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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12527
BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
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DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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20 INTERNATIONAL DRIVE, SUITE 301
PORTSMOUTH, NEW HAMPSHIRE 03801-6809
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 431-6600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 27, 2000, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $62,457,156 based on the last
reported sale price of the registrant's Common Stock on the American Stock
Exchange as of the close of business on March 27, 2000. There were 8,272,000
shares of Common Stock outstanding as of March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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Portions of the Registrant's Proxy Statement Items 10, 11, 12 & 13
for the 2000 Annual Meeting of Shareholders of Part III
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a holding company
incorporated in Delaware in 1996. Through its subsidiaries, BayCorp operates in
two business segments -- an Internet-based energy trading and information
business and a wholesale electricity generation and trading business.
The Company's majority-owned subsidiary, HoustonStreet Exchange, Inc.
("HoustonStreet"), developed and operates HoustonStreet.com, an Internet-based
trading platform and information portal for wholesale energy traders. Currently,
HoustonStreet offers an online trading exchange that allows utilities,
independent power producers and power marketers to trade electricity over the
Internet. HoustonStreet plans to develop and launch trading platforms for crude
oil and refined products, natural gas and other energy-related commodities.
HoustonStreet is also exploring opportunities to license its trading platform
for use in other non-energy business-to-business markets.
The Company's two other subsidiaries, Great Bay Power Corporation ("Great
Bay") and Little Bay Power Corporation ("Little Bay"), are electric generating
and trading companies. BayCorp wholly owns Great Bay and Little Bay, which in
turn own a combined 15% joint ownership interest in the Seabrook Nuclear Power
Project in Seabrook, New Hampshire (the "Seabrook Project"). This ownership
interest entitles the companies to approximately 174 megawatts of the Seabrook
Project's power output. Great Bay and Little Bay are exempt wholesale generators
("EWGs") under the Public Utility Holding Company Act of 1935 ("PUHCA"). Unlike
regulated public utilities, Great Bay and Little Bay have no franchise area or
captive customers. The companies sell their power in the competitive wholesale
power markets, including through HoustonStreet.com.
Great Bay was incorporated in New Hampshire in 1986 and was formerly known
as EUA Power Corporation. Little Bay was incorporated in New Hampshire in 1998.
Great Bay sells its power, including its share of the electricity output of the
Seabrook Project in the wholesale electricity market, primarily in the Northeast
United States. Little Bay sells its power solely to Great Bay under an
intercompany agreement. Neither BayCorp nor its subsidiaries has operational
responsibilities for the Seabrook Project. Great Bay currently sells all but
approximately 10 MW of its share of the Seabrook Project capacity in the
wholesale short-term market. In addition to selling its owned generation, Great
Bay purchases power on the open market for resale to third parties.
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. This
corporate structure enables BayCorp, either directly or through subsidiaries
other than Great Bay and Little Bay, to engage in businesses that these
subsidiaries would be prohibited from pursuing due to their status as EWG's
under the PUHCA. BayCorp may in the future enter into new businesses or acquire
existing businesses, both in energy related fields and possibly in unrelated
fields.
RECENT DEVELOPMENTS
Wholesale Electricity Generation and Trading Business
In November 1999, Little Bay purchased its 2.9% joint ownership interest in
the Seabrook Project from Montaup Electric Company, a subsidiary of Eastern
Utilities Associates, for a purchase price of $3.2 million, plus approximately
$1.7 million for certain prepaid items, primarily nuclear fuel and capital
expenditures. In addition, Montaup prefunded the decommissioning liability
associated with Little Bay's 2.9% joint ownership interest in the Seabrook
Project by transferring approximately $12.4 million into Little Bay's
decommissioning account, an irrevocable trust earmarked for Little Bay's share
of Seabrook Project decommissioning expenses.
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Internet-based Energy Trading and Information Business
In July 1999, HoustonStreet initially launched its Internet-based wholesale
electricity trading exchange in the Northeast United States. In September 1999,
HoustonStreet launched electricity trading throughout the United States. As of
March 27, 2000, over 85% of the power trading companies in the United States and
approximately 440 individual traders have registered on HoustonStreet. Nine of
the top ten trading companies have registered on the site.
In February 2000, HoustonStreet sold $6.0 million of its common stock and
Series A preferred stock to Equiva Trading Company ("Equiva"). Equiva is a
hydrocarbon supply and trading partnership jointly-owned by Equilon Enterprises
LLC ("Equilon") and Motiva Enterprises LLC ("Motiva"). Equilon is owned by Shell
Oil Company and Texaco Inc. Motiva is owned by Shell Oil Company, Texaco Inc.
and Saudi Refining Inc., an affiliate of Saudi Aramco.
Also in February 2000, HoustonStreet announced plans to launch one of the
first Web exchanges for wholesale crude oil and refined products trading. At
that time, HoustonStreet entered into agreements with Equiva under which Equiva
will share its knowledge of the oil trading industry with HoustonStreet and will
pay HoustonStreet at least $1.5 million over the next two years as minimum
trading commissions generated through Equiva's use of HoustonStreet's crude and
refined oil products trading exchange, once it is created and operated.
In addition to sales of its capital stock to Equiva, HoustonStreet sold
$10.6 million of its capital stock in February and March 2000 to other investors
including Williams Energy Marketing & Trading Company, Omega Advisors, Inc.,
Elliott Associates, L.P., Thomas H. Lee Company and Sapient Corporation. In
total, HoustonStreet raised $16.6 million in gross proceeds through these stock
sales. As a result, BayCorp owns approximately 53% of HoustonStreet's capital
stock (on an as converted to common stock basis) as of March 27, 2000.
WHOLESALE ELECTRICITY GENERATION AND TRADING BUSINESS
BayCorp's principal wholesale electricity generation and trading assets are
its 100% equity interests in Great Bay and Little Bay. The business of Great Bay
and Little Bay consists of managing their joint ownership interests in the
Seabrook Project and the sale in the wholesale power market of their share of
electricity produced by the Seabrook Project. Neither Great Bay nor Little Bay
has operational responsibility for the Seabrook Project. Great Bay is a party to
one long-term power contract for approximately 10 MW of Great Bay's share of the
Seabrook Project capacity. Great Bay has also entered into a one-year contract,
as of November 19, 1999, with Little Bay to purchase all of the output from the
portion of Seabrook owned by Little Bay. See "-- Purchased Power Agreements."
Great Bay's business strategy is to utilize unit contingent and firm forward
sales contracts to maximize the value of its 174 MW power supply from the
Seabrook Project.
Traditionally, Great Bay sold most of its share of the Seabrook Project
electricity output under unit contingent contracts. Under unit contingent
contracts, Great Bay is obligated to provide the buyer with power only when the
Seabrook Project is operating. In late 1998, Great Bay began to sell some of its
electricity as firm power, which entitles the buyer to electricity whether or
not the Seabrook Project is operating. Buyers pay a premium for firm power over
unit contingent power because they can rely on uninterrupted electricity. In
order to supply firm power during Seabrook Project unscheduled outages, Great
Bay purchases power from the spot market during these outages and resells that
power to its firm power customers. Spot market sales are subject to price
fluctuations based on the relative supply and demand of electricity. As a result
of spot market power price fluctuations, Great Bay may have to purchase power at
prices exceeding prices paid by Great Bay's firm power customers during outages.
Although Great Bay bears the primary risk of these price fluctuations, Great Bay
maintains insurance to protect Great Bay during periods of extreme price
volatility, subject to certain deductibles and coverage limits. This insurance,
provided by CIGNA and others, provides coverage through May 2002. In addition to
selling its owned generation, Great Bay purchases power on the open market for
resale to third parties in back-to-back transactions.
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The Seabrook Project
The Seabrook Project is located on an 896-acre site in Seabrook, New
Hampshire. It is owned by Great Bay, Little Bay and nine other utility
companies, consisting of North Atlantic Energy Company, Connecticut Light and
Power, The United Illuminating Company, Canal Electric Company, Massachusetts
Municipal Wholesale Electric Company, New England Power Company, New Hampshire
Electric Cooperative, Inc., Taunton Municipal Lighting Plant and Hudson Light &
Power Department (together with Great Bay and Little Bay, the "Participants").
Seabrook Unit 1 is a 1,150-MW nuclear-fueled steam electricity generating
station. It employs a four loop, pressurized water reactor and support auxiliary
systems designed by the Westinghouse Electric Company. The reactor is housed in
a steel-lined reinforced concrete containment structure and a concrete
containment enclosure structure. Reactor cooling water is obtained from the
Atlantic Ocean through a 17,000-foot-long intake tunnel and returned through a
16,500-foot-long discharge tunnel. The station has a remaining license life of
26 years. Seabrook Unit 1 delivers its generated power to the New England 345
kilovolt transmission grid, a major network of interconnecting lines covering
New England, through three separate transmission lines emanating from the
station. On March 15, 1990, the Participants received from the Nuclear
Regulatory Commission ("NRC") a full power operating license that authorizes
operation of Seabrook Unit 1 until October 2026. Commercial operation of
Seabrook Unit 1 commenced on August 19, 1990. Management believes that Seabrook
Unit 1 is in good condition.
Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a combined 15% joint
ownership interest in Seabrook Unit 2. Great Bay and Little Bay assigned no
value to Seabrook Unit 2 because on November 6, 1986, the joint owners of the
Seabrook Project voted to dispose of Unit 2. Thereafter, Great Bay wrote off its
investment in Unit 2. Little Bay has no investment in Unit 2. Certain assets of
Seabrook Unit 2 have been and are being sold from time to time to third parties.
However, there have been no material sales of Unit 2 assets since July 1996.
The Participants are considering additional plans regarding disposition of
Seabrook Unit 2, but such plans have not yet been finalized and approved. Great
Bay and Little Bay are unable to estimate the costs for which they will be
responsible in connection with the disposition of Seabrook Unit 2. Because
Seabrook Unit 2 was never completed or operated, costs associated with its
disposition will not include any amounts for decommissioning. Great Bay and
Little Bay currently pay their share of monthly expenses required to preserve
and protect the value of the Seabrook Unit 2 components.
Joint Ownership of Seabrook
Great Bay, Little Bay and the other Participants are parties to the
Agreement for Joint Ownership, Construction and Operation of New Hampshire
Nuclear Units (the "JOA"), which establishes the respective ownership interests
of the Participants in the Seabrook Project and defines their responsibilities
with respect to the ongoing operation, maintenance and decommissioning of the
Seabrook Project. In general, all ongoing costs of the Seabrook Project are
divided proportionately among the Participants in accordance with their
ownership interests in the Seabrook Project. Ownership interests in the Seabrook
Project are several and not joint, and each Participant is only liable for its
share of the Seabrook Project's costs and not liable for any other Participant's
share. Great Bay and Little Bay's combined joint ownership interest of 15% is
the third largest interest among the Participants, exceeded only by the
approximately 40% interest held by Northeast Utilities and its affiliates and
the 17.5% interest held by The United Illuminating Company.
A Participant may sell any portion of its ownership interest to any entity
that is engaged in the electric utility business in New England. Before such
sale, however, such selling Participant must give certain other Participants the
right of first refusal to purchase the interest on the same terms. Any
Participant may transfer, free from the foregoing right of first refusal, any
portion of its interest (a) to a wholly-owned subsidiary, (b) to another company
in the same holding company system or a construction trust for the benefit of
the transferor or another company in the same holding company system, or (c) in
connection with a merger, consolidation or acquisition of substantially all of
the properties or all of the generating facilities of a Participant.
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The failure to make monthly payments under the JOA by owners of the
Seabrook Project other than Great Bay and Little Bay may have a material effect
on Great Bay and Little Bay if either should choose to pay a greater proportion
of the Seabrook Unit 1 and Seabrook Unit 2 expenses in order to preserve the
value of its share of the Seabrook Project. In the past, certain of the owners
of the Seabrook Project other than Great Bay and Little Bay have not made their
full respective payments. At the current time, the electric utility industry is
undergoing significant changes as competition and deregulation are introduced
into the marketplace. Some utilities, including certain Participants, have
indicated in state regulatory proceedings that they may be forced to seek
bankruptcy protection if regulators, as part of the industry restructuring, do
not allow for full recovery of stranded costs. If a Participant other than Great
Bay or Little Bay filed for bankruptcy, and that Participant was unable to pay
its share of Seabrook Project expenses, Great Bay and/or Little Bay might choose
to pay a greater portion of Seabrook Project expenses. In the past, the filing
of bankruptcy by a Participant has not resulted in a failure to pay Seabrook
Project expenses or an increase in the percentage of expenses paid by other
Participants.
The JOA provides for a Managing Agent to carry out the daily operational
and management responsibilities of the Seabrook Project. The current Managing
Agent, appointed by certain of the Participants on June 29, 1992, is North
Atlantic Energy Service Corporation ("NAESCO"), a wholly-owned subsidiary of
Northeast Utilities. Northeast Utilities, in conjunction with certain of its
affiliates, holds the largest joint ownership interest in the Seabrook Project,
as described above. Certain material decisions regarding the Seabrook Project
are made by an Executive Committee consisting of the chief executive officers of
certain of the Participants or their designees. There are currently five members
of the Executive Committee. The Executive Committee acts by a majority vote of
its members, although any action of the Executive Committee may be modified by
vote of 51% of the ownership interests. Frank W. Getman Jr., the Company's
President and Chief Executive Officer, is currently a member of the Executive
Committee and of the Audit Committee and is Chairperson of the Budget
Subcommittee. Under the JOA, the managing agent of the Seabrook Project may be
removed and a new managing agent appointed by a 51% interest of the
Participants.
Marketing and Customers
Great Bay currently sells most of its power in the Northeast United States
in the short-term wholesale power market. Great Bay is currently not dependent
on any single customer because many utilities and marketers are willing to buy
Great Bay's share of electricity from the Seabrook Project at substantially the
same price. Prices in the short-term market are typically higher during the
summer and winter because the demand for electrical power is higher during these
periods in the Northeast United States. The Company utilizes unit contingent and
firm forward sale contracts to maximize the value of the uncommitted portion of
its 174 megawatt power supply from the Seabrook Project.
During 1999, sales by Great Bay to Connecticut Municipal Electric Energy
Cooperative and Select Energy accounted for 29% and 24%, respectively, of total
operating revenues. Sales by Little Bay to Great Bay represent 100% of its
operating revenues. See Note 1I of Notes to the Financial Statements.
Purchased Power Agreements
Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the "UNITIL Purchased Power Agreement"), with UNITIL Power Corporation
that provides for Great Bay to sell to UNITIL Power approximately 10 MW of
power. The UNITIL Purchased Power Agreement commenced on May 1, 1993 and runs
through October 31, 2010. The current price of power under the UNITIL Purchased
Power Agreement is 5.38 cents per kilowatt-hour ("kWh"). The price is subject to
increase in accordance with a formula that provides for adjustments at less than
the actual rate of inflation. UNITIL Power has an option to extend the UNITIL
Purchased Power Agreement for an additional 12 years until 2022.
The UNITIL Purchased Power Agreement is front-end loaded whereby UNITIL
Power pays higher prices, on an inflation-adjusted basis, in the early years of
the Agreement and lower prices in later years. The amount of the excess paid by
UNITIL Power in the early years of the UNITIL Purchased Power Agreement is
quantified in a "Balance Account" which increased annually to a total of $4.1
million in July 1998, and now
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decreases annually, reaching zero in July 2001. If the UNITIL Purchased Power
Agreement terminates prior to its scheduled termination, and if at that time
there is a positive amount in the Balance Account, Great Bay is obligated to
refund that amount to UNITIL Power.
To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL Power the amount in the
Balance Account, the UNITIL Purchased Power Agreement grants UNITIL Power a
mortgage on Great Bay's interest in the Seabrook Project. This mortgage may be
subordinated to first mortgage financing of up to a maximum amount of
$80,000,000. The UNITIL Purchased Power Agreement further provides that UNITIL
Power's mortgage will rank pari passu with other mortgages that may hereafter be
granted by Great Bay to other purchasers of power from Great Bay to secure
similar obligations, provided that (i) the maximum amount of indebtedness
secured by the first mortgage on the Seabrook Interest may not exceed
$80,000,000, and (ii) the combined total of all second mortgages on the Seabrook
Interest may not exceed the sum of (a) $80,000,000 less the total amount of
Great Bay's debt then outstanding which is secured by a first mortgage plus (b)
$57,000,000.
Great Bay entered into a power sales agreement, dated as of November 19,
1999, with Little Bay. Under the terms of the agreement, Little Bay sells, and
Great Bay purchases, all of the output of the portion of Seabrook owned by
Little Bay. This agreement is a unit power sale agreement. Accordingly, when all
or part of Little Bay's interest in Seabrook is not producing, the obligation of
Little Bay to sell (and of Great Bay to purchase) is proportionately eliminated.
The initial term of this agreement is for one year. Great Bay and Little Bay
expect to continue this agreement after the initial period. The agreement can be
terminated at any time by mutual consent of the parties, after any notice
required by law.
Competition
Great Bay sells its share of Seabrook electricity into the wholesale
electricity market in the Northeast United States. There are a large number of
suppliers to this market and a surplus of capacity, resulting in intense
competition. A primary source of competition comes from traditional utilities,
many of which presently have excess capacity. In addition, non-utility wholesale
generators of electricity, such as independent power producers ("IPPs"),
Qualifying Facilities ("QFs") and EWGs, as well as power marketers and brokers,
actively sell electricity in this market.
Great Bay may face increased competition, primarily based on price, from
all the foregoing sources in the future. Great Bay believes that it will be able
to compete effectively in the wholesale electricity market because of the
current low cost of electricity generated by the Seabrook Project in comparison
with existing alternative sources.
NEPOOL
Great Bay is a member of the New England Power Pool ("NEPOOL") and is a
party to the New England Power Pool Agreement (the "NEPOOL Agreement"). NEPOOL
is a voluntary association of companies engaged in the electricity business in
New England and its membership is open to all investor-owned, municipal and
cooperative electric utilities in New England and other companies that transact
business in the region's bulk power market. Certain end users of electricity may
also become NEPOOL members. The NEPOOL Agreement imposes on its participants
obligations concerning generating capacity reserves and the right to use major
transmission lines.
On December 31, 1996, NEPOOL filed a restructuring plan with the Federal
Energy Regulatory Commission ("FERC"), including proposed amendments to the
NEPOOL Agreement and an open access transmission tariff. The filing was intended
not only to comply with the FERC's open access for tight pools as set forth in
FERC Order No. 888, but also to (1) transfer the region's transmission grid and
generation operation to an independent system operator, (2) provide for a
competitive generation market through a combination of bilateral trading and the
formation of a regional power exchange and (3) qualify NEPOOL as a regional
transmission group. Among other things, NEPOOL's restructuring is designed to
function efficiently in a changing electric power industry and to permit
regional transmission at rates that do not vary with distance. These changes are
being implemented in stages that began in mid-1997.
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The region's independent system operator, ISO New England, Inc. ("ISO-NE"),
was established in July 1997 and is responsible for maintaining the safety and
reliability of the transmission grid and bulk power market within the NEPOOL
region. ISO-NE performs these functions under a services contract with NEPOOL.
Since May 1, 1999 ISO-NE has administered a new bid-based wholesale market
system in New England that is designed to provide a competitive and efficient
generation market through an hourly clearing price mechanism.
Nuclear Power, Energy and Utility Regulation
The Seabrook Project and Great Bay and Little Bay, as part owners of a
licensed nuclear facility, are subject to the broad jurisdiction of the NRC,
which is empowered to authorize the siting, construction and operation of
nuclear reactors after consideration of public health and safety, environmental
and antitrust matters. Great Bay and Little Bay have been, and will be, affected
to the extent of their proportionate share by the cost of any such requirements
made applicable to the Seabrook Project.
Great Bay and Little Bay are also subject to the jurisdiction of the FERC
under Parts II and III of the Federal Power Act and, as a result, are required
to file with FERC all contracts for the sale of electricity. FERC has the
authority to suspend the rates at which Great Bay and Little Bay propose to sell
power, to allow such rates to go into effect subject to refund and to modify a
proposed or existing rate if FERC determines that such rate is not "just and
reasonable." FERC's jurisdiction also includes, among other things, the sale,
lease, merger, consolidation or other disposition of facilities, interconnection
of certain facilities, accounts, service and property records.
Because they both are EWG's, Great Bay and Little Bay are not subject to
the jurisdiction of the Securities and Exchange Commission ("SEC") under PUHCA.
In order to maintain their EWG status, Great Bay and Little Bay must continue to
engage exclusively in the business of owning and/or operating all or part of one
or more "eligible facilities" and to sell electricity only at wholesale (i.e.
not to end users) and activities incidental thereto. An "eligible facility" is a
facility used for the generation of electric energy exclusively at wholesale or
used for the generation of electric energy and leased to one or more public
utility companies. The term "facility" may include a portion of a facility. In
the case of Great Bay and Little Bay, their combined 15% joint ownership
interest in the Seabrook Project comprises an "eligible facility."
The NHPUC and the regulatory authorities with jurisdiction over utilities
in New Hampshire and state legislatures of several other states in which Great
Bay sells electricity are considering or are implementing initiatives relating
to the deregulation of the electric utility industry. Simultaneously with the
deregulation initiatives occurring in each of the New England states, NEPOOL
restructured to create and maintain open, non-discriminatory, competitive,
unbundled markets for energy, capacity, and ancillary services. These markets
commenced operation in May 1999. All of the deregulation initiatives open
electricity markets to competition in the affected states. While Great Bay and
Little Bay believe they are low-cost producers of electricity and will benefit
from the deregulation of the electric industry, it is not possible to predict
the impact of these various initiatives on the companies.
Nuclear Power Issues
Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains controversial. An increase in public
concerns regarding the Seabrook Project or nuclear power in general could
adversely affect the operating license of Seabrook Unit 1. While the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations require
that the unit be completely decontaminated of any residual radioactivity. While
the owners of the Seabrook Project are accumulating
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monies in a trust fund to pay decommissioning costs, if these costs exceed the
amount of the trust fund, the owners, including Great Bay and Little Bay, will
be liable for the excess.
Nuclear Related Insurance
In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9 billion, based on the approximately 106 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 million per nuclear accident per licensed reactor,
payable at a rate not exceeding $10 million per year per reactor. In addition,
the retrospective premium is subject to inflation based indexing at five-year
intervals and, if the sum of all public liability claims and legal costs arising
from any nuclear accident exceeds the maximum amount of financial protection
available, then each licensee can be assessed an additional 5% ($4.2 million) of
the maximum retrospective assessment. With respect to the Seabrook Project,
Great Bay and Little Bay would be obligated to pay their ownership share of any
assessment resulting from a nuclear incident at any United States nuclear
generating facility. Great Bay and Little Bay estimate their total maximum
liability per nuclear accident currently would be an aggregate amount of
approximately $12.6 million per accident, with a maximum annual assessment of
about $1.5 million per incident, per year.
In addition to the insurance required by the Price Anderson Act, the NRC
regulations require licensees, including the Seabrook Project, to carry all risk
nuclear property damage insurance in the amount of at least $1.06 billion, which
amount must be dedicated, in the event of an accident at the reactor, to the
stabilization and decontamination of the reactor to prevent significant risk to
the public health and safety.
Great Bay and Little Bay also independently purchase business interruption
insurance from Nuclear Electric Insurance Limited ("NEIL"). The current policy
is in effect from September 15, 1999 until April 1, 2000 and a renewal policy
has been signed which will be in effect from April 1, 2000 until April 1, 2001.
The policy provides for the payment of a fixed weekly loss amount of $670,000 in
the event of an outage at the Seabrook Project of more than 23 weeks resulting
from the property damage occurring from a "sudden fortuitous event, which
happens by chance, is unexpected and unforeseeable." The maximum amount payable
to Great Bay and Little Bay is a total of $90.6 million. Under the terms of the
policy, Great Bay and Little Bay are subject to a potential retrospective
premium adjustment of up to approximately $469,000 should NEIL's board of
directors deem that additional funds are necessary to preserve the financial
integrity of NEIL. Since NEIL was founded in 1980, there has been no
retrospective premium adjustment; however, there can be no assurance that NEIL
will not make retrospective adjustments in the future. The liability for this
retrospective premium adjustment ceases six years after the end of the policy
unless prior demand has been made.
Nuclear Fuel
The Seabrook Project's managing agent has made, or expects to make, various
arrangements for the acquisition of uranium concentrate, the conversion,
enrichment, fabrication and utilization of nuclear fuel and the disposition of
that fuel after use. Many of these arrangements are pursuant to multi-year
contracts with concentrate and service providers. Based on the Seabrook
Project's existing contractual arrangements, Great Bay and Little Bay believe
that the Seabrook Project has available, or under supply contracts, sufficient
nuclear fuel for operations through approximately 2003. Uranium concentrate and
conversion, enrichment and fabrication services currently are available from a
variety of sources. The cost of such concentrate and such services varies based
upon market forces.
Nuclear Waste Disposal
Costs associated with nuclear plant operations include amounts for nuclear
waste disposal, including spent fuel, as well as for the ultimate
decommissioning of the plants. The Nuclear Waste Policy Act of 1982 (the "NWPA")
requires the United States Department of Energy (the "DOE"), subject to various
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contingencies, to design, license, construct and operate a permanent repository
for high level radioactive waste and spent nuclear fuel, which are collectively
referred to as "high level waste."
The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Project's high level waste
beginning no later than January 31, 1998. However, the DOE has announced that
its first high level waste repository will not be in operation until 2010 at the
earliest.
As a result of this delay, many states and nuclear plant operators,
including NAESCO, sued the DOE for injunctive relief and monetary damages. Two
U.S. Courts of Appeals ordered the DOE to proceed with its high level waste
disposal obligations and ruled that plant operators are entitled to money
damages from DOE. However, there can be no assurance that the Seabrook Project
will collect damages from the DOE because, among other things, NAESCO's case
against the DOE is still pending.
In February 1999, the DOE proposed to Congress an alternative interim plan
for high level waste management. The DOE proposed to take legal title and
responsibility for the waste (on-site at nuclear plants such as Seabrook) until
a permanent repository becomes available. Ultimately, Congress rejected that
proposal, and on March 22, 2000, Congress passed amendments to the NWPA that
would require the DOE to begin accepting nuclear waste shipments at a Nevada
site in 2007. However, President Clinton stated that he would veto this
legislation and Congress is not expected to override Mr. Clinton's veto.
Regardless of whether this legislation becomes law or alternative solutions are
identified, nuclear plants such as Seabrook must retain high level waste on-site
or make other storage provisions until the DOE begins receiving nuclear waste
materials in accordance with the NWPA and its contracts.
The Seabrook Project increased its on-site storage capacity for low level
waste ("LLW") in 1996 and that capacity is expected to be sufficient to meet the
Project's storage requirements through 2006. In addition, the managing agent of
the Seabrook Project has advised Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for LLW generated within the state, either by
constructing and operating facilities or by joining regional compacts with other
states to jointly fulfill their responsibilities. However, the Low-Level
Radioactive Waste Policy Amendments Act of 1985 permits each state in which a
currently operating disposal facility is located (South Carolina, Nevada and
Washington) to impose volume limits and a surcharge on shipments of LLW from
states that are not members of their regional compact.
In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. The Seabrook Project began shipping
certain LLW to the Utah facility in December 1995. In 1999, the Seabrook Project
also began shipping some LLW to a privately owned facility in Tennessee. All LLW
generated by the Seabrook Project that exceeds the maximum radioactivity level
of LLW accepted by these facilities is currently stored on-site at the Seabrook
facility.
Decommissioning
NRC licensing requirements and restrictions are also applicable to the
decommissioning of nuclear generating units at the end of their service lives,
and the NRC has adopted comprehensive regulations concerning decommissioning
planning, timing, funding and environmental review. Any changes in NRC
requirements or technology can increase estimated decommissioning costs.
Great Bay and Little Bay are responsible for their pro rata share of the
decommissioning and cancellation costs for Seabrook. Great Bay pays its share of
decommissioning funding on a monthly basis. Little Bay's share of
decommissioning costs was prefunded by Montaup Electric Company, the owner of
the 2.9% interest in the Seabrook Project that Little Bay acquired in November
1999. As part of that acquisition, Montaup Electric Company transferred
approximately $12.4 million into Little Bay's decommissioning account, an
irrevocable trust earmarked for Little Bay's share of Seabrook Plant
decommissioning expenses.
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<PAGE> 10
The Seabrook decommissioning funding schedule is determined by the New
Hampshire Nuclear Decommissioning Financing Committee (the "NDFC"). The NDFC
reviews the decommissioning funding schedule for the Seabrook Project at least
annually and, for good cause, may increase or decrease the amount of the funds
or alter the funding schedule.
In June 1999, the NDFC issued a Final Report and Order relating to
proceeding NDFC 98-1, the comprehensive update of Seabrook Unit 1
Decommissioning Fund. For funding purposes, this Order reflects decommissioning
beginning in 2015, shortening the funding period, which commenced in 1990, from
36 to 25 years. Great Bay began funding at an accelerated rate in 1998 in
response to New Hampshire legislation, and as such, the accelerated funding
required by this Order is not expected to have a material impact on Great Bay.
Great Bay's 1999 decommissioning payments totaled approximately $1.7 million.
Little Bay's decommissioning funding was not affected by the June 1999 NDFC
Order.
Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding loss of approximately $45,000 as of December 31, 1999.
Although the owners of the Seabrook Project are accumulating funds in an
external trust to defray decommissioning costs, these costs could substantially
exceed the value of the trust fund, and the owners, including Great Bay and
Little Bay, would remain liable for the excess.
In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. In June 1998, the New Hampshire State
legislature enacted legislation that provides that in the event of a default by
Great Bay on its payments to the decommissioning fund, the other Seabrook joint
owners would be obligated to pay their proportional share of such default. As a
result of the enactment of this legislation, the NRC staff found that Great Bay
complies with the decommissioning funding assurance requirements. In July 1998,
the staff of the NRC notified Great Bay of the staff's determination that Great
Bay complies with the decommissioning funding assurance requirements under NRC
regulations.
In response to the New Hampshire legislation, Great Bay agreed to make
accelerated payments to the Seabrook decommissioning fund such that Great Bay
will have contributed sufficient funds by the year 2015 to allow sufficient
monies to accumulate, with no further payments by Great Bay to the fund, to the
full estimated amount of Great Bay's decommissioning obligation by the time the
current Seabrook operating license expires in 2026. Based on the currently
approved funding schedule and Great Bay's accelerated funding schedule, Great
Bay's decommissioning payments will be approximately $1.8 million in 2000 and
escalate at 4% each year thereafter through 2015.
The current estimated cost to decommission the Seabrook Project, based on a
study performed in 1996 for the lead owner of the Seabrook Project, is
approximately $565 million in 2000 dollars and $2.2 billion in 2026 dollars,
assuming a remaining 26-year life for the facility and a future cost escalation
rate of 5.0%. Based on this estimate, the present value of Great Bay and Little
Bay's share of this liability as of December 31, 1999 was approximately $79
million.
On November 15, 1992, Great Bay's former parent, EUA, and certain other
parties entered into a settlement agreement. Under the settlement agreement, EUA
guaranteed an amount not to exceed $10 million of Great Bay's future
decommissioning costs of Seabrook Unit 1 in the event that Great Bay is unable
to pay its share of such decommissioning costs.
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<PAGE> 11
Environmental Regulation
The Seabrook Project, like other electric generating stations, is subject
to standards administered by federal, state and local authorities with respect
to the siting of facilities and associated environmental factors. The United
States Environmental Protection Agency (the "EPA"), and certain state and local
authorities, have jurisdiction over releases of pollutants, contaminants and
hazardous substances into the environment and have broad authority in connection
therewith, including the ability to require installation of pollution control
devices and remedial actions. The NRC has promulgated a variety of standards to
protect the public from radiological pollution caused by the normal operation of
nuclear generating facilities.
The EPA issued a National Pollutant Discharge Elimination System ("NPDES")
permit, valid for a period of five years, to NAESCO on October 30, 1993
authorizing discharges from Seabrook Station into the Atlantic Ocean and the
Browns River in accordance with limitations, monitoring requirements and
conditions specified in the permit. A renewal application was filed in April
1998 and supplemented in August, September of 1998 and in September 1999. NAESCO
has advised Great Bay that the Seabrook Station's initial five-year NPDES permit
will remain effective during the renewal process.
On August 31, 1994, the New Hampshire Department of Environmental Services
issued to NAESCO permits to operate two auxiliary boilers and two emergency
diesel generators in accordance with New Hampshire Revised Statutes Annotated
Chapter 125-C. These permits, which were effective until August 31, 1997,
prescribe limits for the emission of air pollutants into the ambient air as well
as record keeping and other reporting criteria. NAESCO filed an application on
July 16, 1996 for permits under Title V of the Clean Air Act. Upon the
expiration of the State of New Hampshire permits, the conditions authorized by
those permits remain in effect until the Title V permits are granted. NAESCO can
not estimate when the Title V permits will be granted. Because the liabilities
of the Participants under the JOA are several and not joint, in the event that
NAESCO violates the emissions limits contained in its permits, if at all, Great
Bay and Little Bay will be liable for their pro rata share of any costs and
liabilities assessed for the emissions violations.
In some environmental areas, the NRC and the EPA have overlapping
jurisdiction. Thus, NRC regulations are subject to all conditions imposed by the
EPA and a variety of federal environmental statutes, including obtaining permits
for the discharge of pollutants (including heat, which is discharged by the
Seabrook Project) into the nation's navigable waters. In addition, the EPA has
established standards, and is in the process of reviewing existing standards,
for certain toxic air pollutants, including radionuclides, under the United
States Clean Air Act which apply to NRC-licensed facilities. The effective date
for the new EPA radionuclide standard has been stayed as applied to nuclear
generating units. Environmental regulation of the Seabrook Project may result in
material increases in capital and operating costs, delays or cancellation of
construction of planned improvements, or modification or termination of
operation of existing facilities. Management believes that Great Bay and Little
Bay are in compliance in all material respects with applicable EPA, NRC and
other regulations relating to pollution caused by nuclear generating facilities.
INTERNET-BASED ENERGY TRADING AND INFORMATION BUSINESS
BayCorp's subsidiary, HoustonStreet, developed and operates
HoustonStreet.com, an Internet-based trading platform and information portal for
wholesale energy traders. Currently, HoustonStreet offers an online trading
exchange that allows utilities, independent power producers and power marketers
to trade electricity over the Internet. HoustonStreet plans to develop and
launch trading platforms for crude and refined oil products, natural gas and
other energy-related commodities.
Industry Background
Today, almost all electricity and approximately half of all natural gas
trading is conducted by telephone. As online exchanges develop and provide more
accurate and comprehensive real-time information and faster execution of trades,
HoustonStreet's management believes that energy traders will increasingly adopt
the online trading method. In addition, management believes that trading
companies facing increased competition and lower profit margins will utilize
online trading technology to realize cost savings and efficiencies. Moreover,
HoustonStreet's management believes that virtually all wholesale energy traders
use the Internet
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<PAGE> 12
for certain aspects of their business, including scheduling power transmission
and interfacing with various regulatory bodies and power pools, such as ISO New
England, PJM ISO and CalPX. Since traders already use the Internet for other
business activities, HoustonStreet's management believes that traders will also
use the Internet for trading.
State of Wholesale Electricity Market
The electricity market in the United States can be divided into two
categories based on the electricity producing entity. The first type of
producer, the vertically integrated utility, generates power and sells it
directly to its end users. The second type of producer, the independent power
producer, generates electricity and sells it on a wholesale basis. Utilities and
independent power producers trade wholesale electricity. Wholesale electricity
can be traded multiple times, as traders routinely buy and sell power to
accommodate varying delivery point and delivery time requirements.
In addition to utilities and independent power producers, electricity is
traded by power marketers. Power marketers are independent middlemen that buy
and sell wholesale electricity at market prices. Although power marketers
traditionally do not own electrical generation, transmission or distribution
assets, they are in some instances affiliated with enterprises that own such
assets. Wholesale trading of electricity in the United States totaled
approximately $70 billion in 1998, representing over 3 billion megawatt hours.
According to Power Markets Week, power marketer sales alone reached 2.3 billion
megawatt hours in 1998.
Electricity Trading and Deregulation
With the onset of electric utility deregulation in the United States, the
wholesale power trading market has grown and changed significantly.
Historically, electric utilities traded power among themselves primarily on a
"real time" (electric power for the next hour) and "day ahead" (power for
tomorrow) basis. Forward transactions (beyond the next day) were less common.
With vertically integrated utilities, the need for wholesale trading is mainly
driven by plant outages and maintenance. Traditional regulated utilities priced
transactions based on cost and rate of return rather than market dynamics.
There are two primary factors driving the change and growth of the
wholesale power trading market in the United States -- the breakup of the
vertically integrated model and the introduction of non-rate of return regulated
participants. The break up of vertically integrated organizations has increased
the need for the resulting organizations to engage in wholesale transactions.
When utilities were vertically integrated, captive generation was used to serve
captive load and transactions were used to fill in mismatches between the two.
Unaffiliated load-serving and generation entities must purchase and sell power
to conduct their ongoing businesses.
Three states, California, Pennsylvania and Massachusetts, have completed
electric utility deregulation to date. These states represent approximately 13%
of the United States' electricity consumption. In addition, 18 other states have
enacted restructuring legislation to date. These states represent an additional
approximately 35% of the United States' electricity consumption. HoustonStreet's
management believes that the ongoing deregulation process will continue and
thereby generate a substantially larger market for trading on HoustonStreet.com.
The HoustonStreet Solution
HoustonStreet.com is a comprehensive Internet-based trading platform and
information portal for wholesale energy traders. Currently, HoustonStreet offers
an easy to use, fully Internet-based trading exchange that allows utilities,
independent power producers and power marketers to trade electricity over the
Internet. HoustonStreet provides traders with the information and flexibility
they need to post offers, make bids, counter and re-counter and close the
transaction. HoustonStreet plans to develop and launch trading platforms for
crude and refined oil products, natural gas and other energy-related
commodities.
HoustonStreet offers flexibility and choice to traders and accommodates
their needs by permitting transactions for any quantity, time period and
delivery point. HoustonStreet also serves as an information
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<PAGE> 13
portal, providing traders with important information that could impact their
trading strategy, such as weather forecasts, energy and general news headlines
and links to regional power pool market clearing prices and plant outage
information. Moreover, HoustonStreet can serve as the base from which users can
begin their Internet activity, with additional links to stock prices, sports
news and other sites of interest to traders.
Sources of Revenue
HoustonStreet receives a fee for every trade completed on its Web site. The
transaction fees charged by HoustonStreet are at or below the commissions
charged by telephone brokers. Commissions on energy trades typically range from
0.01% to 0.05% of the value of the energy traded online.
Services
PowerPit. Many power traders buy and sell electricity based on a need to
deliver or receive power at a specific point, at a specific time and for a
specific quantity. Accordingly, commonly traded standardized products used by
other traders may not meet the needs of these traders. The standard products,
also known as hub products, cover a limited set of delivery points for specific
peak time periods in blocks of 50 megawatts. HoustonStreet's PowerPit trading
platform allows traders to post bids and offers ranging from one megawatt for
one hour to large blocks for multiple years at any delivery point.
SpeedWay. Other power traders trade hub products and do not need the
flexibility of PowerPit. Their greatest needs are speed, ease of use and
sophisticated trading functionality. HoustonStreet's SpeedWay platform supports
trading of standard hub products only. By limiting the product range, SpeedWay
reduces the time and effort required to post bids and offers. SpeedWay allows
traders to trade in both location spreads (simultaneously buying and selling
power for the same time period for two different geographic points) and calendar
spreads (buying and selling for the same point at two different time periods.)
Features and Benefits
HoustonStreet serves as a portal to other sites providing content valuable
for individuals involved in the power market. The information available on
HoustonStreet, such as weather forecasts, energy news and regional power pool
market clearing prices, helps make the site "sticky" by providing traders with
the information they need to obtain price discovery, analyze opportunities and
execute trades. In addition, HoustonStreet provides other information of
interest to traders, including real-time stocks and sports information.
Equiva Relationship
In February 2000, HoustonStreet sold $6.0 million of its common stock and
Series A preferred stock to Equiva Trading Company ("Equiva"). Equiva is a
hydrocarbon supply and trading partnership jointly-owned by Equilon Enterprises
LLC ("Equilon") and Motiva Enterprises LLC ("Motiva"). Equilon is owned by Shell
Oil Company and Texaco Inc. Motiva is owned by Shell Oil Company, Texaco Inc.
and Saudi Refining Inc., an affiliate of Saudi Aramco.
Also in February 2000, HoustonStreet entered into agreements with Equiva
under which Equiva will share its knowledge of the oil trading industry with
HoustonStreet and will pay HoustonStreet at least $1.5 million over the next two
years as minimum trading commissions generated through Equiva's use of
HoustonStreet's crude and refined oil products trading exchange, once it is
created and operated.
Pursuant to additional agreements, Equiva committed to make markets and
promote liquidity for all of the primary products traded on HoustonStreet's
crude and refined oil products trading exchange. HoustonStreet's management
believes that Equiva's reputation as a leader in the energy trading markets,
coupled with Equiva's commitment to make markets on HoustonStreet, increases the
probability of success for HoustonStreet's crude and refined oil products
exchange.
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<PAGE> 14
Notwithstanding HoustonStreet's relationship with Equiva or any other
strategic partner or financial investor, HoustonStreet provides a neutral,
secure and anonymous trading platform. HoustonStreet does not take title to any
products traded on HoustonStreet.com nor compete with any users of the system.
Competition
HoustonStreet's electricity trading exchange competes with brokers who
arrange for electricity trades by telephone and to a lesser extent, electronic
brokerage services. Moving traders from the telephone to the Internet is perhaps
the largest competitive challenge facing HoustonStreet. Currently, most
transactions are conducted on the telephone either directly between two traders
or through a telephone broker. The broker does not act as a principal in the
transaction. The purchasing and selling entities are disclosed to each other
upon completion of every transaction. This process can be inefficient and time
consuming. In addition, the human element in the telephone broker market
introduces a risk of error or omission in the dissemination of market
information. The level of price transparency is low.
Independent Electronic Brokerages. HoustonStreet is aware of several
electronic brokerages currently in operation that to a varying extent compete
with HoustonStreet. Bloomberg PowerMatch is operated by Bloomberg Financial
Services, a major provider of financial market information and analytical
services through a proprietary system. Bloomberg's proprietary system is
required to use its PowerMatch service. Altra Energy Technologies, Inc. has
recently released a partially Web enabled trading platform, Altrade. This
platform uses the Internet to communicate but requires proprietary software that
must reside on the users' desktop. Open Access Technologies Incorporated (OATI)
offers an Internet-based system for real time traders in the Mid-Continent Area
Power Pool (MAPP) region of the country. HoustonStreet's management believes
that none of these providers has a fully Web enabled comprehensive platform
comparable to HoustonStreet.
Single Participant Web Sites. In addition, HoustonStreet is aware of
several energy companies that have announced Internet-based systems that are
designed to give users the ability to trade energy-related commodities with only
that company. These Web sites are not independent exchanges, but rather
Internet-based distribution systems for company-specific products and services.
HoustonStreet is uncertain whether competitors of these energy companies will
want to transact business on a single-company site, possibly providing
competitors with information about positions they are taking in the market.
Customers
As of March 27, 2000, traders from approximately 20 companies have traded
electricity on HoustonStreet.com. Approximately 440 individual traders and over
85% of power trading companies in the United States have registered to use
HoustonStreet, including nine of the top ten power trading companies as ranked
by Power Markets Week based on sales.
Marketing
HoustonStreet's management believes that there are approximately 1,000
electricity traders in the United States who potentially could trade power on
HoustonStreet.com. This limited number of traders provides HoustonStreet with
the opportunity to do a highly focused direct marketing campaign. This includes
direct mail, direct e-mail and personal face-to-face visits from HoustonStreet's
sales force.
As HoustonStreet implements its plans to expand into additional energy
markets, it will need to expand its marketing campaign. In addition to direct
marketing efforts, HoustonStreet intends to utilize its relationship with Equiva
to promote HoustonStreet's planned crude and refined oil products trading
exchange. HoustonStreet expects to enter into similar strategic relationships to
facilitate planned expansion into natural gas and other markets.
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EMPLOYEES AND MANAGEMENT
As of March 17, 2000, BayCorp and its subsidiaries had 35 employees,
including 26 at HoustonStreet, seven at BayCorp and two employees at Great Bay.
Little Bay has no employees.
BayCorp has entered into Management and Administrative Services Agreements
(the "Services Agreements"), with its subsidiaries, Great Bay and HoustonStreet,
pursuant to which BayCorp provides Great Bay and HoustonStreet a full range of
management services, including general management and administration, accounting
and bookkeeping, budgeting and regulatory compliance. Under the Services
Agreements, Great Bay paid BayCorp $2,021,760 and HoustonStreet paid BayCorp
$427,600 for such services in 1999. Each Services Agreement has a one-year term
and provides for automatic one-year renewals. Although BayCorp and Little Bay do
not currently have a services agreement in place, the companies expect to enter
into a services agreement in 2000.
ITEM 2. PROPERTIES.
BayCorp's principal assets include its 100% equity interests in Great Bay
and Little Bay and approximately 53% equity interest in HoustonStreet as of
March 27, 2000. In turn, Great Bay and Little Bay's principal asset is a
combined 15% joint ownership interest in the Seabrook Project. The Seabrook
Project is a nuclear-fueled, steam electricity, generating plant located in
Seabrook, New Hampshire, which was planned to have two Westinghouse pressurized
water reactors, Seabrook Unit 1 and Seabrook Unit 2 (each with a rated capacity
of 1,150 megawatts), utilizing ocean water for condenser coiling purposes.
Seabrook Unit 1 entered commercial service on August 19, 1990. Seabrook Unit 2
has been canceled. See "Business -- The Seabrook Project."
BayCorp's corporate headquarters is located in Portsmouth, New Hampshire
where it occupies approximately 3,960 square feet of office space under a lease
that expires in July 2003. BayCorp's management believes that the corporate
headquarters in Portsmouth, New Hampshire meets its current requirements and
that additional space can be obtained to meet requirements for the foreseeable
future.
HoustonStreet's corporate headquarters is also located in Portsmouth, New
Hampshire where it occupies approximately 2,300 square feet of office space
under a lease that expires in November 2000. HoustonStreet also occupies
approximately 2,100 square feet of office space in Houston, Texas.
HoustonStreet's management believes that the corporate headquarters in
Portsmouth, New Hampshire and its office space in Houston, Texas meet its
current requirements and that additional space can be obtained to meet
requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
For each of the tax years 1994, 1995, 1996, 1997 and 1998, Great Bay filed
property tax abatement applications with the towns of Hampton and Hampton Falls.
The abatement requests were denied. Great Bay filed appeals for each of those
years with the New Hampshire Board of Tax and Land Appeals (the "BTLA"). On
November 11, 1999, Great Bay reached agreements settling the property tax
litigation. As a result of the settlement agreement, Great Bay received $146,450
from the Town of Hampton and $21,967 from the Town of Hampton Falls. With regard
to Hampton Falls, the settlement established an assessed valuation of $7,000,000
for 1999 and $2,500,000 for 2000. With regard to the Town of Hampton, the
settlement established an assessed valuation of $20,000,000 for 1999 and
$15,000,000 for 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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Executive Officers of the Registrant
The executive officers of BayCorp are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank W. Getman Jr..................... 36 Chief Executive Officer, President and Secretary
John A. Tillinghast.................... 72 Chief Engineer, Chairman of the Board of Directors
</TABLE>
Frank W. Getman Jr. has served as Chief Executive Officer, President, and
Secretary of the Company since May 1998. Mr. Getman served as Chief Operating
Officer of the Company since September 1996 and Vice President, Secretary and
General Counsel of Great Bay since August 1995. From September 1991 to August
1995, Mr. Getman was an attorney with the law firm of Hale and Dorr LLP, Boston,
Massachusetts. Mr. Getman holds J.D. and M.B.A. degrees from Boston College and
a B.A. in Political Science from Tufts University.
John A. Tillinghast has served as the Company's Chief Engineer since May
1998 and the Chairman of the Board of Directors of the Company and its
predecessor since November 1994. From April 1995 until May 1998, Mr. Tillinghast
was the Company's Chief Executive Officer. Since 1987, Mr. Tillinghast has
served as President and the sole stockholder of Tillinghast Technology
Interests, Inc., a private consulting firm. From 1986 to 1993, Mr. Tillinghast
served as Chairman of the Energy Engineering Board of the National Academy of
Sciences. He holds an M.S. in Mechanical Engineering from Columbia University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Following are the reported high and low sales prices of BayCorp Common
Stock ("MWH") on the American Stock Exchange ("ASE") as reported in the Wall
Street Journal daily as traded, for each quarter during 1999 and 1998 that
BayCorp Common Stock traded on the ASE:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter............................................ 6 9/16 6 3/8
Second Quarter........................................... 7 1/4 7
Third Quarter............................................ 6 11/16 5 1/4
Fourth Quarter........................................... 4 3/4 3 1/2
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
First Quarter............................................ 4 7/16 3 1/2
Second Quarter........................................... 6 3 3/8
Third Quarter............................................ 7 5/16 6
Fourth Quarter........................................... 9 11/16 6 1/4
</TABLE>
As of March 17, 2000, the Company had 27 holders of record of its Common
Stock. The Company believes that as of March 17, 2000, the Company had
approximately 884 beneficial holders of its Common Stock. The number of
beneficial owners substantially exceeds the number of record holders because
many of the Company's stockholders hold their shares in street name.
BayCorp has never paid cash dividends on its common stock and currently
expects that it will retain all of its future earnings and does not anticipate
paying a dividend in the foreseeable future.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of BayCorp, as successor to Great Bay.
The following data presents selected financial data of the Company as of
and for the years ended December 31, 1999, December 31, 1998, December 31, 1997,
December 31, 1996 and December 31, 1995. The information below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements,
including the notes thereto, contained elsewhere in this Report.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues......................... $ 45,761 $ 32,034 $ 26,642 $ 30,324 $ 24,524
Operating Expenses......................... 48,520 37,310 36,880 32,563 32,381
Net Income (Loss).......................... (4,740) (6,769) (11,215) 4,100 (6,059)
BALANCE SHEET DATA:
Cash, Cash Equivalents & Short Term
Investments............................. 6,064 12,055 19,092 28,775 16,469
Working Capital............................ 11,678 17,761 23,079 30,552 20,516
Total Assets............................... 159,184 140,358 140,158 152,418 138,771
Decommissioning Liability.................. 79,443 60,274 55,846 53,215 50,899
Capitalization:
Common Equity.............................. 66,246 71,359 78,139 89,625 82,233
Total Capitalization....................... 66,246 71,359 78,139 89,625 82,233
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Currently, BayCorp derives substantially all of its revenue through its
energy trading activities and its 100% equity interest in Great Bay and Little
Bay. Great Bay and Little Bay are electric generating companies whose principal
asset is a combined 15% joint ownership interest in the Seabrook Nuclear Power
Project in Seabrook, New Hampshire. The Company anticipates that it will derive
additional revenues from Houston Street. HoustonStreet began charging
commissions in September 1999 on wholesale power trades made on
HoustonStreet.com.
BayCorp reported net losses for the years ended December 31, 1999, 1998 and
1997. The 1999 net loss was primarily due to costs associated with the refueling
outage that began on March 27, 1999, with the Plant resuming full operating
capacity on May 21, 1999, and to expenses associated with the start up of
HoustonStreet. The 1998 net loss was primarily due to unscheduled outages at the
Seabrook Project that occurred during the year and to the charge related to the
termination of a power marketing agreement between Great Bay and PECO. The 1997
net loss was primarily due to scheduled and unscheduled outages at the Seabrook
Project that occurred during that year.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. BayCorp incurs losses during outage periods due to the loss
of all revenues from the sale of generation and additional costs associated with
the outages as well as continuing operating and maintenance expenses and
depreciation.
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Unscheduled outages or operation of the unit at reduced capacity can occur due
to the automatic operation of safety systems following the detection of a
malfunction. In addition, it is possible for the unit to be shut down or
operated at reduced capacity based on the results of scheduled and unscheduled
inspections and routine surveillance by Seabrook Project personnel. It is not
possible for BayCorp to predict the frequency or duration of any future
unscheduled outages, however, it is likely that such unscheduled outages will
occur. The Seabrook Project conducted a refueling outage in 1999. Refueling
outages are generally scheduled every 18 months depending upon the Seabrook
Project capacity factor and the rate at which the nuclear fuel is consumed.
The following discussion focuses solely on operating revenues and operating
expenses that are presented in a substantially consistent manner for all of the
periods presented.
RESULTS OF OPERATIONS
Operating Revenues
BayCorp's operating revenues for 1999 increased by approximately $13.7
million, or 42.9%, to $45,761,000 as compared with $32,034,000 for 1998. This
increase was primarily due to an increase in sales by Great Bay of power
purchased in the open market in 1999. The 1999 capacity factor at the Seabrook
Project was 85.6% of the rated capacity as compared to a capacity factor of
83.3% for 1998. Operating revenues and the capacity factor were adversely
impacted in 1999 by the scheduled refueling outage at the Seabrook Project that
began on March 27. The Plant resumed full operating capacity on May 21 and
operated at full capacity through December 31, 1999. In contrast, while there
was no refueling outage in 1998, the Seabrook Project had approximately 64
unscheduled outage days in 1998. Substantially all of the Company's operating
revenues in 1999 were generated by its wholesale electricity generation and
trading business. HoustonStreet revenues in 1999 were nominal.
Sales of electricity increased by approximately 38.2% to 1,457,110,270
kilowatt-hours ("kWhs") in 1999 as compared to 1,054,203,800 kWhs in 1998.
During 1999, the sales price per kWh (determined by dividing total sales revenue
by the total number of kWhs sold in the applicable period) increased 3% to 3.13
cents per kWh as compared with 3.04 cents per kWh in 1998. Great Bay's cost of
power (determined by dividing total operating expenses by kilowatt-hours sold
during the applicable period) decreased 5.9% to 3.33 cents per kWh in 1999 as
compared to 3.54 cents per kWh in 1998. This decrease was primarily the result
of the higher capacity factor at the Seabrook Project during 1999 as compared to
1998. Scheduled and unscheduled outage time increases Great Bay's cost of power
because Seabrook Project costs are spread over fewer kWhs.
BayCorp's operating revenues for 1998 increased by approximately $5.4
million, or 20.1%, to $32,034,000 as compared with $26,642,000 for 1997. This
increase was primarily due to less scheduled and unscheduled outage time at the
Seabrook Project during 1998. During 1998, the capacity factor at the Seabrook
Project was 83.3% of the rated capacity as compared to a capacity factor of
78.3% for 1997. Operating revenues and capacity factor were adversely impacted
in 1997 by the scheduled refueling outage at the Seabrook Project that began on
May 10, 1997, lasting 50 days, and by the unscheduled outage that began on
December 5, 1997, lasting 41 days. In contrast, there was no refueling outage in
1998; however, the Seabrook Project had approximately 64 unscheduled outage days
in 1998.
Sales of electricity increased by approximately 9.4% to 1,054,203,800
kilowatt-hours in 1998 as compared to 964,038,400 kilowatt-hours in 1997.
Operating revenues were favorably affected in 1998 by an increase in the sales
price per kWh. During 1998, the sales price per kWh (determined by dividing
total sales revenue by the total number of kWhs sold in the applicable period)
increased 10.1% to 3.04 cents per kWh as compared with 2.76 cents per kWh in
1997. Great Bay's cost of power (determined by dividing total operating expenses
by kilowatt-hours sold during the applicable period) decreased 7.6% to 3.54
cents per kWh in 1998 as compared to 3.83 cents per kWh in 1997. This decrease
was primarily the result of the higher capacity factor at the Seabrook Project
during 1998 as compared to 1997.
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Expenses
BayCorp's total operating expenses for 1999 increased $11.2 million, or
30%, in comparison with 1998. This increase was primarily the result of
purchased power expenses in 1999. Purchased power expenses increased
approximately $11,186,000, from $1,046,000 in 1998 to $12,232,000 in 1999.
Purchased power expenses have increased primarily because Great Bay purchased
power in 1999 in the open market to resell to third parties and to cover firm
sales during outages at the Seabrook Project in 1999. As Great Bay enters into
more sales transaction agreements to supply firm power, Great Bay's expenses to
purchase power to cover firm power obligations during scheduled and unscheduled
outages may increase. Production costs decreased approximately $2.6 million, or
12.5%, from $20.8 million in 1998 to $18.2 million in 1999. This decrease was
primarily the result of fewer unscheduled outage days in 1999 compared to 1998.
Administrative and general expenses increased approximately $1.3 million, or
16.3%, from $8 million in 1998 to $9.3 million in 1999. Depreciation and
amortization increased approximately $454,000, or 12.4%, from $3.7 million in
1998 to $4.1 million in 1999. The increase in administration and general
expenses and depreciation expense was primarily due to expenses relating to the
startup, commercial launch and expansion of HoustonStreet.
In 1999, the Company recognized $806,000 in unrealized losses on firm
energy trading contracts. There was no comparable charge in 1998. In December
1998, the Emerging Issues Task Force reached consensus on Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities ("EITF 98-10"). EITF 98-10 is effective for fiscal years beginning
after December 15, 1998. EITF 98-10 requires energy trading contracts to be
recorded at fair value on the balance sheet, with the changes in fair value
included in earnings. The effects of initial application of EITF 98-10 have been
reported as a cumulative effect of a change in accounting principle. Financial
statements for periods prior to initial adoption of EITF 98-10 have not been
restated. The cumulative effect of this accounting change as of January 1, 1999
was an increase in net income of approximately $159,000 to recognize gains on
net open physical purchase and sales commitments considered to be trading
activity.
Other Deductions increased $646,000, or 43.3%, in 1999 as compared to 1998.
This increase was primarily attributable to interest income, which decreased
$387,000, or 41.3%, in 1999 as compared to 1998. This decrease was attributable
to the lower cash balances in 1999 as compared to 1998. Decommissioning cost
accretion increased $447,000, or 15.6%, to $3.3 million in 1999 as compared to
$2.9 million in 1998. This accretion is a non-cash charge that reflects Great
Bay's liability related to the closure and decommissioning of the Seabrook
Project in current year dollars over the licensing period during which the
Seabrook Project is licensed to operate. Decommissioning trust fund income
increased $142,000, or 23.2%, to $755,000 in 1999 as compared to $613,000 in
1998. The increase in interest earned on the decommissioning trust fund
reflected the higher 1999 fund balance as Great Bay continues to make
contributions to the decommissioning trust fund.
BayCorp's total operating expenses (excluding depreciation and taxes) for
1998 increased $1.4 million, or 5.1%, in comparison with 1997. This increase was
primarily the result of the costs associated with the unscheduled outages in
1998, including Great Bay's purchased power expenses of approximately $1.0
million that covered firm sales of approximately $1.2 million during unscheduled
outages in 1998.
Operating expenses were also adversely impacted by payments to PECO of
approximately $3.1 million in 1998, which included the charge related to the
termination of the power marketing agreement with PECO for approximately $2.5
million in June 1998. Charges for PECO's marketing service in 1997 were
approximately $1.8 million. In addition, depreciation and amortization increased
$148,000, or 4.2%. Taxes other than income decreased $1.2 million, or 29.2%, in
1998 as compared to 1997 due to the Seabrook Project property tax settlement
that resulted in a property tax refund to Great Bay in December 1998 of
approximately $1.3 million.
Other Deductions increased $516,000, or 52.8%, in 1998 as compared to 1997.
This increase was primarily attributable to interest income, which decreased
$314,000, or 25.1%, in 1998 as compared to 1997. This decrease was attributable
to the lower cash balances in 1998 as compared to 1997. Decommissioning cost
accretion increased $210,000, or 7.9%, to $2.9 million in 1998 as compared to
$2.7 million in 1997. Decommissioning trust fund income increased $143,000, or
30.4%, to $613,000 in 1998 as compared to $470,000 in 1997.
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Net Operating Losses
For federal income tax purposes, as of December 31, 1999, the Company had
net operating loss carry forwards ("NOLs") of approximately $225 million, which
are scheduled to expire between 2005 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOL's is available for use in future years until such NOL's are
scheduled to expire. The Company's other $89 million of NOLs are not currently
subject to such limitations.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, cash generated from electricity sales by Great Bay and Little Bay
was sufficient to cover the ongoing cash requirements of Great Bay, Little Bay
and BayCorp. If the Seabrook Project operates at a capacity factor below
historical levels, or if expenses associated with the ownership or operation of
the Seabrook Project, including without limitation decommissioning costs, are
materially higher than anticipated, or if the prices at which Great Bay is able
to sell its share of the Seabrook Project electricity do not increase at the
rates and within the time expected by Great Bay, BayCorp or Great Bay would be
required to raise additional capital, either through a debt financing or an
equity financing, to meet their ongoing cash requirements. There can be no
assurance that BayCorp or Great Bay will be able to raise additional capital on
acceptable terms or at all.
The Company's principal asset available to serve as collateral for
borrowings is Great Bay's and Little Bay's combined 15% interest in the Seabrook
Project. Pursuant to a purchased power agreement, dated as of April 1, 1993,
between Great Bay and UNITIL Power Corp., Great Bay's interest in the Seabrook
Project is encumbered by a mortgage. This mortgage may be subordinated by up to
$80 million of senior secured financing. See "Business -- Wholesale Electricity
Generation and Trading Business -- Purchased Power Agreements."
HoustonStreet began charging commissions for its services in September
1999. Commission revenues earned by HoustonStreet have been significantly less
than HoustonStreet's ongoing cash requirements, including cash needed for
development and expansion. HoustonStreet expects to continue to incur cash
deficits. HoustonStreet expects to cover its cash deficits with the proceeds
from sales of its capital stock. As of March 27, 2000, HoustonStreet raised
$16.6 million in cash from sales of its capital stock and had cash on hand of
$5.0 million. HoustonStreet will need to raise additional capital in the second
quarter of 2000 or shortly thereafter to meet its ongoing cash needs. There can
be no assurance that HoustonStreet will be able to raise additional capital on
acceptable terms or at all.
Excluding cash held by HoustonStreet, the Company had cash and cash
equivalents, restricted cash and short-term investments of approximately $6.1
million at December 31, 1999. In addition, BayCorp held a promissory note
payable by HoustonStreet at December 31, 1999 for approximately $4.1 million.
This note was repaid to BayCorp in February 2000.
BayCorp's total cash and short-term investments decreased approximately
$6.0 million during 1999. The principal factors affecting liquidity during 1999
were cash used in connection with Little Bay's acquisition of its 2.9% joint
ownership interest in the Seabrook Project and cash used in connection with
forming, developing and expanding HoustonStreet. Non-cash charges to income
included $4.1 million for depreciation, $4.0 million for nuclear fuel
amortization, unrealized loss on firm energy trading contracts of $647,000 and
$3.3 million for decommissioning trust fund accretion. There was an increase in
accounts payable and other miscellaneous current liabilities of approximately
$2.1 million primarily due to HoustonStreet payables for Web site development
costs. Offsetting these non-cash charges to income were cash charges including a
$1.6 million increase in December 1999 accounts receivable and other current
assets as compared to December 1998. 1999 year end receivables reflected an
increase in the amount of power sold, primarily due to the sale of Little Bay's
power. Other cash charges included charges of $4.9 million for capital
expenditures and $2.0 million for nuclear fuel.
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Also in 1999, Little Bay purchased a 2.9% interest in the Seabrook Project
from Montaup Electric Company, a subsidiary of Eastern Utilities Associates, for
a purchase price of $3.2 million, plus approximately $1.7 million for certain
prepaid items, primarily nuclear fuel and capital expenditures.
Great Bay's 1999 decommissioning payments totaled approximately $1.7
million. The decommissioning funding schedule is determined by the NDFC, which
reviews the schedule for the Seabrook Project at least annually. Great Bay
expects to use revenues from the sale of power to make these decommissioning
payments. See "Business -- Wholesale Electricity Generation and Trading
Business -- Decommissioning."
The Company anticipates that capital expenditures for HoustonStreet for the
fiscal year 2000 will total approximately $20.0, million primarily for software
development. Great Bay and Little Bay anticipates that their share of the
Seabrook Project's capital expenditures for the 2000 fiscal year will total
approximately $8.4 million for nuclear fuel and various capital projects. In
addition, Great Bay and Little Bay are required under the JOA to pay their share
of Seabrook Unit 1 and Seabrook Unit 2 expenses, including, without limitation,
operation and maintenance expenses, construction and nuclear fuel expenditures
and decommissioning costs, regardless of the level of Seabrook Unit 1's
operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or its subsidiaries to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below and elsewhere in this Annual Report.
History of Losses
BayCorp has never reported an operating profit for any year since its
incorporation. Historically, electricity sales at short-term rates have not
resulted in sufficient revenue to enable BayCorp to meet its cash requirements
for operations, maintenance and capital related costs. In addition,
HoustonStreet has incurred substantial operating expenses and capital
expenditures, totaling approximately $6.2 million from formation to December 31,
1999, with continuing losses in 2000. These expenses and capital expenditures
greatly exceeded HoustonStreet's revenue of $59,200 for the same period.
HoustonStreet expects to continue to incur substantial operating losses for the
foreseeable future. Moreover, there can be no assurance that Great Bay or Little
Bay will be able to sell power at prices that will enable them to meet their
cash requirements.
Liquidity Needs
As of December 31, 1999, BayCorp had approximately $6.1 million in cash and
cash equivalents, restricted cash and short-term investments. The Company
believes that such cash, together with the anticipated proceeds from the sale of
electricity by Great Bay and Little Bay and additional external financing that
HoustonStreet is currently seeking, will be sufficient to enable the Company and
its subsidiaries to meet their cash requirements in 2000. However, if in 2000 or
thereafter, the Seabrook Project operated at a capacity factor below historical
levels, or if expenses associated with the ownership or operation of the
Seabrook Project, including without limitation decommissioning costs, are
materially higher than anticipated, or if the prices at which Great Bay and
Little Bay are able to sell their share of the Seabrook Project electricity do
not increase at the rates and within the time expected by Great Bay and Little
Bay, or if HoustonStreet expenses materially exceed budgeted expenses, the
Company or its subsidiaries would be required to raise additional capital,
either through a debt financing or an equity financing, to meet ongoing cash
requirements. In any event, in 2000 or shortly thereafter, the Company and its
subsidiaries will likely need to raise additional capital from outside sources.
There is no assurance that the Company or its subsidiaries would be able to
raise such capital or that the terms on which any additional capital is
available would be acceptable. If additional funds are raised by issuing equity
securities, dilution to then existing stockholders will result.
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Factors Related to Great Bay and Little Bay
Primary Reliance on a Single Asset. BayCorp's principal source of revenue
is its wholesale electricity generation and trading business, which depends in
large part on Great Bay and Little Bay's 15% combined joint interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire. Accordingly,
BayCorp's results of operations significantly depend on the successful and
continued operation of the Seabrook Project. In particular, if the Seabrook
Project experiences unscheduled outages of significant duration, BayCorp's
results of operations will be materially adversely affected.
Changes in the New England Wholesale Power Market. During recent years in
New England, the combination of (1) increased competition in the wholesale power
market, (2) small increases in the demand for electricity and (3) electric
industry deregulation has resulted in increased uncertainty regarding the price
of electricity in the wholesale power market. Although Great Bay's average
selling price per kWh (determined by dividing total sales revenue by the total
number of kWhs sold in the applicable period) increased from 2.76 cents in 1997
to 3.04 cents in 1998 and 3.13 cents in 1999, there can be no assurance that
Great Bay or Little Bay will be able to sell their power at these prices or
higher prices in the future.
Risks in Connection with Joint Ownership of Seabrook Project. Great Bay
and Little Bay are required under the JOA to pay their share of Seabrook Unit 1
and Seabrook Unit 2 expenses, including without limitation operations and
maintenance expenses, construction and nuclear fuel expenditures and
decommissioning costs, regardless of Seabrook Unit 1's operations. Under certain
circumstances, a failure by Great Bay or Little Bay to make their monthly
payments under the JOA entitles certain other joint owners of the Seabrook
Project to purchase Great Bay or Little Bay's interest in the Seabrook Project
for 75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay and Little Bay may have a material
adverse effect on the Company. For example, Great Bay or Little Bay could opt to
pay a greater proportion of the Seabrook Project expenses in order to preserve
the value of their share of the Seabrook Project. In the past, certain of the
owners of the Seabrook Project other than Great Bay and Little Bay have not made
their full respective payments. The electric utility industry is undergoing
significant changes as competition and deregulation are introduced into the
marketplace. Some utilities, including certain Participants, have indicated in
state regulatory proceedings that they may be forced to seek bankruptcy
protection if regulators, as part of the industry restructuring, do not allow
for full recovery of stranded costs. If a Participant other than Great Bay or
Little Bay filed for bankruptcy and that Participant was unable to pay its share
of Seabrook Project expenses, Great Bay or Little Bay might opt to pay a greater
portion of Seabrook Project expenses in order to preserve the value of their
share of the Seabrook Project. In the past, the filing of bankruptcy by a
Participant has not resulted in a failure to pay Seabrook Project expenses or an
increase in the percentage of expenses paid by other Participants.
The Seabrook Project is owned by Great Bay, Little Bay and the other owners
thereof as tenants in common, with the various owners holding varying ownership
shares. This means that Great Bay and Little Bay, which together own only a 15%
interest, do not have control of the management of the Seabrook Project. As a
result, decisions may be made affecting the Seabrook Project notwithstanding
Great Bay and/or Little Bay's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond the
control of BayCorp or its subsidiaries. The cost of disposing of Unit 2 of the
Seabrook Project is not known at this time. These various costs and expenses may
adversely affect BayCorp, Great Bay and Little Bay, possibly materially.
Extensive Government Regulation. The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project, and Great Bay and Little Bay as part owners of a licensed nuclear
facility, are subject to the broad jurisdiction of the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and antitrust matters.
Great Bay and Little Bay are also subject to the jurisdiction of the FERC
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and, as a result, are required to file with FERC all contracts for the sale of
electricity. FERC's jurisdiction also includes, among other things, the sale,
lease, merger, consolidation or other disposition of facilities, interconnection
of certain facilities, accounts, service and property records. Noncompliance
with NRC requirements may result, among other things, in a shutdown of the
Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as the license pursuant to which the Seabrook project
operates, at any time that conditions warrant. For example, the NRC might order
Seabrook Unit 1 shut down (i) if flaws were discovered in the construction or
operation of Seabrook Unit 1, (ii) if problems developed with respect to other
nuclear generating plants of a design and construction similar to Unit 1, or
(iii) if accidents at other nuclear facilities suggested that nuclear generating
plants generally were less safe than previously believed.
Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of these nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.
Public Controversy Concerning Nuclear Power Plants. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While the Company cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
Waste Disposal; Decommissioning Cost. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations.
The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Project's high level waste
beginning no later than January 31, 1998. However, the DOE has announced that
its first high level waste repository will not be in operation until 2010 at the
earliest.
The Seabrook Project increased its on-site storage capacity for low level
waste ("LLW") in 1996 and that capacity is expected to be sufficient to meet the
Project's storage requirements through 2006. In addition, the managing agent of
the Seabrook Project has advised the Joint Owners that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
If the Seabrook Project were unable to store nuclear waste on site or make other
disposal provisions, the Company's business, results of operations and financial
condition would be materially and adversely affected. See "Business -- Wholesale
Electricity Generation and Trading Business -- Nuclear Waste Disposal."
As to decommissioning, NRC regulations require that upon permanent shutdown
of a nuclear facility, appropriate arrangements for full decontamination and
decommissioning of the facility be made. These regulations require that during
the operation of a facility, the owners of the facility must set aside
sufficient funds to defray decommissioning costs. While the owners of the
Seabrook Project are accumulating monies in a trust fund to defray
decommissioning costs, these costs could substantially exceed the value of the
trust fund, and the owners (including Great Bay and Little Bay) would remain
liable for the excess. Moreover, the
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amount that is required to be deposited in the trust fund is subject to periodic
review and adjustment by an independent commission of the State of New
Hampshire, which could result in material increases in such amounts.
Intense Competition. Great Bay sells its share (and Little Bay's share) of
Seabrook Project electricity primarily into the Northeast United States
wholesale electricity market. There are a large number of suppliers to this
market and competition is intense. A primary source of competition comes from
traditional utilities, many of which presently have excess capacity. In
addition, non-utility wholesale generators of electricity, such as IPPs, QFs and
EWGs, as well as power marketers and brokers, actively sell electricity in this
market. Great Bay may face increased competition, primarily based on price, from
all sources in the future.
Factors Related to HoustonStreet
Limited Operating History. HoustonStreet was incorporated in Delaware on
April 27, 1999. HoustonStreet.com was launched initially in the Northeast on
July 8, 1999 and nationwide on September 13, 1999. HoustonStreet has only a
limited operating history upon which to evaluate its performance.
Significant Future Losses Expected. HoustonStreet's business is subject to
the risks and uncertainties encountered by companies in early stages of
development, particularly enterprises in new and rapidly evolving markets, such
as electronic trading of energy products over the Internet. HoustonStreet's
substantial operating expenses and capital expenditures from formation to date
have greatly exceeded its revenues over the same period. HoustonStreet expects
to continue to incur substantial operating losses for the foreseeable future.
Moreover, there is no assurance that HoustonStreet will be able to achieve or
sustain profitability.
Internet-based Wholesale Energy Trading is a New and Evolving
Market. Wholesale trading of energy products over the Internet is a new and
rapidly evolving market. HoustonStreet cannot be certain that a viable market
will emerge or be sustainable. If the market for Internet-based wholesale energy
trading fails to develop, if it develops more slowly than expected, if it
becomes saturated with competitors or if it does not achieve widespread market
acceptance, HoustonStreet would be materially adversely affected.
Dependence on Internet-based Wholesale Energy Trading. Substantially all
of HoustonStreet's revenues depend on the continued and expanded use of
Internet-based wholesale energy trading platforms. HoustonStreet currently
depends on its wholesale electricity trading platform for all revenues.
HoustonStreet will likely depend on other energy trading platforms, including
platforms for oil and natural gas trading, if planned expansion is successful.
Businesses have only recently begun significant use of the Internet for
electronic commerce. Although Internet usage has grown dramatically,
HoustonStreet cannot assure you that usage will continue to increase for
commerce or trading wholesale energy products. A decrease in the use of the
Internet or a reduction in the currently anticipated growth in the use of the
Internet would have a material adverse effect on HoustonStreet. Businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies, insufficient commercial support or privacy concerns. The
Internet's infrastructure may be unable to support the demands placed on it by
increased usage. In addition, delays in developing or adopting new standards and
protocols required to handle increased levels of Internet activity, or increased
government regulation, could cause the Internet to lose its viability as a
commercial medium.
Dependence on Trading Liquidity. HoustonStreet will need to achieve
trading liquidity on its Internet-based wholesale energy trading exchange in
order to increase and sustain revenues. If the volume and level of trades on the
exchange do not increase, HoustonStreet will not achieve profitability.
Dependence on Increased Business from Unaffiliated Customers. If
HoustonStreet fails to grow its customer base or generate repeat and expanded
business from customers that are not affiliated with BayCorp, HoustonStreet will
be unable to achieve or sustain profitability. For the period beginning July 8,
1999 through December 31, 1999, Great Bay, a subsidiary of BayCorp, was a party
to 77% of all trades on HoustonStreet. HoustonStreet earns standard commissions
from all trades on HoustonStreet, including trades by Great Bay
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and its counterparties. To date, a substantial majority of HoustonStreet's
revenue has been derived from commissions from trades involving Great Bay and
its counterparties.
HoustonStreet's management expects that commissions from trades involving
Great Bay and its counterparties will be a less significant portion of revenue
in the future as the number of registered traders and the volume of trades
increases. If trading volume does not increase as anticipated, HoustonStreet's
revenue will not increase and HoustonStreet's business and financial results
will be materially adversely affected.
Need for Expanded Sales and Marketing Operations. Expanded sales and
marketing operations will be necessary to attract traders to HoustonStreet's
trading exchange, to lengthen the time and frequency of service use, and to
build the HoustonStreet community of users. If HoustonStreet's sales and
marketing operations fail to register additional users and generate increased
traffic on its Web site, the number of trades completed on the exchange may not
increase. If the number, size and frequency of transactions do not increase,
HoustonStreet will be unable to increase its revenues and HoustonStreet's
business will not achieve profitability.
Need for Additional Financing. Based on current levels of operations and
planned growth, HoustonStreet's management anticipates that the net proceeds of
its stock sales in February and March 2000 and cash generated from operations
will be sufficient to meet HoustonStreet's needs through approximately October
2000. If HoustonStreet requires additional funding or determines that it is
appropriate to raise additional funding, HoustonStreet may be unable to raise
additional funds. Further, any such funding may result in significant dilution
to existing HoustonStreet stockholders, including BayCorp. The inability to
obtain sufficient funds from operations and external sources when needed would
have a material adverse effect on HoustonStreet's business, results of
operations and financial condition.
Ability to Implement Business Strategy. The growth and expansion of
HoustonStreet's business are expected to place significant demands on
HoustonStreet's management, operational and financial resources. Successful
implementation of HoustonStreet's business strategy will depend on a number of
factors, including its ability to:
- offer an efficient and effective wholesale energy trading platform
that meets industry needs,
- increase awareness of the HoustonStreet brand,
- continue to develop and upgrade the HoustonStreet Web site and related
technology, operating software and capacity,
- attract more wholesale energy traders to the HoustonStreet Web Site,
lengthen the time and frequency of service use, and build the
HoustonStreet community of registered users, and
- attract, hire, integrate, retain and motivate qualified personnel.
There can be no assurance that HoustonStreet will be successful in the
implementation of its business strategy.
Reliance on Strategic Relationships. HoustonStreet may be unable to
implement its strategic growth plans without successfully identifying, forming,
maintaining and enhancing strategic relationships, such as its strategic
relationship with Equiva. HoustonStreet's ability to achieve significant future
revenue growth will depend in part on adding new strategic partners. If
HoustonStreet is unable to form or successfully develop additional strategic
relationships, HoustonStreet may be unable to grow its revenues and
HoustonStreet could be materially adversely affected.
International Expansion. If HoustonStreet cannot expand internationally,
HoustonStreet may be unable to take advantage of the potential revenue
associated with energy trading on a global level. While HoustonStreet's
management believes that HoustonStreet can become profitable if its services are
widely adopted by power traders in the United States, the global energy market
represents a much larger source of revenue.
24
<PAGE> 26
To be successful, HoustonStreet's management believes that HoustonStreet
must expand its operations into international markets. International operations
will subject HoustonStreet to a number of risks that may increase
HoustonStreet's costs and require significant management attention. These risks
include:
- difficulties and increased expenses associated with staffing and
managing foreign operations,
- differing technology standards that may impede HoustonStreet's ability
to integrate its trading platforms across international borders,
- reluctance or inability of energy traders abroad to accept
Internet-based wholesale energy trading as a method of conducting
business,
- changes in regulatory requirements,
- currency exchange rate fluctuations, and
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings.
Regulatory Risks and Privacy Concerns. As use of the Internet evolves,
federal, state and foreign agencies could adopt regulations covering issues such
as user privacy, content and taxation of products and services. If enacted,
government regulations could limit the market for HoustonStreet's services.
In order to use HoustonStreet's trading exchange, traders must first
register with HoustonStreet. The registration process requires that users
provide certain information about themselves and the companies for which they
trade. Although HoustonStreet collects this data only with the consent of a
visitor, privacy concerns may cause visitors to resist registering to use the
exchange. In addition, legislative or regulatory requirements may heighten
privacy concerns. Other countries and political entities, such as the European
Economic Community, have adopted legislation or regulatory requirements relating
to privacy. The United States may adopt similar legislation or regulatory
requirements. If privacy legislation is enacted or privacy concerns are not
adequately addressed, HoustonStreet's business could be materially adversely
affected.
Unpredictability of Future Revenues; Potential Fluctuation in Quarterly
Operating Results. As a result of HoustonStreet's limited operating history and
the emerging nature of the market for Internet-based trading of wholesale energy
products, HoustonStreet is unable to forecast its revenues accurately.
HoustonStreet expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside HoustonStreet's control. These factors include the demand for
HoustonStreet's trading services, the introduction and market acceptance of new
services in the industry, reductions in trading commissions or changes in how
services are priced, and the amount and timing of operating costs and capital
expenditures related to expanding HoustonStreet's business, operations and
infrastructure. Quarterly results also can be affected by changes in the use of
the Internet and electronic commerce, changes in governmental regulations, and
changes in general economic conditions and economic conditions specifically
related to the Internet and energy trading markets.
In addition, trading volumes can fluctuate due to the seasonal nature of
the wholesale electricity trading market. Typically, there are substantial
declines in the volume of wholesale electricity trading during the fourth
quarter of the calendar year. Based on statistics published by the FERC, the
amount of electricity traded in the United States in the fourth quarter of 1998
was approximately 50% less than amount traded in the third quarter of 1998.
HoustonStreet's management believes that fourth quarter trading can be adversely
affected by seasonal trading patterns, the inclination of some utilities,
independent power producers and power marketers to maintain existing trading
positions near year-end and other factors.
It is difficult to forecast the effect such factors, or the combination of
any of these factors, would have on HoustonStreet's results of operations for
any given fiscal quarter. HoustonStreet's management believes that
HoustonStreet's quarterly revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied on as indications of future performance.
System Maintenance and Protection. Unanticipated problems at the
third-party facility that houses substantially all of HoustonStreet's computer
and communications hardware systems could cause interruptions or delays in
HoustonStreet's business, loss of data or render HoustonStreet unable to process
wholesale
25
<PAGE> 27
energy trades. Any such interruptions or delays at the facility would harm
HoustonStreet's revenue and results of operations. In addition, these
third-party systems and operations are vulnerable to damage or interruption from
intentional malicious acts, fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. HoustonStreet does not have a formal
disaster recovery plan and does not carry business interruption insurance. In
addition, the failure by the third-party facility to provide the data
communications capacity required by HoustonStreet, as a result of human error,
natural disaster or other operational disruptions, could result in interruptions
in HoustonStreet's service. The occurrence of any or all of these events could
harm HoustonStreet's reputation and brand and business.
Traders on the HoustonStreet.com may also be harmed by any system or
equipment failures experienced by HoustonStreet. In that event, HoustonStreet's
relationship with these traders may be adversely affected, HoustonStreet may
lose traders, HoustonStreet's ability to attract new users may be adversely
affected and HoustonStreet could be exposed to liability.
If users of HoustonStreet's trading platform suffer similar interruptions
in their operations, for any of the reasons discussed above or for other
reasons, HoustonStreet's business could also be adversely affected. In addition,
if traders' computer systems suffer interruptions, the link to HoustonStreet's
Web site could be severed and the traders' wholesale energy trades could be
delayed or stopped.
Rapid Technological Change. To remain competitive, HoustonStreet must
continue to enhance and improve its services. The Internet is characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices.
HoustonStreet's success will depend, in part, on its ability to:
- develop leading Internet-based technologies useful for wholesale
energy trading,
- enhance its existing services,
- develop new services and technology that address the increasingly
sophisticated and varied needs of wholesale energy traders, and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
HoustonStreet would be materially adversely affected if it is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner to
changing market conditions or customer requirements.
Intense Competition. Wholesale energy trading markets are dynamic and
intensely competitive. Competition is likely to increase in the future as new
companies enter the market and current competitors expand their products and
services. See "Business -- Internet-based Energy Trading and Information
Business -- Competition." Many of these potential competitors are likely to
enjoy substantial competitive advantages, including:
- larger technical, production and marketing staffs,
- a more established presence in the wholesale energy trading community,
- greater brand recognition, and
- substantially greater financial, marketing, technical and other
resources.
If HoustonStreet does not compete effectively or if it experiences pricing
pressures, reduced margins or loss of market share resulting from increased
competition, HoustonStreet's business would be materially adversely affected.
Dependence on Management and Need for New Personnel. HoustonStreet is, and
for the foreseeable future will be, dependent upon the services of its
directors, executive officers and key management personnel. HoustonStreet's
future success depends on its ability to identify, attract, hire, train, retain
and motivate highly skilled technical, managerial, marketing, sales and customer
service personnel. The loss of the services of
26
<PAGE> 28
current key personnel and the failure to hire new personnel could have a
material adverse effect upon HoustonStreet's results of operations, product
development efforts and ability to grow.
In particular, HoustonStreet plans to recruit and hire a new Chief
Financial Officer and new Vice President of Technology in 2000. Competition for
such personnel is intense and there can be no assurance that HoustonStreet can
attract, assimilate or retain sufficiently qualified personnel. The failure to
hire and retain a new Chief Financial Officer, Vice President of Technology and
other necessary technical, managerial, marketing, sales and customer service
personnel, would materially adversely affect HoustonStreet.
HoustonStreet does not currently have employment agreements in place and
does not currently carry key man life insurance. Although HoustonStreet intends
to purchase key man term life insurance on the life of Frank W. Getman Jr., its
President and Chief Executive Officer, that insurance is not currently in place.
HoustonStreet does not plan to purchase life insurance on the lives of any of
its other key personnel.
Management of Growth. HoustonStreet expects to experience significant
growth in its business operations. This growth will place a substantial strain
on HoustonStreet's resources. HoustonStreet's need to manage its growth
successfully will require it to implement appropriate operational, financial,
accounting and management information systems and controls. HoustonStreet's
failure to manage its growth effectively would have a material adverse effect on
HoustonStreet.
Protection of Proprietary Rights. HoustonStreet's ability to compete
depends significantly on the proprietary nature of its Web site technology as
well as its patent applications. HoustonStreet has filed two patent applications
to date. HoustonStreet seeks to protect its proprietary rights through a
combination of patent, copyright and trade secret law and confidentiality
agreements. However, there can be no assurance that a third party will not
misappropriate or otherwise obtain access to HoustonStreet's proprietary
technology or develop similar technology independently. Competitors may also be
able to circumvent any patents that HoustonStreet obtains.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. HoustonStreet could
incur substantial costs to prosecute or defend any intellectual property
litigation. If HoustonStreet litigated to enforce its rights, it would be
expensive, would divert management resources and may not be adequate to prevent
the use of its intellectual property by third parties.
Potential Intellectual Property Infringement. While HoustonStreet
currently is not aware that it infringes any other patents, it is possible that
HoustonStreet's technology infringes patents held by third parties. If
HoustonStreet were to be found infringing, the owner of the patent could sue
HoustonStreet for damages, prevent HoustonStreet from making, selling or using
the owner's patented technology or could impose substantial royalty fees for
those privileges.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not believe that there is any material market risk
exposure with respect to derivative or financial instruments that would require
disclosure under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in the response found under Item
14(a)(1) in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not Applicable.
27
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors. The information with respect to directors required under
this item is incorporated herein by reference to the section captioned "Election
of Directors" in the Company's Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on May 25, 2000.
(b) Executive Officers. The information with respect to executive officers
required under this item is incorporated by reference to Part I of the Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by
reference to the sections entitled "Election of Directors -- Compensation for
Directors," "-- Executive Compensation," "-- Employment Agreements," "-- Report
of the Compensation Committee" and "-- Stock Performance Graph" in the Company's
Proxy Statement with respect to the Annual Meeting of Stockholders to be held on
May 25, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement with respect to the
Annual Meeting of Stockholders to be held on May 25, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by
reference to the section entitled "Certain Relationships and Related
Transactions" in the Company's Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on May 25, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this Form 10-K:
1. Financial Statements. The Consolidated Financial Statements listed in
the Index to Consolidated Financial Statements and Financial Statement Schedules
are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules. The Financial Statement Schedules
listed in the Index to Consolidated Financial Statements and Financial Statement
Schedules are filed as part of this Annual Report on Form 10-K -- not
applicable.
3. Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
On December 3, 1999, the Company filed a Current Report on Form 8-K dated
November 19, 1999 pursuant to which the Company reported that its subsidiary,
Little Bay Power Corporation, completed its previously announced acquisition of
Montaup Electric Company's 2.9% interest in the Seabrook Nuclear Power Project
in Seabrook, New Hampshire.
28
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS
BAYCORP HOLDINGS, LTD.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-2
Consolidated Statements of Income and Comprehensive Income
-- Years Ended December 31, 1999, December 31, 1998 and
December 31, 1997......................................... F-3
Consolidated Statements of Changes in Stockholders' Equity
-- Years Ended December 31, 1999, December 31, 1998 and
December 31, 1997......................................... F-4
Consolidated Statements of Cash Flows --
Years Ended December 31, 1999, December 31, 1998 and
December 31, 1997......................................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
BayCorp Holdings, Ltd.
We have audited the accompanying consolidated balance sheets of BayCorp
Holdings, Ltd. (a Delaware corporation) and its wholly-owned subsidiaries, as of
December 31, 1999 and 1998, and the related consolidated statements of income
and comprehensive income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BayCorp
Holdings, Ltd. and its wholly-owned subsidiaries as of December 31, 1999 and
1998, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 2000
(except for the matters
discussed in Note 13,
as to which the date is
March 27, 2000)
F-1
<PAGE> 32
BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash Equivalents................................... $ 3,180 $ 2,559
Restricted Cash -- Escrow................................. 2,503 0
Short-term Investments, at market......................... 381 9,496
Accounts Receivable....................................... 4,564 3,051
Materials & Supplies, net................................. 4,611 3,633
Prepayments & Other Assets................................ 3,162 3,177
-------- --------
Total Current Assets.............................. 18,401 21,916
Property, Plant, & Equipment and Fuel:
Utility Plant Assets...................................... 121,043 112,325
Non-Utility Plant Assets.................................. 3,203 0
-------- --------
Total Property, Plant & Equipment................. 124,246 112,325
Less: Accumulated Depreciation............................ (16,331) (12,785)
-------- --------
Net Property, Plant & Equipment...................... 107,915 99,540
Nuclear Fuel.............................................. 20,243 19,390
Less: Accumulated Amortization............................ (11,863) (10,821)
-------- --------
Net Nuclear Fuel.......................................... 8,380 8,569
Net Property, Plant & Equipment and Fuel............. 116,295 108,109
Other Assets:
Decommissioning Trust Fund................................ 24,483 10,329
Deferred Debits & Other................................... 5 4
-------- --------
Total Other Assets................................... 24,488 10,333
TOTAL ASSETS...................................... $159,184 $140,358
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses..................... $ 3,060 $ 394
Miscellaneous Current Liabilities......................... 3,663 3,761
-------- --------
Total Current Liabilities.............................. 6,723 4,155
Operating Reserves:
Decommissioning Liability................................. 79,443 60,274
Miscellaneous Other....................................... 545 502
-------- --------
Total Operating Reserves............................... 79,988 60,776
Other Liabilities & Deferred Credits........................ 6,227 4,068
Commitments & Contingencies
Stockholders' Equity:
Common stock, $.01 par value
Authorized -- 20,000,000 shares; issued and
outstanding -- 8,457,800 at December 31, 1999 and
8,417,800 at December 31, 1998......................... 84 84
Less: Treasury Stock -- 225,800 shares, at cost........... (1,629) (1,629)
Additional paid-in capital................................ 92,295 92,100
Accumulated Other Comprehensive Income.................... (3) 565
Accumulated Deficit....................................... (24,501) (19,761)
-------- --------
Total Stockholders' Equity........................... 66,246 71,359
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $159,184 $140,358
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
F-2
<PAGE> 33
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues...................................... $ 45,761 $ 32,034 $ 26,642
Operating Expenses:
Production............................................ 18,220 20,775 20,805
Transmission.......................................... 872 880 857
Purchased Power....................................... 12,232 1,046 0
Unrealized Loss on Firm Energy Trading Contracts...... 806 0 0
Administrative & General.............................. 9,291 7,988 7,525
Depreciation & Amortization........................... 4,110 3,656 3,508
Taxes other than Income............................... 2,989 2,965 4,185
---------- ---------- ----------
Total Operating Expenses........................... 48,520 37,310 36,880
Operating Loss.......................................... (2,759) (5,276) (10,238)
Other (Income) Deductions:
Interest and Dividend Income.......................... (551) (938) (1,252)
Decommissioning Cost Accretion........................ 3,320 2,873 2,663
Decommissioning Trust Fund Income..................... (755) (613) (470)
Other Deductions...................................... 126 171 36
---------- ---------- ----------
Total Other Deductions............................. 2,140 1,493 977
Loss Before Income Taxes and Accounting Change.......... (4,899) (6,769) (11,215)
Provision for Income Taxes.............................. 0 0 0
---------- ---------- ----------
Loss Before Change in Accounting Principle.............. (4,899) (6,769) (11,215)
Cumulative Effect of Change in Accounting Principle, net
of tax................................................ 159 0 0
---------- ---------- ----------
Net Loss................................................ (4,740) (6,769) (11,215)
Other Comprehensive Income (Expense), net of tax........ (568) 449 264
---------- ---------- ----------
Comprehensive Loss...................................... $ (5,308) $ (6,320) $ (10,951)
========== ========== ==========
Weighted Average Shares Outstanding..................... 8,207,866 8,242,858 8,292,534
Basic and Diluted Net Loss Per Share.................... $ (0.58) $ (0.82) $ (1.35)
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
F-3
<PAGE> 34
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK, $.01 PAR
VALUE
------------------------- LESS:
TREASURY ACCUMULATED
ISSUED AND ISSUED AND STOCK ADDITIONAL OTHER
OUTSTANDING OUTSTANDING ----------------- PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT
----------- ----------- ------- ------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 8,417,800 $84 78,045 $ (633) $92,100 $(148) $ (1,777)
Treasury Stock -- 66,955
shares, at cost......... -- -- 66,955 (535) -- -- --
Net Change in Unrealized
Holding Gain............ -- -- -- -- -- 264 --
Financial Results, January
1 to December 31,
1997.................... -- -- -- -- -- -- (11,215)
--------- --- ------- ------- ------- ----- --------
Balance at December 31,
1997...................... 8,417,800 84 145,000 (1,168) 92,100 116 (12,992)
Treasury Stock -- 80,800
shares, at cost......... -- -- 80,800 (461) -- -- --
Net Change in Unrealized
Holding Gain............ -- -- -- -- -- 449 --
Financial Results, January
1 to December 31,
1998.................... -- -- -- -- -- -- (6,769)
--------- --- ------- ------- ------- ----- --------
Balance at December 31,
1998...................... 8,417,800 84 225,800 (1,629) 92,100 565 (19,761)
Stock Options Exercised... 40,000 -- -- -- 195 -- --
Net Change in Unrealized
Holding Gain (Loss)..... -- -- -- -- -- (568) --
Financial Results, January
1 to December 31,
1999.................... -- -- -- -- -- -- (4,740)
--------- --- ------- ------- ------- ----- --------
Balance at December 31,
1999...................... 8,457,800 $84 225,800 $(1,629) $92,295 $ (3) $(24,501)
========= === ======= ======= ======= ===== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1996...................... $89,626
Treasury Stock -- 66,955
shares, at cost......... (535)
Net Change in Unrealized
Holding Gain............ 264
Financial Results, January
1 to December 31,
1997.................... (11,215)
-------
Balance at December 31,
1997...................... 78,140
Treasury Stock -- 80,800
shares, at cost......... (461)
Net Change in Unrealized
Holding Gain............ 449
Financial Results, January
1 to December 31,
1998.................... (6,769)
-------
Balance at December 31,
1998...................... 71,359
Stock Options Exercised... 195
Net Change in Unrealized
Holding Gain (Loss)..... (568)
Financial Results, January
1 to December 31,
1999.................... (4,740)
-------
Balance at December 31,
1999...................... $66,246
=======
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
F-4
<PAGE> 35
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Net cash flow from operating activities:
Net Loss.................................................. $(4,740) $(6,769) $(11,215)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation........................................... 4,110 3,656 3,508
Amortization of nuclear fuel........................... 4,032 4,104 4,010
Unrealized Loss on Energy Contracts.................... 647 0 0
Decommissioning trust accretion........................ 3,320 2,873 2,663
Decommissioning trust interest......................... (755) (617) (470)
(Increase) decrease in accounts receivable............. (1,512) (2,586) 2,463
(Increase) decrease in materials & supplies............ (160) 4 124
(Increase) decrease in prepaids and other assets....... 31 (1,607) (1,117)
Increase in accounts payable........................... 2,123 124 140
Increase (decrease) in taxes accrued................... 0 0 (1,504)
Increase (decrease) in misc. current liabilities....... 226 2,167 (2,477)
Other.................................................. 48 374 435
------- ------- --------
Net cash provided by (used in) operating activities......... 7,370 1,723 (3,440)
Net cash flows (used in) investing activities:
Capital additions......................................... (4,896) (2,700) (2,555)
Nuclear fuel additions.................................... (1,999) (4,314) (1,970)
Purchase of additional Seabrook Project interest.......... (4,913) 0 0
Payments to decommissioning fund.......................... (1,696) (1,343) (1,106)
Short term investments, net............................... 9,063 6,384 (3,535)
------- ------- --------
Net cash used in investing activities....................... (4,441) (1,973) (9,166)
Net cash provided by financing activities:
Stock Option Exercise..................................... 195 0 0
Reacquired capital stock.................................. 0 (461) (535)
------- ------- --------
Net cash (used in) provided by financing activities......... 195 (461) (535)
Net increase (decrease) in cash and cash equivalents........ 3,124 (711) (13,141)
Cash and cash equivalents, beginning of period.............. 2,559 3,270 16,411
------- ------- --------
Cash and cash equivalents, end of period.................... $ 5,683 $ 2,559 $ 3,270
======= ======= ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
F-5
<PAGE> 36
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a holding company
incorporated in Delaware in 1996. BayCorp owns three subsidiaries: HoustonStreet
Exchange, Inc. ("HoustonStreet"), Great Bay Power Corporation ("Great Bay") and
Little Bay Power Corporation ("Little Bay"), each of which is wholly-owned as of
December 31, 1999.
HoustonStreet developed and operates HoustonStreet.com, an Internet-based
trading platform and information portal for wholesale energy traders. Currently,
HoustonStreet offers an online trading exchange that allows utilities,
independent power producers and power marketers to trade electricity over the
Internet. HoustonStreet plans to develop and launch trading platforms for crude
and refined products, natural gas and other energy-related commodities.
HoustonStreet is also exploring opportunities to license its trading platform
for use in other non-energy business-to-business markets.
HoustonStreet initially launched its Internet-based wholesale electricity
trading exchange in the Northeast in July 1999. In September 1999, HoustonStreet
launched electricity trading throughout the United States.
Great Bay and Little Bay are electric generating companies. Their principal
asset is a combined 15% joint ownership interest in the Seabrook Nuclear Power
Project in Seabrook, New Hampshire (the "Seabrook Project"). This ownership
interest entitles the companies to approximately 174 megawatts of the Seabrook
Project's power output. Great Bay and Little Bay are exempt wholesale generators
("EWGs") under the Public Utility Holding Company Act of 1935 ("PUHCA"). Unlike
regulated public utilities, Great Bay and Little Bay have no franchise area or
captive customers. The companies sell their power in the competitive wholesale
power markets, including through HoustonStreet.com.
Great Bay was incorporated in New Hampshire in 1986 and was formerly known
as EUA Power Corporation. Little Bay was incorporated in New Hampshire in 1998.
Great Bay sells its share of the electricity output of the Seabrook Project in
the wholesale electricity market, primarily in the Northeast United States.
Little Bay sells its power solely to Great Bay under an intercompany agreement.
Intercompany revenues are eliminated in consolidation. Neither BayCorp nor its
subsidiaries have operational responsibilities for the Seabrook Project. Great
Bay currently sells all but approximately 10 MW of its share of the Seabrook
Project capacity in the wholesale short-term market. In addition to selling its
owned generation, Great Bay purchases power on the open market for resale to
third parties.
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. The new
corporate structure enables BayCorp, either directly or through subsidiaries
other than Great Bay and Little Bay, to engage in businesses that these
subsidiaries would be prohibited from pursuing due to their status as EWG's
under the PUHCA. BayCorp may in the future enter into new businesses or acquire
existing businesses, both in energy related fields and possibly in unrelated
fields.
On November 19, 1999, Little Bay purchased an additional 2.9% interest in
the Seabrook Project from Montaup Electric Company for a purchase price of $3.2
million, plus approximately $1.7 million of certain prepaid items. See Footnote
1N.
The Seabrook Project is a nuclear-fueled, steam electricity, generating
plant located in Seabrook, New Hampshire, which was originally planned to have
two Westinghouse pressurized water reactors, Seabrook Unit 1 and Seabrook Unit 2
(each with a rated capacity of 1,150 megawatts), utilizing ocean water for
F-6
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BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
condenser cooling purposes. Seabrook Unit 1 entered commercial service on August
19, 1990. Seabrook Unit 2 has been canceled. Great Bay became a wholesale
generating company when Seabrook Unit 1 commenced commercial operation on August
19, 1990. In 1993, the Company became an Exempt Wholesale Generator ("EWG")
under the Energy Policy Act of 1992.
The Seabrook Project is owned by Great Bay, Little Bay and nine other
utility companies, consisting of North Atlantic Energy Company, Connecticut
Light and Power, The United Illuminating Company, Canal Electric Company,
Massachusetts Municipal Wholesale Electric Company, New England Power Company,
New Hampshire Electric Cooperative, Inc., Taunton Municipal Lighting Plant and
Hudson Light & Power Department (together with Great Bay and Little Bay, the
"Participants"). Great Bay, Little Bay and the other Participants are parties to
the Agreement for Joint Ownership, Construction and Operation of New Hampshire
Nuclear Units (the "JOA") which establishes the respective ownership interests
of the Participants in the Seabrook Project and defines their responsibilities
with respect to the ongoing operation, maintenance and decommissioning of the
Seabrook Project. In general, all ongoing costs of the Seabrook Project are
divided proportionately among the Participants in accordance with their
ownership interests in the Seabrook Project. Each Participant is only liable for
its share of the Seabrook Project's costs and not liable for any other
Participant's share as ownership interests in the Seabrook Project are several
and not joint. Great Bay's and Little Bay's combined joint ownership interest of
15% is the third largest interest among the Participants, exceeded only by the
approximately 40% interest held by Northeast Utilities and its affiliates and
the 17.5% interest held by The United Illuminating Company.
Great Bay's business strategy is to utilize unit contingent and firm
forward sales contracts to maximize the value of its and Little Bay's 174 MW
power supply from the Seabrook Project. Traditionally, Great Bay sold most of
its share of the Seabrook Project electricity output under unit contingent
contracts. Under unit contingent contracts, Great Bay is obligated to provide
the buyer with power only when the Seabrook Project is operating. In late 1998,
Great Bay began to sell some of its electricity as firm power, which entitles
the buyer to electricity whether or not the Seabrook Project is operating.
Buyers pay a premium for firm power over unit contingent power because they can
rely on uninterrupted electricity. In order to supply firm power during Seabrook
unscheduled outages, Great Bay purchases power from the spot market during these
outages and resells that power to its firm power customers. Spot market sales
are subject to price fluctuations based on the relative supply and demand of
electricity. As a result of spot market power price fluctuations, Great Bay has,
and may in the future, have to purchase power at prices exceeding prices paid by
Great Bay's firm power customers during outages. Although Great Bay bears the
primary risk of these price fluctuations, Great Bay maintains insurance to
protect Great Bay during periods of extreme price volatility, subject to certain
deductibles and coverage limits. This insurance, provided by CIGNA and others,
provides up to $30 million of coverage through May 2002.
As of March 17, 2000, BayCorp and its subsidiaries had 35 employees,
including 26 at HoustonStreet, seven at BayCorp and two employees at Great Bay.
Little Bay has no employees.
B. REGULATION
Great Bay and Little Bay are subject to the regulatory authority of the
Federal Energy Regulatory Commission ("FERC"), the Nuclear Regulatory Commission
("NRC"), the New Hampshire Public Utilities Commission ("NHPUC") and other
federal and state agencies as to rates, operations and other matters. Great
Bay's and Little Bay's cost of service, however, is not regulated. As such,
Great Bay's and Little Bay's accounting policies are not subject to the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation."
C. USE OF MANAGEMENT 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
F-7
<PAGE> 38
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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.
D. UTILITY PLANT AND NON-UTILITY PLANT ASSETS
The costs of additions to utility plant and non-utility plant are recorded
at original cost.
E. DEPRECIATION
(i) Utility Plant
Utility plant is depreciated on the straight-line method at rates designed
to fully depreciate all depreciable properties over the lesser of estimated
useful lives or the Seabrook Project's remaining NRC license life, which expires
in 2026.
Capital projects constituting retirement units are charged to electric
plant. Minor repairs are charged to maintenance expense. When properties are
retired, the original costs, plus costs of removal, less salvage, are charged to
the accumulated provision for depreciation.
(ii) Non-Utility Plant Assets
Non-Utility plant assets are stated at cost less accumulated depreciation.
Expenditures that significantly improve or extend the life of an asset are
capitalized. The Company's subsidiary, HoustonStreet, capitalizes external
software application development costs and costs for upgrades and enhancements
to its systems that result in additional functionality in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-10,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. Maintenance and repairs are charged to expense when incurred. Depreciation
is calculated on the straight-line basis over an estimated useful live of three
years.
F. AMORTIZATION OF NUCLEAR FUEL
The cost of nuclear fuel is amortized to expense based on the rate of
burn-up of the individual assemblies comprising the total core. Great Bay and
Little Bay also provide for the cost of disposing of spent nuclear fuel at rates
specified by the United States Department of Energy ("DOE") under a contract for
disposal between Great Bay and Little Bay, through their managing agent North
Atlantic Energy Service Corporation ("NAESCO"), and the DOE.
Great Bay recorded the estimated cost of the final unspent nuclear fuel
core, which is expected to be in place at the expiration of the Seabrook
Project's NRC operating license, as part of Great Bay's original "Fresh Start"
balance sheet.
G. AMORTIZATION OF MATERIALS AND SUPPLIES
Great Bay and Little Bay amortize to expense an amount designed to fully
amortize the cost of the material and supplies inventory that is expected to be
on hand at the expiration of the Plant's NRC operating license.
H. DECOMMISSIONING
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay and Little Bay have recognized as a liability their
proportionate share of the present value of the estimated cost of Seabrook
Project decommissioning. For Great Bay, the initial recognition of this
liability was capitalized as part of the Fair Value of the Utility Plant at
November 23, 1994. For Little Bay, the amount was provided for
F-8
<PAGE> 39
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
in the purchase price allocation. New Hampshire enacted a law in 1981 requiring
the creation of a state-managed fund to finance decommissioning of any units in
the state. During April 1999, the Nuclear Decommissioning Finance Committee
("NDFC") issued an order that adjusted the decommissioning collection period and
funding levels based on the NDFC's opinion that Seabrook's anticipated energy
producing life was twenty-five years from the time it went into commercial
operation. This is eleven years earlier than the service life established by
Seabrook's NRC operating license. The order also updated Seabrook's
decommissioning estimate to $565 million (in 2000 dollars.) Based on this
estimate, the present value of Great Bay's and Little Bay's share of liability
as of December 31, 1999 was approximately $79 million.
Great Bay and Little Bay accrete their share of the Seabrook Project's
decommissioning liability. This accretion is a non-cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant. As a
result of this accretion, Great Bay's share of the estimated decommissioning
cost increased from $55.8 million as of December 31, 1997 to $60.3 million as of
December 31, 1998 to $79.4 million as of December 31, 1999. The December 31,
1999 balance includes Little Bay's decommissioning liability of approximately
$13 million based on an accretion schedule over the original license life of the
plant and not the NDFC's life.
The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions for such things as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change,
possibly materially, in the near term.
The Staff of the Securities and Exchange Commission ("SEC") has questioned
certain of the current accounting practices of the electric utility industry
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations and joint owners in the financial
statements of these entities. In response to these questions, the FASB agreed to
review the accounting for nuclear decommissioning costs. On February 7, 1996,
the FASB issued an Exposure Draft entitled "Accounting for Certain Liabilities
Related to Closure and Removal of Long-Lived Assets." On February 17, 2000, the
FASB issued a "Revision of Exposure Draft issued February 7, 1996, Proposed
Statement of Financial Accounting Standards: Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." Great Bay and Little Bay's
accounting for decommissioning is based on the FASB's original tentative
conclusions. The proposed statement requires that an obligation associated with
the retirement of a tangible long-lived asset be recognized as a liability when
incurred, and that the amount of the liability resulting from (a) the passage of
time and (b) revisions to either the timing or amount of estimated cash flows
should also be recognized. The proposed statement also requires that, upon
initial recognition of a liability for an asset retirement obligation, an entity
capitalize that cost by recognizing an increase in the carrying amount of the
related long-lived asset. Upon adoption, the proposed statement would be
effective for financial statements issued for fiscal years beginning after June
15, 2001.
Great Bay and Little Bay, based on the initial exposure draft, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free rate. The
proposed Statement requires the initial measurement of the liability to be based
on fair value, where the fair value is the amount that an entity would be
required to pay in an active market to settle the asset retirement obligation in
a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. If the proposed Statement is adopted,
Great Bay's and Little Bay's decommissioning liability and annual provision for
decommissioning accretion could change relative to 1999. Great Bay and Little
Bay have not quantified the impact, if any, that the revised exposure draft will
have on their financial statements.
F-9
<PAGE> 40
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding gain of $42,000 and $540,000 as of December 31, 1999 and 1998.
Although the owners of Seabrook are accumulating funds in an external trust
to defray decommissioning costs, these costs could substantially exceed the
value of the trust fund, and the owners, including Great Bay and Little Bay,
would remain liable for the excess.
In January 1997 and July 1997, the NRC staff ruled that Great Bay did not
satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants. In June 1998, the New Hampshire State
legislature enacted legislation that provides that in the event of a default by
Great Bay on its payments to the decommissioning fund, the other Seabrook joint
owners would be obligated to pay their proportional share of such default. As a
result of the enactment of this legislation, the NRC staff found that Great Bay
complies with the decommissioning funding assurance requirements. In July 1998,
the staff of the NRC notified Great Bay of the staff's determination that Great
Bay complies with the decommissioning funding assurance requirements under NRC
regulations.
In response to the New Hampshire legislation, Great Bay agreed to make
accelerated payments to the Seabrook decommissioning fund such that Great Bay
will have contributed sufficient funds by the year 2015 to allow sufficient
monies to accumulate, with no further payments by Great Bay to the fund, to the
full estimated amount of Great Bay's decommissioning obligation by the time the
current Seabrook operating license expires in 2026. Based on the currently
approved funding schedule and Great Bay's accelerated funding schedule, Great
Bay's decommissioning payments will be approximately $1.8 million in 2000 and
escalate at 4% each year thereafter through 2015. Little Bay's share of
decommissioning costs was prefunded by Montaup Electric Company, the owner of
the 2.9% interest in the Seabrook Project that Little Bay acquired in November
1999. As part of that acquisition, Montaup Electric Company transferred
approximately $12.4 million into Little Bay's decommissioning account, an
irrevocable trust earmarked for Little Bay's share of Seabrook Plant
decommissioning expenses.
On November 15, 1992, Great Bay, the Bondholder's Committee and the
Predecessor's former parent, Eastern Utilities ("EUA") entered into a settlement
agreement that resolved certain proceedings against EUA brought by the
Bondholder's Committee. Under the settlement agreement EUA reaffirmed its
guarantee of up to $10 million of Great Bay's future decommissioning costs of
Seabrook Unit 1.
I. OPERATING REVENUES
(i) Energy Revenues
Revenues are recorded on an accrual basis based on billing rates provided
for in contracts and approved by FERC. During the year ended December 31, 1999,
two customers accounted for 29% and 24% of total operating revenues. For the
year ended December 31, 1998, three customers accounted for 28%, 17% and 12% of
total operating revenues. For the year ended December 31, 1997, three customers
accounted for 50%, 13% and 11% of total operating revenues.
(ii) Internet Revenues
HoustonStreet revenue consists of commissions for megawatt hours traded on
HoustonStreet.com and is recognized once the trade has been agreed upon by both
parties to the trade.
F-10
<PAGE> 41
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
J. TAXES ON INCOME
The Company accounts for taxes on income under the liability method
required by Statement of Financial Accounting Standards No. 109.
K. CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid short-term investments with an original maturity of three months
or less to be cash equivalents. The carrying amounts approximate fair value
because of the short-term maturity of the investments.
All other short-term investments with a maturity of greater than three
months are classified as available for sale and reflected as a current asset at
market value. Changes in the market value of such securities are reflected in
equity. The unrealized holding loss on short-term investments was $44,000 as of
December 31, 1999 and the unrealized holding gain on short-term investments was
$24,000 as of December 31, 1998.
L. SEABROOK UNIT 2
Since the Seabrook Project was originally designed to consist of two
generating units, Great Bay and Little Bay also own a 15% joint ownership
interest in Seabrook Unit 2. Great Bay and Little Bay assign no value to
Seabrook Unit 2 because on November 6, 1986, the joint owners of the Seabrook
Project, recognizing that Seabrook Unit 2 had been canceled in 1984, voted to
dispose of Unit 2. Certain assets of Seabrook Unit 2 have been and are being
sold from time to time to third parties. There were no material sales of Unit 2
assets in 1998 or 1999.
The Participants are considering plans regarding disposition of Seabrook
Unit 2, but such plans have not yet been finalized and approved. Great Bay and
Little Bay are unable to estimate the costs for which they will be responsible
in connection with the disposition of Seabrook Unit 2. Because Seabrook Unit 2
was never completed or operated, costs associated with its disposition will not
include any amounts for decommissioning. Great Bay and Little Bay currently pay
their share of monthly expenses required to preserve and protect the value of
the Seabrook Unit 2 components. Any sales of Unit 2 property or inventory are
reflected in other income as gains on the sale or transfer of assets. Transfers
of Unit 2 items to Unit 1 were done at the historical basis of Unit 2 property
or components.
M. SEABROOK OUTAGE COSTS
The Company's and Great Bay's and Little Bay's operating results and the
comparability of these results on an interim and annual basis are directly
impacted by the operations of the Seabrook Project, including the cyclical
refueling outages (generally 18 months apart) as well as unscheduled outages.
During outage periods at the Seabrook Project, Great Bay and Little Bay have no
electricity for resale from the Seabrook Plant and consequently no related
revenues. Therefore the impact of outages on the Company's and Great Bay's and
Little Bay's results of operations and financial position are materially
adverse.
Great Bay and Little Bay accrue for the incremental costs of the Seabrook
Project's scheduled outages over the periods between those outages. However,
Great Bay and Little Bay continue to expense the normal Seabrook operating and
maintenance expenses as incurred. Therefore, the Company will incur losses
during scheduled outage periods as a result of the combination of the lack of
revenue and the recognition of normal recurring operation and maintenance costs
as well as the continuing depreciation of the utility plant. At the Seabrook
Project, a scheduled refueling outage began on March 27, 1999. Seabrook resumed
full operating capacity on May 21, 1999. Great Bay's share of the incremental
operations and maintenance costs was approximately $3.7 million.
F-11
<PAGE> 42
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
N. ACQUISITIONS
On November 19, 1999, BayCorp's wholly-owned subsidiary, Little Bay Power
Corporation, purchased an additional 2.9% interest in the Seabrook Nuclear Power
Project from Montaup Electric Company, a subsidiary of Eastern Utilities
Associates. The purchase price was $3.2 million plus approximately $1.9 million
for certain prepaid items, primarily nuclear fuel and capital expenditures. The
purchase price was funded with existing cash. Little Bay allocated the purchase
price based on the estimated fair value of the assets acquired and liabilities
assumed. A summary of the components of the purchase price and the preliminary
allocation is as follows:
<TABLE>
<CAPTION>
(000'S)
<S> <C>
PRELIMINARY ALLOCATION OF PURCHASE PRICE:
Current assets.............................................. $ 1,005
Utility plant............................................... 3,890
Nuclear fuel................................................ 1,845
Liabilities assumed and other............................... (1,827)
-------
$ 4,913
=======
</TABLE>
In addition, Montaup prefunded the decommissioning liability associated
with Little Bay's 2.9% share of Seabrook by transfering approximately $12.4
million into Little Bay's decommissioning account, an irrevocable trust
earmarked for Little Bay's share of the Seabrook Plant decommissioning expenses.
Little Bay recorded an asset, Decommissioning Trust Fund, for $12.4 million and
a corresponding liability for the same amount. The purchase agreement required
that a restricted cash-escrow account be established for $2.5 million to cover
Little Bay's share of budgeted cash requirements for a six month period. This
fund is to be used to pay Little Bay's share of Seabrook costs of operations and
capital expenditures during periods of Seabrook shutdowns.
Little Bay sells its power solely to Great Bay under an intercompany
agreement. Great Bay then sells the power purchased from Little Bay in the
wholesale electricity market. The accompanying consolidated financial statements
include the results of the acquisition since November 19, 1999. Intercompany
amounts between Little Bay and Great Bay have been eliminated in consolidation.
O. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"), in 1999 when HoustonStreet began operations. This statement establishes
standards for the reporting of information about operating segments in annual
and interim financial statements and requires restatement of prior year
information. Operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly by
the chief operating decision maker(s) in deciding how to allocate resources and
in assessing performance. SFAS No. 131 also requires disclosures about products
and services, geographic areas and major customers.
P. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings by the
weighted number of common shares outstanding for all periods presented. Diluted
earnings (loss) per share reflects the dilutive effect of shares under option
plans, warrants and preferred stock. Potentially dilutive shares outstanding
during the period have been excluded from dilutive earnings (loss) per share
because their effect would be antidilutive.
F-12
<PAGE> 43
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Based on an average market price of common stock of $5.58 per share, for
the year ended December 31, 1999, the following table reconciles the weighted
average common shares outstanding to the shares used in the computation of the
basic and diluted earnings per share outstanding.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Weighted average number of common shares outstanding and
used in basic and diluted EPS calculation................. 8,207,866
Shares under option plans, excluded in computation of
diluted EPS due to antidilutive effects................... 3,341
</TABLE>
There were no potentially dilutive shares outstanding during 1998 and 1997.
Q. ACCUMULATED OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which requires the Company to report the changes in
shareholders' equity from all sources during the period other than those
resulting from investments by shareholders (i.e., issuance or repurchase of
common shares and dividends.) Although adoption of this standard has not
resulted in any change to the historic basis of determination of earnings or
shareholders' equity, the other comprehensive income components recorded under
generally accepted accounting principles and previously included under the
category "retained earnings" are displayed as "accumulated other comprehensive
income" within the balance sheet. The composition of other comprehensive income
is as follows:
<TABLE>
<CAPTION>
UNREALIZED GAINS (LOSSES) ACCUMULATED OTHER
ON SECURITIES COMPREHENSIVE INCOME
------------------------- --------------------
<S> <C> <C>
Twelve Months Ending 12/31/98
Beginning Balance........................... $116,000 $116,000
1998 Change................................. 449,000 449,000
-------- --------
December 31, 1998............................. 565,000 565,000
1999 Change................................. (568,000) (568,000)
-------- --------
December 31, 1999............................. $ (3,000) $ (3,000)
======== ========
</TABLE>
R. RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial
statements to conform to classifications and presentation used in the current
year.
S. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
2. NUCLEAR ISSUES
Like other nuclear generating facilities, the Seabrook Project is subject
to extensive regulation by the NRC. The NRC is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health, safety, environmental and anti-trust matters.
The NRC has promulgated numerous requirements affecting safety systems,
fire protection, emergency response planning and notification systems, and other
aspects of nuclear plant construction, equipment and operation. Great Bay and
Little Bay have been, and may be, affected to the extent of their proportionate
shares by the cost of any such modifications to Seabrook Unit 1.
F-13
<PAGE> 44
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Nuclear units in the United States have been subject to widespread
criticism and opposition. Some nuclear projects have been canceled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction defects and other difficulties. Various
groups have by litigation, legislation and participation in administrative
proceedings sought to prohibit the completion and operation of nuclear units and
the disposal of nuclear waste. In the event of a shutdown of any unit, NRC
regulations require that it be completely decontaminated of any residual
radioactivity. The cost of such decommissioning, depending on the circumstances,
could substantially exceed the owners' investment at the time of cancellation.
Public controversy concerning nuclear power could adversely affect the
operating license of Seabrook Unit 1. While the Company cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
A. NUCLEAR FUEL
The Seabrook Project's joint owners have made, or expect to make, various
arrangements for the acquisition of uranium concentrate, the conversion,
enrichment, fabrication and utilization of nuclear fuel and the disposition of
that fuel after use. The Nuclear Waste Policy Act of 1982 (the "NWPA") requires
the United States Department of Energy (the "DOE"), subject to various
contingencies, to design, license, construct and operate a permanent repository
for high level radioactive waste and spent nuclear fuel, which are collectively
referred to as "high level waste."
The joint owners of the Seabrook Project, through their managing agent
NAESCO, entered into contracts with the DOE for high level waste disposal in
accordance with the NWPA. Under these contracts and the NWPA, the DOE was
required to take title to and dispose of the Seabrook Project's high level waste
beginning no later than January 31, 1998. However, the DOE has announced that
its first high level waste repository will not be in operation until 2010 at the
earliest.
As a result of this delay, many states and nuclear plant operators,
including NAESCO, sued the DOE for injunctive relief and monetary damages. Two
U.S. Courts of Appeals ordered the DOE to proceed with its high level waste
disposal obligations and ruled that plant operators are entitled to money
damages from DOE. However, there can be no assurance that the Seabrook Project
will collect damages from the DOE because, among other things, NAESCO's case
against the DOE is still pending.
In February 1999, the DOE proposed to Congress an alternative interim plan
for high level waste management. The DOE proposed to take legal title and
responsibility for the waste (on-site at nuclear plants such as Seabrook) until
a permanent repository becomes available. Ultimately, Congress rejected that
proposal, and on March 22, 2000, Congress passed amendments to the NWPA that
would require the DOE to begin accepting nuclear waste shipments at a Nevada
site in 2007. However, President Clinton stated he would veto this legislation
and Congress is not expected to override Mr. Clinton's veto. Regardless of
whether this legislation becomes law or alternative solutions are identified,
nuclear plants such as Seabrook must retain high level waste on-site or make
other storage provisions until the DOE begins receiving nuclear waste materials
in accordance with the NWPA and its contracts.
The Seabrook Project increased its on-site storage capacity for low level
waste ("LLW") in 1996 and that capacity is expected to be sufficient to meet the
Project's storage requirements through 2006. In addition, the managing agent of
the Seabrook Project has advised Great Bay that the Seabrook Project has
adequate on-site storage capacity for high level waste until approximately 2010.
The Low-Level Radioactive Waste Policy Act of 1980 requires each state to
provide disposal facilities for LLW generated within the state, either by
constructing and operating facilities or by joining regional compacts with other
states to jointly fulfill their responsibilities. However, the Low-Level
Radioactive Waste Policy Amendments Act of 1985 permits each state in which a
currently operating disposal facility is located (South
F-14
<PAGE> 45
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Carolina, Nevada and Washington) to impose volume limits and a surcharge on
shipments of LLW from states that are not members of their regional compact.
In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. The Seabrook Project began shipping
certain LLW to the Utah facility in December 1995. In 1999, the Seabrook Project
also began shipping some LLW to a privately owned facility in Tennessee. All LLW
generated by the Seabrook Project that exceeds the maximum radioactivity level
of LLW accepted by these facilities is currently stored on-site at the Seabrook
facility.
B. FEDERAL DEPARTMENT OF ENERGY DECONTAMINATION AND DECOMMISSIONING ASSESSMENT
Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for
decontaminating and decommissioning of the Federal Department of Energy's
("DOE's") enrichment facilities to be partially funded by a special assessment
against domestic utilities. Each utility's share of the assessment is to be
based on its cumulative consumption of DOE enrichment services. As of December
31, 1999, the Company had accrued its pro rata estimated obligation of $636,000
related to the project's prior years' usage to be paid over the 15-year period
beginning October 1, 1992.
C. PRICE ANDERSON ACT
In accordance with the Price Anderson Act, the limit of liability for a
nuclear-related accident is approximately $9 billion, effective November 18,
1994. The primary layer of insurance for this liability is $200 million of
coverage provided by the commercial insurance market. The secondary coverage is
approximately $9 billion, based on the approximately 106 currently licensed
reactors in the United States. The secondary layer is based on a retrospective
premium assessment of $83.9 million per nuclear accident per licensed reactor,
payable at a rate not exceeding $10 million per year per reactor. In addition,
the retrospective premium is subject to inflation based indexing at five year
intervals and, if the sum of all public liability claims and legal costs arising
from any nuclear accident exceeds the maximum amount of financial protection
available, then each licensee can be assessed an additional 5% ($4.2 million) of
the maximum retrospective assessment. With respect to the Seabrook Project,
Great Bay and Little Bay would be obligated to pay its ownership share of any
assessment resulting from a nuclear incident at any United States nuclear
generating facility. Great Bay and Little Bay estimate their maximum liability
per incident currently would be an aggregate amount of approximately $12.6
million per accident, with a maximum annual assessment of about $1.5 million per
incident, per year.
In addition to the insurance required by the Price Anderson Act, the NRC
regulations require licensees, including the Seabrook Project, to carry all risk
nuclear property damage insurance in the amount of at least $1.06 billion, which
amount must be dedicated, in the event of an accident at the reactor, to the
stabilization and decontamination of the reactor to prevent significant risk to
the public health and safety.
D. NUCLEAR INSURANCE
Insurance has been purchased by the Seabrook Project from Nuclear Electric
Insurance Limited ("NEIL") to cover the costs of property damage,
decontamination or premature decommissioning resulting from a nuclear incident
and American Nuclear Insurance/Mutual Atomic Energy Liability Underwriters
("ANI") to cover workers' claims. All companies insured with NEIL and ANI are
subject to retroactive assessments, if losses exceed the accumulated funds
available to NEIL and ANI, respectively. The maximum potential assessment
against the Seabrook Project with respect to losses arising during the current
policy years are $26.4 million. The Company's liability for the retrospective
premium adjustment for any policy year ceases six years after the end of that
policy year unless prior demand has been made.
F-15
<PAGE> 46
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Great Bay and Little Bay also independently purchase business interruption
insurance from Nuclear Electric Insurance Limited ("NEIL"). The current policy
is in effect from April 1, 1999 until April 1, 2000 and a renewal policy has
been signed which will be in effect from April 1, 2000 until April 1, 2001. The
policy provides for the payment of a fixed weekly loss amount of $670,000 in the
event of an outage at the Seabrook Project of more than 23 weeks resulting from
the property damage occurring from a "sudden fortuitous event, which happens by
chance, is unexpected and unforeseeable." The maximum amount payable to Great
Bay and Little Bay is $90.6 million. Under the terms of the policy, Great Bay
and Little Bay are subject to a potential retrospective premium adjustment of up
to approximately $469,000 should NEIL's board of directors deem that additional
funds are necessary to preserve the financial integrity of NEIL. Since NEIL was
founded in 1980, there has been no retrospective premium adjustment; however,
there can be no assurance that NEIL will not make retrospective adjustments in
the future. The liability for this retrospective premium adjustment ceases six
years after the end of the policy unless prior demand has been made.
3. TAXES ON INCOME
The following is a summary of the (benefit) provision for income taxes for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S)
<S> <C> <C> <C>
Federal
Current............................................. $(3,426) $(6,192) $(8,081)
Deferred............................................ 3,426 6,192 8,081
------- ------- -------
0 0 0
------- ------- -------
State
Current............................................. (817) (1,476) (1,927)
Deferred............................................ 817 1,476 1,927
------- ------- -------
0 0 0
------- ------- -------
Total (benefit) provision............................. $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
Accumulated deferred income taxes consisted of the following at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(000'S)
<S> <C> <C>
Assets
Net operating loss carryforwards.......................... $ 87,875 $ 81,794
Decommissioning expense................................... 5,279 3,985
Unfunded pension expense.................................. 1,311 685
Accrued outage expense.................................... 105 1,076
Inventory................................................. 477 407
Other, net................................................ 827 576
Liabilities
Utility plant............................................. (30,298) (24,457)
-------- --------
Accumulated deferred income tax asset....................... 65,576 64,066
Valuation allowance......................................... (65,576) (64,066)
-------- --------
Accumulated deferred income tax asset, net.................. $ 0 $ 0
======== ========
</TABLE>
F-16
<PAGE> 47
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The total income tax provision set forth above represents 0% in the years
ended December 31, 1999, 1998 and 1997. The following table reconciles the
statutory federal income tax rate to those percentages:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loss before taxes........................................ $(4,739) $(6,769) $(11,215)
Federal statutory rate................................... 34% 34% 34%
Federal income tax benefit at statutory levels........... (1,611) (2,301) (3,813)
Increase (Decrease) from statutory levels
State tax net of federal tax benefit................... (217) (345) (513)
Valuation allowance.................................... 1,917 2,721 4,442
Other.................................................. (89) 75 (116)
------- ------- --------
Effective federal income tax expense..................... $ 0 $ 0 $ 0
======= ======= ========
</TABLE>
Valuation allowances have been provided against any deferred tax assets,
net due to the limitations on the use of carryforwards, discussed below, and the
uncertainty associated with future taxable income. The valuation allowance of
$56,086,000 as of December 31, 1994, if subsequently recognized will be
allocated directly to paid in capital.
For federal income tax purposes, as of December 31, 1999, the Company had
net operating loss carry forwards ("NOLs") of approximately $225 million, which
are scheduled to expire between 2005 and 2019. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOLs is available for use in future years until such NOLs are
scheduled to expire. The Company's other $89 million of NOLs are not currently
subject to such limitations.
4. CAPITAL EXPENDITURES
The Company's cash capital expenditures, including nuclear fuel, are
estimated to be approximately $29 million in 2000 and to aggregate approximately
$25 million for the years 2001 through 2002.
5. ENERGY MARKETING
The Company utilizes unit contingent and firm forward sales contracts to
maximize the value of its 174 MW power supply from the Seabrook Project. As of
December 31, 1999, the Company had forward sales commitments that extend to the
end of 2000. As of December 31, 1998, the unrealized gain on these open
positions was $159,000. The value of open positions was determined using
exchange settlement prices or, if applicable, over the counter prices. The
unrealized gain at December 31, 1998 was deferred.
Effective January 1, 1999, Great Bay adopted Emerging Issues Task Force
Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities ("EITF 98-10"). EITF 98-10 requires energy trading
contracts to be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. The cumulative effect of the accounting change
as of January 1, 1999 was to decrease net loss by $159,000, or $0.02 per
weighted average common share and to recognize gains on net open firm purchase
and sales commitments considered to be trading activity.
As of December 31, 1999, the Company had a net unrealized loss of
approximately $647,000 recorded in accrued expenses. The net change in
unrealized loss on trading activities as of December 31, 1999 was $806,000 and
is included in the accompanying consolidated statement of income for 1999.
F-17
<PAGE> 48
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. PURCHASED POWER AGREEMENTS
Great Bay is party to a purchased power agreement, dated as of April 1,
1993 (the "UNITIL Purchased Power Agreement"), with UNITIL Power ("UNITIL") that
provides for Great Bay to sell to UNITIL approximately 10 MW of power. The
UNITIL Purchased Power Agreement commenced on May 1, 1993 and runs through
October 31, 2010. The current price of power under the UNITIL Purchased Power
Agreement is 5.24 cents per kilowatt-hour ("kWh"). The price is subject to
increase in accordance with a formula that provides for adjustments at less than
the actual rate of inflation. UNITIL has an option to extend the UNITIL
Purchased Power Agreement for an additional 12 years until 2022.
The UNITIL Purchased Power Agreement is front-end loaded whereby UNITIL
pays higher prices, on an inflation adjusted basis, in the early years of the
Agreement and lower prices in later years. The average price per kWh and the
contract formula rate in the contract are fixed over the life of the contract,
so that any excess cash received in the beginning of the contract will be
returned by the end of the contract, provided the contract does not terminate
early. The difference between revenue billed under each rate is recorded in a
"Balance Account" which increased annually to $4.1 million in July 1998, and now
decreases annually, reaching zero in July 2001. Therefore, contract revenue is
recorded under Generally Accepted Accounting Principles and Emerging Issues Task
Force Ruling 91-6 based on the contract rates and no liability for the "Balance
Account" is recognized provided that it is not probable that the contract will
terminate early. If the UNITIL Purchased Power Agreement terminates prior to its
scheduled termination, and if at that time there is a positive amount in the
Balance Account, Great Bay is obligated to refund that amount to UNITIL.
Management believes it is not probable that either party will terminate this
contract prior to the end of its initial term.
To secure the obligations of Great Bay under the UNITIL Purchased Power
Agreement, including the obligation to repay UNITIL the amount in the Balance
Account, the UNITIL Purchased Power Agreement grants UNITIL a mortgage on Great
Bay's interest in the Seabrook Project. This mortgage may be subordinated to
first mortgage financing of up to a maximum amount of $80,000,000. The UNITIL
Power Purchase Agreement further provides that UNITIL's mortgage will rank pari
passu with other mortgages that may hereafter be granted by Great Bay to other
purchasers of power from Great Bay to secure similar obligations, provided that
(i) the maximum amount of indebtedness secured by the first mortgage on the
Seabrook Interest may not exceed $80,000,000, and (ii) the combined total of all
second mortgages on the Seabrook Interest may not exceed the sum of (a)
$80,000,000 less the total amount of Great Bay's debt then outstanding which is
secured by a first mortgage plus (b) $57,000,000.
7. PECO SERVICES AGREEMENT AND WARRANT AGREEMENT
Great Bay and PECO Energy Company ("PECO") entered into a Services
Agreement as of November 3, 1995 (the "PECO Services Agreement"), pursuant to
which PECO was appointed as Great Bay's exclusive agent to market and sell Great
Bay's uncommitted portion of electricity generated by the Seabrook Project. In
June 1998, Great Bay and PECO terminated the power marketing agreement between
the companies and Great Bay paid PECO approximately $2.5 million. During the
quarter ended June 30, 1998, Great Bay made an approximate $2.5 million charge
to income for this expense. This expense is reflected in Administrative and
General expenses in the accompanying Consolidated Statement of Income.
8. STOCK OPTION PLAN
On April 24, 1995, the Board of Directors of the Company established the
1995 Stock Option Plan (the "Plan"), which received shareholder approval at the
Company's annual meeting on April 16, 1996. The purpose of the Plan is to secure
for the Company and its shareholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company who are expected to contribute to the Company's future growth
and success. Options granted pursuant to the Plan may
F-18
<PAGE> 49
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
be either incentive stock options meeting the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to meet
the requirements of Section 422. The maximum number of shares of Common Stock
that may be issued and sold under the Plan is 600,000 shares. The Plan will be
administered by the Board of Directors of the Company and may be modified or
amended by the Board in any respect, subject to shareholder approval in certain
instances.
The Company accounts for the plan under APB Opinion No. 25, under which no
compensation cost has been recognized as the options are granted at Fair Market
Value.
On December 3, 1998, the Board of Directors of the Company voted to reprice
all of the outstanding options of the Company as the current options were "out
of the money" and they no longer had the desired motivational effect or
compensatory benefit for the employees. The repricing of the options was based
on the current market value of the stock as of December 18, 1998. Simultaneously
with the repricing, 139,583 of existing options were forfeited. In accordance
with APB Opinion 25 (the "Opinion"), a renewal, a change in price, an extension
of the period of exercisability, or any other significant modification of a
stock right establishes a new measurement date as of the date of change in the
same fashion as if a new option were granted.
Under the current interpretations of APB Opinion 25, as the repricing was
done at fair market value on the new measurement date, no compensation expense
has been recognized.
The Financial Accounting Standards Board (the "Board") has concluded its
initial review of practice problems associated with the Opinion on accounting
for stock issued to employees. The Board issued an Exposure Draft of a proposed
interpretation of the Opinion in the first quarter of 1999. The proposed
effective date would be the issuance date of the final interpretation, which is
expected to be in 2000. If adopted, the interpretation will be applied
prospectively but will cover events that occurred after December 15, 1998. There
will be no effect on financial statements for the period prior to the effective
date of the final interpretation.
Had compensation cost for the plan been determined consistent with FASB
Statement No. 123, Accounting for Stock Based Compensation, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Loss: As Reported....................... $(4,740) $(6,769) $(11,215)
Pro Forma......................... (5,146) (7,050) (11,414)
EPS: As Reported....................... $ (0.58) $ (0.82) $ (1.35)
Pro Forma......................... (0.63) (0.86) (1.38)
</TABLE>
F-19
<PAGE> 50
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. A summary
of the Company's stock option plan at December 31, 1999, 1998 and 1997, and
changes during the years then ended, is presented in the table and narrative
below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- ------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 417,417 $4.92 505,000 $ 8.05 445,000 $8.15
Granted........................... 323,500 2.88 52,000 4.25 60,000 7.33
to 6.88 to 7.25
Exercised......................... (40,000) 4.90 -- --
Forfeited......................... -- (139,583) 8.65 --
Expired........................... -- --
Outstanding at end of year........ 700,917 5.36 417,417 4.92 505,000 8.05
Exercisable at end of year........ 476,005 4.92 322,849 4.97 425,000 8.04
Weighted average fair value of
options granted................. $ 3.66 $ 1.29 $3.32
</TABLE>
The 700,917 options outstanding at December 31, 1999 have exercise prices
between $2.88 and $6.88, with a weighted average exercise price of $5.36, and a
remaining weighted average contractual life of 5.8 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1999, 1998 and 1997 respectively: weighted average risk-free interest
rates of 5.5, 4.7 and 6.7 percent; expected dividend yields of 0 percent;
weighted average expected lives of 7, 6.5 and 7 years; and expected volatility
of 54, 31 and 31 percent, respectively.
In June 1999, HoustonStreet's Board of Directors approved HoustonStreet's
1999 Stock Incentive Plan, which provides for the grant of incentive and
nonqualified stock options for the purchase of HoustonStreet's common stock by
HoustonStreet's management, employees, consultants, advisors and directors of
HoustonStreet. As of December 31, 1999, options to purchase an aggregate of
840,000 shares of HoustonStreet common stock, at a weighted average option
exercise price of $0.87 per share were outstanding under this plan.
HoustonStreet has elected to account for its stock-based compensation plan under
APB No 25. Had compensation cost related to the HoustonStreet options been
determined, based on the fair value of the options at the grant date consistent
with the provisions of SFAS No. 123, the effect on the 1999 consolidated net
loss would not have been material.
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133, as amended by SFAS 137, will be effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. A company may also implement
SFAS 133 as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1998 and thereafter.) SFAS 133 cannot be
applied retroactively. SFAS 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments
F-20
<PAGE> 51
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998.)
The Company has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS 133. However, SFAS 133 could increase volatility in earnings and other
comprehensive income.
10. PROPERTY TAXES
For each of the tax years 1994, 1995, 1996, 1997 and 1998, Great Bay filed
property tax abatement applications with the towns of Hampton and Hampton Falls.
The abatement requests were denied. Great Bay filed appeals for each of those
years with the New Hampshire Board of Tax and Land Appeals (the "BTLA"). On
November 11, 1999, Great Bay reached agreements settling the property tax
litigation. As a result of the settlement agreement, Great Bay received $146,450
from the Town of Hampton and $21,967 from the Town of Hampton Falls. With regard
to Hampton Falls, the settlement established an assessed valuation of $7,000,000
for 1999 and $2,500,000 for 2000. With regard to the Town of Hampton, the
settlement established an assessed valuation of $20,000,000 for 1999 and
$15,000,000 for 2000.
11. SEGMENT INFORMATION
As mentioned in Note 1, BayCorp is a holding company for Great Bay, Little
Bay and HoustonStreet Exchange. The Company operates primarily in two segments,
each of which is managed separately because each segment sells distinct products
and services. Great Bay and Little Bay constitute the electric generating
companies segment, whose principal asset is a combined 15% joint ownership
interest in the Seabrook Nuclear Power Project and sell their combined power in
the competitive wholesale power markets. HoustonStreet operates a Web portal for
trading wholesale electric power and charges commissions for megawatt hours
traded on its site HoustonStreet.com.
Management utilizes more than one measurement and multiple views of data to
measure segment performance and to allocate resources to the segments. However,
the dominant measurements are consistent with the company's consolidated
financial statements and, accordingly, are reported on the same basis herein.
Management evaluates the performance of its segments and allocates resources to
them primarily based on cash flows and overall economic returns. Intersegment
sales are generally accounted for at amounts comparable to sales to unaffiliated
customers and are eliminated in consolidation. The accounting policies of the
segments are described in the summary of significant accounting policies, in
Note 1.
F-21
<PAGE> 52
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS
ENDED DECEMBER 31 GREAT BAY AND
(000'S) LITTLE BAY HOUSTONSTREET CORPORATE ELIMINATIONS TOTAL
----------------------- ------------- ------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1999
Revenues................................ $ 46,381 $ 59 $ 2,449 $ (3,128) $ 45,761
Depreciation & amortization............. 3,744 286 80 -- 4,110
Operating Expenses...................... 46,378 3,351 1,761 (2,970) 48,520
Interest expense........................ 16 97 -- -- 113
Segment net income (loss)............... (2,096) (3,397) 753 -- (4,740)
Total Assets............................ 165,862 2,984 7,592 (17,254) 159,184
Capital expenditures.................... 1,797 3,099 -- -- 4,896
1998
Revenues................................ $ 32,034 -- $ 1,920 $ (1,920) $ 32,034
Depreciation & amortization............. 3,633 -- 23 -- 3,656
Operating Expenses...................... 35,447 -- 3,783 (1,920) 37,310
Interest expense........................ 10 -- -- -- 10
Segment net income (loss)............... (7,489) -- 720 -- (6,769)
Total assets............................ 138,086 -- 71,442 (69,170) 140,358
Capital expenditures.................... 2,700 -- -- -- 2,700
1997
Revenues................................ $ 26,642 -- $ 1,756 $ (1,756) $ 26,642
Depreciation & amortization............. 3,494 -- 14 -- 3,508
Operating Expenses...................... 37,501 -- 1,134 (1,755) 36,880
Interest expense........................ (255) -- -- -- (255)
Segment net income (loss)............... (11,825) -- 610 -- (11,215)
Total assets............................ 138,116 -- 78,251 (76,209) 140,158
Capital expenditures.................... 2,555 -- -- -- 2,555
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
BayCorp and its wholly owned subsidiaries currently lease office space
under noncancelable operating leases. Rental expense under operating lease
agreements as of December 31, 1999 was $96,500.
Future minimum commitments for operating leases as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING LEASES
----------- ----------------
<S> <C>
December 31, 2000........................................... $170,000
December 31, 2001........................................... 70,000
December 31, 2002........................................... 70,000
December 31, 2003........................................... 35,000
--------
Total....................................................... $345,000
========
</TABLE>
13. SUBSEQUENT EVENTS
In January 2000, BayCorp issued 15,800 of its incentive stock options to
its employees and directors at an exercise price of $12.6875 per share. In
January 2000, HoustonStreet issued 474,300 of its incentive stock options to its
employees and directors at an exercise price of $2.75 per share.
F-22
<PAGE> 53
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
In February 2000, HoustonStreet sold $6.0 million of its common stock and
Series A preferred stock to Equiva Trading Company ("Equiva"). Equiva is a
hydrocarbon supply and trading partnership jointly-owned by Equilon Enterprises
LLC ("Equilon") and Motiva Enterprises LLC ("Motiva"). Equilon is owned by Shell
Oil Company and Texaco Inc. Motiva is owned by Shell Oil Company, Texaco Inc.
and Saudi Refining Inc., an affiliate of Saudi Aramco.
Also in February 2000, HoustonStreet announced plans to launch one of the
first Web exchanges for wholesale crude oil and refined products trading. At
that time, HoustonStreet entered into agreements with Equiva under which Equiva
will share its knowledge of the oil trading industry with HoustonStreet and will
pay HoustonStreet at least $1.5 million over the next two years as minimum
trading commissions generated through Equiva's use of HoustonStreet's crude and
refined oil products trading exchange, once it is created and operated.
In addition to sales of its capital stock to Equiva, HoustonStreet sold
$10.6 million of its capital stock in February and March 2000 to other investors
including Williams Energy Marketing & Trading Company, Omega Advisors, Inc.,
Elliott Associates, L.P., Thomas H. Lee Company and Sapient Corporation.
Collectively with Equiva and Williams, HoustonStreet raised $16.6 million in
gross proceeds through these stock sales. As a result, BayCorp owns
approximately 53% of HoustonStreet's capital stock (on an as converted to common
stock basis) as of March 27, 2000.
Sapient Corporation has been assisting HoustonStreet in designing and
building its Internet site since inception. For the period from inception to
December 31, 1999, HoustonStreet has recorded $2.4 million of such costs.
Omega Advisors, Inc. and its related investment partnerships who
beneficially own approximately 33.2% of BayCorp, purchased HoustonStreet Series
A Preferred Stock and own, directly and indirectly, approximately 21.26% of
HoustonStreet as of March 27, 2000, assuming conversion of the HoustonStreet
Series A preferred stock to HoustonStreet common stock at a conversion rate of
one to one.
Elliot Associates, L.P. and its related partnerships who beneficially own
approximately 24.3% of BayCorp, purchased HoustonStreet Series A Preferred Stock
and own, directly or indirectly, approximately 16.55% of HoustonStreet, as of
March 27, 2000, assuming conversion of the HoustonStreet Series A preferred
stock to HoustonStreet common stock at a conversion rate of one to one.
F-23
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAYCORP HOLDINGS, LTD.
March 28, 2000
By: /s/ FRANK W. GETMAN JR.
------------------------------------
Frank W. Getman Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FRANK W. GETMAN JR. President, Chief Executive Officer March 28, 2000
- ------------------------------------------------ and Director (principal executive
Frank W. Getman Jr. officer, principal financial officer
and principal accounting officer)
/s/ KENNETH A. BUCKFIRE Director March 28, 2000
- ------------------------------------------------
Kenneth A. Buckfire
/s/ STANLEY I. GARNETT Director March 28, 2000
- ------------------------------------------------
Stanley I. Garnett
/s/ MICHAEL R. LATINA Director March 28, 2000
- ------------------------------------------------
Michael R. Latina
/s/ LAWRENCE M. ROBBINS Director March 28, 2000
- ------------------------------------------------
Lawrence M. Robbins
/s/ JOHN A. TILLINGHAST Director March 28, 2000
- ------------------------------------------------
John A. Tillinghast
</TABLE>
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 Certificate of Incorporation of BayCorp Holdings, Ltd.(1)
3.2 By-laws of BayCorp Holdings, Ltd.(1)
10.1 Agreement Between Bangor Hydro-Electric Company, Central
Maine Power Company, Central Vermont Public Service
Corporation, Fitchburg Gas and Electric Light Company, Maine
Public Service Company and EUA Power Corporation relating to
use of certain transmission facilities, dated October 20,
1986.(2)
10.2 Limited Guaranty by Eastern Utilities Associates of
Decommissioning Costs in favor of Joint Owners of the
Seabrook Project, dated May 5, 1990.(2)
10.3 Composite Agreement for Joint Ownership, Construction and
Operation of New Hampshire Nuclear Units, as amended, dated
November 1, 1990.(2)
10.4 Seventh Amendment to and Restated Agreement for Seabrook
Project Disbursing Agent as amended through and including
the Second Amendment, by and among North Atlantic Energy
Service Corporation, Great Bay Power Corporation and other
Seabrook Project owners, dated November 1, 1990.(2)
10.5 Seabrook Project Managing Agent Operating Agreement by and
among the North Atlantic Energy Service Corporation, Great
Bay Power Corporation and parties to the Joint Ownership
Agreement, dated June 29, 1992.(2)
10.6 Settlement Agreement by and among EUA Power Corporation,
Eastern Utilities Associates and the Official Bondholders'
Committee, dated November 18, 1992.(2)
10.7 Purchased Power Agreement between UNITIL Power Corporation
and Great Bay Power Corporation, dated April 26, 1993.(2)
10.8 Power Purchase Option Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)
10.9 Second Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)
10.10 Third Mortgage and Security Agreement between UNITIL Power
Corporation and Great Bay Power Corporation, dated December
22, 1993.(2)
10.11 Registration Rights Agreement between Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994.(2)
10.12 Amendment to Registration Rights Agreement between Great Bay
Power Corporation and the Selling Stockholders, dated
November 23, 1994.(2)
10.13 Stock and Subscription Agreement among Great Bay Power
Corporation and the Selling Stockholders, dated April 7,
1994.(2)
10.14 Acknowledgement and Amendment to Stock and Subscription
Agreement, dated November 23, 1994.(2)
10.15 Settlement Agreement by and among Great Bay Power
Corporation, the Official Bondholders' Committee and the
Selling Stockholders, dated September 9, 1994.(2)
10.16 Letter Agreement, dated December 20, 1994, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994.(2)
10.17 Letter Agreement, dated March 29, 1995, between Great Bay
Power Corporation and the Selling Stockholders amending
Registration Rights Agreement, as previously amended on
November 23, 1994 and December 20, 1994.(2)
10.18 1996 Stock Option Plan of BayCorp Holdings, Ltd.(1)(4)
10.19 Employment Agreement between Frank W. Getman Jr. and BayCorp
Holdings, Ltd., dated May 5, 1998.(4)(5)
10.20 Employment Agreement between John A. Tillinghast and BayCorp
Holdings, Ltd., dated May 5, 1998.(4)(5)
10.21 Incentive Stock Option Agreement, dated as of August 1,
1995, by and between Frank W. Getman Jr. and Great Bay Power
Corporation.(4)(6)
10.22 Incentive Stock Option Agreement, dated as of September 17,
1996, by and between Frank W. Getman Jr. and Great Bay Power
Corporation.(4)(7)
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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<S> <C>
10.23 Incentive Stock Option Agreement, dated as of April 24,
1995, by and between John A. Tillinghast and Great Bay Power
Corporation.(4)(6)
10.24 1999 Stock Incentive Plan of HoustonStreet Exchange,
Inc.(4)(8)
10.25 Amended and Restated Incentive Stock Option Agreement, dated
as of July 30, 1999, by and between Frank W. Getman Jr. and
HoustonStreet Exchange, Inc. (first of two identically
titled and dated agreements).(4)(8)
10.26 Amended and Restated Incentive Stock Option Agreement, dated
as of July 30, 1999, by and between Frank W. Getman Jr. and
HoustonStreet Exchange, Inc. (second of two identically
titled and dated agreements).(4)(8)
10.27 Asset Purchase Agreement by and between Montaup Electric
Company and Great Bay Power Corporation, dated as of June
24, 1998.(9)
10.28 Assignment by and between Great Bay Power Corporation and
Little Bay Power Corporation dated as of August 28,
1998.(10)
10.29 Escrow Agreement by and between Little Bay Power Corporation
and Citizens Bank New Hampshire dated November 10, 1999.(10)
10.30 Series A Convertible Preferred Stock Purchase Agreement
dated as of February 2, 2000, as amended, by and among
HoustonStreet Exchange, Inc. and the Purchasers (as defined
therein).(8)
10.31 Amended and Restated Stockholders' Voting Agreement dated as
of March 6, 2000 by and among BayCorp Holdings, Ltd. and the
Purchasers (as defined therein).(8)
10.32 Investor Rights Agreement dated as of February 2, 2000, as
amended, by and among HoustonStreet Exchange, Inc., BayCorp
Holdings, Ltd. and the Purchasers (as defined therein).(8)
10.33 Rights of First Refusal and Co-Sale Agreement dated as of
February 2, 2000, by and among HoustonStreet Exchange, Inc.
and the Purchasers (as defined therein).(8)
10.34 Form of Omnibus Signature Page dated as of March 6, 2000
relating to the four preceding exhibits.(8)
10.35 Incentive Stock Option Agreement, dated July 30, 1999, by
and between Frank W. Getman Jr. and BayCorp Holdings,
Ltd.(4)(8)
21.1 List of Subsidiaries of BayCorp Holdings, Ltd.(8)
23.1 Consent of Arthur Andersen LLP.(8)
</TABLE>
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(1) Filed as an exhibit to the Registration Statement on Form S-4 of BayCorp
Holdings, Ltd. (Registration Statement 333-3362) filed on July 12, 1996 and
incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1 of Great Bay
Power Corporation (Registration No. 33-88232) declared effective on April
17, 1995 and incorporated herein by reference.
(3) Filed as an exhibit to the Quarterly Report on Form 10-Q of BayCorp
Holdings, Ltd. for the quarter ended July 30, 1998 (File No. 1-12527) on
August 13, 1998 and incorporated herein by reference.
(4) Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
1-12527) on March 31, 1999 and incorporated herein by reference.
(6) Filed as an exhibit to the Quarterly Report on Form 10-Q of Great Bay Power
Corporation for the quarter ended March 31, 1995 (File No. 0-25748) on May
9, 1995 and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
1-12527) on March 26, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to this Annual Report on Form 10-K.
(9) Filed as an exhibit to the Quarterly Report on Form 10-Q of BayCorp
Holdings, Ltd. for the quarter ended June 30, 1998 (File No. 1-12527) on
August 13, 1998 and incorporated herein by reference.
(10) Filed as an exhibit to the Current Report on Form 8-K of BayCorp Holdings,
Ltd. (File No. 1-12527) dated November 19, 1999 and filed on December 3,
1999 and incorporated herein by reference.
<PAGE> 1
Exhibit 10.24
HOUSTON STREET EXCHANGE, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1999 Stock Incentive Plan (the "Plan") of Houston Street
Exchange, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and advisors
(and any individuals who have accepted an offer for employment) are eligible to
be granted options, restricted stock awards or other stock-based awards (each,
an "Award") under the Plan. Each person who has been granted an Award under the
Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b)
<PAGE> 2
to the extent that the Board's powers or authority under the Plan have been
delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
Subject to adjustment under Section 8, Awards may be made under the Plan for up
to 2,000,000 shares of common stock, $0.01 par value per share, of the Company
(the "Common Stock"). If any Award expires or is terminated, surrendered or
canceled without having been fully exercised or is forfeited in whole or in part
or results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a
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<PAGE> 3
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price or (ii) delivery by the Participant to the Company of a copy
of irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board (including whether the Participant must pay cash in an
amount equal to the par value of any Common Stock issued) or (ii) payment of
such other lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the Common Stock
having such terms and conditions as the Board may determine, including the grant
of shares based upon certain conditions, the grant of securities convertible
into Common Stock and the grant of stock appreciation rights.
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<PAGE> 4
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the number and class of securities and exercise price per share subject to
each outstanding Option, (iii) the repurchase price per share subject to each
outstanding Restricted Stock Award and (iv) the terms of each other outstanding
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION EVENTS
(1) DEFINITION. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
(2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
-4-
<PAGE> 5
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event under the
terms of which holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then the Board may instead provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Participant shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options.
(3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED STOCK AWARDS.
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) CONSEQUENCES OF AN ACQUISITION EVENT ON OTHER AWARDS. The Board
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant,
-5-
<PAGE> 6
the Participant's legal representative, conservator, guardian or Designated
Beneficiary may exercise rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any
-6-
<PAGE> 7
shares of Common Stock to be distributed with respect to an Award until becoming
the record holder of such shares. Notwithstanding the foregoing, in the event
the Company effects a split of the Common Stock by means of a stock dividend and
the exercise price of and the number of shares subject to such Option are
adjusted as of the date of the distribution of the dividend (rather than as of
the record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such stock dividend shall
be entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on the record date for such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted and approved by the Board of Directors and the Sole Stockholder of the
Company on June 16, 1999.
Section 4 (Stock Available For Awards) was restated on July 30, 1999 to reflect
that Awards may be made under the Plan for up to 2,000,000 shares of Common
Stock, after giving effect to a 10-for-1 split of the Company's Common Stock on
July 30, 1999.
-7-
<PAGE> 1
Exhibit 10.25
HOUSTON STREET EXCHANGE, INC.
Amended and Restated Incentive Stock Option Agreement
GRANTED UNDER 1999 STOCK INCENTIVE PLAN
1. GRANT OF OPTION.
This Amended and Restated Incentive Stock Option Agreement (this
"Agreement") evidences the grant by Houston Street Exchange, Inc., a Delaware
corporation (the "Company"), on July 30, 1999 (the "Grant Date") to Frank W.
Getman Jr., an employee of the Company (the "Participant"), of an option to
purchase, in whole or in part, on the terms provided herein and in the Company's
1999 Stock Incentive Plan (the "Plan"), a total of 240,000 shares (the "Shares")
of common stock, $0.01 par value per share, of the Company ("Common Stock") at
$0.0833 per Share. Unless earlier terminated, this option shall expire on July
30, 2006 (the "Final Exercise Date").
It is intended that the option evidenced by this Agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
This Agreement amends and restates that certain Incentive Stock Option
Agreement of July 30, 1999, which granted to Frank W. Getman Jr. an option to
purchase a total of 240,000 Shares of the Company's Common Stock at $0.0833 per
Share (the "Prior Agreement"). This Agreement supercedes the Prior Agreement in
its entirety, including and without limitation Section 2, concerning the option
vesting schedule.
2. VESTING SCHEDULE.
This option will become exercisable ("vest") in full as to (i) one-sixth
(1/6) of the shares underlying this option on January 30, 2000 and (ii) the
remaining five-sixths (5/6) of the shares underlying this option in 30 equal
monthly increments on the 30th day of each month (or 28th day for February)
beginning February 28, 2000 and ending July 30, 2002.
The right of exercise shall be cumulative so that to the extent the option
is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
(a) FORM OF EXERCISE. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this Agreement, and payment in full in the manner
provided in the Plan, including to the extent permitted by the Board in its sole
discretion, by (i) delivery of a promissory note of the
<PAGE> 2
Participant to the Company on terms determined by the Board (including whether
the Participant must pay cash in an amount equal to the par value of any Common
Stock issued) or (ii) payment of such other lawful consideration as the Board
may determine. The Participant may purchase less than the number of shares
covered hereby, provided that no partial exercise of this option may be for any
fractional share or for fewer than ten whole shares.
(b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he or she exercises this option, is, and has been at
all times since the Grant Date, an employee (or a person who accepted an offer
for employment and later became and remained an employee), officer or director
of, or consultant or advisor to, the Company or any parent or subsidiary of the
Company as defined in Section 424(e) or (f) of the Code (an "Eligible
Participant").
(c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon written notice to the Participant from
the Company describing such violation.
(d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant, by the
Participant, provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) DISCHARGE FOR CAUSE. If the Participant, prior to the Final Exercise
Date, is discharged by the Company for "cause" (as defined below), the right to
exercise this option shall terminate immediately upon the effective date of such
discharge. "Cause" shall mean willful misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company, which determination shall be conclusive. The Participant shall be
considered to have been discharged for "Cause" if the Company determines, within
30 days after the Participant's resignation, that discharge for cause was
warranted.
4. RIGHT OF FIRST REFUSAL.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or
-2-
<PAGE> 3
otherwise dispose of, by operation of law or otherwise (collectively,
"transfer") any Shares acquired upon exercise of this option, then the
Participant shall first give written notice of the proposed transfer (the
"Transfer Notice") to the Company. The Transfer Notice shall name the proposed
transferee and state the number of such Shares the Participant proposes to
transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the Company
shall have the option to purchase any or all of the Offered Shares at the price
and upon the terms set forth in the Transfer Notice. In the event the Company
elects to purchase any of the Offered Shares, it shall give written notice of
such election to the Participant within such 30-day period. Within 10 days after
his receipt of such notice, the Participant shall tender to the Company at its
principal offices the certificate or certificates representing that portion of
the Offered Shares to be purchased by the Company, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached thereto, all in a form
suitable for transfer of the Offered Shares to the Company. Promptly following
receipt of such certificate or certificates, the Company shall deliver or mail
to the Participant a check in payment of the purchase price for the Offered
Shares; PROVIDED THAT if the terms of payment set forth in the Transfer Notice
were other than cash against delivery, the Company may pay for the Offered
Shares on the same terms and conditions as were set forth in the Transfer
Notice; and PROVIDED FURTHER that any delay in making such payment shall not
invalidate the Company's exercise of its option to purchase the Offered Shares.
(c) To the extent the Company does not elect to acquire all of the Offered
Shares, the Participant may, within the 30-day period following the expiration
of the option granted to the Company under subsection (b) above, transfer to the
proposed transferee that portion of the Offered Shares not purchased by the
Company, PROVIDED THAT such transfer shall not be on terms and conditions more
favorable to the transferee than those contained in the Transfer Notice.
Notwithstanding any of the above, all Offered Shares transferred pursuant to
this Section 4 shall remain subject to the right of first refusal set forth in
this Section 4 and such transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Section 4.
(d) After the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Offered Shares or permit the Participant to exercise any of the privileges
or rights of a stockholder with respect to such Offered Shares, but shall, in so
far as permitted by law, treat the Company as the owner of such Offered Shares.
(e) The following transactions shall be exempt from the provisions of this
Section 4:
1. any transfer of Shares to or for the benefit of any spouse, child
or grandchild of the Participant, or to a trust for their benefit;
2. any transfer pursuant to an effective registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
-3-
<PAGE> 4
3. the sale of all or substantially all of the shares of capital
stock of the Company (including pursuant to a merger or consolidation);
PROVIDED, HOWEVER, that in the case of a transfer pursuant to clause (1) above,
such Shares shall remain subject to the right of first refusal set forth in this
Section 4 and such transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Section 4.
(f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
(g) The provisions of this Section 4 shall terminate upon the earlier of
the following events:
1. the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
2. the sale of all or substantially all of the capital stock, assets
or business of the Company, by merger, consolidation, sale of assets or
otherwise (other than a merger or consolidation in which all or substantially
all of the individuals and entities who were beneficial owners of the Common
Stock immediately prior to such transaction beneficially own, directly or
indirectly, more than 75% of the outstanding securities entitled to vote
generally in the election of directors of the resulting, surviving or acquiring
corporation in such transaction).
(h) The Company shall not be required (a) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Section 4, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
5. AGREEMENT IN CONNECTION WITH PUBLIC OFFERING.
The Participant agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. WITHHOLDING.
No Shares will be issued pursuant to the exercise of this option unless and
until the Participant pays to the Company, or makes provision satisfactory to
the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
-4-
<PAGE> 5
7. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. DISQUALIFYING DISPOSITION.
If the Participant disposes of Shares acquired upon exercise of this option
within two years from the Grant Date or one year after such Shares were acquired
pursuant to exercise of this option, the Participant shall notify the Company in
writing of such disposition.
9. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
HOUSTON STREET EXCHANGE, INC.
Granted: July 30, 1999
Amended and Restated: January 10, 2000 By: /s/ John Tillinghast
-------------------------
John Tillinghast, Director
Accepted and Agreed:
/s/ Frank W. Getman Jr.
- ---------------------------------------
Frank W. Getman Jr.
-5-
<PAGE> 1
Exhibit 10.26
HOUSTON STREET EXCHANGE, INC.
Amended and Restated Incentive Stock Option Agreement
GRANTED UNDER 1999 STOCK INCENTIVE PLAN
1. GRANT OF OPTION.
This Amended and Restated Incentive Stock Option Agreement (this
"Agreement") evidences the grant by Houston Street Exchange, Inc., a Delaware
corporation (the "Company"), on July 30, 1999 (the "Grant Date") to Frank W.
Getman Jr., an employee of the Company (the "Participant"), of an option to
purchase, in whole or in part, on the terms provided herein and in the Company's
1999 Stock Incentive Plan (the "Plan"), a total of 480,000 shares (the "Shares")
of common stock, $0.01 par value per share, of the Company ("Common Stock") at
$1.25 per Share. Unless earlier terminated, this option shall expire on July 30,
2006 (the "Final Exercise Date").
It is intended that the option evidenced by this Agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
This Agreement amends and restates that certain Incentive Stock Option
Agreement of July 30, 1999, which granted to Frank W. Getman Jr. an option to
purchase a total of 480,000 Shares of the Company's Common Stock at $1.25 per
Share (the "Prior Agreement"). This Agreement supercedes the Prior Agreement in
its entirety, including and without limitation Section 2, concerning the option
vesting schedule.
2. VESTING SCHEDULE.
This option will become exercisable ("vest") in full as to (i) one-sixth
(1/6) of the shares underlying this option on January 30, 2000 and (ii) the
remaining five-sixths (5/6) of the shares underlying this option in 30 equal
monthly increments on the 30th day of each month (or 28th day for February)
beginning February 28, 2000 and ending July 30, 2002.
The right of exercise shall be cumulative so that to the extent the option
is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
(a) FORM OF EXERCISE. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this Agreement, and payment in full in the manner
provided in the Plan, including to the extent permitted by the Board in its sole
discretion, by (i) delivery of a promissory note of the
<PAGE> 2
Participant to the Company on terms determined by the Board (including whether
the Participant must pay cash in an amount equal to the par value of any Common
Stock issued) or (ii) payment of such other lawful consideration as the Board
may determine. The Participant may purchase less than the number of shares
covered hereby, provided that no partial exercise of this option may be for any
fractional share or for fewer than ten whole shares.
(b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he or she exercises this option, is, and has been at
all times since the Grant Date, an employee (or a person who accepted an offer
for employment and later became and remained an employee), officer or director
of, or consultant or advisor to, the Company or any parent or subsidiary of the
Company as defined in Section 424(e) or (f) of the Code (an "Eligible
Participant").
(c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), PROVIDED THAT this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon written notice to the Participant from
the Company describing such violation.
(d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant, by the
Participant, PROVIDED THAT this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) DISCHARGE FOR CAUSE. If the Participant, prior to the Final Exercise
Date, is discharged by the Company for "cause" (as defined below), the right to
exercise this option shall terminate immediately upon the effective date of such
discharge. "Cause" shall mean willful misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company, which determination shall be conclusive. The Participant shall be
considered to have been discharged for "Cause" if the Company determines, within
30 days after the Participant's resignation, that discharge for cause was
warranted.
4. RIGHT OF FIRST REFUSAL.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or
-2-
<PAGE> 3
otherwise dispose of, by operation of law or otherwise (collectively,
"transfer") any Shares acquired upon exercise of this option, then the
Participant shall first give written notice of the proposed transfer (the
"Transfer Notice") to the Company. The Transfer Notice shall name the proposed
transferee and state the number of such Shares the Participant proposes to
transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the Company
shall have the option to purchase any or all of the Offered Shares at the price
and upon the terms set forth in the Transfer Notice. In the event the Company
elects to purchase any of the Offered Shares, it shall give written notice of
such election to the Participant within such 30-day period. Within 10 days after
his receipt of such notice, the Participant shall tender to the Company at its
principal offices the certificate or certificates representing that portion of
the Offered Shares to be purchased by the Company, duly endorsed in blank by the
Participant or with duly endorsed stock powers attached thereto, all in a form
suitable for transfer of the Offered Shares to the Company. Promptly following
receipt of such certificate or certificates, the Company shall deliver or mail
to the Participant a check in payment of the purchase price for the Offered
Shares; PROVIDED THAT if the terms of payment set forth in the Transfer Notice
were other than cash against delivery, the Company may pay for the Offered
Shares on the same terms and conditions as were set forth in the Transfer
Notice; and PROVIDED FURTHER that any delay in making such payment shall not
invalidate the Company's exercise of its option to purchase the Offered Shares.
(c) To the extent the Company does not elect to acquire all of the Offered
Shares, the Participant may, within the 30-day period following the expiration
of the option granted to the Company under subsection (b) above, transfer to the
proposed transferee that portion of the Offered Shares not purchased by the
Company, PROVIDED THAT such transfer shall not be on terms and conditions more
favorable to the transferee than those contained in the Transfer Notice.
Notwithstanding any of the above, all Offered Shares transferred pursuant to
this Section 4 shall remain subject to the right of first refusal set forth in
this Section 4 and such transferee shall, as a condition to such transfer,
deliver to the Company a written instrument confirming that such transferee
shall be bound by all of the terms and conditions of this Section 4.
(d) After the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Offered Shares or permit the Participant to exercise any of the privileges
or rights of a stockholder with respect to such Offered Shares, but shall, in so
far as permitted by law, treat the Company as the owner of such Offered Shares.
(e) The following transactions shall be exempt from the provisions of this
Section 4:
1. any transfer of Shares to or for the benefit of any spouse, child
or grandchild of the Participant, or to a trust for their benefit;
2. any transfer pursuant to an effective registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
-3-
<PAGE> 4
3. the sale of all or substantially all of the shares of capital
stock of the Company (including pursuant to a merger or consolidation);
PROVIDED, HOWEVER, that in the case of a transfer pursuant to clause (1) above,
such Shares shall remain subject to the right of first refusal set forth in this
Section 4 and such transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Section 4.
(f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.
(g) The provisions of this Section 4 shall terminate upon the earlier of
the following events:
1. the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
2. the sale of all or substantially all of the capital stock, assets
or business of the Company, by merger, consolidation, sale of assets or
otherwise (other than a merger or consolidation in which all or substantially
all of the individuals and entities who were beneficial owners of the Common
Stock immediately prior to such transaction beneficially own, directly or
indirectly, more than 75% of the outstanding securities entitled to vote
generally in the election of directors of the resulting, surviving or acquiring
corporation in such transaction).
(h) The Company shall not be required (a) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Section 4, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.
5. AGREEMENT IN CONNECTION WITH PUBLIC OFFERING.
The Participant agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. WITHHOLDING.
No Shares will be issued pursuant to the exercise of this option unless and
until the Participant pays to the Company, or makes provision satisfactory to
the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
-4-
<PAGE> 5
7. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. DISQUALIFYING DISPOSITION.
If the Participant disposes of Shares acquired upon exercise of this option
within two years from the Grant Date or one year after such Shares were acquired
pursuant to exercise of this option, the Participant shall notify the Company in
writing of such disposition.
9. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
HOUSTON STREET EXCHANGE, INC.
Granted: July 30, 1999
Amended and Restated: January 10, 2000 By: /s/ John Tillinghast
-------------------------
John Tillinghast, Director
Accepted and Agreed:
/s/ Frank W. Getman Jr.
- ---------------------------------------
Frank W. Getman Jr.
-5-
<PAGE> 1
Exhibit 10.30
HOUSTON STREET EXCHANGE, INC.
AMENDMENT NO. 1
TO
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Amendment No. 1 (this "Amendment") to that certain Series A
Convertible Preferred Stock Purchase Agreement (the "Agreement") dated as of
February 2, 2000 by and among Houston Street Exchange, Inc., a Delaware
corporation ("Houston Street"), and the Purchasers (as defined therein) is
entered into as of March 6, 2000, among Houston Street and those Purchasers
party hereto (the "Amending Purchasers"). Capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Agreement.
PRELIMINARY STATEMENT
A. Houston Street and the Purchasers entered into the Agreement as of
February 2, 2000.
B. Houston Street and the Amending Purchasers desire to amend the
Agreement to provide for the sale by Houston Street of additional shares of
Series A Preferred.
C. Section 9.10 of the Agreement provides that the Agreement may be
amended with the written consent of Houston Street and by the holders of 75% of
the shares of Common Stock issued or issuable upon conversion of the Shares.
D. The Amending Purchasers are the holders of at a least 75% of the
shares of Common Stock issued or issuable upon conversion of the Shares.
NOW THEREFORE, Houston Street and the Amending Purchasers hereby agree and
consent as follows:
1. The text appearing in Section 2(b) of the Agreement is hereby (i)
deleted in its entirety, and as of the effective date hereof, shall be of no
effect, retrospectively or prospectively, and (ii) replaced by the text set
forth below:
(b) The Company may sell, at any time prior to 90 days after the
Closing, in one or more closings (each, a "Subsequent Closing"), up to 2,080,002
additional Shares at the Purchase Price, to such purchasers (each, an
"Additional Purchaser") as may be approved by the Board of Directors of the
Company. At each Subsequent Closing, (i) the Company and each Additional
Purchaser shall execute and deliver a counterpart signature page to this
Agreement and each of the other agreements required to be executed by the
Company at or prior to the Closing pursuant to Section 5.4 (the "Ancillary
Agreements"), in each case without material modification, whereupon such
Additional Purchaser shall become a "Purchaser" hereunder
<PAGE> 2
and the Shares purchased by such Additional Purchaser shall be deemed to be
"Shares" for purposes of this Agreement and (ii) the Company shall cause EXHIBIT
A to this Agreement to be amended to reflect the purchases made by the
Additional Purchasers at each Subsequent Closing. At each Subsequent Closing,
the Company shall deliver to each Additional Purchaser a certificate for the
number of Shares being purchased at the Subsequent Closing by such Additional
Purchaser, registered in the name of such Additional Purchaser, against payment
to the Company of the Purchase Price in the manner specified above. The Company
shall deliver to each Purchaser, within three business days after any Subsequent
Closing, written notice of such Subsequent Closing (which notice shall specify
the names of each Additional Purchaser and the number of shares of Series A
Preferred issued to each).
2. A new second sentence is hereby added to the text appearing in Section
3.2 of the Agreement consisting of the text set forth below:
The authorized capital stock of the Company (immediately prior to the
first Subsequent Closing) consists of (i) 20,761,669 shares of Common Stock, of
which (A) 14,814,815 were issued and outstanding immediately before the first
Subsequent Closing and (B) 2,000,000 shares have been reserved for issuance
pursuant to the 1999 Stock Incentive Plan of the Company (of which the Company
has granted options to purchase an aggregate of 1,321,800 shares of Common
Stock) and (ii) 3,680,003 shares of Preferred Stock, $0.01 par value per share,
all of which have been designated as Series A Preferred, of which 1,600,001 were
issued and outstanding immediately before the first Subsequent Closing.
3. Except to the extent amended by this Amendment, the Agreement is, in
all respects, hereby ratified and confirmed and shall continue in full force and
effect.
4. This Amendment shall be governed by and construed in accordance with
the internal laws of the State of Delaware (without reference to the conflicts
of law provisions thereof).
5. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
-2-
<PAGE> 3
EXECUTED as of the date first written above.
HOUSTON STREET EXCHANGE, INC.
By: /s/ Frank W. Getman Jr.
-----------------------
Frank W. Getman Jr.
President and Chief Executive
Officer
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
---------------
EQUIVA TRADING COMPANY
By: /s/ Arthur Nicoletti
--------------------
Name: Arthur Nicoletti
Title: President, Equiva
Trading Company
OMEGA ADVISORS, INC.
By: /s/ Lawrence Robbins
--------------------
-3-
<PAGE> 4
EXECUTION COPY
HOUSTON STREET EXCHANGE, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
Dated as of February 2, 2000
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
1. Authorization and Sale of Shares..........................................................................1
1.1. Authorization.......................................................................................1
1.2. Sale of Shares......................................................................................1
1.3. Use of Proceeds.....................................................................................1
2. The Closing...............................................................................................2
3. Representations of the Company............................................................................2
3.1. Organization and Standing...........................................................................3
3.2. Capitalization......................................................................................3
3.3. Subsidiaries, Etc...................................................................................3
3.4. Issuance of Shares..................................................................................3
3.5. Authority...........................................................................................4
3.6. Noncontravention....................................................................................4
3.7. Governmental Consents...............................................................................4
3.8. Litigation..........................................................................................5
3.9. Financial Statements................................................................................5
3.10. Absence of Undisclosed Liabilities; No Default......................................................5
3.11. Property and Assets.................................................................................5
3.12. Taxes...............................................................................................5
3.13. Intellectual Property...............................................................................6
3.14. Insurance...........................................................................................6
3.15. Material Contracts and Obligations..................................................................7
3.16. Compliance..........................................................................................7
3.17. Absence of Changes..................................................................................7
3.18. Employees...........................................................................................7
3.19. Books and Records...................................................................................8
3.20. U.S. Real Property Holding Corporation..............................................................8
3.21. Registration Rights.................................................................................8
3.22. Investment Company Act..............................................................................8
4. Representations of the Purchasers.........................................................................8
4.1. Investment..........................................................................................8
4.2. Authority...........................................................................................8
4.3. Experience..........................................................................................8
5. Conditions to the Obligations of the Purchasers...........................................................9
5.1. Accuracy of Representations and Warranties..........................................................9
5.2. Performance.........................................................................................9
5.3. Opinion of Counsel..................................................................................9
5.4. Ancillary Agreements................................................................................9
5.5. Certificates and Documents..........................................................................9
</TABLE>
-i-
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
5.6. Compliance Certificates............................................................................10
5.7. Other Matters......................................................................................10
6. Conditions to the Obligations of the Company.............................................................10
6.1. Accuracy of Representations and Warranties.........................................................10
6.2. Ancillary Agreements...............................................................................10
6.3. Other Matters......................................................................................10
7. Affirmative Covenants of the Company.....................................................................11
7.1. Books and Records; Inspection......................................................................11
7.2. Financial Statements and Other Information.........................................................11
7.3. Material Changes and Litigation....................................................................12
7.4. Key Man Insurance..................................................................................12
7.5. Directors..........................................................................................12
7.6. Reservation of Common Stock; No Integration........................................................12
7.7. Corporate Existence; Code of Conduct...............................................................12
7.8. Taxes..............................................................................................12
7.9. Compliance with Law................................................................................13
7.10. Termination of Covenants...........................................................................13
8. Transfer of Shares.......................................................................................13
8.1. Restricted Shares..................................................................................13
8.2. Requirements for Transfer..........................................................................13
8.3. Legend.............................................................................................13
8.4. Rule 144A Information..............................................................................14
9. Miscellaneous............................................................................................14
9.1. Successors and Assigns.............................................................................14
9.2. Confidentiality....................................................................................14
9.3. Survival of Representations and Warranties.........................................................15
9.4. Brokers............................................................................................15
9.5. Severability.......................................................................................15
9.6. Specific Performance...............................................................................15
9.7. Governing Law......................................................................................15
9.8. Notices............................................................................................16
9.9. Complete Agreement.................................................................................16
9.10. Amendments and Waivers.............................................................................16
9.11. Pronouns...........................................................................................16
9.12. Counterparts; Facsimile Signatures.................................................................16
9.13. Section Headings...................................................................................17
10. Definitions..............................................................................................17
</TABLE>
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<PAGE> 7
EXHIBITS
Exhibit A - List of Purchasers
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Exceptions to Representations
Exhibit D - Employee Invention and Non-Disclosure Agreement
Exhibit E - Opinion of Hale and Dorr LLP, Counsel to the Company
Exhibit F - Stockholders' Voting Agreement
Exhibit G - Investor Rights Agreement
Exhibit H - Right of First Refusal and Co-Sale Agreement
Exhibit I - Code of Conduct
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<PAGE> 8
HOUSTON STREET EXCHANGE, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of February 2, 2000 is entered into by and among
Houston Street Exchange, Inc., a Delaware corporation (the "Company") and the
individuals and entities listed on EXHIBIT A hereto (each a "Purchaser" and
collectively the "Purchasers").
RECITALS
1. BayCorp Holdings, Ltd., a Delaware corporation ("BayCorp"), owns
10,000,000 shares of the common stock, par value $.01 per share (the "Common
Stock"), of the Company;
2. Immediately before the Closing (as defined in Section 2 below), Equiva
Trading Company, a Delaware general partnership ("Equiva"), purchased 4,814,815
shares of Common Stock (the "Equiva Common Stock Purchase") pursuant to a Common
Stock Purchase Agreement of even date herewith. Equiva is also a Purchaser under
this Agreement.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1. AUTHORIZATION. The Company has, or before the Closing will have,
duly authorized the sale and issuance, pursuant to the terms of this Agreement,
of 3,200,001 shares of its Series A Convertible Preferred Stock, $.01 par value
per share (the "Series A Preferred"), having the rights, restrictions,
privileges and preferences set forth in the Amended and Restated Certificate of
Incorporation attached hereto as EXHIBIT B (the "Certificate of Incorporation").
The Company has, or before the Closing will have, adopted and filed the
Certificate of Incorporation with the Secretary of State of the State of
Delaware.
1.2. SALE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase, the number of shares of
Series A Preferred set forth opposite such Purchaser's name on EXHIBIT A for the
purchase price of $3.75 per share (the "Purchase Price"). The shares of Series A
Preferred sold under this Agreement are referred to as the "Shares." The
Company's agreement with each of the Purchasers is a separate agreement, and the
sale of Shares to each of the Purchasers is a separate sale.
1.3. USE OF PROCEEDS. The Company will use $4,393,794 of the proceeds
from the sale of the Shares to repay to BayCorp all outstanding indebtedness for
borrowed money owed to BayCorp existing as of the Closing Date (as defined in
Section 2 below). The Company will use the balance of the net proceeds from the
sale of the Shares exceeding the amount repaid to BayCorp for (i) developing and
launching an Internet-based crude oil and refined products
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trading platform, a natural gas trading platform and the Company's SpeedWay
platform and (ii) general corporate purposes.
2. THE CLOSINGS.
(a) The closing (the "Closing") of the sale and purchase of the
Shares under this Agreement shall take place at the offices of the Company at
1100 Louisiana Street, Houston, Texas 77002 at 9 a.m. Central Time on February
2, 2000, or at such other time, date and place as are mutually agreeable to the
Company and the Purchasers. At the Closing, the Company shall deliver to each of
the Purchasers a certificate for the number of Shares being purchased at the
Closing by such Purchaser, registered in the name of such Purchaser, against
payment to the Company of the Purchase Price, by wire transfer, check or other
method of delivering immediately available funds that is acceptable to the
Company. The date of the Closing is hereinafter referred to as the "Closing
Date." If at the Closing any of the conditions specified in Section 5 shall not
have been fulfilled, each of the Purchasers shall, at his, her or its election,
be relieved of all of his, her or its obligations under this Agreement and will
thereby waive all other rights he, she or it may have by reason of such failure
or such non-fulfillment.
(b) The Company may sell, at any time prior to 90 days after the
Closing, in one or more closings (each, a "Subsequent Closing"), up to 1,600,000
additional Shares at the Purchase Price, to such purchasers (each, an
"Additional Purchaser") as may be approved by the Board of Directors of the
Company. At each Subsequent Closing, (i) the Company and each Additional
Purchaser shall execute and deliver a counterpart signature page to this
Agreement and each of the other agreements required to be executed by the
Company at or prior to the Closing pursuant to Section 5.4 (the "Ancillary
Agreements"), in each case without material modification, whereupon such
Additional Purchaser shall become a "Purchaser" hereunder and the Shares
purchased by such Additional Purchaser shall be deemed to be "Shares" for
purposes of this Agreement and (ii) the Company shall cause EXHIBIT A to this
Agreement to be amended to reflect the purchases made by the Additional
Purchasers at each Subsequent Closing. At each Subsequent Closing, the Company
shall deliver to each Additional Purchaser a certificate for the number of
Shares being purchased at the Subsequent Closing by such Additional Purchaser,
registered in the name of such Additional Purchaser, against payment to the
Company of the Purchase Price in the manner specified above. The Company shall
deliver to each Purchaser, within three business days after any Subsequent
Closing, written notice of such Subsequent Closing (which notice shall specify
the names of each Additional Purchaser and the number of shares of Series A
Preferred issued to each).
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed by the Company in
EXHIBIT C hereto, the Company hereby represents and warrants to each of the
Purchasers that the statements contained in this Section 3 are true, complete
and correct. EXHIBIT C shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Section 3, and the
disclosures in any paragraph of EXHIBIT C shall qualify (1) the corresponding
paragraph of this Section 3 and (2) other paragraphs of this Section 3 to the
extent it is clear (notwithstanding the absence of a specific cross reference)
from a reading of the disclosure that such disclosure is applicable to such
other paragraphs. The inclusion of any information in
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<PAGE> 10
EXHIBIT C shall not be deemed to be an admission or acknowledgment, in and of
itself, that such information is required by the terms of this Agreement to be
disclosed, is material to the Company, has or would have a material adverse
effect on the business, prospects, assets or condition (financial or otherwise)
of the Company (a "Company Material Adverse Effect") or is outside the ordinary
course of business.
3.1. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has full corporate power and authority to own its
properties and conduct its business as presently conducted and as currently
contemplated to be conducted in the United States and to enter into and perform
this Agreement and each of the Ancillary Agreements and to carry out the
transactions contemplated by this Agreement and the Ancillary Agreements. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in the State of New Hampshire, the State of Texas and in every other
jurisdiction in which the failure so to qualify would have a Company Material
Adverse Effect. The Company has made available to the Purchasers true and
complete copies of its Certificate of Incorporation and By-Laws, each as amended
to date and currently in effect.
3.2. CAPITALIZATION. The authorized capital stock of the Company
(immediately prior to the Closing) consists of (i) 20,015,000 shares of Common
Stock, of which (A) 10,000,000 shares were issued and outstanding immediately
before the Equiva Common Stock Purchase; (B) 14,814,815 shares were issued and
outstanding immediately before the Closing and (C) 2,000,000 shares have been
reserved for issuance pursuant to the 1999 Stock Incentive Plan of the Company
(of which the Company has granted options to purchase an aggregate of 1,321,800
shares of Common Stock) and (ii) 3,200,001 shares of Preferred Stock, $.01 par
value per share, all of which have been designated as Series A Preferred and
none of which shares are issued or outstanding. All of the issued and
outstanding shares of Common Stock (i) have been duly authorized and validly
issued and are fully paid and nonassessable and (ii) were issued in compliance
with all applicable federal and state securities laws. Immediately prior to the
Closing, BayCorp owned of record 10,000,000 shares of Common Stock and Equiva
owned of record 4,814,815 shares of Common Stock. Except as provided in this
Agreement, the Ancillary Agreements or as authorized or outstanding pursuant to
the Company's 1999 Stock Incentive Plan, (i) no subscription, warrant, option,
convertible security or other right to purchase or acquire any shares of capital
stock of the Company is authorized or outstanding and no party has any
preemptive rights, rights of first refusal or similar rights to acquire any such
shares, (ii) the Company has no obligation to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, (iii) the Company has no obligation to purchase, redeem
or otherwise acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any other distribution in respect thereof, (iv)
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company and (v) the Company has no obligation
or commitment to do any of the foregoing. The shares of Series A Preferred have
the rights, preferences and privileges set forth in the Certificate of
Incorporation, except as such rights, preferences and privileges may be limited
by law.
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<PAGE> 11
3.3. SUBSIDIARIES, ETC. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise. Except for the Ancillary Agreements or as set
forth in Section 3.3 of EXHIBIT C, there are no material written or oral
agreements between the Company, on the one hand, and BayCorp or its affiliates,
on the other hand.
3.4. ISSUANCE OF SHARES. The issuance, sale and delivery of the Shares
in accordance with this Agreement, and the issuance and delivery of the shares
of Common Stock issuable upon conversion of the Shares, have been, or will be on
or prior to the Closing, duly authorized by all necessary corporate action on
the part of the Company, and all such shares have been duly reserved for
issuance. The Shares when so issued, sold and delivered against payment therefor
in accordance with the provisions of this Agreement, and the shares of Common
Stock issuable upon conversion of the Shares, when issued upon such conversion,
will be duly and validly issued, fully paid and nonassessable and free of
Security Interests, except pursuant to the Ancillary Agreements and applicable
securities laws and not issued in violation of preemptive or other similar
rights of any third party. For purposes of this Agreement, "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law).
3.5. AUTHORITY. The execution, delivery and performance by the Company
of this Agreement and the Ancillary Agreements, and the consummation by the
Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action by the Company, including necessary
stockholder action. This Agreement has been, and the Ancillary Agreements when
executed at the Closing will be, duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable in
accordance with their respective terms, subject as to enforcement of remedies to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies.
3.6. NONCONTRAVENTION. The execution of and performance of the
transactions contemplated by this Agreement (including, without limitation, the
issuance of Common Stock upon conversion of the Series A Preferred) and the
Ancillary Agreements and compliance with their respective provisions by the
Company will not (a) conflict with or violate any provision of the Certificate
of Incorporation or By-laws of the Company, (b) require on the part of the
Company any filing with, or any permit, authorization, consent or approval of,
any court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (each of the foregoing is
hereafter referred to as a "Governmental Entity") or other third party, except
for any filing, permit, authorization, consent or approval which if not obtained
or made would not reasonably be expected to have a Company Material Adverse
Effect, (c) conflict with, result in a breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease,
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<PAGE> 12
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which the Company is a party or by which the Company is
bound or to which its assets are subject, (d) result in the imposition of any
Security Interest upon any assets of the Company or (e) conflict with or violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Company or any of its properties or assets.
3.7. GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Entity is required on the part of the Company in
connection with (i) the execution and delivery of this Agreement or the
Ancillary Agreements, (ii) the offer, issuance, sale and delivery of the Shares,
(iii) the issuance and delivery of the shares of Common Stock issuable upon
conversion of the Shares or (iv) the other transactions to be consummated at the
Closing, in each case as contemplated by this Agreement and the Ancillary
Agreements, except such filings as shall have been made prior to and shall be
effective on and as of the Closing and such filings required to be made after
the Closing under applicable federal and state securities laws, all of which
filings are specified in EXHIBIT C. Based in part on the representations made by
each of the Purchasers in Section 4 of this Agreement, no registration was
required under the Securities Act or under applicable state securities laws in
connection with the issuance and sale of (A) the outstanding shares of capital
stock of the Company and (B) the shares of Series A Preferred issued and sold
pursuant to this Agreement.
3.8. LITIGATION. There is no action, suit, proceeding, written claim
or written demand pending against the Company. There is no action, suit,
proceeding, governmental inquiry or investigation threatened against the
Company. In addition, to the Company's knowledge, there is no governmental
inquiry or investigation pending against the Company.
3.9. FINANCIAL STATEMENTS. EXHIBIT C hereto contains a complete and
correct copy of the unaudited balance sheet of the Company (the "Balance Sheet")
at November 30, 1999 (the "Balance Sheet Date") and the related statements of
operations and cash flows for the period that commenced on April 27, 1999
(formation) and ended on the Balance Sheet Date (collectively, the "Financial
Statements"). The Financial Statements are complete and correct, are in
accordance with the books and records of the Company and present fairly the
financial condition and results of operations of the Company, at the dates and
for the periods indicated, and have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, except that the
Financial Statements do not include footnotes and are subject to normal year-end
audit adjustments.
3.10. ABSENCE OF UNDISCLOSED LIABILITIES; NO DEFAULT. The Company does
not have any liability (whether known or unknown and whether absolute or
contingent), except for (a) liabilities shown on the Balance Sheet, (b)
liabilities which have arisen since the Balance Sheet Date in the ordinary
course of business and are not, in the case of any individual liability or group
of related liabilities due to a particular person or entity, in excess of
$50,000 and (c) contractual and other liabilities incurred in the ordinary
course of business which are not required by GAAP to be reflected on a balance
sheet. The Company is not in material default under any
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<PAGE> 13
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness or Security
Interest.
3.11. PROPERTY AND ASSETS. The Company has good title to, or a valid
leasehold interest in, all of its material properties and assets, including all
properties and assets reflected in the Balance Sheet, except those disposed of
since the date thereof in the ordinary course of business, and none of such
properties or assets is subject to any Security Interest.
3.12. TAXES. For the tax year ended December 31, 1999, the Company's
federal corporate income tax obligations were consolidated with BayCorp. Since
April 27, 1999 (formation) to the Closing Date, the Company has timely paid and
discharged, or (with respect to taxes, assessments or other governmental
charges, any of which are not yet due and payable) reserved for, all taxes
(including all employment and payroll taxes) and all assessments or other
governmental charges due as a result of the Company's ownership of its property
or in respect of its franchises or income.
3.13. INTELLECTUAL PROPERTY.
(a) The Company owns, free and clear of all Security Interests,
or has the valid right to use all Intellectual Property (as defined below in
this Section 3.13) used by it in its business as currently conducted. Each
employee of the Company who created any of the Company's Intellectual Property
and each independent contractor engaged by the Company who created any of the
Company's Intellectual Property has assigned to the Company all of such
employee's or contractor's right, title and interest in such Intellectual
Property. No other person or entity (other than licensors of software that is
generally commercially available, licensors of Intellectual Property under the
agreements disclosed pursuant to paragraph (c) below and non-exclusive licensees
of the Company's Intellectual Property in the ordinary course of the Company's
business) has any rights to any of the Intellectual Property owned or used by
the Company, and, to the Company's knowledge, no other person or entity is
infringing, violating or misappropriating any of the Intellectual Property that
the Company owns. For purposes of this Agreement, "Intellectual Property" means
all (i) patents and patent applications, (ii) copyrights and registrations
thereof, (iii) mask works and registrations and applications for registration
thereof, (iv) computer software, data and documentation, (v) trade secrets and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(vi) trademarks, service marks, trade names, domain names and applications and
registrations therefor and (vii) other proprietary rights relating to any of the
foregoing.
(b) None of the activities or business conducted by the Company
and none of the Intellectual Property owned or used by the Company (other than
"off-the-shelf" generally commercially available software) infringes, violates
or constitutes a misappropriation of (or in the past infringed, violated or
constituted a misappropriation of) any Intellectual
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<PAGE> 14
Property of any other person or entity. The Company has not received any written
complaint, claim or notice alleging any such infringement, violation or
misappropriation.
(c) Section 3.13 of EXHIBIT C hereto identifies each agreement
with a third party pursuant to which the Company obtains rights to Intellectual
Property material to the business of the Company (other than software that is
generally commercially available) that is owned by a party other than the
Company. Other than license fees for software that is generally commercially
available, the Company is not obligated to pay any royalties or other
compensation to any third party in respect of its ownership, use or license of
any of its Intellectual Property.
(d) The Company has taken reasonable precautions (i) to protect
its rights in its Intellectual Property and (ii) to maintain the confidentiality
of its trade secrets, know-how and other confidential Intellectual Property, and
to the Company's knowledge, there have been no acts or omissions by the
officers, directors, shareholders, employees and agents of the Company the
result of which would be to materially compromise the rights of the Company to
apply for or enforce appropriate legal protection of the Company's Intellectual
Property.
3.14. INSURANCE. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks, all of
which policies are in full force and effect.
3.15. MATERIAL CONTRACTS AND OBLIGATIONS. EXHIBIT C sets forth a true
and complete list of the following agreements, commitments and understandings,
whether written or oral, to which the Company is a party or by which it is
bound: (a) those which require future expenditures by the Company in excess of
$100,000 or which might result in payments to the Company in excess of $100,000,
(b) employment and consulting agreements, any "employee benefit plan" (as that
term is defined in the Employee Retirement Income Security Act of 1974, as
amended), bonus, pension, profit-sharing, stock option, stock purchase and
similar plans and arrangements, (c) those with any current or former
stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity, (d) those under which the Company is restricted from carrying on any
business or that otherwise materially restrict the Company in the operation of
its business anywhere in the world, (e) those relating to indebtedness for
borrowed money in excess of $100,000, (f) those for the disposition of a
material portion of the Company's assets (other than for the sale of inventory
in the ordinary course of business), (g) those for the acquisition of the
business or shares of another party and (h) those which are otherwise material
to the Company or its business. All such agreements, commitments and
understandings are in full force and effect. Neither the Company, nor, to the
Company's knowledge, any other party thereto, is in default of any of its
obligations under any such agreement, commitment or understanding.
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<PAGE> 15
3.16. COMPLIANCE. The Company has, in all material respects, complied,
and is currently in compliance in all material respects, with all laws,
regulations, ordinances and orders applicable to its present and proposed
business and has all material permits, licenses and authorizations required
thereby. There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it is bound,
or, to the best of the Company's knowledge, of any provision of any state or
federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which is reasonably likely to have a Company Material
Adverse Effect. To the Company's knowledge, no employee of the Company is in
material violation of any term of any contract or covenant (either with the
Company or with another entity) relating to employment, patents, assignment of
inventions, proprietary information disclosure, non-competition or
non-solicitation.
3.17. ABSENCE OF CHANGES. Since the Balance Sheet Date, there has been
no material adverse change in the business, prospects, financial condition or
results of operations of the Company; provided, however, that the Company has
continued to incur losses since the Balance Sheet Date as described in Section
3.17 of EXHIBIT C.
3.18. EMPLOYEES. All employees of the Company who have or may
reasonably be expected in the future to have access to confidential or
proprietary information of the Company have executed and delivered or will have
executed and delivered employee invention and nondisclosure agreements in the
form of EXHIBIT D, and all of such agreements are in full force and effect. The
Company has complied in all material respects with all applicable laws relating
to wages, hours, equal opportunity, collective bargaining, workers' compensation
insurance and the payment of social security and other taxes. None of the
employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company
(including, without limitation, any organizational drive) or, to the best of the
Company's knowledge, threatened.
3.19. BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
3.20. U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Internal Revenue Code and Section 1.897-2(b)
of the IRS Regulations.
3.21. REGISTRATION RIGHTS. Except as set forth in the Investor Rights
Agreement (as defined in Section 5.4(b) below), the Company is not under any
contractual obligation to register with the Commission any of its currently
outstanding securities or any of its securities that may hereafter be issued.
3.22. INVESTMENT COMPANY ACT. The Company is not, and after giving
effect to the offering and sale of the shares of Series A Preferred pursuant to
this Agreement will not be, an "investment company" or entity controlled by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
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<PAGE> 16
4. REPRESENTATIONS OF THE PURCHASERS. Each of the Purchasers severally
represents and warrants to the Company as follows:
4.1. INVESTMENT. Such Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for his, her or
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the disposition thereof.
Such Purchaser is an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
4.2. AUTHORITY. Such Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3. EXPERIENCE. Such Purchaser has carefully reviewed the
representations made by the Company in this Agreement and has carefully reviewed
the Confidential Private Placement Memorandum of the Company dated January 11,
2000; the officers of the Company have made available to such Purchaser any and
all written information which he, she or it has requested and have answered to
such Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in finance and business that
he, she or it is capable of evaluating the risks and merits of his, her or its
investment in the Company and such Purchaser is able financially to bear the
risks thereof.
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS. The obligation of
each of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
5.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
5.2. PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3. OPINION OF COUNSEL. Each Purchaser shall have received an opinion
from Hale and Dorr LLP, counsel for the Company, dated the Closing Date,
addressed to the Purchasers, and satisfactory in form and substance to each
Purchaser, to the effect set forth in EXHIBIT E.
5.4. ANCILLARY AGREEMENTS.
(a) STOCKHOLDERS' VOTING AGREEMENT. The Stockholders' Voting
Agreement attached hereto as EXHIBIT F (the "Stockholders' Voting Agreement")
shall have been
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<PAGE> 17
executed and delivered by BayCorp and each of the Purchasers. All such action
shall have been taken as may be necessary to elect a Board of Directors of the
Company, effective upon the Closing, in accordance with the Stockholders' Voting
Agreement.
(b) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
attached hereto as EXHIBIT G (the "Investor Rights Agreement") shall have been
executed and delivered by the Company and each of the Purchasers.
(c) CO-SALE AGREEMENT. The Right of First Refusal and Co-Sale
Agreement attached hereto as EXHIBIT H (the "Co-Sale Agreement") shall have been
executed and delivered by each of the Purchasers and the other parties named
therein.
5.5. CERTIFICATES AND DOCUMENTS. The Company shall have made available
to the Purchasers:
(a) The Certificate of Incorporation of the Company, as amended
and in effect as of the Closing Date, certified by the Secretary of State of the
State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the Secretary of State of
the State of Delaware, the Secretary of State of the State of New Hampshire and
the Secretary of State of the State of Texas;
(c) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date;
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby,
certified by the Secretary or Assistant Secretary of the Company as of the
Closing Date; and
(e) A Certificate of an officer of BayCorp certifying BayCorp's
approval of the transactions contemplated by the Agreement and the Ancillary
Agreements.
5.6. COMPLIANCE CERTIFICATES. The Company shall have delivered to the
Purchasers a certificate, executed by the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1, 5.2, 5.3, 5.4 and 5.5 of this Agreement.
5.7. OTHER MATTERS. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers, and the Purchasers shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
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<PAGE> 18
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company, with respect to each Purchaser, under Section 1.2 of this Agreement are
subject to fulfillment by that Purchaser, or the waiver by the Company, of the
following conditions on or before the Closing:
6.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of such Purchaser contained in Section 4 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
6.2. ANCILLARY AGREEMENTS.
(a) STOCKHOLDERS' VOTING AGREEMENT. The Stockholders' Voting
Agreement shall have been executed and delivered by BayCorp and such Purchaser.
All such action shall have been taken as may be necessary to elect a Board of
Directors of the Company, effective upon the Closing, in accordance with the
Stockholders' Voting Agreement.
(b) INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement
shall have been executed and delivered by the Company and such Purchaser.
(c) CO-SALE AGREEMENT. The Co-Sale Agreement shall have been
executed and delivered by such Purchaser.
6.3. OTHER MATTERS. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Company, and the Company shall have received all such
counterpart originals or certified or other copies of such documents from such
Purchaser as it may reasonably request.
7. AFFIRMATIVE COVENANTS OF THE COMPANY.
7.1. BOOKS AND RECORDS; INSPECTION. The Company shall keep, and shall
cause each of its subsidiaries (if, when and to the extent any such subsidiaries
are formed) to keep books and records reflecting all of its business affairs and
transactions in accordance with GAAP and shall permit each Purchaser that holds
at least 266,667 shares of Series A Preferred (as adjusted for stock splits,
stock dividends, recapitalizations and similar events) (each, a "Major
Purchaser"), or any authorized representative thereof, to visit and inspect the
properties of the Company and its subsidiaries (if, when and to the extent any
such subsidiaries are formed), including their respective corporate and
financial records, and to discuss their respective businesses and finances with
directors, officers and outside accountants of the Company, during normal
business hours following reasonable notice and as often as may be reasonably
requested.
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<PAGE> 19
7.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall
deliver to each Major Purchaser:
(a) within 90 days after the end of each fiscal year of the
Company, (i) an audited consolidated balance sheet of the Company and its
subsidiaries (if, when and to the extent any such subsidiaries are formed) as at
the end of such year and audited consolidated statements of income and of cash
flows of the Company and its subsidiaries (if, when and to the extent any such
subsidiaries are formed) for such year, certified by certified public
accountants of established national reputation selected by the Company, and
prepared in accordance with GAAP and (ii) an audit report on such financial
statements prepared by such accountants stating that (x) the examination by such
accountants with respect to such financial statements was made in accordance
with generally accepted auditing standards and (y) in the opinion of such
accountants, such financial statements present fairly the financial position of
the Company and subsidiaries (if, when and to the extent any such subsidiaries
are formed), the results of their operations, and the changes in their financial
position as of the dates and for the periods of time covered thereby in
conformity with GAAP;
(b) within 45 days after the end of each fiscal quarter of the
Company (other than the fourth quarter), an unaudited consolidated balance sheet
of the Company and its subsidiaries (if, when and to the extent any such
subsidiaries are formed) as at the end of such quarter, and unaudited
consolidated statements of income and of cash flows of the Company and its
subsidiaries (if, when and to the extent any such subsidiaries are formed) for
such fiscal quarter and for the current fiscal year to the end of such fiscal
quarter. Such balance sheet and income and cash flow statements shall be
certified on behalf of the Company by an appropriate officer of the Company as
complete and accurate to the best of such officer's information and belief,
subject to normal year-end adjustments;
(c) promptly upon receipt thereof, any additional written
reports, management letters or other written detailed information concerning
significant aspects of the Company's operations and financial affairs, in each
case provided to the Company in final form by its independent accountants (and
not otherwise contained in other materials provided hereunder); and
(d) as soon as practicable after a request by any Major
Purchaser, the Company shall provide such Major Purchaser, at such Major
Purchaser's expense, with such information as it may reasonably require in order
to effect timely and proper filing of any reports that such Major Purchaser is
required to submit to any governmental authority or its affiliates in connection
with the business of the Company or any subsidiary (if, when and to the extent
any such subsidiaries are formed) of the Company.
7.3. MATERIAL CHANGES AND LITIGATION. The Company shall promptly (but
in any event within five business days following the occurrence) notify each
Major Purchaser of the default by the Company or any subsidiary (if, when and to
the extent any such subsidiaries are formed) in the repayment of any
indebtedness for borrowed money or any event that has had or in the Company's
good faith judgment, is likely to have a material adverse effect on the
business,
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<PAGE> 20
prospects, assets or financial condition of the Company and of any material
litigation or material governmental proceeding or investigation brought or, to
the Company's knowledge, threatened against the Company, or against any officer,
director or key employee of the Company which, if adversely determined, would
reasonably be expected to have a Company Material Adverse Effect.
7.4. KEY MAN INSURANCE. Promptly after the Closing (but in no event
later than three months after the Closing) and for the period commencing on such
date and ending three years after the Closing Date, the Company shall use
commercially reasonable efforts to obtain and maintain, and continue to pay the
premiums on, a key man term life insurance policy from financially sound and
reputable insurers on the life of Frank W. Getman Jr. for so long as he is
employed by the Company (or by BayCorp while devoting substantial time to the
business of the Company), in the amount of $5,000,000. The Company shall not
assign, grant a Security Interest in, borrow against or pledge such policy.
7.5. DIRECTORS. The Company shall promptly reimburse in full each
director of the Company who is not an employee of the Company and who was
elected as a director solely or in part by the holders of Series A Preferred for
all of his or her reasonable out-of-pocket expenses incurred in attending each
meeting of the Board of Directors of the Company or any committee thereof.
7.6. RESERVATION OF COMMON STOCK; NO INTEGRATION. The Company shall at
all times reserve and maintain a sufficient number of shares of Common Stock for
issuance upon conversion of all of the outstanding Shares. The Company will not
offer, sell or issue any securities within six months after the date hereof that
would be integrated (within the meaning of Rule 502(a) under the Securities Act)
with the offer and sale of Series A Preferred under this Agreement in a manner
that would cause the offer or sale of Series A Preferred under this Agreement to
no longer be exempt from registration under the Securities Act.
7.7. CORPORATE EXISTENCE; CODE OF CONDUCT. The Company will maintain
its corporate existence in full force and effect. The Company will adopt and
will maintain in full force and effect a Code of Conduct substantially in the
form attached hereto as EXHIBIT I.
7.8. TAXES. The Company will, and will cause each of its subsidiaries
(if, when and to the extent such subsidiaries are formed) to, timely pay and
discharge, or cause to be timely paid and discharged, all taxes (including all
employment and payroll taxes), assessments and other governmental charges
imposed upon them or any of their properties or in respect of their franchises
or income; provided, however, that no such tax or charge need be paid if being
contested in good faith by proceedings diligently conducted and if such
reservation or other appropriate provisions, if any, as shall be required by
GAAP shall have been made therefor.
7.9. COMPLIANCE WITH LAW. The Company will, and will cause its
subsidiaries (if, when and to the extent such subsidiaries are formed) to,
comply in all material respects with all applicable laws (whether federal, state
or local and whether statutory, administrative or judicial or other) and with
every applicable lawful governmental order (whether administrative
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<PAGE> 21
or judicial) for which the failure to comply would reasonably be expected to
have a Company Material Adverse Effect.
7.10. TERMINATION OF COVENANTS. The covenants of the Company contained
in Sections 7.1 through 7.9 shall terminate, and be of no further force or
effect, upon the closing of the Company's first underwritten public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act, resulting in gross proceeds to the Company of at least
$25,000,000, at a price to the public of at least $9.50 per share (as adjusted
for stock splits, stock dividends, recapitalizations and similar events) or
which otherwise results in the conversion of all Series A Preferred to Common
Stock.
8. TRANSFER OF SHARES.
8.1. RESTRICTED SHARES. "Restricted Shares" means (i) the Shares, (ii)
the shares of Common Stock issued or issuable upon conversion of the Shares,
(iii) any shares of capital stock of the Company acquired by the Purchasers
pursuant to the Investor Rights Agreement or Co-Sale Agreement and (iv) any
other shares of capital stock of the Company issued in respect of such shares
(as a result of stock splits, stock dividends, reclassifications,
recapitalizations or similar events); PROVIDED, HOWEVER, that Restricted Shares
shall cease to be Restricted Shares (x) upon any sale pursuant to a registration
statement under the Securities Act, Section 4(1) of the Securities Act or Rule
144 under the Securities Act or (y) at such time as they become eligible for
sale under Rule 144(k) under the Securities Act.
8.2. REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act or
(ii) the Company first shall have been furnished with an opinion of legal
counsel or other written evidence reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from the registration requirements
of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Purchaser which is a
corporation to a wholly owned subsidiary of such corporation, a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, or a transfer by a Purchaser which is a
limited liability company to a member of such limited liability company or a
retired member who resigns after the date hereof or to the estate of any such
member or retired member; provided that the transferee in each case agrees in
writing to be subject to the terms of this Section 8 to the same extent as if it
were the original Purchaser hereunder or (ii) a transfer made in accordance with
Rule 144 under the Securities Act.
8.3. LEGEND. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
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<PAGE> 22
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and
until such shares are registered under such Act or an opinion of
counsel or other written evidence reasonably satisfactory to the
Company is obtained to the effect that such registration is not
required."
The Company shall cause the foregoing legend to be removed from the
certificates representing any Restricted Shares, at the request of the holder
thereof, at such time as they cease to be Restricted Shares.
8.4. RULE 144A INFORMATION. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, upon
the written request of any Purchaser, provide in writing to such Purchaser and
to any prospective transferee of any Restricted Shares of such Purchaser the
information concerning the Company described in Rule 144A(d)(4) under the
Securities Act ("Rule 144A Information"). The Company also shall, upon the
written request of any Purchaser, cooperate with and assist such Purchaser or
any member of the National Association of Securities Dealers, Inc. PORTAL system
in applying to designate and thereafter maintain the eligibility of the
Restricted Shares for trading through PORTAL. The Company's obligations under
this Section 8.4 shall at all times be contingent upon receipt from the
Purchaser of a statement that the prospective transferee of Restricted Shares
has agreed in writing to take all reasonable precautions to safeguard the Rule
144A Information from disclosure to anyone other than persons who will assist
such transferee in evaluating the purchase of any Restricted Shares.
9. MISCELLANEOUS.
9.1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement, and the rights and obligations of each
Purchaser hereunder, may be assigned by such Purchaser to any person or entity
to which Shares are transferred by such Purchaser, and such transferee shall be
deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company. The
Company may not assign its rights under this Agreement.
9.2. CONFIDENTIALITY. Each Purchaser agrees that he, she or it will
keep confidential and will not disclose, divulge or use for any purpose other
than to monitor his, her or its investment in the Company any confidential,
proprietary or secret information which such Purchaser may obtain from the
Company pursuant to financial statements, reports and other materials submitted
by the Company to such Purchaser pursuant to this Agreement, or pursuant to
visitation or inspection rights granted hereunder ("Confidential Information"),
unless such Purchaser can demonstrate that such Confidential Information was
known by that Purchaser prior
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<PAGE> 23
to disclosure by the Company to that Purchaser, or until such Confidential
Information becomes known, to the public (other than as a result of a breach of
this Section 9.2 by such Purchaser); PROVIDED, HOWEVER, that a Purchaser may
disclose Confidential Information (i) to its attorneys, accountants, consultants
and other professionals to the extent necessary to obtain their services in
connection with monitoring its investment in the Company, (ii) to any
prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 9.2 or substantially equivalent provisions, (iii) to any affiliate of
such Purchaser or to a partner, stockholder or subsidiary of such Purchaser or
their respective employees, representatives or agents, provided that any such
person or entity agrees to be bound by the provisions of this Section 9.2 or
substantially equivalent provisions, (iv) as may otherwise be required by law or
court order, (v) in any report, statement or testimony submitted to any
regulatory body having or claiming to have jurisdiction over such Purchaser or
its affiliates if and only to the extent such disclosure is required by law or
court order, (vi) in response to any summons, subpoena or other legal process or
in connection with any other judicial proceeding or inquiry, (vii) in connection
with the preservation, exercise or enforcement of any of such Purchaser's rights
or remedies under this Agreement or any other Ancillary Agreement or (viii) to
correct any materially false or materially misleading information which may
become public concerning such Purchaser's relationship to the Company or its
affiliates or the transactions contemplated by this Agreement, provided that in
all cases the Purchaser takes reasonable steps to minimize the extent of any
such required disclosure.
9.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein (except for the Company's representations and
warranties set forth in Sections 3.2, 3.5, 3.11 and 3.12 and the first sentence
of Section 3.13(a)) shall survive the execution and delivery of this Agreement
and the Closing until the third anniversary of the Closing. Any valid claim that
is properly asserted in writing prior to the third anniversary of the Closing
shall survive until such claim is finally resolved and satisfied. The Company's
representations and warranties set forth in Sections 3.2, 3.5, 3.11 and 3.12 and
the first sentence of Section 3.13(a) shall survive the execution and delivery
of this Agreement and the Closing without limitation.
9.4. BROKERS. Each party hereto (i) represents and warrants to the
other parties hereto that he, she or it has not retained a finder or broker in
connection with the transactions contemplated by this Agreement and (ii) will
indemnify and save the other parties harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders' fees or
commissions or consulting fees in connection with the transactions contemplated
by this Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
9.5. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
9.6. SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled
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<PAGE> 24
to specific performance of the agreements and obligations of the Company
hereunder and to such other injunctive or other equitable relief as may be
granted by a court of competent jurisdiction.
9.7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
9.8. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) three business days after being sent by certified mail, return
receipt requested, postage prepaid or (ii) one business day after being sent via
a reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient as set forth below:
If to the Company, at 2 International Drive, Suite 370, Portsmouth, New
Hampshire 03801, Attention: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention:
David E. Redlick, Esq.; or
If to a Purchaser, at the address set forth on EXHIBIT A for such
Purchaser, or at such other address or addresses as may have been furnished to
the Company in writing by such Purchaser.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
9.9. COMPLETE AGREEMENT. This Agreement (including its Exhibits) and
the Ancillary Agreements constitute the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
9.10. AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended or terminated and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of 75% of the shares of Common
Stock issued or issuable upon conversion of the Shares. Notwithstanding the
foregoing, this Agreement may be amended with the consent of the holders of less
than all of the shares of Common Stock issued or issuable upon conversion of the
Shares only in a manner which applies to all such holders in the same fashion.
Any amendment, termination or waiver effected in accordance with this Section
9.10 shall be binding upon each holder of any Shares (including shares of Common
Stock into which such Shares have been converted), even if they do not execute
such consent, each future holder of all such securities and the Company. No
waivers of or exceptions to any term, condition or provision of this
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<PAGE> 25
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
9.11. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
9.12. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
9.13. SECTION HEADINGS. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
10. DEFINITIONS. For purposes of this Agreement, each of the following
defined terms is defined in the Section of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
Ancillary Agreements 2(b)
Balance Sheet 3.9
Balance Sheet Date 3.9
BayCorp Recitals
Certificate of Incorporation 1.1
Closing 2
Closing Date 2
Co-Sale Agreement 5.4(c)
Common Stock Recitals
Company Introduction
Company Material Adverse Effect 3
Confidential Information 9.2
Equiva Recitals
Equiva Common Stock Purchase Recitals
Exchange Act 8.4
Financial Statements 3.9
GAAP 3.9
Governmental Entity 3.6
Intellectual Property 3.13(a)
Investor Rights Agreement 5.4(b)
Major Purchaser 7.1
Purchase Price 1.2
Purchaser Introduction
Restricted Shares 8.1
Rule 144A Information 8.4
</TABLE>
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<PAGE> 26
<TABLE>
<CAPTION>
<S> <C>
Securities Act 3.15
Security Interest 3.4
Series A Preferred 1.1
Shares 1.2
Stockholders' Voting Agreement 5.4(a)
</TABLE>
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<PAGE> 27
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
[Use common/shared signature block file]
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<PAGE> 1
Exhibit 10.31
HOUSTON STREET EXCHANGE, INC.
AMENDED AND RESTATED STOCKHOLDERS' VOTING AGREEMENT
This Amended and Restated Stockholders' Voting Agreement (this "Agreement")
dated as of March 6, 2000 is entered into by and among the persons and entities
listed on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers") and BayCorp Holdings, Ltd., a Delaware corporation ("BayCorp").
The Purchasers and BayCorp are sometimes referred to in this Agreement
individually as a "Stockholder" and collectively as the "Stockholders."
RECITALS:
A. BayCorp owns 10,000,000 shares of the Common Stock, par value $.01 per
share ("Common Stock"), of Houston Street Exchange, Inc., a Delaware corporation
(the "Company");
B. Omega Advisors, Inc., Elliott Associates, L.P. and Equiva Trading
Company (collectively, the "Original Purchasers") purchased certain shares of
Series A Convertible Preferred Stock of the Company pursuant to the Series A
Convertible Preferred Stock Purchase Agreement dated as of February 2, 2000 (the
"Series A Preferred Stock Purchase Agreement");
C. Equiva Trading Company, a Delaware general partnership ("Equiva"),
purchased 4,814,815 shares of Common Stock of the Company pursuant to the Common
Stock Purchase Agreement dated as of February 2, 2000 (the "Common Stock
Purchase Agreement"). Equiva is also a Purchaser under the Series A Preferred
Stock Purchase Agreement;
D. The Purchasers and BayCorp wish to provide for their continuing
representation on the Board of Directors of the Company (the "Board") in the
manner set forth below;
E. BayCorp and the Original Purchasers entered into that certain
Stockholders' Voting Agreement as of February 2, 2000 (the "Original
Agreement"); and
F. BayCorp and the Purchasers desire to amend and restate the Original
Agreement to provide for representation of Williams Energy Marketing & Trading
Company on the Board of Directors of the Company.
In consideration of the mutual covenants contained herein and the
consummation of the sale and purchase of shares of Series A Convertible
Preferred Stock of the Company pursuant to the Series A Preferred Stock Purchase
Agreement, and in the case of Equiva, shares of Common Stock of the Company
pursuant to the Common Stock Purchase Agreement, and for other valuable
consideration, receipt of which is hereby acknowledged, the parties hereto agree
as follows:
<PAGE> 2
1. VOTING OF SHARES.
(a) In any and all elections of the Board (whether at a meeting or by
written consent in lieu of a meeting), each Stockholder shall vote or cause to
be voted all Shares (as defined in Section 2 below) owned by him, her or it, or
over which he, she or it has voting control, and otherwise use his, her or its
respective best efforts, in order to cause:
(i) the authorized number of directors on the Board to be
established at between five and eight directors, such number as required to
implement the provisions of clauses (ii) and (iii) below;
(ii) the election to the Board of:
(A) one member designated by Omega Advisors, Inc. -
initially, this member shall be Lawrence M. Robbins;
(B) one member designated by Elliott Associates, L.P. -
initially, this member shall be Michael R. Latina;
(C) one member designated by Equiva - initially, this
member shall be Ronald Andrews;
(D) one member who serves as the Company's Chief Executive
Officer - initially, this member shall be Frank W. Getman Jr.;
(E) one member designated by Williams Energy Marketing &
Trading Company ("Williams"); and
(F) subject to clause (iii) below, up to two additional
directors nominated by a majority of the five directors identified in clauses
(A) through (E) above, such additional directors shall be unaffiliated with
Omega Advisors, Inc., Elliott Associates, L.P., Equiva, Williams, BayCorp and
the Company (except for his or her service as a director of the Company) and may
or may not have an equity interest in the Company;
(iii) the election to the Board of one additional member
designated by Equiva, provided that this clause (iii) shall apply only if, on
the record date for voting by stockholders of the Company to elect directors of
the Company:
(A) an additional director has been nominated for election
to the Board pursuant to Section 1(a)(ii)(F) above;
(B) Equiva holds 20% or more of the voting power of the
Company (giving effect to the conversion into Common Stock of all securities
convertible thereinto);
(C) Equiva has not already elected to the Board one
additional member pursuant to this Section (iii); and
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<PAGE> 3
(iv) in the event that any director designated hereunder for any
reason ceases to serve as a director of the Board during his or her term of
office, the resulting vacancy on the Board to be filled by a director designated
as provided in clause (ii) above by the person or entity entitled to designate
such director under clause (ii) above or, in the case of the additional member
designated by Equiva pursuant to clause (iii) above, by Equiva.
(b) Each Stockholder shall vote to remove from the Board (with or
without cause) any director at the written request of the person or entity
entitled to designate such director under clause (ii) above or in the case of
the additional member designated by Equiva pursuant to clause (iii) above, by
Equiva, but only upon such written request and under no other circumstances.
However, nothing contained herein shall limit the Board's ability to remove a
director for bad faith or willful misconduct.
2. SHARES. "Shares" shall mean and include any and all shares of Common
Stock and/or shares of capital stock of the Company, by whatever name called,
which carry voting rights (including voting rights which arise by reason of
default) and shall include any such shares now owned or subsequently acquired by
a Stockholder, however acquired, including without limitation stock splits and
stock dividends.
3. TERMINATION. This Agreement shall terminate in its entirety on the
earliest of (a) the tenth anniversary of the date of this Agreement, (b) the
closing of the Company's initial firm commitment underwritten public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), resulting in at least $25
million of gross proceeds to the Company at a minimum price to the public of
$9.50 per share (subject to appropriate adjustment for stock splits, stock
dividends, recapitalizations and other similar events) or (c) the sale of all or
substantially all of the assets or business of the Company, by merger, sale of
assets or otherwise.
4. NO REVOCATION. The voting agreements contained herein are coupled with
an interest and may not be revoked, except by an amendment, modification or
termination effected in accordance with Section 7(e) hereof. Nothing in this
Section 4 shall be construed as limiting the provisions of Section 3 or 7(e)
hereof.
5. RESTRICTIVE LEGEND. All certificates representing Shares owned or
hereafter acquired by the Stockholders or any transferee of the Stockholders
bound by this Agreement shall have affixed thereto a legend substantially in the
following form:
"The shares of stock represented by this certificate are subject to
certain voting agreements as set forth in a Stockholders' Voting
Agreement, as amended from time to time, by and among the registered
owner of this certificate, the Company and certain other stockholders
of the Company, a copy of which is available for inspection at the
offices of the Secretary of the Company."
The Company shall remove the foregoing legend from the certificates, at the
request of the holder thereof, upon the termination of this Agreement pursuant
to Section 3.
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6. TRANSFERS OF RIGHTS. Any transferee to whom Shares are transferred by
a Stockholder, whether voluntarily or by operation of law, shall have all rights
and obligations of the transferor under this Agreement, to the same extent as if
such transferee were a Stockholder hereunder and no Stockholder shall transfer
any Shares unless the transferee agrees in writing to be bound by this
Agreement. In the event the Shares of a Stockholder are held by more than one
transferee, the transferees' rights shall be exercised, as a group, by the
actions of the holders of a majority of the voting power of the Shares held by
those transferees.
7. GENERAL.
(a) SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Stockholder shall be entitled to specific performance of the agreements and
obligations of the Stockholders hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
(d) NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed delivered (i) three
business days after being sent by certified mail, return receipt requested,
postage prepaid or (ii) one business day after being sent via a reputable
nationwide overnight courier service guaranteeing next business day delivery, in
each case to the intended recipient at his or its address as set forth in the
Series A Preferred Stock Purchase Agreement.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) COMPLETE AGREEMENT. This Agreement, the Series A Preferred Stock
Purchase Agreement, the Common Stock Purchase Agreement (with respect to Equiva
and the Company), the Investor Rights Agreement and the Right of First Refusal
and Co-Sale Agreement, each of even date herewith, constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings relating
to such subject matter.
(f) AMENDMENTS. No amendment, modification or termination of, or
waiver under, any provision of this Agreement shall be valid unless in writing
and signed by BayCorp
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<PAGE> 5
and by Purchasers holding a majority of the voting power of the Shares then held
by all of the Purchasers (giving effect to the conversion into Common Stock of
all securities convertible thereinto), provided that this Agreement may be
amended with the consent of less than all of the Purchasers only in a manner
which affects all Purchasers in the same fashion, and any such amendment,
modification, termination or waiver shall be binding on all parties hereto;
provided that the consent of a party shall not be required for any waiver under
any provision of this Agreement if such party is not adversely affected thereby;
and provided that in addition to the foregoing requirements, no amendment,
modification or termination of, or waiver under, this Agreement shall be valid
unless in writing and signed by:
(i) Omega Advisors, Inc., if such amendment, modification,
termination or waiver amends, modifies, terminates or waives Sections 1(a)(i) or
1(a)(ii)(A) above;
(ii) Elliott Associates, L.P., if such amendment, modification,
termination or waiver amends, modifies, terminates or waives Sections 1(a)(i) or
1(a)(ii)(B) above; and
(iii) Equiva, if such amendment, modification, termination or
waiver amends, modifies, terminates or waives Sections 1(a)(i), 1(a)(ii)(C) or
1(a)(iii) above.
(g) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(h) COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) SECTION HEADINGS. The section headings are for the convenience of
the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
[The remainder of this page is intentionally blank]
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<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the day and year first above written.
[Use common/shared signature block file]
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<PAGE> 7
By its authorized signature below, Houston Street Exchange, Inc. hereby
agrees to be bound by the provisions of Section 5 of this Amended and Restated
Stockholders' Voting Agreement dated March 6, 2000.
HOUSTON STREET EXCHANGE, INC.
By: /s/ Frank W. Getman Jr.
-----------------------
Frank W. Getman Jr.
President and Chief Executive
Officer
<PAGE> 8
EXHIBIT A
PURCHASERS
1. Omega Advisors, Inc.
2. Elliott Associates, L.P.
3. Equiva Trading Company
4. Bowstreet.com, Inc.
5. Michael A. Desrochers
6. Barrett McDevitt
7. Peter L. Getman
8. Sapient Corporation
9. Williams Energy Marketing & Trading Company
10. James S. Gordon
A-1
<PAGE> 1
Exhibit 10.32
HOUSTON STREET EXCHANGE, INC.
AMENDMENT NO. 1
TO
INVESTOR RIGHTS AGREEMENT
This Amendment No. 1 (this "Amendment") to that certain Investor Rights
Agreement (the "Agreement") dated as of February 2, 2000 by and among Houston
Street Exchange, Inc., a Delaware corporation (the "Company"), BayCorp Holdings,
Ltd., a Delaware corporation ("BayCorp"), Equiva Trading Company, a Delaware
general partnership ("Equiva"), and the Purchasers (as defined therein) is
entered into as of March 6, 2000, among Houston Street, BayCorp, Equiva and
those Purchasers party hereto (the "Amending Purchasers"). Capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Agreement.
PRELIMINARY STATEMENT
A. Houston Street, BayCorp, Equiva and the Purchasers entered into the
Agreement as of February 2, 2000.
B. Houston Street, BayCorp, Equiva and the Amending Purchasers desire to
amend the Agreement to waive their respective rights of first refusal in
connection with the issuance of 266,667 shares of Common Stock by Houston
Street.
C. Section 5(f) of the Agreement provides that the Agreement may be
amended with the written consent of the holders of 75% of the voting power of
the Senior Registrable Shares then outstanding (giving effect to the conversion
into Common Stock of all securities convertible thereinto).
D. Houston Street, BayCorp, Equiva and the Amending Purchasers are the
holders of at least 75% of the voting power of the Senior Registrable Shares
outstanding (giving effect to the conversion into Common Stock of all securities
convertible thereinto).
NOW THEREFORE, Houston Street, BayCorp, Equiva and the Amending Purchasers
hereby agree and consent as follows:
1. The text appearing in Section 3.1(e) of the Agreement is hereby (i)
deleted in its entirety, and as of the effective date hereof, shall be of no
effect, retrospectively or prospectively, and (ii) replaced by the text set
forth below:
(e) The rights of a Stockholder under this Section 3 shall not apply to:
(1) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock;
<PAGE> 2
(2) the issuance of any shares of Common Stock upon conversion
of shares of convertible preferred stock;
(3) the issuance of up to 4,000,000 shares of Common Stock or
the grant of options therefor, including shares issued upon exercise of options
outstanding on the date of this Agreement to officers, directors, consultants,
advisors and employees of the Company or any subsidiary pursuant to any plan,
agreement or arrangement approved by a vote of not less than a majority of the
Board of Directors of the Company (such number of shares to be adjusted in the
event of stock splits, stock dividends, reclassifications, recapitalizations or
similar events);
(4) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity;
(5) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act;
(6) shares of the Company's capital stock sold at a "Subsequent
Closing" (as that term is defined in Section 2(b) of the Series A Preferred
Stock Purchase Agreement); or
(7) the sale by the Company of up to 266,667 shares of the
Company's Common Stock before May 31, 2000.
2. Except to the extent amended by this Amendment, the Agreement is, in
all respects, hereby ratified and confirmed and shall continue in full force and
effect.
3. This Amendment shall be governed by and construed in accordance with
the internal laws of the State of Delaware (without reference to the conflicts
of law provisions thereof).
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
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<PAGE> 3
EXECUTED as of the date first written above.
HOUSTON STREET EXCHANGE, INC.
By: /s/ Frank W. Getman Jr.
-----------------------
Frank W. Getman Jr.
President and Chief Executive
Officer
BAYCORP HOLDINGS, LTD.
By: /s/ Frank W. Getman Jr.
-----------------------
Frank W. Getman Jr.
President and Chief Executive
Officer
EQUIVA TRADING COMPANY
By: /s/ Arthur Nicoletti
--------------------
Name: Arthur Nicoletti
Title: President, Equiva Trading
Company
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Singer
---------------
OMEGA ADVISORS, INC.
By: /s/ Lawrence Robbins
--------------------
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<PAGE> 4
HOUSTON STREET EXCHANGE, INC.
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of February 2, 2000 is entered into by and among
Houston Street Exchange, Inc., a Delaware corporation (the "Company"), BayCorp
Holdings, Ltd., a Delaware corporation ("BayCorp"), Equiva Trading Company, a
Delaware general partnership ("Equiva"), and the entities listed on EXHIBIT A
attached hereto (the "Purchasers").
RECITALS
1. The Purchasers are purchasing, concurrently herewith, certain shares
of Series A Convertible Preferred Stock of the Company pursuant to the Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Series A Preferred Stock Purchase Agreement").
2. Immediately prior to the first closing under the Series A Preferred
Stock Purchase Agreement, Equiva purchased 4,814,815 shares of Common Stock of
the Company pursuant to the Common Stock Purchase Agreement of even date
herewith (the "Common Stock Purchase Agreement"). Equiva is also a Purchaser
hereunder and under the Series A Preferred Stock Purchase Agreement.
3. BayCorp owns of record 10,000,000 shares of the Common Stock of the
Company.
4. The Company and the Stockholders (as defined in Section 1 below)
desire to provide for certain arrangements with respect to (i) the registration
of shares of capital stock of the Company under the Securities Act of 1933, (ii)
rights of first refusal with respect to certain issuances of securities of the
Company and (iii) certain covenants of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, $.01 par value per share, of
the Company.
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<PAGE> 5
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"INITIATING HOLDERS" means the Stockholders initiating a request for
registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
"INITIAL PUBLIC OFFERING" means the initial underwritten public
offering of shares of Common Stock pursuant to an effective Registration
Statement.
"JUNIOR REGISTRABLE SHARES" means (i) the 10,000,000 shares of Common
Stock owned of record by BayCorp on the date hereof and (ii) the 4,814,815
shares of Common Stock owned of record by Equiva on the date hereof, in each
case such number of shares to be adjusted in the event of stock splits, stock
dividends, reclassifications, recapitalizations or similar events.
"OTHER HOLDERS" shall have the meaning set forth in Section 2.1(e).
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in Section 2.4.
"REGISTRABLE SHARES" means Senior Registrable Shares and Junior
Registrable Shares PROVIDED, HOWEVER, that shares of Common Stock which are
Registrable Shares shall cease to be Registrable Shares (i) upon any sale
pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii)
at such time they become eligible for resale pursuant to Rule 144(k) under the
Securities Act or (iii) upon any sale in any manner to a person or entity which,
by virtue of Section 4 of this Agreement, is not entitled to the rights provided
by this Agreement. Wherever reference is made in this Agreement to a request or
consent of holders of a certain percentage of Registrable Shares, the
determination of such percentage shall include shares of Common Stock issuable
upon conversion of the Shares even if such conversion has not been effected.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"SELLING STOCKHOLDER" means any Stockholder owning Registrable Shares
included in a Registration Statement.
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<PAGE> 6
"SENIOR REGISTRABLE SHARES" means (i) the shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) any shares of Common
Stock acquired or issuable upon the conversion or exercise of any other
securities acquired, by the Stockholders pursuant to Section 3 of this Agreement
and (iii) any other shares of Common Stock issued in respect of shares referred
to in the foregoing clauses (i) or (ii) (because of stock splits, stock
dividends, reclassifications, recapitalizations or similar events).
"SHARES" shall have the meaning specified in Subsection 1.2 of the
Series A Preferred Stock Purchase Agreement.
"STOCKHOLDERS" means BayCorp and the Purchasers and any persons or
entities to whom the rights granted under this Agreement are transferred by
BayCorp or any Purchasers, their successors or assigns pursuant to Section 4
hereof.
2. REGISTRATION RIGHTS.
2.1. REQUIRED REGISTRATIONS.
(a) Subject to the terms and conditions of this Agreement,
including without limitation Section 2(g), at any time after the earlier of (x)
the third anniversary date of this Agreement or (y) six months after the closing
of the Initial Public Offering, a Stockholder or Stockholders holding in the
aggregate at least 30% of the Senior Registrable Shares then outstanding may
request, in writing, that the Company effect the registration on Form S-1 or
Form S-2 (or any successor form) of Senior Registrable Shares owned by such
Stockholder or Stockholders having an aggregate value of at least $10,000,000
(based on the then current market price or fair value). Each such Stockholder's
request shall specify the number of Registrable Shares for which registration is
sought by such Stockholder.
(b) Subject to the terms and conditions of this Agreement,
including without limitation Section 2(g), at any time after the Company becomes
eligible to file a Registration Statement on Form S-3 (or any successor form
relating to secondary offerings), a Stockholder or Stockholders holding in the
aggregate at least 15% of the Senior Registrable Shares then outstanding or
holding any Junior Registrable Shares may request, in writing, that the Company
effect the registration on Form S-3 (or such successor form), of Registrable
Shares having an aggregate value of at least $5,000,000 (based on the then
current public market price).
(c) Upon receipt of any request for registration pursuant to
this Section 2, the Company shall promptly give written notice of such proposed
registration to all other Stockholders. Such Stockholders shall have the right,
by giving written notice to the Company within 20 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(e) below. Thereupon, the Company
shall, as expeditiously as possible, use commercially reasonable efforts to
effect the registration on an appropriate registration form of all Registrable
Shares which the Company has been requested to so register (provided, however,
that in the case of a registration requested under Section 2.1(b),
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<PAGE> 7
the Company will only be obligated to effect such registration on Form S-3 (or
any successor form)).
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Stockholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Stockholder's participation in such underwriting on the terms set
forth herein.
(e) If the Company desires that any officers or directors of the
Company holding securities of the Company be included in any registration for an
underwritten offering requested pursuant to Section 2.1(d) or if other holders
of securities of the Company who are entitled, by contract with the Company, to
have securities included in such a registration (the "Other Holders") request
such inclusion, the Company may include the securities of such officers,
directors and Other Holders in such registration and underwriting on the terms
set forth herein. The Company shall (together with all Stockholders, officers,
directors and Other Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form
(including, without limitation, customary indemnification and contribution
provisions on the part of the Company) with the managing underwriter; provided
that such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of Stockholders materially greater than the
obligations of the Stockholders pursuant to Section 2.5; provided further, that
the Company shall use commercially reasonable efforts to negotiate with the
underwriters so that the underwriting agreement will not require the
Stockholders to make any representation or warranty other than in connection
with information described in Section 2.7. Notwithstanding any other provision
of this Section 2.1(e), if the managing underwriter advises the Company that the
inclusion of all shares requested to be registered would adversely affect the
offering or could not reasonably be sold within the price range acceptable to
the Initiating Holders owning a majority of the securities requested to be
included by the Initiating Holders, then first the securities of the Company
held by officers or directors of the Company (other than Registrable Shares),
second the securities held by Other Holders (other than Registrable Shares) and
third Junior Registrable Shares in the case of an offering initiated by holders
of Senior Registrable Shares and Senior Registrable Shares in the case of an
offering initiated by holders of Junior Registrable Shares shall be excluded
from such registration and underwriting in that order and to the extent deemed
advisable by the managing underwriter, and if a further limitation of the number
of shares is required, the number of shares that may be included in such
registration and underwriting shall be allocated first among all holders of
Senior Registrable Shares requesting registration in proportion, as nearly as
practicable, to the respective number of Senior Registrable Shares held by them
at the time of the request for registration made by the Initiating Holders
pursuant to Section 2.1(a) or (b), as the case may be and second among all
holders of Junior Registrable Shares requesting registration in proportion, as
nearly as practicable, to the respective number of Junior Registrable Shares
held by them at the time of the request for registration made by the Initiations
Holders pursuant to Section 2.1(a) or (b), as the case may be. If any holder of
Registrable Shares, officer, director or Other Holder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
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<PAGE> 8
the Company, and the securities so withdrawn shall also be withdrawn from
registration. If the managing underwriter has not limited the number of
Registrable Shares or other securities to be underwritten, the Company may
include securities for its own account in such registration if (i) the managing
underwriter so agrees, (ii) the number of Registrable Shares and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited and (iii) the inclusion of the
Company's securities will not, in the opinion of the managing underwriters,
adversely affect the ability of the holders of Registrable Shares to be included
in the offering to sell such Registrable Shares within the price range
acceptable to the Initiating Holders holding a majority of the securities
requested to be included by the Initiating Holders.
(f) The Company shall have the right to select the managing
underwriter(s) for any underwritten offering requested pursuant to Section
2.1(a) or (b), subject to the approval of a majority of the Initiating Holders,
which approval will not be unreasonably withheld or delayed.
(g) The Company shall not be required to file or cause a
Registration Statement to be declared effective for (i) more than one
registration pursuant to Section 2.1(a) during any 12-month period, (ii) more
than two registrations pursuant to Section 2.1(a) during the term of this
Agreement, (iii) more than seven registrations pursuant to Section 2.1(b) during
the term of this Agreement, of which two may be initiated by BayCorp, one may be
initiated by Equiva as to its Junior Registrable Shares, one may be initiated by
Elliott Associates, L.P. ("Elliott"), one may be initiated by Omega Advisors,
Inc. ("Omega") and two may be initiated by holders of Senior Registrable Shares
other than Elliott and Omega. In addition, during the one year immediately
following the Initial Public Offering, the Company shall not be required to
effect any registration (other than a registration on Form S-3 or any successor
form relating to non-underwritten secondary offerings) within six months after
the effective date of any other Registration Statement of the Company. After the
first anniversary of the Initial Public Offering, the Company shall not be
required to effect any registration (other than a registration on Form S-3 or
any successor form relating to non-underwritten secondary offerings) within
three months after the effective date of any other Registration Statement of the
Company. For purposes of this Section 2.1(g), a Registration Statement shall not
be counted until such time as such Registration Statement has been declared
effective by the Commission (unless the Initiating Holders withdraw their
request for such registration (other than as a result of adverse information
concerning the business or financial condition of the Company which is made
known to the Stockholders after the date on which such registration was
requested) and elect not to pay the Registration Expenses therefor pursuant to
Section 2.4). In addition, and notwithstanding the foregoing provisions of this
Section 2.1(g), in the event that, in connection with any registration pursuant
to 2.1(a) or 2.1(b), if (x) the underwriters insist, despite commercially
reasonable efforts by the Company to the contrary, that as a condition to the
participation of Equiva in the offering Equiva make representations and
warranties other than representations and warranties in connection with
information described in Section 2.7 and (y) Equiva elects not to participate in
such registration as a result of such underwriters' action, then Equiva by
itself shall be entitled to initiate one additional registration pursuant to
Section 2.1(a) or 2.1(b), as applicable, regardless of the percentage of
outstanding shares of Senior Registrable Shares or Junior Registrable Shares
then owned at such time by Equiva or the aggregate value of the Senior
Registrable Shares or Junior Registrable Shares to be registered (by Equiva or
others), and the number of registrations
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<PAGE> 9
that the Company is required to effect pursuant to clause (ii) or (iii), as the
case may be, shall be increased by one.
(h) If at the time of any request to register Registrable Shares
by Initiating Holders pursuant to this Section 2.1, the Company is engaged or
has plans to engage in a registered public offering or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration, then the
Company may at its option direct that such request be delayed for a period not
in excess of 50 days from the date of such request. During any such delay
period, the Company shall continue to prepare a proposed Registration Statement,
but may delay filing a Registration Statement pursuant to this Section 2.1(h).
The Company's right to delay a request may not be exercised by the Company more
than twice in any 12-month period.
2.2. INCIDENTAL REGISTRATION.
(a) Whenever the Company proposes to file a Registration
Statement (other than a Registration Statement filed pursuant to Section 2.1 or
a Registration Statement covering shares to be sold solely for the account of
Other Holders) at any time and from time to time, it will, prior to such filing,
give written notice to all Stockholders of its intention to do so; PROVIDED,
that no such notice need be given if no Registrable Shares are to be included
therein as a result of a determination of the managing underwriter pursuant to
Section 2.2(b). Upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use commercially reasonable efforts to cause all Registrable Shares which
the Company has been requested by such Stockholder or Stockholders to register
to be registered under the Securities Act to the extent necessary to permit
their sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Stockholder or Stockholders;
provided that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 2.2 without obligation to any
Stockholder.
(b) If the registration for which the Company gives notice
pursuant to Section 2.2(a) is a registered public offering involving an
underwriting, the Company shall so advise the Stockholders as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of any
Stockholder to include its Registrable Shares in such registration pursuant to
Section 2.2 shall be conditioned upon (i) such Stockholder's participation in
such underwriting on the terms set forth herein and (ii) the Company's right to
first register securities under Section 2.2(a) in preference over the
Stockholders' incidental registration rights pursuant to this Section 2.2. All
Stockholders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for the underwriting by the Company;
provided that such underwriting agreement shall not provide for indemnification
or contribution obligations on the part of Stockholders materially greater than
the obligations of the Stockholders pursuant to Section 2.5; provided further,
that the Company shall use commercially reasonable efforts to negotiate with the
underwriters so that the underwriting agreement will not require the
Stockholders to make any representation or warranty other than in connection
with information described in Section 2.7. Notwithstanding any other provision
of this Section 2.2, if the managing underwriter determines that the inclusion
of all
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shares requested to be registered would adversely affect the offering, the
Company may limit the number of Registrable Shares to be included in the
registration and underwriting. The Company shall so advise all holders of
Registrable Shares requesting registration; and the number of shares that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The securities of the Company held by holders other
than Stockholders and Other Holders shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and, if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Stockholders and Other Holders requesting registration in proportion,
as nearly as practicable, to the respective number of shares of Common Stock (on
an as-converted basis) which they held at the time the Company gives the notice
specified in Section 2.2(a). If any Stockholder or Other Holder would thus be
entitled to include more securities than such holder requested to be registered,
the excess shall be allocated among other requesting Stockholders and Other
Holders pro rata in the manner described in the preceding sentence. If any
holder of Registrable Shares or any officer, director or Other Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company, and any Registrable Shares
or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration. Notwithstanding any other provision of this
Section 2.2, the Company shall not be required to exclude or reduce in amount
any shares of Common Stock proposed to be sold by the Company in order to
facilitate the registration of Registrable Shares or any other shares of Common
Stock held by Company stockholders.
2.3. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required by the provisions of
this Agreement to use all commercially reasonable efforts to effect the
registration of Registrable Securities under the Securities Act, the Company
will, as expeditiously as practicable, do the following:
(i) prepare and file with the Commission a Registration
Statement with respect to such Registrable Shares and use all commercially
reasonable efforts to cause that Registration Statement to become effective as
soon as practicable and endeavor to cause the registration statement to remain
effective until the earlier of (i) the date when all Registrable Shares covered
thereby have been sold or (ii) 90 days from the effective date of the
Registration Statement; provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall furnish
to one counsel, selected by the holders of Registrable Shares covered by the
Registration Statement as a group, a copy of all such documents proposed to be
filed;
(ii) prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act (including the anti-fraud provisions thereof) and to keep the
Registration Statement effective for 90 days from the effective date or such
lesser period until all such Registrable Shares are sold;
(iii) furnish to each Selling Stockholder such reasonable
numbers of copies of the Prospectus, including any preliminary Prospectus or
Prospectus filed
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<PAGE> 11
pursuant to Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents as such Selling
Stockholder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Shares owned by such Selling Stockholder;
(iv) use all commercially reasonable efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Stockholder; PROVIDED, HOWEVER, that the Company shall not be
required in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(v) cause all such Registrable Shares to be listed, prior
to the date of the first sale of such Registrable Shares pursuant to the
registration, on each securities exchange or automated quotation system on which
similar securities issued by the Company are then listed; and if not then so
listed, to use commercially reasonable efforts to cause all such Registrable
Securities to be listed, prior to the date of the first sale of such Registrable
Securities pursuant to the registration and to the extent the Company meets the
securities exchange or automated quotation system's listing requirements, on
such exchange or system; provided that if such listing is not commercially
practicable, then as "pink sheet" or similar securities, if commercially
practicable; provided further that if no such listing is commercially
practicable, the Company shall have no obligations under this clause (v);
(vi) promptly provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of such registration
statement;
(vii) promptly make available for inspection by each Selling
Stockholder, any managing underwriter participating in any disposition pursuant
to such Registration Statement, and any one attorney or any one accountant
retained by any such underwriter or selected by the Selling Stockholders as a
group, all financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors, employees
and independent accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection with
such Registration Statement;
(viii) notify each Selling Stockholder, promptly after it
shall receive notice thereof, of the time when such Registration Statement has
become effective or a supplement to any Prospectus forming a part of such
Registration Statement has been filed;
(ix) promptly following the effectiveness of such
Registration Statement, notify each seller of such Registrable Shares of any
request by the Commission for the amending or supplementing of such Registration
Statement or Prospectus;
(x) notify each Selling Stockholder, at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, when the
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<PAGE> 12
Company learns of the happening of any event as a result of which the Prospectus
included in such Registration Statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
materially misleading, and, at the request of any such seller, the Company will
promptly prepare (and, when completed, give notice to each Selling Stockholder)
a supplement or amendment to such Prospectus so that, as thereafter delivered to
the purchasers of the Registrable Shares, such Prospectus will not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not materially misleading; provided that upon such
notification by the Company, each Selling Stockholder will not offer or sell
such Registrable Securities until the Company has notified such seller that it
has prepared a supplement or amendment to such Prospectus and delivered copies
of such supplement or amendment to such Selling Stockholder;
(xi) enter into all such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
any Selling Stockholder or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Shares;
(xii) in the event of the issuance of any stop order
suspending the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or suspending the
qualification of any Registrable Shares included in such Registration Statement
for sale in any jurisdiction, the Company will use commercially reasonable
efforts promptly to obtain the withdrawal of such order;
(xiii) use its commercially reasonable efforts to obtain:
(A) at the time of effectiveness of each registration,
a "comfort letter" from the Company's independent certified public accountants
covering such matters of the type customarily covered by "cold comfort letters"
as the underwriters reasonably request; and
(B) at the time of any underwritten sale pursuant to a
Registration Statement, a "bring-down comfort letter," dated as of the date of
such sale, from the Company's independent certified public accountants covering
such matters of the type customarily covered by comfort letters as the
underwriters reasonably request;
(xiv) use its commercially reasonable efforts to obtain, at
the time of effectiveness of each registration described in Section 2.2 and at
the time of any sale pursuant to each registration, an opinion or opinions, from
counsel to the Company, as reasonably requested by the Selling Stockholders
regarding matters of the type customarily included in such opinions; and
(xv) make generally available to its stockholders as soon as
practicable, but not later than 45 days after the end of the 12-month period
beginning at the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (or 90 days if such 12-month
period coincides with the Company's fiscal year), an earnings statement (which
need not be audited) of the Company, covering such 12-month
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period which shall satisfy the provisions of Section 11(a) of the Securities Act
or Rule 158 under the Securities Act.
(b) If the Company has delivered a Prospectus to the Selling
Stockholders and after having done so the Prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholders and, if requested, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the Company, it is
advisable to suspend use of a Prospectus included in a Registration Statement
due to pending material developments or other events that have not yet been
publicly disclosed and as to which the Company believes public disclosure would
be detrimental to the Company, the Company shall notify all Selling Stockholders
to such effect, and, upon receipt of such notice, each such Selling Stockholder
shall immediately discontinue any sales of Registrable Shares pursuant to such
Registration Statement until such Selling Stockholder has received copies of a
supplemented or amended Prospectus or until such Selling Stockholder is advised
in writing by the Company that the then current Prospectus may be used and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. Notwithstanding anything
to the contrary herein, the Company shall not exercise its rights under this
Section 2.3(c) to suspend sales of Registrable Shares for a period in excess of
50 days more than twice in any 12-month period.
2.4. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses for all registrations under this Agreement; PROVIDED, HOWEVER, that if
a registration under Section 2.1 is withdrawn at the request of the Initiating
Holders (other than as a result of adverse information concerning the business
or financial condition of the Company which is made known to the Stockholders
after the date on which such registration was requested) and if the Initiating
Holders elect not to have such registration counted as a registration requested
under Section 2.1, the requesting Stockholders shall pay the Registration
Expenses of such registration pro rata in accordance with the number of their
Registrable Shares included in such registration. For purposes of this Section,
the term "Registration Expenses" shall mean all expenses incurred by the Company
in performing or complying with this Agreement, including, without limitation,
all registration and filing fees, exchange or quotation listing fees, printing
expenses, messenger and delivery fees, fees and expenses of counsel for the
Company, state Blue Sky fees and expenses and the fees and expenses of any
certified public accountants of the Company and other third parties specifically
retained by the Company, but excluding underwriting discounts, selling
commissions and the fees and expenses of Selling Stockholders' own counsel.
2.5. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless each Selling Stockholder, its directors, officers
and shareholders, each underwriter of
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<PAGE> 14
such Registrable Shares and each other person, if any, who controls such Selling
Stockholder or underwriter within the meaning of the Securities Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such Selling Stockholder, underwriter or controlling person
may become subject under the Securities Act, the Exchange Act, state securities
or Blue Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse such Selling Stockholder, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such Selling
Stockholder, underwriter or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such Selling Stockholder, underwriter or controlling person
specifically for use in the preparation thereof; FURTHER PROVIDED, HOWEVER, that
the Company shall be liable and shall provide indemnification under this Section
2.5(a) to the extent that (after such Selling Stockholder, underwriter or
controlling person furnishes to the Company, in writing, information that
corrects any previous untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to such Registration Statement, or arise out of or are
based upon the previous omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading) the Company fails to prepare and deliver to purchasers of the
Company's securities pursuant to such registration a final prospectus that
corrects such previous untrue statement or alleged untrue statement of material
fact or such previous omission or alleged omission to state a material fact and
such correction is in conformity with information furnished to the Company, in
writing, by or on behalf of such Selling Stockholder, underwriter or controlling
person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each Selling
Stockholder, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary
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<PAGE> 15
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only if and to the extent the statement or omission was made in reliance
upon and in conformity with information relating to such Selling Stockholder
furnished in writing to the Company by or on behalf of such Selling Stockholder
indicating that it was provided specifically for use in such Registration
Statement, prospectus, amendment or supplement; PROVIDED, HOWEVER, that the
obligations of a Selling Stockholder hereunder shall be limited to an amount
equal to the net proceeds to such Selling Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Section
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section except to the extent that the Indemnifying Party
is adversely affected by such failure. The Indemnified Party may participate in
such defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding; PROVIDED FURTHER that in
no event shall the Indemnifying Party be required to pay the expenses of more
than one law firm per jurisdiction as counsel for the Indemnified Party. The
Indemnifying Party also shall be responsible for the expenses of such defense if
the Indemnifying Party does not elect to assume such defense. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 2.5 is
due in accordance with its terms but for any reason is held to be unavailable to
an Indemnified Party in respect to any losses, claims, damages and liabilities
referred to herein, then the Indemnifying Party shall, in lieu of indemnifying
such Indemnified Party, contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities to
which such party may be subject in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the Selling Stockholders
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Selling
Stockholders shall be determined by reference to, among other things, whether
the untrue or
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<PAGE> 16
alleged untrue statement of material fact related to information supplied by the
Company or the Selling Stockholders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 2.5 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph of Section 2.5, (a) in no case shall any one
Selling Stockholder be liable or responsible for any amount in excess of the net
proceeds received by such Selling Stockholder from the offering of Registrable
Shares and (b) the Company shall be liable and responsible for any amount in
excess of such proceeds; PROVIDED, HOWEVER, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not relieve such
party from any other obligation it or they may have thereunder or otherwise
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its prior written consent,
which consent shall not be unreasonably withheld.
2.6. OTHER MATTERS WITH RESPECT TO UNDERWRITTEN OFFERINGS. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2.1, the Company agrees to (a)
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering; (b) cause its legal counsel to
render customary opinions to the underwriters with respect to the Registration
Statement; and (c) cause its independent public accounting firm to issue
customary "cold comfort letters" to the underwriters with respect to the
Registration Statement.
2.7. INFORMATION BY HOLDER. Each holder of Registrable Shares included
in any registration shall furnish to the Company such information regarding such
holder and the distribution proposed by such holder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
2.8. "STAND-OFF" AGREEMENT; CONFIDENTIALITY OF NOTICES. Each
Stockholder, if requested by the Company or the managing underwriter of an
underwritten public offering by the Company of Common Stock, shall not sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by such Stockholder for a period of 180 days following the
effective date of a Registration Statement; provided that such 180 day period
shall be reduced to 120 days for underwritten public offerings other than the
Company's Initial Public Offering and shall apply only if all of the Company's
directors and executive officers are subject to substantially equivalent
restrictions on sales, transfers and other dispositions of securities of the
Company held by such person or entity; further provided that in all cases, the
Company shall
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<PAGE> 17
also be subject to substantially equivalent restrictions on sales, transfers and
other dispositions of securities of the Company for such 180-day or 120-day
periods, as the case may be.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such 180-day or 120-day periods, as the case may be.
Any Stockholder receiving any written notice from the Company regarding the
Company's plans to file a Registration Statement shall treat such notice
confidentially and shall not disclose such information to any person other than
as necessary to exercise its rights under this Agreement.
2.9. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company shall
not, without the prior written consent of Stockholders holding at least 50% of
the Registrable Shares then held by all Stockholders, enter into any agreement
(other than this Agreement) with any holder or prospective holder of any
securities of the Company which grants such holder or prospective holder rights
to demand a registration of securities of the Company or include securities of
the Company in any Registration Statement, unless such rights are not more
favorable than the rights granted to the Stockholders under this Agreement.
2.10. RULE 144 REQUIREMENTS. After the earliest of (i) the closing of
the sale of securities of the Company pursuant to a Registration Statement, (ii)
the registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) use all commercially reasonable efforts to make and keep
current public information about the Company available, as those terms are
understood and defined in Rule 144;
(b) use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request (i)
a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and (iii) such other
reports and documents of the Company as such holder may reasonably request to
avail itself of any similar rule or regulation of the Commission allowing it to
sell any such securities without registration.
2.11. TERMINATION. All of the Company's obligations to register
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
ten years after the closing of the Initial Public Offering.
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<PAGE> 18
3. RIGHT OF FIRST REFUSAL.
3.1. RIGHTS OF STOCKHOLDERS.
(a) The Company shall not issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance, sale or exchange,
(i) any shares of its Common Stock, (ii) any other equity securities of the
Company, including, without limitation, shares of preferred stock, (iii) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any equity securities of the Company or any securities exercisable for or
convertible into any such securities or (iv) any debt securities convertible
into capital stock of the Company (collectively, the "Offered Securities"),
unless in each such case the Company shall have first complied with this Section
3.1. The Company shall deliver to each Stockholder a written notice of any
proposed or intended issuance, sale or exchange of Offered Securities (the
"Offer"), which Offer shall (i) identify and describe the Offered Securities,
(ii) describe the price and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities to be issued,
sold or exchanged, (iii) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged
and (iv) offer to issue and sell to or exchange with such Stockholder (A) a pro
rata portion of the Offered Securities determined by dividing the aggregate
number of shares of Common Stock then held by such Stockholder (giving effect to
the full conversion or exercise of all shares of convertible preferred
securities then held) by the total number of shares of Common Stock then
outstanding (giving effect to the full conversion or exercise of all outstanding
shares of convertible preferred securities held by all Stockholders (the "Basic
Amount"), and (B) any additional portion of the Offered Securities attributable
to the Basic Amounts of other Stockholder as such Stockholder shall indicate it
will purchase or acquire should the other Stockholder subscribe for less than
their Basic Amounts (the "Undersubscription Amount").
(b) To accept an Offer, in whole or in part, a Stockholder must
deliver a written notice to the Company prior to 20 days after the date of
delivery of the Offer, setting forth the portion of the Stockholder's Basic
Amount that such Purchaser elects to purchase and, if such Stockholder shall
elect to purchase all of its Basic Amount, the Undersubscription Amount (if any)
that such Stockholder elects to purchase (the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all Stockholders are less than the total of all
of the Basic Amounts available for purchase, then each Stockholder who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; PROVIDED, HOWEVER, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all of the Basic Amounts available for purchase and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Stockholder who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Stockholder bears to the total
Undersubscription Amounts subscribed for by all Stockholders, subject to
rounding by the Board of Directors to the extent it deems reasonably necessary.
(c) The Company shall have 90 days from the expiration of the
period set forth in Section 3.1(b) above to issue, sell or exchange all or any
part of such Offered Securities as to which a Notice of Acceptance has not been
given by the Stockholders (the
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"Refused Securities"), but only to the offerees or purchasers described in the
Offer (if so described therein) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) which are not more
favorable, to the acquiring person or persons or less favorable to the Company
than those set forth in the Offer.
(d) Any Offered Securities not acquired by the Stockholders or
other persons in accordance with Section 3.1(c) above may not be issued, sold or
exchanged until they are again offered to the Stockholders under the procedures
specified in this Agreement.
(e) The rights of a Stockholder under this Section 3 shall not
apply to:
(1) Common Stock issued as a stock dividend to holders of
Common Stock or upon any subdivision or combination of shares of Common Stock;
(2) the issuance of any shares of Common Stock upon
conversion of shares of convertible preferred stock;
(3) the issuance of up to 4,000,000 shares of Common Stock
or the grant of options therefor, including shares issued upon exercise of
options outstanding on the date of this Agreement to officers, directors,
consultants, advisors and employees of the Company or any subsidiary pursuant to
any plan, agreement or arrangement approved by a vote of not less than a
majority of the Board of Directors of the Company (such number of shares to be
adjusted in the event of stock splits, stock dividends, reclassifications,
recapitalizations or similar events);
(4) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity;
(5) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act; or
(6) shares of the Company's capital stock sold at a
"Subsequent Closing" (as that term is defined in Section 2(b) of the Series A
Preferred Stock Purchase Agreement).
3.2. TERMINATION. This Section 3 shall terminate upon the earliest of
the following events:
(a) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise;
(b) The closing of the Initial Public Offering; or
(c) such time as less than 25% of the aggregate of all
originally issued shares of Series A Preferred Stock are outstanding (such
number to be proportionately adjusted
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in the event of any stock splits, stock dividends, recapitalizations or similar
events occurring on or after February 1, 2000).
4. TRANSFERS OF RIGHTS. This Agreement, and the rights and obligations of
each Stockholder hereunder, may be assigned by such Stockholder to (i) any
person or entity to which at least 50,000 Registrable Shares are transferred by
such Stockholder or (ii) to any partner, stockholder or Affiliate (as defined
below) of such Stockholder, and such transferee shall be deemed a "Stockholder"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company and agrees in writing to be bound
hereby. For purposes of the preceding sentence, an "Affiliate" of a Stockholder
is a person controlled by, controlling or under common control of such
Stockholder.
5. GENERAL.
(a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) SPECIFIC PERFORMANCE. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, each Purchaser shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
(d) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) three business days after being sent by certified mail, return
receipt requested, postage prepaid or (ii) one business day after being sent via
a reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient at his, hers or its address as
set forth in the Series A Preferred Stock Purchase Agreement.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
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(f) AMENDMENTS AND WAIVERS. No amendment, modification or
termination of, or waiver (other than a waiver as to only the rights of the
particular party granting the waiver) under, any provision of this Agreement
shall be valid unless in writing and signed by the holders of 75% of the voting
power of the Senior Registrable Shares then outstanding (assuming the conversion
into Common Stock of all securities convertible thereinto); provided that:
(i) the consent of the Company shall be required to effect
any amendment, modification or termination of, or waiver under, any provision of
this Agreement that adversely affects the Company's rights or obligations set
forth in this Agreement (it being agreed that adding Purchasers pursuant to
Section 5.f(ii) does not adversely affect the Company's rights or obligations
set forth in this Agreement);
(ii) any amendment, modification or termination, or waiver
under, this Agreement that grants to subsequent purchasers of the Company's
capital stock, or options to purchase such capital stock or securities
convertible into such capital stock, rights under this Agreement (subject to
obligations that are substantially equivalent to those of the Purchasers under
this Agreement) on a pro rata basis with the Purchasers only shall require the
written consent of Purchasers holding a majority of the voting power of the
Senior Registrable Shares then outstanding (assuming the conversion into Common
Stock of all securities convertible thereinto);
(iii) any amendment, modification or waiver (other than a
waiver as to only the rights of the particular party granting the waiver) under
this Agreement that is not executed by all Purchasers shall affect all
Purchasers in the same fashion;
(iv) subsequent purchasers of the Company's capital stock,
or options to purchase such capital stock or securities convertible into such
capital stock, specified in Section 5.f(ii) shall constitute "Purchasers" for
purposes of this Agreement and the securities of the Company owned by such
purchasers shall constitute "Senior Registrable Shares" for purposes of this
Agreement;
(v) to the extent a provision of Section 2 of this
Agreement relates to Junior Registrable Shares, any amendment, modification or
waiver (other than a waiver as to only the rights of the particular party
granting the waiver) of such provision shall require the written consent of
holders of at least 75% of the then-outstanding Junior Registrable Shares;
(vi) any amendment, modification or termination, or waiver
under, Section 3.1(e)(3) of this Agreement shall require the written consent of
Purchasers holding a majority of the voting power of the Senior Registrable
Shares then outstanding (assuming the conversion into Common Stock of all
securities convertible thereinto); and
(vii) any amendment, modification or termination effected in
accordance with this Section 5(f) shall be binding upon all parties hereto.
(g) PRONOUNS. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
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(h) COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
[Use Common/Shared Signature Block File]
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Exhibit 10.33
EXECUTION COPY
HOUSTON STREET EXCHANGE, INC.
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
This Agreement dated as of February 2, 2000 is entered into by and among
Houston Street Exchange, Inc., a Delaware corporation (the "Company"), BayCorp
Holdings, Ltd., a Delaware corporation ("BayCorp"), Equiva Trading Company, a
Delaware general partnership ("Equiva"), and the persons and entities listed on
EXHIBIT A hereto (each person or entity listed on EXHIBIT A, a "Purchaser" and
all such persons and entities listed on EXHIBIT A, the "Purchasers").
RECITALS
1. The Purchasers are purchasing, concurrently herewith, certain shares
of Series A Convertible Preferred Stock of the Company pursuant to the Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Series A Preferred Stock Purchase Agreement").
2. Immediately prior to the first closing under the Series A Preferred
Stock Purchase Agreement, Equiva purchased 4,814,815 shares of Common Stock of
the Company ("Common Stock") pursuant to the Common Stock Purchase Agreement of
even date herewith (the "Common Stock Purchase Agreement"). Equiva is also a
Purchaser hereunder and under the Series A Preferred Stock Purchase Agreement.
3. BayCorp owns of record 10,000,000 shares of Common Stock.
4. Collectively, the Purchasers, Equiva (which is also a Purchaser) and
BayCorp are referred to herein as the "Stockholders."
5. The Company and the Stockholders desire to protect the management and
control of the Company from influence by any person not acceptable to the
Stockholders and to assist the Purchasers in selling their Co-Sale Shares (as
defined below) if they so desire.
As used in this Agreement, the term "Shares" shall include all shares of
capital stock of the Company held by the Stockholders, whether now owned or
hereafter acquired. For purposes of calculating any Stockholder's "pro rata"
ownership of Shares, (i) all shares of Preferred Stock of the Company shall be
deemed to have been converted into Common Stock and (ii) a Stockholder's "pro
rata ownership interest" shall equal a fraction, (A) the numerator of which
equals the number of Shares then owned by that Stockholder and (B) the
denominator of which equals the aggregate number of Shares then owned by all
Stockholders.
<PAGE> 2
As used in this Agreement, the term "Co-Sale Shares" means shares of the
Preferred Stock of the Company and shares of the Common Stock issued or issuable
upon conversion of the Preferred Stock of the Company. Without limiting the
preceding sentence, neither the shares of the Common Stock owned by Equiva
identified in Recital 2 above nor the shares of Common Stock owned by BayCorp
identified in Recital 3 above are Co-Sale Shares.
NOW, THEREFORE, for valuable consideration, it is agreed as follows.
1. RESTRICTIONS ON TRANSFER.
1.1. Any sale, transfer or other disposition, including without
limitation, any pledge or hypothecation, whether voluntarily or by operation of
law ("Transfer") of any of the Shares by any of the Stockholders, other than
according to the terms of this Agreement, shall be void and transfer no right,
title, or interest in or to any of such Shares to the purported transferee.
1.2. An original copy of this Agreement, duly executed by each of the
parties hereto, shall be delivered to the Secretary of the Company and
maintained at the principal executive office of the Company and made available
for inspection by any person requesting it.
1.3. Each of the Stockholders agrees to present the certificates
representing the Shares presently owned or hereafter acquired by it to the
Secretary of the Company and cause the Secretary to stamp on the certificate in
a prominent manner the following legend:
"The sale or other disposition of any of the shares represented
by this certificate is restricted by a Right of First Refusal and
Co-Sale Agreement, dated as of February 2, 2000, as amended from
time to time, among certain of the stockholders of this Company
and this Company (the "Agreement"). A copy of the Agreement is
available for inspection during normal business hours at the
principal executive office of this Company."
2. TRANSFERS NOT SUBJECT TO RESTRICTIONS.
2.1. The rights of the Company and the Stockholders under Sections 4
and 5 hereof shall not apply to any bona fide pledge of Shares by a Stockholder
that creates a mere security interest, provided the pledgee provides the Company
with a written agreement to be bound hereby to the same extent as the
Stockholders.
2.2. The rights of the Company and the Stockholders under Sections 4
and 5 hereof shall not apply to any Transfer of Shares by a Stockholder to any
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, that Stockholder
(the "Affiliate"), provided the Affiliate
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<PAGE> 3
provides the Company and the Stockholders with a written agreement to be bound
hereby to the same extent as the Stockholders.
2.3. The rights of the Company and the Stockholders under Section 4
and 5 hereof shall not apply to any Transfer of Shares by BayCorp that involves
the spinoff of Shares offered to substantially all stockholders of BayCorp or
any similar transaction that results in stockholders of BayCorp acquiring Shares
or the right to acquire Shares from BayCorp, such Shares or right to acquire
Shares in an amount that is pro rata to each such stockholder's holdings of
BayCorp capital stock.
2.4. The rights of the Company and the Stockholders under Section 4
and 5 hereof shall not apply to (a) the first 1,000,000 shares of Common Stock
that BayCorp Transfers (in addition to any exempted Transfers pursuant to
Section 2.3) and (b) the first 481,500 shares of Common Stock that Equiva
Transfers, in each case such number of shares to be adjusted for stock splits,
stock dividends, recapitalizations and other similar events.
3. OFFER OF SALE; NOTICE OF PROPOSED SALE.
3.1. If a Stockholder desires to Transfer any of its Shares, or any
interest in such Shares, in any transaction other than a Transfer specified in
Section 2 of this Agreement, that Stockholder (the "Initial Selling
Stockholder") shall first deliver written notice of its desire to do so (the
"Notice") to the Company and each of the Stockholders, in the manner prescribed
in Section 10.4 of this Agreement.
3.2. The Notice must specify: (i) the name and address of the party to
which the Initial Selling Stockholder proposes to Transfer the Shares or an
interest in the Shares (the "Offeror"), (ii) the number of Shares the Initial
Selling Stockholder proposes to Transfer (the "Offered Shares"), (iii) the
consideration per Share to be delivered to the Initial Selling Stockholder for
the proposed Transfer, (iv) all other material terms and conditions of the
proposed transaction and (v) that the Offeror has agreed to purchase all of the
Offered Shares on the terms and conditions set forth in the Notice. The giving
of the Notice shall constitute an irrevocable offer by the Initial Selling
Stockholder to sell the Offered Shares to the Company and the Stockholders on
the terms and conditions contained in the Offer.
3.3. If a majority of the members of the Company's Board of Directors
(excluding members employed by the Initial Selling Stockholder) determine that
the proposed transferee is a competitor of the Company, then (i) the Company
shall so inform the Initial Selling Stockholder within 10 days after the Notice
is deemed to have been delivered to the Company and (ii) the Initial Selling
Stockholder shall not Transfer any of its Shares to the proposed transferee.
4. COMPANY'S OPTION TO PURCHASE.
4.1. Subject to Sections 4.5 and 6.1, the Company shall have the first
option to purchase all or any part of the Offered Shares for the consideration
per share and on the same terms and conditions specified in the Notice. The
Company may only
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<PAGE> 4
exercise such option, if at all, by written notice to the Stockholders no later
than 15 days after the Notice is deemed to have been delivered to the Company.
4.2. In the event the Company does not exercise its option within such
15-day period with respect to all of the Offered Shares, the Company shall, by
the last day of such period, give written notice of that fact to the
Stockholders (the "Stockholder Notice"). The Stockholder Notice shall specify
the number of Offered Shares not purchased by the Company (the "Remaining
Shares").
4.3. In the event the Company duly exercises its option to purchase
all or part of the Offered Shares, the closing of such purchase shall take place
at the offices of the Company on the later of (i) the date five days after the
expiration of such 15-day period or (ii) the date that the Stockholders
consummate their purchase of Remaining Shares under Section 5.3 hereof.
4.4. To the extent that the consideration proposed to be paid by the
Offeror for the Offered Shares consists of property other than cash or a
promissory note, the consideration required to be paid by the Company and/or the
Stockholders exercising their options under Sections 4 and 5 hereof may consist
of cash equal to the value of such property, as determined in good faith by
agreement of the Initial Selling Stockholder and the Company and/or the
Stockholders acquiring such Offered Shares.
4.5. Notwithstanding anything to the contrary herein, neither the
Company nor any of the Stockholders shall have any right to purchase any of the
Offered Shares hereunder unless the Company and/or the Stockholders exercise
their option or options to purchase all of the Offered Shares.
5. STOCKHOLDERS' OPTION TO PURCHASE.
5.1. Subject to Sections 4.5 and 6.1, each Stockholder shall have an
option, exercisable for a period of 15 days from the date of delivery of the
Stockholder Notice, to purchase, on a pro rata basis according to the number of
Shares owned by such Stockholder, the Remaining Shares for the consideration per
share and on the same terms and conditions set forth in the Notice. Such options
shall be exercised, if at all, by delivery by such Stockholder of written notice
to the Secretary of the Company. Alternatively, each Stockholder that is a
Purchaser shall have the option, within the same 15-day period, to notify the
Secretary of the Company of its desire to participate in the sale of the Offered
Shares on the same terms set forth in the Notice, and the number of Shares it
wishes to sell; provided however, that no Stockholder may exercise both of the
foregoing options.
5.2. In the event options to purchase have been exercised by the
Stockholders with respect to some but not all of the Remaining Shares, those
Stockholders who have exercised their options within the 15-day period specified
in Section 5.1 shall have an additional option, for a period of five days next
succeeding the expiration of such 15-day period, to purchase all or any part of
the balance of such Remaining Shares on the same terms and conditions set forth
in the Notice, which option
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<PAGE> 5
shall be exercised by the delivery of written notice to the Secretary of the
Company. In the event there are two or more such Stockholders that choose to
exercise the last-mentioned option for a total number of Remaining Shares in
excess of the number available, the Remaining Shares available for each such
Stockholder's option shall be allocated to such Stockholder pro rata based on
the number of Shares owned by the Stockholders so electing.
5.3. If the options to purchase the Remaining Shares are exercised in
full by the Stockholders, the Company shall immediately notify all of the
exercising Stockholders of that fact. The closing of the purchase of the
Remaining Shares shall take place at the offices of the Company no later than
seven days after the date of such notice to the Stockholders.
6. FAILURE TO FULLY EXERCISE OPTIONS; CO-SALE.
6.1. If the Company and the Stockholders do not exercise their options
to purchase all of the Offered Shares within the periods described in this
Agreement (the "Option Period"), then all options of the Company and the
Stockholders to purchase the Offered Shares, whether exercised or not, shall
terminate, but each Purchaser which has, pursuant to Section 5, expressed a
desire to sell Co-Sale Shares in the transaction (a "Participating Purchaser"),
shall be entitled to do so pursuant to this Section. The Company shall promptly,
on expiration of the Option Period, notify the Purchasers of the aggregate
number of Co-Sale Shares the Participating Purchasers wish to sell. The Initial
Selling Stockholder shall use its best efforts to interest the Offeror in
purchasing, in addition to the Offered Shares, the Co-Sale Shares the
Participating Purchasers wish to sell. If the Offeror does not wish to purchase
all of the Co-Sale Shares made available by the Initial Selling Stockholder and
the Participating Purchasers, then each Participating Purchaser and the Initial
Selling Stockholder shall be entitled to sell, at the same price and on the same
terms and conditions set forth in the Notice (or in the case of a Purchaser
offering Co-Sale Shares that are shares of Preferred Stock of the Company when
the Initiating Selling Stockholder offers shares of Common Stock, then such
terms and conditions as would result if such offered Co-Sale Shares were deemed
to have been converted into Common Stock), a portion of the Shares being sold to
the Offeror, in the same proportion as the Initial Selling Stockholder's or
Participating Purchaser's ownership of Co-Sale Shares (or if either BayCorp or
Equiva is the Initiating Selling Stockholder, ownership of Shares owned by such
party and Co-Sale Shares owned by Participating Purchasers) bears to the
aggregate number of Co-Sale Shares owned by the Initial Selling Stockholder and
the Participating Purchasers (or if either BayCorp or Equiva is the Initiating
Selling Stockholder, the aggregate number of Shares owned by such party and
Co-Sale Shares owned by the Participating Purchasers). The transaction
contemplated by the Notice shall be consummated not later than 60 days after the
expiration of the Option Period.
6.2. If the Participating Purchasers do not elect to sell the full
number of Co-Sale Shares which they are entitled to sell pursuant to Section
6.1, the Initial Selling Stockholder shall be entitled to sell to the Offeror,
according to the terms set forth in the Notice, that number of its own Co-Sale
Shares (or Shares, if the Initiating Selling
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<PAGE> 6
Stockholder is BayCorp or Equiva) which equals the difference between the number
of Shares desired to be purchased by the Offeror and the number of Co-Sale
Shares the Participating Purchasers are entitled to sell pursuant to Section
6.1. If the Initial Selling Stockholder wishes to Transfer any such Shares at a
price per share which differs from that set forth in the Notice, upon terms
different from those previously offered to the Company and the Stockholders, to
a transferee other than the Offeror, or more than 60 days after the expiration
of the Option Period, then, as a condition precedent to such transaction, such
Shares shall again be subject to the restrictions set forth in this Agreement.
6.3. Without implying that unauthorized Transfers are permissible
hereunder, the proceeds of any Transfers made by the Initial Selling Stockholder
without compliance with the provisions of this Section 6 shall be deemed to be
held in constructive trust in such amount as would have been due the
Participating Purchasers if the Initial Selling Stockholder had complied with
this Agreement.
7. ADDITIONAL TRANSFER RESTRICTIONS.
7.1. Notwithstanding any provision in this Agreement to the contrary,
no Transfer of any Shares other than pursuant to Section 2.3 may be made (i)
unless the transferor provides, if required by the Company, evidence and
assurances satisfactory to the Company in its reasonable discretion (which may
include an opinion of counsel and/or appropriate representations and warranties
from the transferor and transferee), that such Transfer is made in compliance
with all applicable securities laws and regulations promulgated thereunder and
(ii) unless the transferee executes and delivers a written instrument
acknowledging the receipt of a copy of the provisions and restrictions contained
in this Agreement agreeing to comply herewith and be bound hereby.
7.2. Any transferee of Shares, by reason of such transfer, shall
become a party to and be bound by this Agreement, as the same may be amended
form time to time, and if and when a transferee becomes the owner of any Shares,
this Agreement shall be amended by the Stockholders in any reasonable manner
required to continue to provide the rights and protections contemplated herein
in substantially the same manner in which such rights and protections were
provided prior to such transferee becoming an owner of Shares. Any transferee of
Shares shall have all of the rights and obligations under this Agreement of the
Stockholder that transferred Shares to that transferee.
8. TERMINATION OF AGREEMENT.
8.1. This Agreement shall terminate upon the earliest of the following
events:
(a) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise (except a merger
or consolidation in which the holders of capital stock of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least a majority of the voting power
of the capital stock of the surviving corporation);
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(b) The closing of the Company's initial firm commitment
underwritten public offering of shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $25,000,000 of gross proceeds to the Company at a price to the
public of at least $9.50 per share (subject to appropriate adjustment for stock
splits, stock dividends, recapitalizations and other similar events); or
(c) such time as less than 25% of the aggregate of all
originally issued shares of Series A Preferred Stock are outstanding (such
number to be proportionately adjusted in the event of any stock splits, stock
dividends, recapitalizations or similar events occurring on or after February 1,
2000).
8.2. The provisions of Sections 3, 4, 5, 6 and 7 hereof shall not
apply to any sale of Shares pursuant to a transaction referred to in Sections
8.1(a) or 8.1(b) above.
9. TRANSFERS OF RIGHTS. Subject to Section 8 hereof, this Agreement, and
the rights and obligations of each Stockholder hereunder, may be assigned by
such Stockholder to any person or entity to which Shares are transferred by such
Stockholder, and such transferee shall be deemed a "Stockholder" for purposes of
this Agreement.
10. GENERAL.
10.1. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
10.2. SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Stockholder shall be entitled to specific performance of the agreements and
obligations of the Company and each other Stockholder hereunder and to such
other injunctive or other equitable relief as may be granted by a court of
competent jurisdiction.
10.3. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
10.4. NOTICES. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) three business days after being sent by certified mail, return
receipt requested, postage prepaid or (ii) one business day after being sent via
a reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient at his or its address as set
forth in the Series A Preferred Stock Purchase Agreement.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may
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<PAGE> 8
change the address to which notices, requests, consents or other communications
hereunder are to be delivered by giving the other parties notice in the manner
set forth in this Section.
10.5. COMPLETE AGREEMENT. This Agreement, the Series A Purchase
Agreement, the Common Stock Purchase Agreement (with respect to Equiva and the
Company), the Investor Rights Agreement and the Stockholders' Voting Agreement,
each of even date herewith, constitute the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings relating to such subject matter.
10.6. AMENDMENTS. No amendment, modification or termination of, or
waiver (other than a waiver as to only the rights of the particular party
granting the waiver) under, any provision of this Agreement shall be valid
unless in writing and signed by Purchasers holding 75% of the voting power of
the Co-Sale Shares then held by all of the Purchasers (assuming the conversion
into Common Stock of all securities convertible thereinto); provided that:
(a) the consent of the Company or BayCorp, as applicable, shall
be required to effect any amendment, modification or termination of, or waiver
under, any provision of this Agreement that adversely affects such party's
rights or obligations set forth in this Agreement (it being agreed that adding
Purchasers pursuant to Section 10.6(b) does not adversely affect such party's
rights or obligations set forth in this Agreement);
(b) any amendment, modification or termination, or waiver under,
this Agreement that grants to subsequent purchasers of the Company's capital
stock, or options to purchase such capital stock or securities convertible into
such capital stock, rights under this Agreement (subject to obligations that are
substantially equivalent to those of the Purchasers under this Agreement) on a
pro rata basis with the Purchasers only shall require the written consent of
Purchasers holding a majority of the voting power of the Co-Sale Shares then
held by all of the Purchasers (assuming the conversion into Common Stock of all
securities convertible thereinto);
(c) any amendment, modification or waiver (other than a waiver
as to only the rights of the particular party granting the waiver) under this
Agreement that is not executed by all Purchasers shall affect all Purchasers in
the same fashion;
(d) subsequent purchasers of the Company's capital stock, or
options to purchase such capital stock or securities convertible into such
capital stock, specified in Section 10.6(b) shall constitute "Purchasers" for
purposes of this Agreement and the securities of the Company owned by such
purchasers shall constitute "Shares" and "Co-Sale Shares" for purposes of this
Agreement; and
(e) any amendment, modification or termination effected in
accordance with this Section 10.6 shall be binding upon all parties hereto.
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10.7. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
10.8. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
10.9. SECTION HEADINGS. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
[The remainder of this page is intentionally left blank]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
[Use common/shared signature block file]
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EXHIBIT A
PURCHASERS
1. Omega Advisors, Inc.
2. Elliott Associates, L.P.
3. Equiva Trading Company
4. Bowstreet.com, Inc.
5. Michael A. Desrochers
6. Barrett McDevitt
7. Peter L. Getman
8. Sapient Corporation
9. Williams Energy Marketing & Trading Company
10. James S. Gordon
A-1
<PAGE> 1
Exhibit 10.34
PURCHASER SIGNATURE PAGE
By his, her or its execution and delivery of this signature page, the
undersigned Purchaser hereby joins in, becomes a party to and agrees to be bound
by the terms and conditions of:
(i) the Series A Convertible Preferred Stock Purchase Agreement dated as
of February 2, 2000, as amended, by and among Houston Street Exchange, Inc., a
Delaware corporation ("Houston Street"), and the Purchasers (as defined therein)
(the "Purchase Agreement"), as to the number of shares of Series A Convertible
Preferred Stock set forth below as a "Purchaser" thereunder;
(ii) the Amended and Restated Stockholders' Voting Agreement dated as of
March 6, 2000 by and among BayCorp Holdings, Ltd., a Delaware corporation
("BayCorp"), and the Purchasers (as defined therein) (the "Voting Agreement") as
a "Purchaser" thereunder;
(iii) the Investor Rights Agreement dated as of February 2, 2000, as
amended, by and among Houston Street, BayCorp and the Purchasers (as defined
therein) (the "Investor Rights Agreement") as a "Purchaser" thereunder; and
(iv) the Right of First Refusal and Co-Sale Agreement dated as of February
2, 2000, by and among Houston Street and the Purchasers (as defined therein)
(the "Right of First Refusal and Co-Sale Agreement") as a "Purchaser"
thereunder.
The undersigned Purchaser hereby acknowledges receipt of the Supplement to
Houston Street's Confidential Private Placement Memorandum dated January 11,
2000. In any and all instances where information provided in the Supplement
varies from or contradicts information contained in the Confidential Private
Placement Memorandum, the information in the Supplement shall prevail. The
undersigned Purchaser also hereby acknowledges that it has received the
Amendment, dated March 6, 2000, to Houston Street's Amended and Restated
Certificate of Incorporation.
The undersigned Purchaser hereby authorizes this signature page to be
attached to the Purchase Agreement, the Voting Agreement, the Investor Rights
Agreement and the Right of First Refusal and Co-Sale Agreement or counterparts
thereof.
Name of Purchaser
Date: March 6, 2000 _________________________________
Number of shares of Series A
Convertible Preferred Stock: Record Address:
_______________ _________________________________
_________________________________
Aggregate purchase price:
____________ Telecopy No.: _______________
<PAGE> 1
Exhibit 10.35
BAYCORP HOLDINGS, LTD.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT OF OPTION. BayCorp Holdings, Ltd., a Delaware
corporation (the "Company"), hereby grants to Frank W. Getman Jr. (the
"Optionee"), an option, pursuant to the Company's 1996 Stock Option Plan (the
"Plan"), to purchase an aggregate of 164,000 shares of Common Stock ("Common
Stock") of the Company at a price of $6.875 per share, purchasable as set forth
in and subject to the terms and conditions of this option and the Plan. Except
where the context otherwise requires, the term "Company" shall include the
parent and all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code").
2. INCENTIVE STOCK OPTION. This option is intended to qualify as
an incentive stock option ("Incentive Stock Option") within the meaning of
Section 422 of the Code.
3. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION.
(a) VESTING SCHEDULE. Except as otherwise provided in this
Agreement, this option may be exercised prior to the seventh anniversary of the
date of grant (hereinafter the "Expiration Date") in installments as to not more
than the number of shares set forth in the table below during the respective
installment periods set forth in the table below.
Number of
Shares as to which
Exercise Period Option is Exercisable
--------------- ---------------------
Prior to July 30, 2000 -0-
On or after July 30, 2000 54,667
but prior to July 30, 2001
On or after July 30, 2001 109,333
but prior to July 30, 2002
On or after July 30, 2002 164,000
<PAGE> 2
The right of exercise shall be cumulative so that if the option is not exercised
to the maximum extent permissible during any exercise period, it shall be
exercisable, in whole or in part, with respect to all shares not so purchased at
any time prior to the Expiration Date or the earlier termination of this option.
This option may not be exercised at any time on or after the Expiration Date and
is subject to shareholder approval of an increase to the number of authorized
options under the Plan as set forth in Section 14 below.
(b) EXERCISE PROCEDURE. Subject to the conditions set forth in
this Agreement, this option shall be exercised by the Optionee's delivery of
written notice of exercise to the Treasurer of the Company, specifying the
number of shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise shall
be effective upon receipt by the Treasurer of the Company of such written notice
together with the required payment. The Optionee may purchase less than the
number of shares covered hereby, provided that no partial exercise of this
option may be for any fractional share or for fewer than ten whole shares.
(c) CONTINUOUS EMPLOYMENT REQUIRED. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Optionee, at the time he or she exercises this option, is, and has been at all
times since the date of grant of this option, an employee of the Company. For
all purposes of this option, (i) "employment" shall be defined in accordance
with the provisions of Section 1.421-7(h) of the Income Tax Regulations or any
successor regulations, and (ii) if this option shall be assumed or a new option
substituted therefor in a transaction to which Section 424(a) of the Code
applies, employment by such assuming or substituting corporation (hereinafter
called the "Successor Corporation") shall be considered for all purposes of this
option to be employment by the Company.
(d) EXERCISE PERIOD UPON TERMINATION OF EMPLOYMENT. If the
Optionee ceases to be employed by the Company for any reason, then, except as
provided in paragraphs (e) and (f) below, the right to exercise this option
shall terminate one year after such cessation (but in no event after the
Expiration Date), PROVIDED THAT this option shall be exercisable only to the
extent that the Optionee was entitled to exercise this option on the date of
such cessation, and PROVIDED, FURTHER, that if such exercise is subsequent to
the period of three months after such cessation, this option shall be treated as
a non-statutory option which does not meet the requirements of Section 422 of
the Code. The Company's obligation to deliver shares upon the exercise of this
option shall be subject to the satisfaction of all applicable federal, state and
local income and employment tax withholding requirements, arising by reason of
this option being treated as a non-statutory option or otherwise.
Notwithstanding the foregoing, if the Optionee, prior to the Expiration Date,
materially violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Optionee and the Company, the right to exercise this
option shall terminate immediately upon written notice to the Optionee from the
Company describing such violation.
(e) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Optionee
dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Expiration Date while he or she is an employee of the Company, or
if the Optionee dies within three months after the Optionee ceases to be an
employee of the Company (other than as the result of a d
<PAGE> 3
discharge for "cause" as specified in paragraph (f) below), this option shall be
exercisable, within the period of one year following the date of death or
disability of the Optionee (but in no event after the Expiration Date), by the
Optionee or by the person to whom this option is transferred by will or the laws
of descent and distribution, PROVIDED THAT this option shall be exercisable only
to the extent that this option was exercisable by the Optionee on the date of
his or her death or disability. Except as otherwise indicated by the context,
the term "Optionee", as used in this option, shall be deemed to include the
estate of the Optionee or any person who acquires the right to exercise this
option by bequest or inheritance or otherwise by reason of the death of the
Optionee.
(f) DISCHARGE FOR CAUSE. If the Optionee, prior to the
Expiration Date, is discharged by the Company for "cause" (as defined below),
the right to exercise this option shall terminate immediately upon such
cessation of employment. "Cause" shall mean willful misconduct in connection
with the Optionee's employment or willful failure to perform his or her
employment responsibilities in the best interests of the Company (including,
without limitation, breach by the Optionee of any provision of any employment,
nondisclosure, non-competition or other similar agreement between the Optionee
and the Company), as determined by the Company, which determination shall be
conclusive. The Optionee shall be considered to have been discharged "for cause"
if the Company determines, within 30 days after the Optionee's resignation, that
discharge for cause was warranted.
4. PAYMENT OF PURCHASE PRICE.
(a) METHOD OF PAYMENT. Payment of the purchase price for
shares purchased upon exercise of this option shall be made (i) by delivery to
the Company of cash or a check to the order of the Company in an amount equal to
the purchase price of such shares, (ii) subject to the consent of the Company,
by delivery to the Company of shares of Common Stock of the Company then owned
by the Optionee having a fair market value equal in amount to the purchase price
of such shares, (iii) by any other means which the Board of Directors determines
are consistent with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934 and Regulation T promulgated by the Federal
Reserve Board), or (iv) by any combination of such methods of payment.
(b) VALUATION OF SHARES OR OTHER NON-CASH CONSIDERATION
TENDERED IN PAYMENT OF PURCHASE PRICE. For the purposes hereof, the fair market
value of any share of the Company's Common Stock or other non-cash consideration
which may be delivered to the Company in exercise of this option shall be
determined in good faith by the Board of Directors of the Company.
(c) DELIVERY OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE.
If the Optionee exercises options by delivery of shares of Common Stock of the
Company, the certificate or certificates representing the shares of Common Stock
of the Company to be delivered shall be duly executed in blank by the Optionee
or shall be accompanied by a stock power duly executed in blank suitable for
purposes of transferring such shares to the Company. Fractional shares of Common
Stock of the Company will not be accepted in payment of the purchase price of
shares acquired upon exercise of this option.
-3-
<PAGE> 4
(d) RESTRICTIONS ON USE OF OPTION STOCK. Notwithstanding the
foregoing, no shares of Common Stock of the Company may be tendered in payment
of the purchase price of shares purchased upon exercise of this option if the
shares to be so tendered were acquired within twelve (12) months before the date
of such tender, through the exercise of an option granted under the Plan or any
other stock option or restricted stock plan of the Company.
5. DELIVERY OF SHARES; COMPLIANCE WITH SECURITIES LAWS, ETC.
(a) GENERAL. The Company shall, upon payment of the option
price for the number of shares purchased and paid for, make prompt delivery of
such shares to the Optionee, PROVIDED THAT if any law or regulation requires the
Company to take any action with respect to such shares before the issuance
thereof, then the date of delivery of such shares shall be extended for the
period necessary to complete such action.
(b) LISTING, QUALIFICATION, ETC. This option shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject hereto
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.
6. NONTRANSFERABILITY OF OPTION. Except as provided in paragraph
(e) of Section 3, this option is personal and no rights granted hereunder may be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of this option or of such rights contrary to
the provisions hereof, or upon the levy of any attachment or similar process
upon this option or such rights, this option and such rights shall, at the
election of the Company, become null and void.
7. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or
this option shall be construed or deemed by any person under any circumstances
to bind the Company to continue the employment of the Optionee for the period
within which this option may be exercised.
8. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as
a shareholder with respect to any shares which may be purchased by exercise of
this option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.
-4-
<PAGE> 5
9. ADJUSTMENT PROVISIONS.
(a) GENERAL. If, through, or as a result of, any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased or decreased or are exchanged for a different number
or kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, the Optionee shall, with respect to this option or any unexercised
portion hereof, be entitled to the rights and benefits, and be subject to the
limitations, set forth in Section 15(a) of the Plan.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under
this Section 9 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued pursuant to this
option on account of any such adjustments.
(c) LIMITS ON ADJUSTMENTS. No adjustment shall be made under
this Section 9 which would, within the meaning of any applicable provision of
the Code, constitute a modification, extension or renewal of this option or a
grant of additional benefits to the Optionee.
10. MERGERS, CONSOLIDATION, DISTRIBUTIONS, LIQUIDATIONS ETC. In
the event of a consolidation or merger or sale of all or substantially all of
the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity, or in the event of a liquidation of the Company, prior to the
Expiration Date or termination of this option, the Optionee shall, with respect
to this option or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 16(a) of the
Plan.
11. WITHHOLDING TAXES. The Company's obligation to deliver shares
upon the exercise of this option shall be subject to the Optionee's satisfaction
of all applicable federal, state and local income and employment tax withholding
requirements.
12. LIMITATIONS ON DISPOSITION OF INCENTIVE STOCK OPTION SHARES.
It is understood and intended that this option shall qualify as an "incentive
stock option" as defined in Section 422 of the Code. Accordingly, the Optionee
understands that in order to obtain the benefits of an incentive stock option
under Section 421 of the Code, no sale or other disposition may be made of any
shares acquired upon exercise of the option within one year after the day of the
transfer of such shares to him, nor within two years after the grant of the
option. If the Optionee intends to dispose, or does dispose (whether by sale,
exchange, gift, transfer or otherwise), of any such shares within said periods,
he or she will notify the Company in writing within ten days after such
disposition.
13. INVESTMENT REPRESENTATIONS; LEGENDS.
(a) REPRESENTATIONS. The Optionee represents, warrants and
covenants that:
-5-
<PAGE> 6
(i) Any shares purchased upon exercise of this option shall be
acquired for the Optionee's account for investment only and not with a
view to, or for sale in connection with, any distribution of the shares
in violation of the Securities Act of 1933 (the "Securities Act") or
any rule or regulation under the Securities Act.
(ii) The Optionee has had such opportunity as he or she has
deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the
merits and risks of his or her investment in the Company.
(iii) The Optionee is able to bear the economic risk of
holding shares acquired pursuant to the exercise of this option for an
indefinite period.
(iv) The Optionee understands that (A) the shares acquired
pursuant to the exercise of this option will not be registered under
the Securities Act and are "restricted securities" within the meaning
of Rule 144 under the Securities Act; (B) such shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration
is then available; (C) in any event, an exemption from registration
under Rule 144 or otherwise under the Securities Act may not be
available for at least two years and even then will not be available
unless a public market then exists for the Common Stock, adequate
information concerning the Company is then available to the public and
other terms and conditions of Rule 144 are complied with; and (D) there
is now no registration statement on file with the Securities and
Exchange Commission with respect to any stock of the Company and the
Company has no obligation or current intention to register any shares
acquired pursuant to the exercise of this option under the Securities
Act.
(v) The Optionee agrees that, if the Company offers for the
first time any of its Common Stock for sale pursuant to a registration
statement under the Securities Act, the Optionee will not, without the
prior written consent of the Company, publicly offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, any shares
purchased upon exercise of this option for a period of 90 days after
the effective date of such registration statement.
By making payment upon exercise of this option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 13.
(b) LEGENDS ON STOCK CERTIFICATES. All stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of this
option shall have affixed thereto legends substantially in the following forms,
in addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 and may not
be transferred, sold or otherwise disposed of in the absence
of an effective registration statement with respect to the
shares
-6-
<PAGE> 7
evidenced by this certificate, filed and made effective under
the Securities Act of 1933, or an opinion of counsel
satisfactory to the Company to the effect that registration
under such Act is not required."
"The shares of stock represented by this certificate are
subject to certain restrictions on transfer contained in an
Option Agreement, a copy of which will be furnished upon
request by the issuer."
14. SHAREHOLDER APPROVAL.
(a) The Company and the Optionee acknowledge that as of the
date hereof, (i) the Company is authorized to grant options to purchase up to
600,000 shares of the Company's Common Stock under the Plan and (ii)
insufficient options remain authorized but unissued under the Plan to
accommodate the Company's grant of this option to the Optionee under Section 1
of this Agreement. Accordingly, notwithstanding anything herein to the contrary,
this option may not be exercised, in whole or in part, at any time before the
shareholders of the Company approve an increase in the number of authorized
shares under the Plan from 600,000 shares to at least 764,000 shares, and after
such approval, only in accordance with the Plan and the other terms of this
Agreement, including without limitation Section 3 (vesting and termination).
(b) If the shareholders of the Company fail to approve an
increase in the number of authorized shares under the Plan from 600,000 shares
to at least 764,000 shares at or before the next annual meeting of the
shareholders, including any adjournment thereof, and in any event before June
30, 2000 (the "Outside Date"), the Company shall pay to Mr. Getman on the
Outside Date an amount equal to the fair market value of the Getman Options
computed using Black-Scholes modeling with parameters to be fixed as of the date
hereof and determined in good faith by the Board on or before the Outside Date.
Upon such payment to Mr. Getman and Mr. Getman's acknowledgment to the Company
in writing that he agrees with the computation of the cash payment contemplated
by this Section 14(b), this Agreement, including the grant of this option, shall
be null and void and without further effect.
15. MISCELLANEOUS
(a) Except as provided herein, this option may not be amended
or otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.
(b) All notices under this option shall be mailed or delivered
by hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.
-7-
<PAGE> 8
(c) This option shall be governed by and construed in
accordance with the laws of the State of Delaware.
Date of Grant: BAYCORP HOLDINGS, LTD.
July 30, 1999
By: /s/ Lawrence Robbins
Lawrence Robbins,
Chairperson,
Compensation Committee
-8-
<PAGE> 1
EXHIBIT 21.1 -- LIST OF SUBSIDIARIES OF THE REGISTRANT
At December 31, 1999, the Registrant owned all of the issued and outstanding
capital stock of (1) Great Bay Power Corporation, a New Hampshire corporation,
(2) Little Bay Power Corporation, a New Hampshire corporation, and (3)
HoustonStreet Exchange, Inc., a Delaware corporation. As of March 27, 2000, the
Registrant owned approximately 53% of the issued and outstanding capital stock
of HoustonStreet Exchange, Inc. (giving effect to the conversion into
HoustonStreet Common Stock of all issued and outstanding shares of HoustonStreet
Preferred Stock convertible into HoustonStreet Common Stock).
Great Bay Power Corporation conducts business only under the business name of
Great Bay Power Corporation. Little Bay Power Corporation conducts business only
under the business name of Little Bay Power Corporation. HoustonStreet Exchange,
Inc. conducts business only under the names HoustonStreet Exchange, Inc.,
HoustonStreet and HoustonStreet.com.
<PAGE> 1
EXHIBIT 23.1 -- CONSENT OF ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated February 4, 2000 (except for the matters discussed in Note 13, as
to which the date is March 27, 2000) in this Form 10-K and to the incorporation
by reference of such report in the company's previously filed Registration
Statement on Form S-3 (File No. 333-24281) and Registration Statement on Form
S-8 (File No. 333-24269.)
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BAYCORP HOLDINGS, LTD. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,683
<SECURITIES> 381
<RECEIVABLES> 4,564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,401
<PP&E> 116,295
<DEPRECIATION> 16,331
<TOTAL-ASSETS> 159,184
<CURRENT-LIABILITIES> 6,723
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 66,162
<TOTAL-LIABILITY-AND-EQUITY> 159,184
<SALES> 45,761
<TOTAL-REVENUES> 45,761
<CGS> 48,520
<TOTAL-COSTS> 48,520
<OTHER-EXPENSES> 2,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,899)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 159
<NET-INCOME> (4,740)
<EPS-BASIC> (.58)
<EPS-DILUTED> (.58)
</TABLE>
