partners Limited Partnership
                              (10.12(a)). (5)
               10.13          Power Purchase and Operating Agreement, dated as
                              of July 13, 1990, between SEI Birchwood, Inc.
                              (assigned to and assumed by Birchwood Power
                              Partners, L.P.) and Virginia Electric and Power
                              Company, as amended (Birchwood Facility) (10.6).
                              (14)
               10.14          Steam Purchase Agreement, dated as of August 23,
                              1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              West Point Stevens Inc. (then known as West-Point
                              Pepperell, Inc.), as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation
                              (Elizabethtown Facility) (10.13). (*)(3)
</TABLE>

                                       84
<PAGE>   85
<TABLE>
<CAPTION>


         Designation Of
             Exhibit                 Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.15          Steam Purchase Agreement, dated as of August 23,
                              1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              West Point Stevens Inc. (then known as West-Point
                              Pepperell, Inc.), as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Lumberton Facility) (10.14). (*)(3)
               10.16          Steam Purchase Agreement, dated as of November 30,
                              1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              Guilford Mills, Inc., as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Kenansville Facility) (10.15). (*)(3)
               10.17          Steam Purchase Agreement, dated as of December 31,
                              1985, among Cogentrix of North Carolina, Inc.
                              (successor by merger to Cogentrix Carolina Leasing
                              Corporation) and Collins & Aikman Corporation, as
                              amended (Roxboro Facility) (10.16). (*)(3)
               10.18          Steam Purchase Agreement, dated as of December 31,
                              1985, among Cogentrix of North Carolina, Inc.
                              (successor by merger to Cogentrix Carolina Leasing
                              Corporation), Roxboro/Southport General
                              Partnership and Archer-Daniels-Midland Company (as
                              assignee of Pfizer Inc.), as amended (Southport
                              Facility) (10.17). (*)(3)
               10.19          Steam Purchase Agreement, dated as of January 31,
                              1986, between Cogentrix of Virginia, Inc. and
                              Allied-Signal Inc. (then known as Allied
                              Corporation), as amended (assigned to and assumed
                              by James River Cogeneration Company) (Hopewell
                              Facility) (10.18). (*)(3)
               10.20          Steam Purchase Agreement, dated as of December 31,
                              1985, between Cogentrix Virginia Leasing
                              Corporation and Hoechst-Celanese Corporation
                              (successor to Virginia Chemicals Inc.) (Portsmouth
                              Facility) (10.19). (*)(3)
               10.21          Steam Purchase Agreement, dated as of November 15,
                              1988, between Cogentrix of Rocky Mount, Inc. and
                              Abbott Laboratories, as amended (Rocky Mount
                              Facility) (10.20). (*)(3)
               10.22          Lease Agreement dated as of September 21, 1993
                              between Cogentrix of Pennsylvania, Inc. and
                              Keystone Village Farms, Inc., as amended (Ringgold
                              Facility) (10.21). (*)(3)
               10.23          Steam Purchase Agreement, dated as of May 18,
                              1990, between Cogentrix of Richmond, Inc. and E.I.
                              du Pont de Nemours and Company, as amended
                              (Richmond Facility) (10.22). (*)(3)
               10.24          Coal Sales Agreement, dated as of November 15,
                              1991, among Blue Crystal Sales Company, Bell
                              County Coal Corporation and Cogentrix Eastern
                              Carolina Corporation (Elizabethtown, Lumberton and
                              Kenansville Facilities) (10.23). (*)(3)
               10.24(a)       First Amendment to Coal Sales Agreement, dated as
                              of April 17, 1995, between James River Coal Sales,
                              Inc. (formerly named Blue Crystal Coal Sales
                              Company), Bell County Coal Corporation and
                              Cogentrix Eastern Carolina Corporation
                              (Elizabethtown, Lumberton and Kenansville
                              Facilities) (10.1). (9)
               10.25          Coal Sales Agreement, dated as of March 11, 1986,
                              between Martiki Coal Corporation and Cogentrix of
                              North Carolina, Inc. (successor by merger to
                              Cogentrix Carolina Leasing Corporation) (Roxboro
                              Facility) (10.24). (*)(3)
               10.26          Coal Sales Agreement, dated as of June 30, 1997,
                              by and between Pontiki Coal Corporation and
                              Cogentrix of North Carolina, Inc. (Roxboro
                              Facility) (10.26). (*)(16)
               10.27          Coal Sales Agreement, dated as of May 19, 1986,
                              among Coastal Coal International Inc., Johnson
                              Processing, Incorporated and Cogentrix of North
                              Carolina, Inc. (successor by merger to Cogentrix
                              Carolina Leasing Corporation) (Southport Facility)
                              (10.25).(*)(3)
               10.28          Coal Sales Agreement, dated as of June 30, 1997,
                              by and between MC Mining, Inc. and Cogentrix of
                              North Carolina, Inc. (Southport Facility) (10.28).
                              (*)(16)
               10.29          Coal Sales Agreement, dated as of December 1,
                              1986, between Pontiki Coal Corporation and
                              Cogentrix of Virginia, Inc. (assigned to and
                              assumed by James River Cogeneration Company)
                              (Hopewell Facility) (10.26). (*)(3)
</TABLE>

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<TABLE>
<CAPTION>


         Designation Of
              Exhibit                Description Of Exhibit
         -------------               ----------------------
         <S>                  <C>
               10.30          Coal Sales Agreement, dated as of December 15,
                              1986, among AgipCoal Sales USA, Inc. (formerly
                              named Enoxy Coal Sales, Inc.), AgipCoal USA, Inc.
                              (formerly named Enoxy Coal, Inc.) and Cogentrix
                              Virginia Leasing Corporation (Portsmouth Facility)
                              (10.27). (*)(3)
               10.30(a)       First Amendment to Coal Sales Agreement, dated
                              September 29, 1995, by and between Arch Coal Sales
                              Company, Inc., and Cogentrix Virginia Leasing
                              Corporation (Portsmouth Facility) (10.1). (11)
               10.31          Coal Sales Agreement, dated as of October 1, 1989,
                              among AgipCoal Sales USA, Inc., Laurel Creek Co.,
                              Inc. and Cogentrix of Rocky Mount, Inc., as
                              amended (Rocky Mount Facility) (10.28). (*)(3)
               10.32          Gas Supply Contract, dated as of June 15, 1989,
                              among Cogentrix of Pennsylvania, Inc., Cogentrix,
                              Inc. and J. C. Enterprises, as amended (Ringgold
                              Facility) (10.29). (1)
               10.33          Gas Sale and Purchase Agreement, dated as of
                              September 8, 1989, between Eastern Marketing
                              Corporation and Cogentrix of Pennsylvania, Inc.
                              (Ringgold Facility) (10.30). (1)
               10.34          Coal Sales Agreement, dated as of February 15,
                              1990, among Electric Fuels Corporation, Kentucky
                              May Coal Company, Inc. and Cogentrix of Richmond,
                              Inc., as amended (Richmond Facility, Unit I)
                              (10.31). (*)(3)
               10.35          Coal Sales Agreement, dated as of January 1, 1990,
                              between Coastal Coal Sales, Inc., and Cogentrix of
                              Richmond, Inc., as amended (Richmond Facility,
                              Unit II) (10.32). (*)(3)
               10.36          Coal Supply Agreement, dated as of July 22, 1993,
                              by and among Birchwood Power Partners, L.P.,
                              AgipCoal Holding USA, Inc. and AgipCoal Sales USA,
                              Inc. (assigned to and assumed by Neweagle Coal
                              Sales Corp. and Neweagle Industries, Inc.), Laurel
                              Creek Co., Inc. and Rockspring Development, Inc.
                              (Birchwood Facility) (10.7). (*)(14)
               10.36(a)       First Amendment to Coal Supply Agreement, dated as
                              of May 18, 1994, by and among Birchwood Power
                              Partners, L.P., Laurel Creek Co., Inc., Rockspring
                              Development, Inc., Neweagle Coal Sales Corp. and
                              Neweagle Industries, Inc. (Birchwood Facility)
                              (10.7(a)). (14)
               10.37          Railroad Transportation Contract, dated December
                              5, 1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              CSX Transportation, Inc. (then known as The
                              Chesapeake and Ohio Railway Company and Seaboard
                              System Railroad, Inc.), as amended (assigned to
                              and assumed by Cogentrix Carolina Leasing
                              Corporation) (Elizabethtown Facility) (10.33).
                              (*)(3)
               10.37(a)       Fifth Amendment to Railroad Transportation
                              Contract, dated January 21, 1994, between
                              Cogentrix Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Elizabethtown Facility)
                              (10.33(a)). (*)(3)
               10.37(b)       Sixth Amendment to Railroad Transportation
                              Contract, dated August 23, 1995, between Cogentrix
                              Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Elizabethtown Facility)
                              (10.33(b)). (*)(10)
               10.38          Railroad Transportation Contract, dated December
                              5, 1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              CSX Transportation, Inc. (then known as The
                              Chesapeake and Ohio Railway Company and Seaboard
                              System Railway, Inc.), as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Lumberton Facility) (10.34). (*)(3)
               10.38(a)       Fifth Amendment to Railroad Transportation
                              Contract, dated January 21, 1994, between
                              Cogentrix Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Lumberton Facility)
                              (10.34(a)). (*)(3)
               10.38(b)       Sixth Amendment to Railroad Transportation
                              Contract, dated August 23, 1995, between Cogentrix
                              Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Lumberton Facility)
                              (10.34(b)). (*)(10)
</TABLE>

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<TABLE>
<CAPTION>

         Designation Of
              Exhibit                Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.39          Railroad Transportation Contract, dated December
                              5, 1984, between Cogentrix of North Carolina, Inc.
                              (then known as Cogentrix Leasing Corporation) and
                              CSX Transportation, Inc. (then known as The
                              Chesapeake and Ohio Railway Company and Seaboard
                              System Railway, Inc.), as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Kenansville Facility) (10.35). (*)(3)
               10.39(a)       Fifth Amendment to Railroad Transportation
                              Contract, dated January 21, 1994, between
                              Cogentrix Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Kenansville Facility)
                              (10.35(a)). (*)(3)
               10.39(b)       Sixth Amendment to Railroad Transportation
                              Contract, dated August 23, 1995, between Cogentrix
                              Eastern Carolina Corporation and CSX
                              Transportation, Inc. (Kenansville Facility)
                              (10.35(b)). (*)(10)
               10.40          Railroad Transportation Contract, dated as of July
                              15, 1986, between Cogentrix of North Carolina,
                              Inc. (successor by merger to Cogentrix Carolina
                              Leasing Corporation), and Norfolk Southern Railway
                              Company (Roxboro Facility) (10.36). (*)(3)
               10.41          Railroad Transportation Contract, dated as of June
                              23, 1997, by and between Cogentrix of North
                              Carolina, Inc. and Norfolk Southern Railway
                              Company (Roxboro Facility) (10.41). (*)(16)
               10.42          Railroad Transportation Contract, dated as of July
                              15, 1986, between Cogentrix of North Carolina,
                              Inc. (successor by merger to Cogentrix Carolina
                              Leasing Corporation) and CSX Transportation, Inc.
                              (then known as The Chesapeake and Ohio Railway
                              Company and Seaboard System Railroad, Inc.), as
                              amended (Southport Facility) (10.37). (*)(3)
               10.42(a)       Sixth Amendment to Railroad Transportation
                              Contract, effective as of January 1, 1996, between
                              Cogentrix of North Carolina, Inc. and CSX
                              Transportation, Inc. (Southport Facility)
                              (10.37(a)). (*)(13)
               10.43          Railroad Transportation Contract, dated as of June
                              30, 1997, by and among Cogentrix of North
                              Carolina, Inc. and CSX Transportation, Inc.
                              (Southport Facility) (10.43). (*)(16)
               10.44          Railroad Transportation Contract, dated as of
                              December 15, 1986, between Cogentrix of Virginia,
                              Inc., and Norfolk Southern Railway Company, as
                              amended (assigned to and assumed by James River
                              Cogeneration Company) (Hopewell Facility) (10.38).
                              (*)(3)
               10.45          Railroad Transportation Contract, dated as of
                              December 22, 1986, between Cogentrix Virginia
                              Leasing Corporation, and Norfolk Southern Railway
                              Company, as amended (Portsmouth Facility) (10.39).
                              (*)(3)
               10.46          Barge Transportation Contract, dated as of
                              December 23, 1986, between Cogentrix Virginia
                              Leasing Corporation and McAllister Brothers, Inc.,
                              as amended (Portsmouth Facility) (10.40). (1)
               10.47          Railroad Transportation Contract, dated as of
                              September 26, 1989, between Cogentrix of Rocky
                              Mount, Inc. and CSX Transportation, Inc., as
                              amended (Rocky Mount Facility) (10.41). (*)(3)
               10.47(a)       Fourth Amendment, dated as of August 23, 1995, to
                              the Railroad Transportation Contract, dated as of
                              September 26, 1989, between Cogentrix of Rocky
                              Mount, Inc. and CSX Transportation, Inc. (Rocky
                              Mount Facility) (10.41(a)). (10)
               10.47(b)       Fifth Amendment, dated as of January 1, 1996, to
                              the Railroad Transportation Contract, dated as of
                              September 26, 1989, between Cogentrix of Rocky
                              Mount, Inc. and CSX Transportation, Inc. (Rocky
                              Mount Facility) (10.41(b)). (13)
               10.47(c)       Amendment No. 6 to Contract CSXT-C-03951, dated as
                              of January 1, 1997, between Cogentrix of Rocky
                              Mount, Inc. and CSX Transportation, Inc. (Rocky
                              Mount Facility) (10.9). (14)
               10.47(d)       Amendment No. 7 to Contract CSXT-C-03951, dated as
                              of July 1, 1997, between Cogentrix of Rocky Mount,
                              Inc. and CSX Transportation, Inc. (Rocky Mount
                              Facility) (10.47(d)). (16)
</TABLE>


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<TABLE>
<CAPTION>

         Designation Of
              Exhibit                Description Of Exhibit
         -------------               ----------------------
         <S>                  <C>
               10.48          Railroad Transportation Contract, dated as of
                              March 1, 1990, between Cogentrix of Richmond, Inc.
                              and CSX Transportation, Inc., as amended (Richmond
                              Facility, Unit I) (10.42).(*)(3)
               10.48(a)       Third Amendment to Railroad Transportation
                              Contract, filed with the ICC on December 13, 1994,
                              between Cogentrix of Richmond, Inc. and CSX
                              Transportation, Inc. (Richmond Facility, Unit I)
                              (10.4).(8)
               10.49          Railroad Transportation Contract, dated as of
                              March 1, 1990, between Cogentrix of Richmond, Inc.
                              and CSX Transportation, Inc., as amended (Richmond
                              Facility, Unit II) (10.43). (*)(3)
               10.49(a)       Fourth Amendment to Railroad Transportation
                              Contract, filed with the ICC on December 13, 1994,
                              between Cogentrix of Richmond, Inc. and CSX
                              Transportation, Inc. (Richmond Facility, Unit II)
                              (10.5).(8)
               10.49(b)       Fifth Amendment to Railroad Transportation
                              Contract, effective as of November 16, 1995,
                              between Cogentrix of Richmond, Inc. and CSX
                              Transportation, Inc. (Richmond Facility, Unit II)
                              (10.43(b)).(*)(13)
               10.50          Coal Transportation Agreement, dated as of July
                              22, 1993, between Birchwood Power Partners, L.P.
                              and ER&L-Birchwood, Inc. (Birchwood Facility)
                              (10.8).(*)(14)
               10.50(a)       First Amendment to Coal Transportation Agreement,
                              dated as of April 28, 1994, between Birchwood
                              Power Partners, L.P. and ER&L Birchwood, Inc.
                              (Birchwood Facility) (10.8(a)). (*)(14)
               10.51          Amended and Restated Senior Term Loan Agreement,
                              dated as of September 24, 1996, among Cogentrix
                              Eastern Carolina Corporation, the Lenders party
                              thereto, Credit Lyonnais New York Branch, as
                              Issuing Bank and Agent (Elizabethtown, Lumberton
                              and Kenansville Facilities) (10.44).(13)
               10.51(a)       First Amendment to the Amended and Restated Senior
                              Term Loan Agreement, dated as of December 1, 1997,
                              among Cogentrix Eastern Carolina Corporation, the
                              Lenders party thereto, Credit Lyonnais New York
                              Branch, as Issuing Bank and Agent (Elizabethtown,
                              Lumberton and Kenansville Facilities).
               10.52          Amended and Restated Senior Term Loan Agreement
                              and Guarantee, dated as of September 24, 1996,
                              among United States Trust Company of New York, as
                              Roxboro Owner Trustee, United States Trust Company
                              of New York, as Southport Owner Trustee, United
                              States Trust Company of New York in its individual
                              capacity only to the extent expressly provided
                              therein, Cogentrix of North Carolina, Inc.,
                              Roxboro/Southport General Partnership, Credit
                              Lyonnais New York Branch, as Lender,
                              Administrative Agent and Issuing Bank, and the
                              other lenders party thereto (Roxboro and Southport
                              Facilities) (10.45). (13)
               10.52(a)       First Amendment to the Amended and Restated Loan
                              Agreement and Guarantee, dated as of December 1,
                              1997, among United States Trust Company of New
                              York, as Roxboro Owner Trustee, United States
                              Trust Company of New York, as Southport Owner
                              Trustee, United States Trust Company of New York
                              in its individual capacity only to the extent
                              expressly provided therein, Cogentrix of North
                              Carolina, Inc., Roxboro/Southport General
                              Partnership, Credit Lyonnais New York Branch, as
                              Lender, Administrative Agent and Issuing Bank, and
                              the other lenders party thereto (Roxboro and
                              Southport Facilities).
</TABLE>

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<TABLE>
<CAPTION>

         Designation Of
              Exhibit                Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.53          Third Amended and Restated Application for Letter
                              of Credit and Reimbursement Agreement, dated as of
                              February 11, 1998, among James River Cogeneration
                              Company, the Banks named therein, and Credit
                              Lyonnais, as Issuing Bank and Agent (Hopewell
                              Facility).
               10.54          Third Amended and Restated Loan Agreement, dated
                              as of December 22, 1997, among Cogentrix Virginia
                              Leasing Corporation, the lenders party thereto and
                              Credit Lyonnais, as the Agent, Issuing Bank and a
                              Lender (Portsmouth Facility).
               10.55          Amended and Restated Construction and Term Loan
                              Agreement, dated as of December 1, 1993, among
                              Cogentrix of Rocky Mount, Inc., the Tranche B
                              Lenders party thereto, and The Prudential
                              Insurance Company of America, as Credit Facility
                              Agent (Rocky Mount Facility) (10.52). (1)
               10.55(a)       First Amendment, dated as of March 31, 1996, to
                              the Amended and Restated Construction and Term
                              Loan Agreement, dated as of December 1, 1993,
                              among Cogentrix of Rocky Mount, Inc., the Tranche
                              B Lenders party thereto, and The Prudential
                              Insurance Company of America, as Credit Facility
                              Agent (Rocky Mount Facility) (10.4). (12)
               10.55(b)       Second Amendment, dated as of May 31, 1996, to the
                              Amended and Restated Construction and Term Loan
                              Agreement, dated as of December 1, 1993, among
                              Cogentrix of Rocky Mount, Inc., the Tranche B
                              Lenders party thereto, and The Prudential
                              Insurance Company of America, as Credit Facility
                              Agent (Rocky Mount Facility)(10.48(b)).(13)
               10.55(c)       Third Amendment, dated as of December 1, 1997, to
                              the Amended and Restated Construction and Term
                              Loan Agreement, dated as of December 1, 1993,
                              among Cogentrix of Rocky Mount, Inc, the Tranche B
                              Lenders party thereto, and Ther Prudential
                              Insurance Company of America, as Credit Facility
                              Agent (Rocky Mount Facility).
               10.56          Construction and Term Loan Agreement, dated as of
                              June 15, 1989, among Cogentrix of Pennsylvania,
                              Inc., the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent, as amended
                              (Ringgold Facility) (10.53).(1)
               10.56(a)       Third Amendment, dated as of December 1, 1997, to
                              the Construction and Term Loan Agreement, dated as
                              of June 15, 1989, among Cogentrix of Pennsylvania,
                              Inc., the Lenders party thereto and Banque
                              Paribas, New York Branch, as Agent (Ringgold
                              Facility).
               10.57          Amended and Restated Subordinated Note dated April
                              22, 1994 of Cogentrix of Pennsylvania, Inc.
                              payable to Cogentrix Delaware Holdings, Inc.
               10.58          Reimbursement and Loan Agreement, dated as of
                              December 1, 1990, among Cogentrix of Richmond,
                              Inc., Banque Paribas, New York Branch as Issuing
                              Bank, the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent, as amended
                              (Richmond Facility) (10.55). (1)
               10.58(a)       Fourth Amendment, dated as of February 15, 1995,
                              to the Reimbursement and Loan Agreement, dated as
                              of December 1, 1990, among Cogentrix of Richmond,
                              Inc., Banque Paribas, New York Branch, as Issuing
                              Bank, the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent (Richmond
                              Facility) (10.55(a)). (10)
               10.58(b)       Fifth Amendment, dated as of June 1, 1995, to the
                              Reimbursement and Loan Agreement, dated as of
                              December 1, 1990, among Cogentrix of Richmond,
                              Inc., Banque Paribas, New York Branch, as Issuing
                              Bank, the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent (Richmond
                              Facility) (10.55(b)).(10)
               10.58(c)       Sixth Amendment, dated as of March 31, 1996, to
                              the Reimbursement and Loan Agreement, dated as of
                              December 1, 1990, among Cogentrix of Richmond,
                              Inc., Banque Paribas, New York Branch, as Issuing
                              Bank, the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent (Richmond
                              Facility) (10.5). (12)
</TABLE>

                                       89
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<TABLE>
<CAPTION>
         Designation Of
              Exhibit                Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.58(d)       Seventh Amendment, dated as of December 1, 1997,
                              to the Reimbursement and Loan Agreement, dated as
                              of December 1, 1990, among Cogentrix of Richmond,
                              Inc., Banque Paribas, New York Branch, as Issuing
                              Bank, the lenders party thereto and Banque
                              Paribas, New York Branch, as Agent (Richmond
                              Facility).
               10.59          Indenture of Trust, dated as of December 1, 1990,
                              between the Industrial Development Authority of
                              the City of Richmond, Virginia and Sovran Bank,
                              N.A., as Trustee, including First and Second
                              Supplemental Indentures of Trust (Richmond
                              Facility) (10.56). (1)
               10.60          Sale Agreement, dated as of December 1, 1990,
                              between the Industrial Development Authority of
                              the City of Richmond, Virginia and Cogentrix of
                              Richmond, Inc., including First and Second
                              Supplemental Sale Agreements (Richmond Facility)
                              (10.57).(1)
               10.61          Loan and Reimbursement Agreement, dated as of May
                              18, 1994, among Birchwood Power Partners, L.P.,
                              the Banks party thereto, John Hancock Mutual Life
                              Insurance Company, Allstate Insurance Company, New
                              York Life Insurance Company and the other
                              Institutions party thereto, Banque Paribas, New
                              York Branch, Barclays Bank PLC, Credit Suisse,
                              Union Bank of California, as Co-Agents for the
                              Banks and Credit Suisse, as Issuing Bank and as
                              Administrative Agent for the Banks (Birchwood
                              Facility) (10.1). (14)
               10.62          Security Deposit and Intercreditor Agreement,
                              dated as of May 18, 1994, among Birchwood Power
                              Partners, L.P., the Secured Parties named therein
                              and Credit Suisse, as Security Agent (Birchwood
                              Facility) (10.2).(14)
               10.63          First Amendment to Composite Amendment and Consent
                              to Project Loan Agreement and Security Deposit
                              Agreement, among Birchwood Power Partners, L.P.
                              and the persons party to the Loan and
                              Reimbursement Agreement, dated as of May 18, 1994,
                              as amended, and the Security Deposit and
                              Intercreditor Agreement, dated as of May 18, 1994,
                              as amended (Birchwood Facility) (10.3).(14)
               10.64          Greenhouse Restructure Amendment, dated as of
                              March 27, 1997, to the Loan and Reimbursement
                              Agreement, the Security Deposit and Intercreditor
                              Agreement, the Loan and Contribution Agreement and
                              the Steam Sales Agreement, among the parties
                              obligated under such agreements (Birchwood
                              Facility) (10.64).(16)
               10.65          Amended and Restated Security Deposit Agreement,
                              dated as of September 24, 1996, among Cogentrix
                              Eastern Carolina Corporation, Credit Lyonnais New
                              York Branch, as Senior Debt Agent and Issuing Bank
                              and The Chase Manhattan Bank, as Security Agent
                              (Elizabethtown, Lumberton and Kenansville
                              Facilities) (10.54).(13)
               10.66          Amended and Restated Security Deposit Agreement,
                              dated as of September 24, 1996, among United
                              States Trust Company of New York, as Roxboro Owner
                              Trustee, United States Trust Company of New York,
                              as Southport Owner Trustee, Cogentrix of North
                              Carolina, Inc., Roxboro/Southport General
                              Partnership, Credit Lyonnais New York Branch, as
                              Administrative Agent and Issuing Bank, and The
                              Chase Manhattan Bank, as Security Agent (Roxboro
                              and Southport Facilities) (10.55). (13)
               10.67          Third Amended and Restated Security Deposit
                              Agreement, dated as of February 11, 1998, among
                              James River Cogeneration Company, Cogentrix of
                              Virginia, Inc., Credit Lyonnais, as Grantee and
                              Issuing Bank, and First Union National Bank, as
                              Security Agent (Hopewell Facility).
               10.68          Third Amended and Restated Security Deposit
                              Agreement, dated as of December 22, 1997, among
                              Cogentrix Virginia Leasing Corporation, Credit
                              Lyonnais, as Agent and Issuing Bank, and First
                              Union National Bank, as Security Agent (Portsmouth
                              Facility).

</TABLE>

                                       90
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<TABLE>
<CAPTION>


         Designation Of
              Exhibit                Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.69          Amended and Restated Security Deposit Agreement,
                              dated as of December 1, 1993, among Cogentrix of
                              Rocky Mount, Inc., The Prudential Insurance
                              Company of America, as Credit Facility Agent and
                              First Union National Bank of North Carolina, as
                              Security Agent (Rocky Mount Facility) (10.65).(1)
               10.70          Security Deposit Agreement, dated as of June 15,
                              1989, among Cogentrix of Pennsylvania, Inc.,
                              Banque Paribas, New York Branch, as Bank Agent and
                              First Union National Bank of North Carolina, as
                              Security Agent (Ringgold Facility) (10.66). (1)
               10.71          Security Deposit Agreement, dated as of December
                              1, 1990, among Cogentrix of Richmond, Inc., Banque
                              Paribas, New York Branch, as Agent and First Union
                              National Bank of North Carolina, as Security Agent
                              (Richmond Facility) (10.67). (1)
               10.71(a)       First Amendment to Security Deposit Agreement,
                              dated December 15, 1993, among Cogentrix of
                              Richmond, Inc., Banque Paribas, New York Branch,
                              as Agent and First Union National Bank of North
                              Carolina, as Security Agent (Richmond Facility)
                              (10.67(a)).(3)
               10.72          Stock Pledge and Security Agreement, dated as of
                              September 24, 1996, made by Cogentrix, Inc. in
                              favor of Credit Lyonnais New York Branch, as Agent
                              (Elizabethtown, Lumberton and Kenansville
                              Facilities) (10.61). (13)
               10.73          Stock Pledge and Security Agreement, dated as of
                              September 24, 1996, made by Cogentrix of North
                              Carolina Holdings, Inc. in favor of Credit
                              Lyonnais New York Branch, as Administrative Agent
                              (Roxboro and Southport Facilities) (10.62).(13)
               10.74          Stock Pledge and Security Agreement, dated as of
                              September 24, 1996, made by Roxboro/Southport I,
                              Inc. in favor of Credit Lyonnais New York Branch,
                              as Administrative Agent (Roxboro and Southport
                              Facilities) (10.63).(13)
               10.75          General Partner Assignment and Security Agreement,
                              dated as of September 24, 1996, made by
                              Roxboro/Southport II, Inc. in favor of Credit
                              Lyonnais New York Branch, as Administrative Agent
                              (Roxboro and Southport Facilities) (10.64).(13)
               10.76          General Partner Assignment and Security Agreement,
                              dated as of September 24, 1996, made by
                              Roxboro/Southport I, Inc. in favor of Credit
                              Lyonnais New York Branch, as Administrative Agent
                              (Roxboro and Southport Facilities) (10.65).(13)
               10.77          Stock Pledge Agreement, dated as of December 1, 1986,
                              between Cogentrix, Inc., as Pledgor and Banque Paribas,
                              New York Branch, as Agent, as amended (Hopewell
                              Facility) (10.78).(1)
               10.77(a)       Amendment No. 2 to Pledge and Security Agreement,
                              dated as of July 1, 1996, made by Cogentrix, Inc.,
                              as Pledgor to Banque Paribas, New York Branch, as
                              Grantee (Hopewell Facility) (10.66(a)).(13)
               10.77(b)       Amendment No. 3 to Pledge and Security Agreement,
                              dated as of February 11, 1998, by and between
                              Cogentrix, Inc., as Pledgor, and Credit Lyonnais,
                              as Grantee (Hopewell Facility).
               10.78          Assignment and Security Agreement dated as of October 1,
                              1987 between Cogentrix of Virginia, Inc. and Banque Paribas,
                              New York Branch, as Grantee, as amended (Hopewell
                              Facility) (10.79).(1)
               10.78(a)       Amendment No. 2 to Assignment and Security Agreement
                              dated as of July 1, 1996, between Cogentrix of Virginia, Inc.
                              and Banque Paribas, New York Branch, as
                              Grantee (Hopewell Facility) (10.67(a)).(13)
               10.78(b)       Amendment No. 3 to Assignment and Security
                              Agreement, dated as of February 11, 1998, between
                              Cogentrix of Virginia, Inc. and Credit Lyonnais,
                              as Grantee (Hopewell Facility).
               10.79          Third Amended and Restated Pledge Agreement, dated
                              as of December 22, 1997, made by Cogentrix, Inc.,
                              as Pledgor, and Credit Lyonnais, as Agent
                              (Portsmouth Facility).
               10.80          Pledge Agreement, dated as of June 15, 1989,
                              between Cogentrix, Inc., as Pledgor and Banque
                              Paribas, New York Branch, as Agent (Ringgold
                              Facility) (10.81).(1)
               10.81          Amended and Restated Stock Pledge Agreement, dated
                              as of November 19, 1996, by and between
                              Cogentrix/Birchwood Two, L.P., as Pledgor, and
                              Birchwood Power Partners, L.P., as Lender
                              (Birchwood Facility) (10.4).(14)
               10.82          Ground Lease, dated as of August 23, 1984, between
                              Cogentrix of North Carolina, Inc. (then known as
                              Cogentrix Leasing Corporation) and West Point
                              Stevens Inc. (then known as West Point-Pepperell,
                              Inc.), as amended (assigned to and assumed by
                              Cogentrix Eastern Carolina Corporation)
                              (Elizabethtown Facility) (10.82).(1)
               10.83          Ground Lease, dated as of August 23, 1984, between
                              Cogentrix of North Carolina, Inc. (then known as
                              Cogentrix Leasing Corporation) and West Point
                              Stevens Inc. (then known as West Point-Pepperell,
                              Inc.), as amended (assigned to and assumed by
                              Cogentrix Eastern Carolina Corporation) (Lumberton
                              Facility) (10.83). (1)

</TABLE>

                                       91
<PAGE>   92

<TABLE>
<CAPTION>


         Designation Of
              Exhibit                Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.84          Ground Lease, dated as of November 30, 1984,
                              between Cogentrix of North Carolina, Inc. (then
                              known as Cogentrix Leasing Corporation) and
                              Guilford Mills, Inc., as amended (assigned to and
                              assumed by Cogentrix Eastern Carolina Corporation)
                              (Kenansville Facility) (10.84).(1)
               10.85          Lease (SBD 9284; RE-81558) from Seaboard System
                              Railroad, Inc. to Cumberland Elkhorn Coal and
                              Coke, Inc., dated December 17, 1985, assigned by
                              Cumberland Elkhorn Coal & Coke, Inc. to Oxbow
                              Carbon and Minerals Inc. and further assigned by
                              Oxbow Carbon & Minerals, Inc. to Cogentrix Eastern
                              Carolina Corporation, as amended (Kenansville
                              Facility) (10.85). (1)
               10.86          Lease (SBD 8074; RE-81558) from Seaboard System
                              Railroad, Inc. to Cumberland Elkhorn Coal & Coke,
                              Inc., dated October 4, 1985, assigned by
                              Cumberland Elkhorn Coal & Coke, Inc. to Oxbow
                              Carbon and Minerals Inc. and further assigned by
                              Oxbow Carbon & Minerals, Inc. to Cogentrix Eastern
                              Carolina Corporation, as amended (Kenansville
                              Facility) (10.86).(1)
               10.87          Agreement (SBD 8801; RE-81558) dated October 2,
                              1985, as amended, between CSX Transportation, Inc.
                              (as successor to the rights and obligations of
                              Seaboard System Railroad, Inc.), and Cogentrix
                              Eastern Carolina Corporation (as successor to the
                              rights of Oxbow Carbon & Minerals, Inc., which
                              succeeded to the rights and obligations of
                              Cumberland Elkhorn Coal & Coke, Inc. by
                              assignment), as amended (Kenansville Facility)
                              (10.87).(1)
               10.88          Agreement (SBD 10257; RE-83767) dated June 18,
                              1986, as amended, between CSX Transportation, Inc.
                              (as successor to the rights and obligations of
                              Seaboard System Railroad, Inc.), and Cogentrix
                              Eastern Carolina Corporation (as successor to the
                              rights of Oxbow Carbon & Minerals, Inc., which
                              succeeded to the rights and obligations of
                              Cumberland Elkhorn Coal & Coke, Inc. by
                              assignment), as amended (Elizabethtown and
                              Lumberton Facilities) (10.88).(1)
               10.89          Lease Agreement, dated as of November 10, 1987,
                              between United States Trust Company of New York,
                              as Roxboro Owner Trustee, as Lessor, and Cogentrix
                              of North Carolina, Inc. (successor by merger to
                              Cogentrix Carolina Leasing Corporation), as
                              Lessee, as amended (Roxboro Facility) (10.89).(1)
               10.89(a)       Fourth Amendment to Lease Agreement, dated as of
                              September 24, 1996, between United States Trust
                              Company, as Roxboro Owner Trustee and Cogentrix of
                              North Carolina, Inc. (Roxboro Facility)
                              (10.77(a)).(13)
               10.90          Lease Agreement, dated as of November 10, 1987,
                              between United States Trust Company of New York,
                              as Southport Owner Trustee, as Lessor, and
                              Cogentrix of North Carolina, Inc. (successor by
                              merger to Cogentrix Carolina Leasing Corporation),
                              as Lessee, as amended (Southport Facility)
                              (10.90).(1)
               10.90(a)       Fourth Amendment to Lease Agreement, dated as of
                              September 24, 1996, between United States Trust
                              Company, as Southport Owner Trustee and Cogentrix
                              of North Carolina, Inc. (Southport Facility)
                              (10.78(a)).(13)
               10.91          Ground Lease, dated as of December 31, 1985,
                              between United States Trust Company, as Roxboro
                              Owner Trustee, as Lessee, and Cogentrix of North
                              Carolina, Inc. (successor by merger to Cogentrix
                              Carolina Leasing Corporation), as Lessor (Roxboro
                              Facility) (10.91).(1)
               10.92          Amended and Restated Ground Lease, dated as of
                              December 31, 1985, between Carolina Power & Light
                              Company, as Lessor, and Cogentrix of North
                              Carolina, Inc. (successor by merger to Cogentrix
                              Carolina Leasing Corporation), as Lessee, as
                              amended (Southport Facility) (10.92). (1)
</TABLE>

                                       92
<PAGE>   93

<TABLE>
<CAPTION>

         Designation Of
            Exhibit                Description Of Exhibit
         --------------            ----------------------
         <S>                  <C>
               10.93          Ground Lease, dated January 31, 1986, between
                              Allied-Signal, Inc., as Lessor, and Cogentrix of
                              Virginia, Inc., as Lessee, as amended (assigned to
                              and assumed by James River Cogeneration Company)
                              (Hopewell Facility) (10.93).(1)
               10.94          Ground Lease and Easement, dated as of December
                              15, 1986, between Virginia Chemicals, Inc., as
                              Lessor and Cogentrix Virginia Leasing Corporation,
                              as Lessee (Portsmouth Facility) (10.94).(1)
               10.95          Ground Lease, dated as of December 13, 1990,
                              between Cogentrix of Richmond, Inc., as Lessee,
                              and E.I. du Pont de Nemours and Company, as Lessor
                              (Richmond Facility) (10.95).(1)
               10.96          Amended and Restated Land Lease Agreement, dated
                              as of February 18, 1988, among Arrowpoint
                              Associates Limited Partnership, as Landlord, and
                              Cogentrix, Inc., CI Properties, Inc. and Equipment
                              Leasing Partners, as Tenant, as amended (assigned
                              to and assumed by Equipment Leasing Partners, with
                              Cogentrix, Inc., as guarantor) (Corporate
                              Headquarters) (10.96).(1)
               10.97          Amended and Restated Lease Agreement, dated as of
                              April 30, 1993, among Equipment Leasing Partners,
                              as Landlord, Cogentrix, Inc., as Tenant, and CI
                              Properties, Inc., as amended (Corporate
                              Headquarters) (10.97).(1)
               10.98          Letter Agreement, dated May 25, 1989, among
                              Cogentrix, Inc., Cogentrix of Richmond, Inc.
                              (formerly named Cogentrix of Petersburg, Inc.),
                              and WV Hydro, Inc., as amended (Richmond Facility)
                              (10.98).(1)
               10.99          Consulting Agreement, dated as of September 27,
                              1991, between Robert W. Lewis and Cogentrix, Inc.,
                              as amended (assigned to and assumed by Cogentrix
                              Energy, Inc.) (10.99).(1)
               10.100         Consulting Agreement, dated as of September 30,
                              1993, between Cogentrix, Inc. and W.E. Garrett
                              (assigned to and assumed by Cogentrix Energy,
                              Inc.) (10.100). (1) 10.101 Consulting Agreement,
                              dated as of September 30, 1993, between Cogentrix,
                              Inc. and C&L Account Ten Inc. (assigned to and
                              assumed by Cogentrix Energy, Inc.) (10.101).(1)
               10.102         Form of Profit-Sharing Plan (I) (10.102). (1)
               10.103         Form of Profit-Sharing Plan (II) (10.103). (1)
               10.104         Executive Incentive Bonus Plan (10.104). (3)
               10.105         Facility Cash Flow Incentive Compensation
                              Agreement with Robert W. Lewis (10.105). (1)
               10.106         General Partnership Agreement dated as of
                              September 30, 1987 between Cogentrix of Virginia,
                              Inc. and Capistrano Cogeneration Company
                              (10.110).(1)
               10.107         Adoption of Stock Transfer Agreement dated as of
                              December 30, 1993 among Cogentrix Energy, Inc.,
                              Cogentrix Inc., David J. Lewis, Robert W. Lewis
                              and James E. Lewis (10.111). (1)
               10.108         Employment Agreement, dated as of June 24, 1994,
                              between David J. Lewis and Cogentrix Energy, Inc.
                              (10.115). (5)
               10.109         Employment Agreement, dated as of May 1, 1997,
                              between Mark F. Miller and Cogentrix Energy, Inc.
                              (10.109). (16)
               10.110         Employment Agreement, dated as of January 1, 1994,
                              between Dennis W. Alexander and Cogentrix Energy,
                              Inc.
               10.111         Power Purchase Agreement, dated as of September
                              30, 1994, between Mangalore Power Company and
                              Karnataka Electricity Board (Phase One Facility)
                              (10.1).(6)
               10.112         Power Purchase Agreement, dated as of September
                              30, 1994, between Mangalore Power Company and
                              Karnataka Electricity Board (Phase Two Facility)
                              (10.2).(6)
               10.113         Transaction Agreement by and among SEI Birchwood,
                              Inc., Birchwood Development Corp., Birchwood Power
                              Partners, L.P., Cogentrix/Birchwood Two, L.P. and
                              Cogentrix Energy, Inc., dated as of November 23,
                              1994 (Birchwood Facility) (2.1).(7)


</TABLE>
                                     93

<PAGE>   94

<TABLE>
<CAPTION>

         Designation Of
            Exhibit                  Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.114         Engineering, Procurement and Construction
                              Agreement, dated as of December 8, 1994, between
                              Cogentrix Energy, Inc. and Public Utility District
                              No. 1 of Clark County, Washington, together with
                              Letter Agreement, dated January 18, 1995 (Clark
                              Facility) (10.1). (8)
               10.115         Development and Engineering Agreement, dated as of
                              December 8, 1994, between Cogentrix of Vancouver,
                              Inc. and Public Utility District No. 1 of Clark
                              County, Washington (Clark Facility) (10.2). (8)
               10.116         Operation and Maintenance Agreement, dated as of
                              December 8, 1994, between Cogentrix of Vancouver,
                              Inc. and Public Utility District No. 1 of Clark
                              County, Washington (Clark Facility) (10.3). (8)
               10.117         Amended and Restated Facility Operations and
                              Maintenance Agreement, dated as of May 18, 1994,
                              between Southern Electric International, Inc. and
                              Birchwood Power Partners, L.P. (Birchwood
                              Facility) (10.5). (*)(14)
               10.118         Amended and Restated Limited Partnership Agreement
                              of Birchwood Power Partners, L.P., dated December
                              15, 1994 (Birchwood Facility) (10.6).(8)
               10.119         Equity Contribution Agreement, dated as of
                              December 15, 1994, among Cogentrix Energy, Inc.,
                              Cogentrix Delaware Holdings, Inc., Birchwood Power
                              Partners, L.P., and Credit Suisse (Birchwood
                              Facility) (10.9).(8)
               10.120         Limited Partner Pledge Agreement, dated as of
                              December 15, 1994, made by Cogentrix/Birchwood
                              Two, L.P. in favor of Credit Suisse (Birchwood
                              Facility) (10.10).(8)
               10.121         General Partner Pledge Agreement, dated as of
                              December 15, 1994, made by Cogentrix/Birchwood
                              Two, L.P. in favor of Credit Suisse (Birchwood
                              Facility) (10.11).(8)
               10.122         Agreement of Limited Partnership of Rathdrum
                              Generation Partners Limited Partnership, dated as
                              of November 3, 1994, by and among BTU Energy I,
                              Inc. and Cogentrix of Rathdrum I, Inc., as General
                              Partners, and BTU Energy II, Inc. and Cogentrix of
                              Rathdrum II, Inc., as Limited Partners
                              (10.131).(10)
               10.123         Supplemental Retirement Savings Plan (10.132).(10)
               10.124         Trust Under Supplemental Retirement Savings Plan,
                              dated April 17, 1995, by and between Cogentrix
                              Energy, Inc. and Wachovia Bank of North Carolina,
                              N.A. of Winston Salem, North Carolina, as Trustee
                              (10.133).(10)
               10.125         Consulting and Noncompetition Employment
                              Agreement, dated as of August 11, 1995, between
                              Cogentrix Energy, Inc. and George T. Lewis, Jr.
                              (10.135). (10)
               10.126         Joint Development Agreement, dated as of July 14,
                              1995, between Cogentrix Mauritius Company and
                              Malconna Company Limited (10.136).(*)(10)
               10.127         Support Agreement, dated as of July 14, 1995, from
                              Cogentrix Energy, Inc. to Malconna Company Limited
                              (10.137). (10)
               10.128         Credit Agreement, dated as of May 22, 1997, among
                              Cogentrix Energy, Inc., the several Lenders from
                              time to time parties thereto and Australia and New
                              Zealand Banking Group Limited, as Agent and as the
                              Issuing Bank (10.129).(16)
               10.129         Guarantee, dated as of May 22, 1997, made by
                              Cogentrix Delaware Holdings, Inc., the Guarantor,
                              in favor of the Borrower Creditors (10.130).(16)
               10.130         Agreement of Limited Partnership of Village Farms
                              of Texas, L.P., dated as of February 6, 1996, by
                              and among Cogentrix of Fort Davis I, Inc. and
                              Village Farms of Delaware, L.L.C., as General
                              Partners, and Cogentrix of Fort Davis II, Inc. and
                              Village Farms, L.L.C., as Limited Partners (10.6).
                              (*)(12)

</TABLE>

                                       94
<PAGE>   95

<TABLE>
<CAPTION>


         Designation Of
            Exhibit                  Description Of Exhibit
         --------------              ----------------------
         <S>                  <C>
               10.131         Guaranty, dated as of February 14, 1996, made by
                              Cogentrix Energy, Inc. in favor of Farm Credit
                              Bank of Texas and Texas Production Credit
                              Association, as Lenders, and CoBank, ACB, as
                              Administrative Agent, to guarantee certain
                              obligations of Village Farms of Texas, L.P.
                              (10.7). (12)

               10.132         Agreement of Limited Partnership, dated as of
                              March 10, 1997, of Pocono Village Farms, L.P. by
                              and among Cogentrix of Pocono, Inc., Cogentrix
                              Greenhouse Investments, Inc., Village Farms of
                              Delaware, L.L.C. and Village Farms, L.L.C. (10.1).
                              (15)

               10.133         Agreement of Limited Partnership, dated as of June
                              4, 1997, of Village Farms of Marfa, L.P. by and
                              among Cogentrix of Marfa, Inc., Cogentrix
                              Greenhouse Investments, Inc., Village Farms of
                              Delaware, L.L.C. and Village Farms, L.L.C.
                              (10.134).(*)(16)

               10.134         Agreement of Limited Partnership, dated as of
                              September 4, 1997, of Village Farms of Buffalo,
                              L.P. by and among Cogentrix of Buffalo, Inc.,
                              Cogentrix Greenhouse Investments, Inc., Village
                              Farms of Delaware, L.L.C. and Village Farms,
                              L.L.C. (10.135). (*)(16)

               21.1           Direct and Indirect Subsidiaries of Cogentrix
                              Energy, Inc.

               27             Financial Data Schedule, which is submitted
                              electronically to the Securities and Exchange
                              Commission for information only and is not filed.
</TABLE>

         ----------------------------

           (*)    Portions of these agreements have been deleted pursuant to
                  previously approved requests for confidential treatment.
           (**)   Portions of these agreements have been deleted pursuant to a
                  request for confidential treatment pursuant to Rule 24b-2
                  under the Securities Exchange Act of 1934, as amended.
           (1)    Incorporated by reference to Registration Statement on Form
                  S-1 (File No. 33-74254) filed January 19, 1994. The number
                  designating the exhibit on the exhibit index to such
                  previously-filed report is enclosed in parentheses at the end
                  of the description of the exhibit above.
           (2)    Incorporated by reference to Amendment No. 1 to Registration
                  Statement on Form S-1 (File No. 33-74254) filed February 24,
                  1994. The number designating the exhibit on the exhibit index
                  to such previously-filed report is enclosed in parentheses at
                  the end of the description of the exhibit above.
           (3)    Incorporated by reference to Amendment No. 2 to Registration
                  Statement on Form S-1 (File No. 33-74254) filed March 7, 1994.
                  The number designating the exhibit on the exhibit index to
                  such previously-filed report is enclosed in parentheses at the
                  end of the description of the exhibit above.
           (4)    Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed May 16, 1994. The number designating the exhibit on the
                  exhibit index to such previously-filed report is enclosed in
                  parentheses at the end of the description of the exhibit
                  above.
           (5)    Incorporated by reference to the Form 10-K (File No. 33-74254)
                  filed September 28, 1994. The number designating the exhibit
                  on the exhibit index to such previously-filed report is
                  enclosed in parentheses at the end of the description of the
                  exhibit above.
           (6)    Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed November 14, 1994. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.
           (7)    Incorporated by reference to the Form 8-K (File No. 33-74254)
                  filed December 29, 1994. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.
           (8)    Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed February 14, 1995. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.

                                       95
<PAGE>   96

           (9)    Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed May 16, 1995. The number designating the exhibit on the
                  exhibit index to such previously-filed report is enclosed in
                  parentheses at the end of the description of the exhibit
                  above.
           (10)   Incorporated by reference to the Form 10-K (File No. 33-74254)
                  filed September 28, 1995. The number designating the exhibit
                  on the exhibit index to such previously-filed report is
                  enclosed in parentheses at the end of the description of the
                  exhibit above.
           (11)   Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed November 14, 1995. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.
           (12)   Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed May 3, 1996. The number designating the exhibit on the
                  exhibit index to such previously-filed report is enclosed in
                  parentheses at the end of the description of the exhibit
                  above.
           (13)   Incorporated by reference to the Form 10-K (File No. 33-74254)
                  filed October 10, 1996. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.
           (14)   Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed February 14, 1997. The number designating the exhibit on
                  the exhibit index to such previously-filed report is enclosed
                  in parentheses at the end of the description of the exhibit
                  above.
           (15)   Incorporated by reference to the Form 10-Q (File No. 33-74254)
                  filed May 15, 1997. The number designating the exhibit on the
                  exhibit index to such previously-filed report is enclosed in
                  parentheses at the end of the description of the exhibit
                  above.
           (16)   Incorporated by reference to the Form 10-K (File No. 33-74254)
                  filed September 29, 1997. The number designating the exhibit
                  on the exhibit index to such previously-filed report is
                  enclosed in parentheses at the end of the description of the
                  exhibit above.

         (b)      Reports on Form 8-K.


                  The Company filed a Current Report on Form 8-K, dated December
5, 1997, with respect to the official signing of three project documents with
the Indian State of Karnataka related to the Mangalore Power Project, being
co-developed in India by Cogentrix Energy, Inc. and China Light & Power
(International), Ltd.


                                      96
<PAGE>   97


SIGNATURES.

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                                 COGENTRIX ENERGY, INC.
                                                      (Registrant)


Date: March 30, 1998                     By:            /s/ David J. Lewis
                                            ------------------------------------
                                                      David J. Lewis
                                                 Vice Chairman of the Board,
                                            Chief Executive Officer and Director
                                                 (Principal Executive Officer)


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

         Signature                                           Title                               Date
         ---------                                           -----                               ----
<S>                                         <C>                                              <C>
        /s/ George T. Lewis, Jr.            Chairman of the Board and Director               March 30, 1998
--------------------------------
       George T. Lewis, Jr.

        /s/ David J. Lewis                  Vice Chairman of the Board, Chief                March 30, 1998
--------------------------                      Executive Officer and Director
       David J. Lewis

        /s/ Mark F. Miller                  President, Chief Operating Officer               March 30, 1998
--------------------------                      and Director
       Mark F. Miller

        /s/ Betty G. Lewis                  Director                                         March 30, 1998
--------------------------
       Betty G. Lewis

        /s/ James E. Lewis                  Executive Vice President and Director            March 30, 1998
--------------------------
       James E. Lewis

                                            Director                                         March   , 1998
---------------------------
       Robert W. Lewis

        /s/ Dennis W. Alexander             Group Senior Vice President, General             March 30, 1998
-------------------------------               Counsel, Secretary and Director
       Dennis W. Alexander

        /s/ W. E. Garrett                   Director                                         March 30, 1998
-------------------------------
       W. E. Garrett

        /s/ John A. Tillinghast             Director                                         March 30, 1998
-------------------------------
       John A. Tillinghast

        /s/ James R. Pagano                 Group Senior Vice President,                     March 30, 1998
--------------------------                    Chief Financial Officer-
       James R. Pagano                        (Principal Financial Officer)


        /s/ Thomas F. Schwartz              Senior Vice President - Finance and              March 30, 1998
------------------------------                Treasurer (Principal Accounting Officer)
       Thomas F. Schwartz

</TABLE>


                                      97